The Treasury Department gave us an exemption under section 101– 112. We received the exemption in 1929. We were held exempt as of the end of our 1926 fiscal year.

We had in the meantime paid an income tax in 1927 and 1928. Those 2 years taxes were refunded to us. Therefore, we have not paid any Federal income taxes since 1926.

I want to point out particularly that on three occasions since then, the United States Treasury Department has reviewed our tax-exempt status and on each occasion it has reaffirmed it.

The last occasion was in 1946. You gentlemen probably recall the report that preceded yours-I think in 1947. You will recall that report stated that if tax-exempt corporations were indulging in activities outside of the statutes that was not a matter of bad legislation but bad administration on the part of the Treasury Department.

The Treasury Department, as a result, investigated various cooperatives, including ours.. They made an exhaustive investigation in 1946 and we received reaffirmation in our tax-exempt status.

I would like to state that our policy, of course, is to follow the statute in every particular. We have no criticism or comment to make with respect to the present tax exemption. We recognize that Congress may feel that that exemption should be changed; it is not fair; that perhaps certain withholdings should be taxed.

I assure you we are not here to oppose any such legislation. We are here at your invitation to give you the facts you have asked for. I think I have covered the situation thoroughly.

I understood from Mr. Ploeser yesterday that it is not only the taxexemption angle you are interested in, but that you are interested in the small-business aspects of the problem generally.

Chairman PLOESER. The tax-exemption angle is only a feature of the thing. It is not our main interest. Taxing and revenue are matters of interest to the Ways and Means Committee.

Mr. TYLER. By the way, so there will be no misunderstanding, I spoke of 32 plantations. That number has decreased so that it is 25 today. There have been a number of neighboring plantations which have merged, and some smaller plantations have dropped by the wayside.

Chairman PLOESER. Are these plantations corporations?

Mr. TYLER. That is the point I am coming to.

It has been pointed out in these publicity spreads that these stockholders of ours or members of our association are corporations. That is very true, and, if I may, I would like to take a couple of minutes more to explain the reason for that.

In Hawaii, the five small islands, there are only 225,000 acres which can produce sugar. That is the physical limit of the growth of sugar in Hawaii.

Those 225,000 acres go up as high as an elevation of 4,000 feet on some islands. Beyond that altitude it is impossible to grow sugarcane. Hawaii is not a natural sugar-growing country such as is Cuba. Its crops must be planted regularly, whereas Cuban cane grows like weeds from year to year.

Those 225,000 acres are the total and only half of them are harvested each year. Cane sugar is a biannual crop. It takes from 18 to 20 months for a crop of cane sugar to mature.

So each year in the Hawaiian Islands there are only 112,000 acres harvested. Yet on that acreage, Hawaii produces approximately a million tons of sugar a year, or enough sugar to feed 12 percent of the population of the entire United States.

Let me say further that 49 percent of that acreage is owned by these corporations. The other 51 percent of the acreage is owned variously.

It happens to be an accident that it figures out that way. Those percentages sound like a corporate merger set-up, but it just happens to be 49 in one case and the other 51 percent, as I say, is owned variously over the Islands.

In addition to those 25 corporations, there are 1,600 individual planters of sugar.

I said a million tons, and 112,000 acres. It does not take much to estimate what that tonnage is per acre. Hawaii grows more sugar per acre than any sugar-raising country in the world.. They literally made five stalks of cane grow where one grew before.

That was brought about by a tremendous expenditure of capital. There is water, for instance. The cost of getting water for these 225,000 acres runs into monumental figures.

I know of one plantation that uses more water alone to irrigate its cane than does the whole city and county of San Francisco.

That water is tunneled. They go down into deep wells, subterranean streams, to get this water.

There is one plantation which has a tunnel right through a mountain on the island of Oahu which brings water from the rainy side of the island over to the nonrainy side of the island.

Each of those plantations has a factory on it. That costs a lot of money. I do not believe today you could build a factory for less than 21 to 3 million dollars.

So the development of this limited acreage of planting in Hawaii has required these large concentrations of capital which individual farmers could not produce; therefore the corporate form was necessary.

I may say that the stock of the plantations which own our company is in the hands of 15,000 stockholders, 10,000 of whom live in Hawaii; therefore, in effect, 1 person out of 35 in the Territory of Hawaii owns some interest in the sugar industry.

