Mr. WHITAKER. My understanding is that it is not under the provision we are complaining of. Senator BAILEY. Cabarets are a new word in our vocabulary; I am not sure how it has been defined. Mr. WHITAKER. My understanding is as I have indicated. Senator BAILEY. In cabarets the entertainment is the main thing; in restaurants the food is supposed to be. Mr. WHITAKER. That is it, and we have no objection, as I say, if it is the desire to place a tax on restaurants, we are perfectly willing to pay it, but we do feel that when we find ourselves in the restaurant business and taxed on the theory we are in the cabaret business, with a restaurant across the street from us serving food exactly as we are not being required to pay the tax, it is something which puts us at considerable disadvantage. Senator BAILEY. If you had a tax on restaurants, you do have a tax on all dining rooms? Mr. WHITAKER. Yes; and we are not complaining of that. Mr. WHITAKER. No, sir. The CHAIRMAN. The trouble seems to be the Treasury has construed a restaurant such as you operate as a cabaret, "or other similar place furnishing a public performance for profit," which for quite some years has been taxable. Perhaps, a distinction might be drawn if you only furnished the music, but when you furnish music coupled with an opportunity to dance, then the Treasury's interpretation doesn't seem to me to be so unreasonable in your case. Mr. WHITAKER. The only complaint we have there is that the ruling and interpretation made by the Treasury Department only applies where the restaurant itself furnishes orchestra music. If it is carried on as I suggested a while ago by the use and employment of an organ where a coin is dropped in, they still permit it to go untaxed. Senator BAILEY. You would be satisfied if we extended the tax to those places? Mr. WHITAKER. Yes; that would eliminate the discrimination and that is our complaint. The CHAIRMAN. We have your point: You would like to have the statute clarified so you wouldn't get under it, or if you did, that you would not be discriminated against? Mr. WHITAKER. That is it exactly. (The following prepared statement was submitted by Mr. Whitaker :) AUGUST 20, 1941. My name is Thomas Whitaker, of the law firm of Whitaker Bros., of Tampa, Fla., representing the Columbia Restaurant, located in Tampa, Fla. This brief is submitted on provisions of section 542 of H. R. 5417, being the revenue act now pending before the Finance Committee of the Senate. The particular, section above referred to, and which will be discussed herein, is entitled "Cabaret, roof garden, etc., tax," and is found on page 46 of the printed copy of said bill. Our contention is that the tax imposed by said section above referred to does not apply to a restaurant such as is operated by the Columbia Restaurant. However, owing to the regulations and the interpretation placed upon the wording of said section, the Internal Revenue Division of the Treasury Department has ruled that the tax does apply. The Florida Senators agreed with us that it was not intended for section 542 to apply to restaurants operated in the manner which the Columbia is operated. Senator Pepper called the legislative drafting committee and was informed that under their interpretation the section would not apply. The Columbia Restaurant, with an investment of approximately $150,000 or more, operates a strictly high-class Spanish restaurant, specializing in Spanish foods served in the atmosphere of the Latin countries. No performances nor entertainment of any kind is given with the exception that an orchestra is maintained by the restaurant and the patrons are permitted to dance if they so desire; however, no dance program is arranged by the restaurant. No admission or cover charge is made by the restaurant, and the music, along with the privilege to dance, is an incident to the restaurant business. In other words, the maintenance of the orchestra by this restaurant is for the purpose of carrying out the scheme of serving Spanish foods in a Latin country atmosphere rather than for entertainment purposes. All we are asking is that this section be clarified so that the basis for the difference between the interpretation as now made by the Internal Revenue Bureau of the Treasury Department and the opinion of legal authorities as well as the legislative drafting committee as to what this section covers will be removed. We believe that this can be done by the use of a few simple words clearly setting forth that this section is an entertainment tax and is not intended to cover restaurants which only furnish music and permit dancing as an incident to the operation of the restaurant business. If, however, it should be the desire to place a tax on restaurants, we feel that it should cover all restaurants and should so state in the tax bill, so that no discrimination could result therefrom. If a tax is levied, it should be mandatory that