Your Cooperative has adopted two new programs which we think will be
of great interest to you. Effective June 28, 1960, and extending to January 1,
1961, your Cooperative will allow (you $25 worth of electricity if you install
for the first time on your premises any of these appliances: an electric
range, an electric hot water heater, or an electric clothes dryer. This would
mean that if you purchased and installed after June 28, 1960, all three of
these electric appliances and placed them into servise under your name for.
first time, then this Cooperative would allow you $23 for each of these
appliances for a total of $75 worth of electricity. We urge you to take
advantage of this wonderful opportunity now as this program will end
January 1, 1961.

We also have a new security light program whereby your Cooperative will
install one 175 watt Mercury Vapor Security Light on an existing pole on
your premises for the sum of $3.50 a month. This light would not go through
your meter and this charge would take care of the electricity, installation,
maintenance, and replacement of bulbs. Should additional facilities be nec-
essary, such as an extra pole to be set for your convenience, you would be
required to pay only the material cost of these extra facilities and the
Cooperative would furnish the labor for the installation. Here again is an
opportunity to provide yourself with an all night security light on your
premises which is controlled by a photoelectric cell, which permits the
to turn itself on automatically when it becomes dark and turn itself off
automatically at dawn.

If you would like additional information on either of these two new proj
offered by your Cooperative, please contact the Cooperative's office nea
you, and remember if you install for the first time an electric range, wa
heater, and dryer on your premises be sure to notify your Cooperative at

Sincerely yours,

OZARK BORDER ELECTRIC COOPERATIVE

L. L. Luna, Manager

LLL:mbm

NOTICE

ALL CO-OP MEMBERS
WHO ARE NEW USERS OF THE
FOLLOWING ELECTRIC ITEMS
ARE ENTITLED TO.....

FREE ELECTRICITY

Mr. HOLDEN. Mr. Chairman and gentlemen of the committee, my name is Edgar H. Holden. I am president and one of three brothers who own the Propane Gas Co., Davenport, Iowa. My company operates in Scott County, Iowa, an average size county of about 30 miles square, and in this respect we are similar to hundreds of other liquefied petroleum gas dealers throughout the United States.

My past experience includes management of retail farmers' cooperative back in the days when income tax expense of corporations or individuals was far less than it is today. The principles and theories of these earlier days concerning co-ops, no longer apply. Today they are big business and should share the same tax burdens as other corporations. Liquefied petroleum gas is a fuel commonly known as propane, butane or bottled gas. It is used in the household, on the farm for a variety of agricultural purposes and in some commercial and industrial applications. It is used for cooking, water heating, space heating, refrigeration, as a motor fuel and in numerous other applications as a fuel for heat or power.

I am appearing on behalf of the proprietary members of the Liquefied Petroleum Gas Association. The Liquefied Petroleum Gas Association is the industry's national association and also has 34 affiliated State associations. There are approximately 2,200 privately owned member companies.

The association has co-op members and this statement does not reflect their opinion but the opinion of privately owned companies. These proprietary companies range from multistate operators to a small bottled gas dealer. The statements I am presenting would also represent the opinion of hundreds of other small nonmember proprietary LP-Gas dealers.

President Kennedy in speaking of the cooperative tax loophole in his tax message said:

This situation must be corrected in a manner that is fair and just to both the cooperatives and competing business.

This is exactly what we have been asking for a number of years. A decade ago, in 1951, Congress sought to in some degree tax the cooperative but the effort failed. Meanwhile, the problem has become increasingly acute and an immediate and complete remedy is

necessary.

We support the President in the principle enunciated in this message, but we do not consider that the proposals of the Treasury Department carry this principle out. It is a lukewarm attempt to correct an inequitable tax situation. Taxation of a share of the cooperatives' earnings at the customer level and for practical purposes, excusing these profitmaking businesses from tax at the business level is not tax equality.

The LP-Gas Cooperative is a form of business enterprise that is now favored in tax handling. The corrective measure proposed does not eliminate this inequality nor does it correct or stop the tax erosion that is being created through the explosive expansion of the LP-Gas Cooperative. And to trace this inequity, further, neither does it cor

rect the secondary discrimination presented to the customer of competing taxpaying business.

The present tax law provides that patronage refunds be taxed by the individuals who receive them. This law has been ineffective and the Treasury Department's proposal would be equally ineffective. Cash distribution of patronage refunds have often been forgotten by the time the individual makes out his income tax.