Those plantations pay to the Territorial Government of Hawaii and to the United States Government approximately $23 per acre taxes per crop year.

The Hawaiian sugar industry gives all-year employment to 35,000 workers. I do not know of any agricultural industry in the world which has all-year annual employment. There is not the seasonal employment; none of that that we have in California in our agricultural pursuits.

We pay the highest wages of any sugar area in the world and we have this all-year employment, as I stated. Therefore the accomplishments of these corporations on this small acreage have been of benefit to all of the people of Hawaii because the economy of the islands is based upon sugar and pineapples. It has been a prosperous economy. The Hawaiian Sugar Planters Association, which does all of the research work, soil research, irrigation research, bacteriological research, and so forth, including the selection of cane varieties, was

established in 1882, 16 years before Hawaii became annexed to the United States.

The Hawaiian Sugar Planters Association is known all over the world today as one of the leading agricultural associations in the world.

If I may, I would like to quote one thing. Secretary of Agriculture Anderson was in Hawaii a couple of weeks ago and said:

I come from an irrigated country-New Mexico-and so am tremendously impressed by the way the Hawaiian cane industry has realized and taken advantage of the possibilities of irrigation.

I am also impressed by the way your cane growers here have developed new and improved varieties and thus kept abreast of the necessity for greater production per acre and per worker.

Your accomplishment in growing enough sugar in only 325 square miles to feed 10,000,000 people is an outstanding illustration of the ingenuity of American agriculture.

I want to point out also that sugar from Hawaii competes with mainland beet, with the Louisiana cane, with cane sugar from Puerto Rico, from Cuba, and from foreign countries.

I think, sir, that that is the extent of my statement.

You asked in your letter of invitation, Mr. Ballinger, to bring a statement of all taxes paid by our corporation during certain years. I have such statement, and I have the other things you have asked me for.

Mr. BALLINGER. Are Mr. Schink and Mr. Haynes here?

Mr. TYLER. They are here.

Mr. BALLINGER. Mr. Schink, you are treasurer of the C. & H. Corp.?
Mr. SCHINK. Yes.

Mr. BALLINGER. Mr. Haynes, you are the consulting lawyer?
Mr. HAYNES. Yes.

Mr. BALLINGER. Mr. Chairman, all three of these gentleman have information about the C. & H. Corp. It would facilitate matters if you would swear these two witnesses and then let all of them sit down here and I can ask the questions and they can answer them.

TESTIMONY OF EVAN HAYNES, TREASURER, AND CLIFFORD E. SCHINK, CONSULTING LAWYER, CALIFORNIA & HAWAIIAN SUGAR REFINING CORP., LTD.; AND WILLIAM B. TYLERContinued

(Whereupon Messrs. Haynes and Schink were duly sworn.)

Chairman PLOESER. I hope that this will prove to be a worth-while experiment, and I trust you gentlemen will speak one at a time because Mr. Milberg, while he is an expert at catching a lot of conversation, is not infallible, so let us not overdo his ability.

Mr. BALLINGER. Mr. Tyler is going to cover the general structure of the C. & H.; Mr. Schink is going to talk on the fiscal end of it, and Mr. Haynes has other pertinent information.

I will start out with the structure and history of the C. & H. Corp. Mr. Tyler, the company today is the result of a reorganization of a predecessor company?

Mr. TYLER. That is correct.

Mr. BALLINGER. What was the name of the predecessor company? Mr. TYLER. The California & Hawaiian Sugar Co.

Mr. BALLINGER. When was the predecessor company reorganized? Mr. TYLER. In 1921.

Mr. BALLINGER. In 1921?

Mr. TYLER. In the spring.

Mr. BALLINGER. The present name of the corporation is what?

Mr. TYLER. The California & Hawaiian Sugar Refining Corp., Ltd. Mr. BALLINGER. When this company was reorganized as the present company it paid a Federal income tax or did pay it for a number of years?

Mr. TYLER. We paid a Federal income tax from the time we werefrom the time the present company was organized in 1921, we paid a Federal income tax through 1928, taking out 1928 and 1927 which was refunded to us.

Mr. BALLINGER. When your company was reorganized, how much common stock was issued?

Mr. TYLER. 100,000 shares of the par value of $100 each, or $10,000,000.