the tax be separately listed and shown on the bill rendered to the consumer. The CHAIRMAN. Before taking a recess, I wish to have incorporated in the printed record a letter addressed to me by Senator Wiley, of Wisconsin. (The letter referred to is as follows:) UNITED STATES SENATE, COMMITTEE ON THE JUDICIARY, August 9, 1941.. Hon. WALTER F. GEORGE, Chairman, Senate Finance Committee, Washington, D. C. DEAR SENATOR: Since August 4, 1941, when H. R. 5417 passed the House of Representatives, I have had occasion to make daily telephone calls to the Senate Finance Committee expressing my views with reference to certain portions of H. R. 5417. Like all Members of Congress, I have received a great many letters concerned with certain specific portions of the pending measure. I have already discussed most of the views contained in these letters in conversation with the committee. Because representatives of these various views will appear before your committee, and because the committee clerk advises me that the testimony in these hearings will be so voluminous that it will be impossible to encumber the written record of the hearings with such an extensive correspondence, I will not request that this material be incorporated in the hearings. Supplementing my telephone conversations, however, I am presenting my correspondence files on H. R. 5417. It is my understanding that the points raised in these letters will be given every consideration by the committee in their deliberations on this measure. I want to express my appreciation for the courtesy and consideration which the members of your staff have extended to me. I have made numerous calls on their time, and they have always evidenced a genuine willingness to cooperate in the consideration of views presented by my constituents. With kindest regards. Sincerely yours, ALEXANDER WILEY. The CHAIRMAN. I have before me statements by Representative Curtis and Mr. A. W. Kohler and a memorandum by Mr. Ike Lanier, which will be incorporated in the record at this point. (The statements and memorandum are as follows:) STATEMENT OF HON. CARL T. CURTIS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEBRASKA, BEFORE THE COMMITTEE ON FINANCE IN REFERENCE TO A PROPOSED TAX ON BILLBOARDS Mr. Chairman, I wish to impose upon the committee's time briefly to protest the tax upon outdoor advertising, or what is commonly referred to as billboards. No opportunity came to make this protest before the Ways and Means Committee of the House of Representatives. I believe it is fair to state that no notice was given that such a tax was being considered; consequently, no one had an opportunity to appear in protest thereof. In support of my position, I wish to make the following points: (1) A tax on billboards is a tax on advertising, without covering the whole field of advertising. I am not here to suggest that other mediums of advertising be taxed, but surely there is no justice in picking out one type of advertising and imposing a tax thereon. Advertising is essential to our system of free enterprise and open competition. (2) The tax on billboards as it passed the House of Representatives would in many instances be confiscatory. I am referring particularly to billboards in rural areas and small towns where the revenue is very limited. (3) Many billboards have been contracted for 2, 3, or 5 years in advance. The price has been agreed upon without any knowledge of any special Federal tax that might be placed against the billboard owner. In these cases it would either mean the breaking of the contract and the destruction of the billboard or an unjust and unfair tax imposed upon the owner of the billboard. (4) The big concerns, or the wealthy advertiser, might be able to pay this tax and continue his billboards, especially if his advertising was carried on in order to cut down his income tax. That is not true of the smaller towns, or the small businessman. It merely takes his outdoor advertising away from him and destroys the property rights of the owner of the billboards. (5) It must be borne in mind that the billboards of our Nation have given freely to safety campaigns, the Red Cross, community chests, national defense, and many, many other worth-while things. It is unjust to single out this particular type of advertising for a Federal tax. Respectfully submitted. Hon. WALTER F. GEORGE, CARL T. CURTIS, M. C., Fourth District of Nebraska. NATIONAL ASSOCIATION OF MOTOR BUS OPERATORS, Chairman, Senate Finance Committee, Washington, D. C. DEAR SENATOR GEORGE: As secretary-manager of the National Association of Motor Bus Operators, I am transmitting to you herewith a statement in opposition to the proposed increase in the Federal gasoline tax. Our association does not oppose this tax for the reason that we are opposed to increased taxation in this period of emergency, but because of the fact that it is discriminatory in character. The members of