gaseous fuel. In comparing weights of materials, the necessary auxiliary equipment for storage of fuels in basements or back yards should be borne in mind. This brief, considered in connection with electric cook stoves, provides ample information upon which your considered judgment will, I believe, free these necessary devices in the home from any discriminatory tax. Senator TAFT. These figures are based on what? Mr. HUGHES. That is the average rate of the homes in these communities. Senator TAFT. Those figures are not taken from actual bills? Mr. HUGHES. The average; yes. Senator TAFT. Or, is it just arbitrarily calculated from what that much electricity would cost a certain number of users? Mr. HUGHES. Let us say there are 250 homes and the bill is $1,000. We know the average would be $4. Of course the bill would vary very much but it does indicate an average. Senator DANAHER. I have a question or two: These so-called manufacturers' excise taxes which include electrical appliances were inquired of by me the other day, when the Secretary was here, and he said some of them had been included on the ground they dealt with luxuries, and when I asked him if he considered a typewriter to be a luxury, he added a good many of the items had been included here because their manufacture would conflict with our defense. Now what is there about an electric-stove that would conflict with our production for defense needs? Mr. HUGHES. Well, it uses iron; about 40 cents worth of nickel, and that is about all. The water heater used iron too, but that is true of all our competitors. The only difference between the electric and gas range is that the gas range also uses a stainless steel ring which is half nickel, so they would all use some nickel. Senator DANAHER. And iron; so that, if we are going to include that on the theory that its manufacture would conflict with production for defense needs, and you are going to try to discourage the manufacture of electric stoves entirely, then I should say we ought to increase the rate, too, shouldn't we? I mean, to be logical about this claim that this manufacture interferes with defense production, we should raise the rate? Mr. HUGHES. You mean, it increases the use of the gas range also? We are not complaining about the fact of the tax; our complaint is the discriminatory nature of it. Senator DANAHER. If we limit the tax to electric stoves, but really wish to discourage the manufacture of them, we should increase the rate on that item, should we not? Mr. HUGHES. Well, I hope you won't. The CHAIRMAN. I suppose the use of electric energy is one of the things the defense people might have had in mind, although you don't manufacture that and aren't concerned with it. Mr. HUGHES. Yes; we are very greatly concerned with it. Our products go very largely in the rural areas, in the great waterpower section of the Northwest. For instance, in the State of Idaho, which is a waterpower State, we have 56 percent saturation on electric ranges and 35 percent saturation on electric water heaters. In other words, the farther west you go, the greater use of electricity is evident. The CHAIRMAN. I suppose you have pretty rigid restrictions on nickel? Mr. HUGHES. Yes; we manufacture practically all the equipment for the Army and Navy, practically every boat that is built today is so equipped. We have priorities on all that stuff, of course. The CHAIRMAN. Any further questions? Senator WALSH. Were these manufacturers given an opportunity to appear before the Ways and Means Committee with reference to these taxes? The CHAIRMAN. I don't think so. You didn't appear before the Ways and Means Committee? Mr. HUGHES. No, sir. I did not; I knew about the tax on some other things but I thought our industry was so small they would overlook us, but the first thing I knew, it was in. That is the reason I am here. (The Comparison of cooking stove and range values based on 1939 Census of Manufactures; Statement from your home towns relative to costs: Census of Manufactures, and list of 15 States giving comparison of electric ranges to gas ranges, referred to by Mr. Hughes, are as follows:) Comparison of cooking stove and range values, based on 1939 Census of Manufactures 1 Approximate-no data available on number with value of $22,902, so number not included. 2 Gasoline camp stoves: Number, 121,066; value, $314,751. Approximate-no data available on number with value of $192,697, so number not included. Statement from your home town relative to costs, based on 1939 A. M. Vandenberg (R). W. F. George (D). R. M. La Follette (P). A. Capper (R). J. J. Davis (R).. E. C. Lodge, Jr. (R). J. A. Danaher (R). Comparison of domestic water-heater values based on 1939 Census of Manufactures 1 Side-arm heaters not included because census lists them with auxiliary and nonpressure heaters with total value of $113,891. Approximate; no data available on number with value of $159,462, so number not included. Approximately 55 percent of the nonelectric heaters do not include storage tanks, thereby increasing amount of labor necessary to assemble or install on premises. The State of North Carolina as of January 1, 1941, had 91,680 electric ranges and 47,350 gas ranges in use, There are seven States where electric ranges exceed gas ranges in use, namely, North Carolina, South Carolina, Idaho, Nevada, Tennessee, Utah, Washington. There are eight additional States where the number of electric ranges in use is close to the number of gas ranges in use (within 30 percent or less), namely, Maine, Vermont, North Dakota, South Dakota, Oregon, Georgia, Florida. Source: Bureau of Census, Department of Commerce. Total electric domestic customers.. Total gas domestic customers _ _ Difference (wired homes without gas).. 