by others, including the Select Committee on Small Business of the Senate in its report of June 30, 1959.

Rather, I should like to concentrate on the particular burden that State taxation of this nature would place on book publishing and the damage which would consequently be done to the educational, scientific, and cultural life of this country.

The three bills being considered today by this committee, Senate Joint Resolution 113, S. 2213, and S. 2281, are all designed to assert the power of the Congress over interstate commerce by prohibiting the State taxation of income derived from interstate commérce unless the business firm has a stock of goods, an office, a warehouse, or other physical facility in the States imposing such a tax. Federal legislation of this nature is being proposed because it is feared that the States will be encouraged to enter this field of taxation by the Supreme Court decision of February 24, 1959, in the Northwestern States Portland Cement Co. case.

It has been pointed out that, by and large, the States have hitherto collected business or corporate income taxes from large corporations which had branch offices or other physical facilities in these States, but such taxes have not been imposed on smaller firms which had no such facilities but merely sold goods either through salesman or by direct mail.

If the States were to extend their laws to tax the income of all corporations selling goods in interstate commerce, an enormous burden would be placed upon small firms doing business in a regional or national market. The cost of the paperwork involved in filing 40 or 50 State corporate income taxes would make it impossible for some small business firms to stay in business at all, and would probably force others to stop doing business in States where the volume was small.

Let us see how the further extension of State taxation in this field would affect the publishing and distribution of books in the United States. First of all, book publishing firms are small businesses. Of the 154 members of the American Book Publishers Council, probably only about 10 percent have sales of over $10 million a year and the great bulk of our member firms have sales of less than $5 million a year.

Yet all these companies must attempt to sell their books in every State in the Union. They cannot restrict their sales to a single State or a small group of States as some types of small businesses are able to do. Only a very few book publishers have any branch offices or resident agents scattered around the country. They do their selling through traveling salesmen who call on book stores, educational institutions, and libraries in the various States, and they also sell directly by mail to these several types of customers as well as to individual consumers as in the case of book-club operations.

Therefore, at present, book publishing firms are not, with very few exceptions, now subject to State corporate income taxes except, of course, in the States in which they have their principal offices.

If the States proceed further to tax income from interstate commerce, these small publishing firms would be required to file reports and to pay these State taxes. The preparation of the reports would

frequently be much more burdensome than the actual amount of tax assessed.

For example, in some States, especially in the South and West, a small book publisher may frequently have less than $100 of annual sales and a net profit after taxes on such sales of $2 or $3 or less. The filing of State corporate income tax reports in such cases would cost as much in staff time as the gross amount of sales in such States.

Faced with such a situation, publishers might even be forced to consider refusing to sell books to book stores, libraries, and other institutions in these States because the cost of doing business would be many times the revenue obtainable from doing so.

Other small publishers might find this added burden so severe as to require them to discontinue their operations entirely. Those which did stay in business would be forced to pass on increased costs to their customers in the form of higher prices, since low profit margins would not be sufficient to absorb additional expenses of this magnitude.

The ultimate effect would be detrimental to education, scientific development, and cultural activity in the States imposing such business taxes, and to the country as a whole, to a degree far outweighing the genefits derived from the negligible amount of additional revenue which would accrue to the States from such taxation.

We strongly urge favorable action by this committee on one of the bills before you, drawing a line beyond which State taxation of interstate commerce shall not be permitted to go. All of the three bills under consideration propose drawing a similar line based upon the present practice of most of the States-permitting no taxation of business income unless the business firms to be taxed have physical facilities or resident agents in the States in question. Beyond this, Senate Joint Resolution 113 also proposes the establishment of a Commission on State Taxation of Interstate Commerce to study this whole question further and to formulate an equitable solution to problems experienced by small businesses subject to a multiplicity of State income taxes, while at the same time giving due weight to the revenue requirements of the States. We would favor such a further study, but only after action is first taken to prevent the problem from getting worse while the study is being made.