the motorbus industry are engaged in a highly competitive business, and for them to be singled out among the passenger carriers for special taxation resulting in increased operating costs will seriously handicap them in furnishing the public with a high-class and necessary service. I shall appreciate it if you will file the enclosed copy of our statement with the Finance Committee and bring it to the attention of the members of the committee. Respectfully yours, A. W. KOEHLER, Secretary-Manager. Encl. STATEMENT OF NATIONAL ASSOCIATION OF MOTOR BUS OPERATORS ON PROPOSED ADDITIONAL INCREASE IN FEDERAL GASOLINE TAX In a statement submitted to the House Ways and Means Committee in opposition to any further increase in the Federal gasoline-tax rate, the National Association of Motor Bus Operators stated its belief that those engaged in commercial highway transportation cheerfully should pay their full share of the cost of national defense. The National Association of Motor Bus Operators now reaffirms that belief but hopes to give it greater emphasis by pointing out that it would be unfair to compel commercial highway transportation to bear a disproportionate share of national-defense costs. The National Association of Motor Bus Operators always has tried to avoid being known as a chronic complainer. It has been the policy of our organization never to express opposition to public policy unless we sincerely were convinced that the policy was unsound or inequitable. For example, motorbus operators accepted without complaint the increase in the Federal gasoline tax and other automotive levies enacted by the Revenue Act of 1940, even though those increases ›were most substantial, because as patriotic citizens they recognized the critical need for more revenue and were ready and willing to bear their rightful share, and more, of the burden. Ever since the proposal to increase further the Federal gasoline-tax rate from 11⁄2 to 22 cents a gallon first was suggested; however, bus operators—individually and as a group-have felt that enactment of this proposal would be both unsound and inequitable. The viewpoint of these men is the viewpoint of their national association. In their behalf, therefore, the National Association of Motor Bus Operators has felt that rightfully it should make known this viewpoint, and the considerations on which it is based, to the legislative authorities weighing the expediency of this proposal. The National Association of Motor Bus Operators believes that a further increase in the Federal gasoline tax would be unsound because 1. The gasoline tax is a good tax measure only when used as a "benefit impost." The volume of gasoline consumed by an individual determines the amount of tax he must pay. To be a sound measure of tax responsibility the consumption of gasoline should either reflect the taxpayer's ability to pay or his benefits received. Obviously gasoline consumption does not indicate ability to pay. because the small farmer may consume many times more gasoline in earning his living than does the fabulously paid moving-picture actor. On the other hand, gasoline consumption does measure with reasonable accuracy one form of special benefit received by the taxpayer, namely, road benefits. A gasoline taxpayer's consumption of gasoline, roughly, is proportionate with his use of the roads. As a road tax, therefore, the gasoline tax is a sound tax measure, but it does not possess the characteristics that determine a good tax measure to raise revenue for general governmental purposes. 2. The taxation of gasoline is primarily a State tax field. The gasoline tax was originated by the States, and each of the States already had come to rely heavily on this impost long before the Federal Government first levied a tax ou gasoline. Moreover, it has been shown that the gasoline tax most properly should be used as a benefit tax and is most favorably suited to financing highway construction and maintenance. Since the provision of highways still is primarily a State function, the continued and successful use of the gasoline tax by the States should not be jeopardized by an excessive duplicating Federal gasoline-tax rate. 3. Gasoline consumption is not "luxury consumption" and therefore should not be taxed as such. To classify gasoline with liquor, tobacco, cosmetics, and other luxuries for the purpose of justifying comparable tax rates is erroneous and misleading. Actually, as was pointed out to the House Ways and Means Committee time and time again, the major portion of the gasoline consumed by motor vehicles in this country is consumed on "necessity trips." A tax on gasoline, therefore, is a tax on "necessity transportation," not on the Suday ride. 4. Excessive taxation of gasoline impedes the full development of highway transportation. Since the fullest possible development of transport facilities is essential to the national-defense effort and the conduct