Patronage refunds made in scrip or other deferred means, have and will be equally forgotten. Withholding may correct this to some degree, but it does not solve other problems. The present tax law also provides that nonoperating income of cooperative corporations are to be taxed at the regular corporate levels. Many local cooperatives belong to larger regional marketing, producing and manufacturing cooperatives. These local co-ops receive patronage refunds from the regional cooperatives which I would classify nonoperating income of the co-op. I am informed that while this may be the provision of the law, these patronage refunds are not being treated as taxable nonoperating income in many cases.

I am opposed to any provision which permits huge amounts of deferred patronage refunds to accumulate without the co-op or its patrons paying any tax whatsoever. Certainly this is unreasonable and unfair to the taxpaying individuals and corporations who are paying their taxes first and trying to invest enough of what they have left to finance growth and expansion of their business.

One of the most questionable practices which cooperatives engage in is directly traceable to their improper treatment of patronage refunds. The cooperative patronage refunds are the amounts left over from the transaction with their patrons after the expenses of operation are deducted. This would seem to indicate that the actual and pro rata expense of handling each commodity should be charged to that commodity in order to qualify its patronage refund for tax-free

status.

My observation indicates that it is a practice of cooperatives to pay so-called patronage refunds on some commodities from which there has been no excess after expenses. This is particularly true of many lines of merchandise the co-op is anxious to promote with their patrons, and it is particularly true of new lines that are established by the cooperative when they want to go into a new line of business. In my opinion, this is highly improper practice.

I do not desire to presume upon the committee's time and repeat what has already been said either by the many other witnesses on the subject of taxation of cooperatives or by LP-gas industry witnesses who have previously appeared before this committee.

However, let me briefly remind the committee that there are some 120 pages of testimony in volume 3 of the tax revision compendium of the panel discussions conducted by this committee, beginning in November of 1959.

Again there was voluminous testimony in 1960, including the testimony by LP-gas industry members, pointing out in considerable detail the tax erosion that is now going on. The LP-gas industry witness testifying before this committee last year gave you detailed statisties on the growth of the cooperatives engaged in LP-gas sale and presented to the committee typical advertisements announcing

the entrance of new cooperatives into the LP-gas business and making a public offering to both farmer or nonfarmer, member or nonmember. This pattern continues. Every day that this Congress delays in placing the cooperative on an equal tax plane represents continued and increased tax attrition. The proposal of the Treasury Department, while a step in the direction of equality and prevention of tax erosion, does not fully plug this tax loophole.

I fully agree with the thorough and sound legal analysis of the Treasury proposal and the basis for more complete taxation as presented to this committee by Mr. Brady O. Bryson in his testimony.

I note with great interest the tenor of the supporting policy statements presented by the Treasury Department and sense in the method of presentation a defense of continued tax inequality. For example, the Department's statement as an apparent basis for failure to go all the way, excuses this failure through representing that the stock is a cooperative is not attractive to an average investor because of the limitation on dividends.

I fail to see that an 8 percent dividend limitation is unfavorable. A review of the returns on the stock market would support this questioning attitude. Again reference is made to the lack of growth. If this growth be related to the actual growth of the cooperative, again the basis is questionable.

The Department presents statistics showing growth and volume of business of cooperatives in the period 1950-57. The growth of the LP-Gas Cooperative is even more substantial and particularly significant when related to all over industry growth.

In the period from 1950 to 1957 the number of local co-ops handling LP-Gas at retail increased from 280 to 708. Their sales in gallons increased from 15 million to 90,724,000. At the same time the all over industry gallonage for domestic and commercial utilization, largely the field covered, increased from 2,022 million to 3,067 million.

In other words, the local retail cooperative increased its volume of business 505 percent. At the same time, the industry generally was increasing its business 51 percent. The cooperatives increased at a rate ten times as fast. These same statistics show an increase in co-op bulk plants from 42 to 250 or a 519 percent increase. In 1950 the LP-Gas Co-op was doing an 0.74 percent of the total volume. In 1957 they were doing 2.96 percent of the volume of business.

The volume continues to increase. While complete cooperative statistics are not available, I find that the annual reports of some leading cooperatives engaged in the LP-gas business show that Consumer Cooperative Association's gross volume increased 33 percent 1958 to 1959, Midland Cooperatives' gross volume of business increased 19 percent 1957 to 1959, and Farmers Union increased 23 percent in the same period.

In my own small county area of operations in 1958 there was not a single LP-gas supplying cooperative. Now we have two. This is growth reflected in tax erosion that can only be met by full and complete tax equality.

In my discussion, I am speaking of the purchasing cooperative and not the marketing cooperative. Parenthetically, the tax structure is particularly vulnerable on the purchasing cooperatives as can be seen