After listening to the discussion in these hearings this morning, I feel that I should say a few further words on the matter of definitions in the several bills. The question has been raised as to whether the phrase "other place of business in the State," which occurs in all three bills, should not be dropped because it might permit State taxation of business income which should not be taxed by the States. I believe that this phrase should be dropped because it might conceivably subject a book publisher to State taxation if his salesman or agent had his home in one of the States in which that salesman or agent solicited orders, interpreting a residence as coming within the phrase "other place of business." The same question of interpretation might conceivably also arise in connection with a temporary exhibition of samples in a hotel or elsewhere.

Also, in S. 2281, I believe that an independent contractor should not be defined as one who solicits orders for more than one seller. Selling through an independent contractor should not subject a firm to State taxation, regardless of whether the independent contractor solicits orders for only one single firm.

The CHAIRMAN. Thank you very much.

Our next witness is Mr. Sewall Strout, of the New England Council for Economic Development.

STATEMENT OF SEWELL STROUT, VICE CHAIRMAN, TAX AND FISCAL POLICIES COMMITTEE, NEW ENGLAND COUNCIL FOR ECONOMIC DEVELOPMENT

Mr. STROUT. My name is Sewall Strout, and I am representing the New England Council for Economic Development, of which I am vice chairman of the tax and fiscal policies committee.

I am also an officer of the Canal National Bank in Portland, Maine. The New England council is an organization supported by business, industry, and commerce in the six-State area. We have approximately 3,100 members, representing all segments of our economy. The statements and positions taken by this organization, therefore, truly represent the composite thinking of the region rather than just separate industrial or business groups.

I would like to confine my remarks for the next few minutes to the problems inherent in the recent decisions by the U.S. Supreme Court, involving the corporation income tax laws of Georgia and Minnesota. It is the considered opinion of this organization that these decisions have opened up a Pandora's box so far as State income tax laws pertaining to interstate commerce are concerned. This is something which will have a far-reaching and costly impact upon the economy of not only our New England region, but the Nation as a whole.

I think that Justice Frankfurter in his dissenting opinion states very well the situation now facing us. He said:

My objection is the policy that underlies the commerce clause, namely, whatever disadvantages may accrue to the separate States from making of the United States a free-trade territory are far outweighed by the advantages not only to the United States as a nation, but to the component States. I am assuming, of course, that today's decision will stimulate, if indeed it does not compel, every State of the Union, which has not already done so, to devise a formula of apportionment to tax the income of enterprises carrying on exclusively interstate commerce. As a result, interstate commerce will be burdened not hypothetically but practically, and we have been admonished again and again that taxation is a practical matter.

I think that interstate commerce will be not merely argumentatively but actively burdened for two reasons:

It will not, I believe, be gainsaid that there are thousands of relatively smallor moderate-size corporations doing exclusively interstate business spread over several States. To subject these corporations to a separate income tax in each of these States means that they will have to keep books, make returns, store records, and engage legal counsel, all to meet the divers and variegated tax laws of 49 States, with their different times for filing returns, different tax structures, different modes for determining "net income," and, different, often conflicting, formulas of apportionment. This will involve large increases in bookkeeping, accounting, and legal paraphernalia to meet these new demands. The cost of such a farflung scheme for complying with the taxing requirements of the different States may well exceed the burden of the taxes themselves, especially in the case of small companies doing a small volume of business in several States. Ninety-two percent of the business in New England and 90 percent of the business in the United States is in the small business category, I am informed. Many of the States have already indicated their intention to take advantage of the Minnesota-Georgia decision. The impact of existing as well as future State laws imposing an in

come tax on interstate commerce transactions will be exceptionally -severe on our smaller companies.

In New England, for example, where our States are relatively small, even a very small business soon finds itself engaged in business crossing many States lines. Markets today do not follow the arbitrary geographic boundaries of political entities. The whole northeast section of this country from Maine to Delaware is rapidly becoming a single strip city, an integrated market area oblivious to State boundaries, and this is also true of other sections of the country.

In many instances the profit margins of our smaller companies are already shrinking, and one of their most important assets in competing with their larger cousins is their flexibility. If they are forced to add costly overhead, their competitive advantage has once again been minimized and many of them may be forced out of interstate business, if not out of business entirely.