25, 600, 000 16, 900, 000 8, 600, 000 Ratio of manufactured gas customers to total domestic gas customers is 10 to 17; 10 manufactured gas to 7 naturally mixed gas. Thirty-two and six-tenths percent of the United States farms are electrified as of January 1, 1941. Electrified farms, 1,988,361; total farms, 6,096,789. As of January 1, 1941, there are 15,238,000 household meters with water-heater rates of 1.2 cents per kilowatt-hour or less. There are 20,342,213 household meters with water-heater rates of 12 cents per kilowatt-hour. Three hundred and ninety-four private utilities included in this survey. The CHAIRMAN. Mr. Blodgett, will you give the reporter your name, address, and information as to whom you appear for? STATEMENT OF GEORGE R. BLODGETT, BOSTON, MASS. Mr. BLODGETT. My name is George R. Blodgett. I am an attorney, a member of the law firm of Herrick, Smith, Donald & Farley, 1 Federal Street, Boston, and I do a considerable amount of corporate tax work. I am not appearing here specifically for any client. I ran into serious problems of the nature I am going to mention for about eight clients. They appeared to me so serious that after discussing the matter with others similarly engaged, I felt that they should be brought to the attention of the committee. The CHAIRMAN. I see you refer to section 734. I never quite understood it; I don't know how it works out in practice. Mr. BLODGETT. The main purpose of my talk is to point out some practical problems which have arisen in the mere preparation of clients' excess-profits returns. These problems have arisen under section 734 of the code, which was added to the excess profits tax law by the March 1941 amendments. This section makes provision for adjustments in cases of so-called inconsistent position. The underlying purpose of this section is apparently to prevent a taxpayer from reducing its excess-profits tax through unconscionably reversing a position which had been erroneously allowed to it in some prior year tax matter and which had reduced its tax for that prior year. But it goes far beyond such a purpose and produces totally different and unfair results as I shall show by illustrations. The section was enacted without general public discussion. The text of the section is not easy to read, nor are many of its possible results and implications apparent upon superficial analysis. In the months that have intervened, some of us have begun to realize how serious these may be. Apparently neither the taxpayers nor tax practitioners in general as yet understand the effect of the section, and the serious consequences under it involved in the mere filing of an excess-profits tax return, their ignorance being probably due to the fact that the section was not enacted until just before excess-profits tax returns were due, and the regulations were not issued until weeks afterward, and the pitfalls in merely filing a return do not appear on a first reading. Section 734 provides in principal part that: If a taxpayer, in connection with its current excess-profits tax return, maintains a position as regards any item, which position is finally adopted (the words "maintaining a position" are not defined), and that position is inconsistent with the way that item was actually but incorrectly treated in determining the tax liability for any year beginning 1913 of the taxpayer or any "predecessor" (the word "predecessor" is not defined in the law), then there is added to the excess-profits tax otherwise payable for the current year the amount of all taxes saved to the taxpayer and its predecessors, in all years since 1913, through the erroneous and inconsistent treatment of the item in the earlier years, together with interest at 6 percent from the time those prior-year taxes should have been paid. In other words, the penalty is not to fairly adjust its invested capital or other items entering into its 1940 excess-profits tax. The effect of the section is to go back and charge it with an item occurring in 1913 or 1920, and that is the penalty, even though there would be no excess-profits tax payable for 1940 regardless of which position it takes-whether consistent or inconsistent. And that is so despite the fact that the statute of limitations has otherwise run, and despite the fact that the Bureau may have ruled that the taxpayer's prior-year treatment was correct under the regulations, decisions, and rulings in force when the prior-year return was made and audited. This has much greater scope than a statute merely waiving the statute of limitations back to 1913 because (1) it imposes on a taxpayer the unpaid-tax liabilities of other independent taxpayers for which it may never have been liable under former law; and (2) it permits the Government to reopen specific tax liabilities previously brought to a final court or Board decision between the taxpayer (or a so-called "predecessor") and the Government. It is not my purpose to discuss the philosophy underlying the section. I shall talk only about the hardships resulting from the present wording to taxpayers who are striving not to take inconsistent positions or to be otherwise unfair. I hope that a recital of a few of these hardships will lead the committee to ask the experts to carefully and fully consider this section because specific amendments can best be worked out in connection with such a full consideration, and I do not have the time to discuss the remedies here. The section is seriously defective in. leaving several of its most important terms totally undefined, as (1) What constitutes "maintaining a position" by the taxpayer. The regulations say that the mere filing of a return by the taxpayer does this, and there is no indication in the law or regulations that having once taken a position in this manner a taxpayer may later voluntarily withdraw or change his position. Probably most taxpayers have already irrevocably maintained inconsistent positions under this regulation without having any idea that they have done so, or that section 734 is in any way applicable to them. (2) The statute does not define what constitutes a "predecessor" whose unpaid taxes may by the law be collected from this taxpayer. The regulations define this as any other taxpayer whose income-tax |