Mr. BALLINGER. Was any of the common stock issued for any of the assets of the old company or did that bring in $10,000,000 to the corporate treasury?

Mr. TYLER. It brought in $10,000,000 into the corporate treasury in cash.

Mr. BALLINGER. None of it was exchange for the old assets?

Mr. TYLER. No.

Mr. BALLINGER. That was done by the preferred stock?

Mr. TYLER. Yes, sir.

Mr. BALLINGER. The preferred stock was given for the old assets? Mr. TYLER. Yes, sir.

Mr. BALLINGER. Does this stock control the C. & H. Corp., its ownership?

Mr. TYLER. The sole ownership of the C. & H. Corp.

Mr. BALLINGER. Who controls the 100,000 shares-let me put it this way. Whoever controls the 100,000 shares can elect the board of the C. & H. Corp.?

Mr. TYLER. Yes.

Mr. BALLINGER. And the directors in turn can appoint the management.

Mr. TYLER. Yes, sir.

Mr. BALLINGER. Who owns this stock?

Mr. TYLER. Well, Mr. Ballinger, I have a list. I have another one here if you wish it.

Mr. BALLINGER. Yes.

I wish you would put it in the record.

Mr. TYLER. I have here a list of the stockholders of our corporation. Their names are mostly Hawaiian names. They are difficult of pronunciation.

Chairman PLOESER. Can you not put it in the record?

Mr. BALLINGER. You can put it in the record. There are 25?
Mr. TYLER. Yes, sir.

Mr. BALLINGER. Twenty-five corporations owning the 100,000 shares of common stock of the C. & H. Corp.?

Mr. TYLER. That is correct.

Mr. BALLINGER. Just give that list to Mr. Milberg and he will put it in the record.

(The list referred to follows:)

Hawaiian Commercial & Sugar Co., Ltd.

Maui Agricultural Co., Ltd.

McBryde Sugar Co., Ltd.

Kahuku Plantation Co.
Pioneer Mill Co., Ltd.

Oahu Sugar Co., Ltd.

The Lihue Plantation Co., Ltd.

Kekaha Sugar Co., Ltd.

Grove Farm Co., Ltd.

The Koloa Sugar Co.

Waimea Sugar Mill Co., Ltd.

Olaa Sugar Co., Ltd.
Waianae Co.

Waialua Agricultural Co., Ltd.

Ewa Plantation Co.

Kohala Sugar Co.

Onomea Sugar Co.

Wailuku Sugar Co.

Hawaiian Agriculture Co.

Pepeekeo Sugar Co.

Waiakea Mill Co.

Hamakua Mill Co.

Laupahoehoe Sugar Co.

Kaiwiki Sugar Co., Ltd.

Honokaa Sugar Co.

Highest percentage owned by any one plantation-11.77 percent.
Lowest percentage owned by any one plantation-.455 percent.
SEPTEMBER 16, 1947.

Mr. BALLINGER. Those 25 owner corporations of C. & H. do own this stock, but who votes it actually?

Mr. TYLER. The stock is held by six trustees. It is voted by the trustees.

Mr. BALLINGER. How long is this trusteeship to last? How long do these trustees function in this way of voting the stock of the C. & H. Corp.?

Mr. TYLER. I really cannot tell you. I do not know by memory. Mr. BALLINGER. Is it not 21 years?

Mr. TYLER. I cannot tell you.

Mr. BALLINGER. When was this arrangement made for setting up this trusteeship for the common stock of the C. & H. Corp.?

Mr. TYLER. At the time of its formation in 1921.

Mr. BALLINGER. You do not know, as one of the principal officers of this company, that this trusteeship is for 21 years?

Mr. TYLER. The reason, Mr. Ballinger, I am a little confused on it-maybe Mr. Schink will have a better memory-there were one or two amendments to that agreement in Hawaii. It is not an agreement in which the C. & H. has any part. It is an agreement between the trustees and the plantations.

I am not authorized to testify on it. My impression is it was 21 years.

Mr. SCHINK. That is correct.

Mr. TYLER. That has been extended because there was an amendment in 19

Mr. BALLINGER. There is a report in existence dated April 28, 1930, put out by the chief of the technical staff of the Joint Committee on Internal Revenue Taxation, which states specifically there was a trustee set-up and the trustees were to function for 21 years.