We have already had indications from our membership that this will happen. This obviously would have a very depressing effect on our national economy.

The Supreme Court has acted, and the die is cast. The precedent for our 50 States to enact legislation levying income taxes on nonresident corporations doing business within their borders has been set. The only solution here is for the legislative branch of our Government to remedy this serious situation.

In this connection, I think that there are certain angles that require careful consideration. Under several of the proposed bills to correct this situation, it is provided that States and political subdivisions thereof shall not be permitted to impose an income tax on income derived from a trade or business by a person engaged in interstate commerce unless such person is carrying on such trade or business in such State. They then state that a person is not carrying on a trade or business in the State solely by reason of one or more sales of angible personal property in the State if such person does not have or maintain an office, warehouse, or other place of business in the State, and does not have an officer, agent, or a representative in the State who has an office or other place of business in the State.

These bills further provide that the terms "agent" and "representative" do not include an independent broker or contractor who is engaged independently in soliciting orders in the State for more than one seller and who holds himself out as such.

This is certainly a step in the right direction, but I merely wish to suggest that further consideration be given to the following situations:

1. What about companies selling services and not tangible personal property?

2. What about a situation where a company may have a sales representative residing in a State which imposes such an income tax? If the representative acts for two or more concerns as an independent contractor, the tax could not be imposed; but if he acts for only one concern and it should be held that his residence was the equivalent of an office, as is likely, then the concern which he represents would be subject to the tax.

3. Should the maintenance of an office solely for the purpose of sales solicitation where no plant or warehouse is located in the State be sufficient to justify the imposition of the tax?

I do not know the best answers to these questions. I only know that it is of vital importance, particularly to small business, that every effort be made to control the taxing power of the States as it affects interstate commerce so that our economy will not be seriously injured.

I thank you, both for myself and the 3,100 interested members of our organization, for your interest in listening to our views today. All of us are deeply interested in the survival of small business in this country, and here is an opportunity to provide for and safeguard its needs.

I believe Congress should act with respect to State taxation of interstate commerce, and not rely on the States to pass uniform laws. I also believe that there was general agreement that if a person, a corporation, maintains a manufacturing or assembling plant, warehouse, or stock of goods for sale, he or it should be subject to the State's income tax.

The serious difficulties seem to me to arise when the maintenance of an office or other place of business-and let me emphasize those words-also subjects the person or firm to such income tax.

For example, under the Saltonstall bill, a representative or agent is defined. Under that bill there would be a serious question if a concern had a salesman resident in a State who had no office there outside his home, which would probably be held to an office if he used it for telephone calls or mail purposes; whereas when he operates among the adjoining States there would be no imposition of tax in those States.

Also, it seems to me that providing that a manufacturers' agent, socalled, who represents two or more concerns shall not incur a tax for his firms, is rather farfetched in comparison with the proposition of the same man representing a single concern.

In other words, from the hearing today the gist of this matter seems to be the difficulty under all the bills of determining just what "office" or "other place of business" means, and I would suggest at this time that perhaps the solution would be to eliminate both of those tests, or defining them more closely by stating that an office should not include an office maintained merely for the solicitation of orders.

Thank you very much.

I would like the opportunity of submitting, on behalf of the New England Council, some suggested amendments to the pending bills. (The suggested amendment subsequently submitted by Mr. Strout follows :)

SUGGESTED AMENDMENT TO S. 2213

Of the three bills discussed at the hearing on Tuesday, July 21, 1959, before the Senate Committee on Finance, Senate Joint Resolution 113, S. 2213, and S. 2281, I prefer the S. 2213, which I will refer to as the Bush bill, seems to me the best provided certain amendments are made to it. The principal reason why I do not favor S. 2281, the Saltonstall bill, is that it does not include service businesses in those that would not be subject to State's income tax. Senate Joint Resolution 113 and the Bush bill do take care of this situation. I would suggest an amendment to the Bush bill, striking out the words "office" in line 9 and the words "or other place of business within the State" in line 10. To make the sentence read properly, I would suggest inserting the word "or" before the word "warehouse" in line 9.