of civilian life, it is imperative to consider the fact that excessive taxation of gasoline would impede this development. The motorbus, for example, is depended on today to carry workers to factories engaged in defense work. There are today some 48.000 communities throughout the United States that are dependent entirely upon the motorbus for their public passenger transportation. Since the cost of fuel is one of the most important factors in motorbus operation, excessive gasoline taxes increase operating costs very substantially and discourages the fullest possible development of this new flexible and low-cost form of transportation. The National Association of Motor Bus Operators believes that a further increase in the Federal gasoline tax would be inequitable because 1. The revenue bill of 1941 already provides for the payment of a fair share of the new defense-tax burden by the automotive groups, including bus operators. Last year the increases in the Federal automotive excise-tax rates which were enacted were considerably more severe than those enacted for excise rates on other commodities. This year it is proposed to increase again all these Federal automotive tax rates, except the Federal gasoline tax. Combined with the increases enacted last year, these new proposed automotive-tax increases still are considerably higher than those for any other tax subject. In place of an increase in the Federal gasoline tax, an annual "use" tax of $5 for each vehicle on all motor vehicles is proposed. These new automotive tax rates will exact from the automotive group in excess of $285,000,000 each year in addition to the more than $500,000,000 in Federal excise taxes already paid by this group. Of these amounts, motorbus operators even now pay more than their proportionate share per vehicle because of their extensive use of automotive equipment and fuel. To superimpose on these proposed Federal excise-tax increases and the new "use" tax a further increase in the Federal gasoline tax would compel the automotive group to bear a disproportionate share of defense costs. 2. Motor-bus operators already bear an unusually heavy tax burden. Authoritative studies disclose that the average motor bus now pays about $1,200 annually in operating taxes and licenses. This figure does not include income and profits taxes, property taxes, and other general imposts. The larger motor-bus companies, operating in interstate service, pay in operating taxes and licenses an average of $3,392 for each bus. The extent to which such taxation is a burden on bus operation may readily be appreciated when it is understood that these taxes now comprise about 15 percent of the total variable operating costs of the motorbus operator. Inasmuch as the cost of gasoline is one of the most important factors in bus-operating costs, the excessive taxation of gasoline becomes particularly burdensome on motor-bus operators. 3. An increased Federal gasoline tax would add to the excessive tax which gasoline now bears. Concerted opposition has been voiced against proposals that a Federal general sales tax be imposed, on the grounds that it severely would penalize persons of modest means. Usually it has been suggested that such a general sales tax should be imposed at the rate of 1 or 2 percent of the sales price. Yet, even at present rates, the Federal gasoline tax rate represents a special sales tax of about 12 percent. If the Federal gasoline tax were increased an additional 1 cent a gallon, it then would represent a sales tax of 20 percent. Including State and local gasoline taxes, consumers of gasoline now pay a special sales tax of 47 percent. 4. Bus transportation, which more than pays its way, would be compelled to assume a much greater tax burden than its competitors who receive governmental subsidies. The Federal Eastman report on Public Aids To Transportation revealed that highway transportation, including bus transport, was the only form of transportation, other than pipe lines, which pays its way and more. This report found that large busses paid special taxes that exceeded their share of highway costs by as much as $249 per vehicle per year. General tax payments by busses, of course, were in addition to these special taxes. The fare charged by bus-transportation companies are fixed by franchises or regulation. Obviously, the new 5-percent tax proposed for passenger fares will affect all competing forms of transportation in the same manner. But if another increase in the Federal gasoline tax is imposed, only those forms of transportation using gasoline as fuel, principally highway transportation, would be compelled to bear the extra cost. With the fares they can charge rigidly inflexible, bus operators then would be at a competitive disadvantage. It would be inequitable to impose a burdensome tax on one form of transportation and thus place it in an unfavorable position in its field of competition. |