STATEMENT OF BEN WHITE EINZIG, REPRESENTING REPAIRERS
OF AUTO ACCESSORIES AND PARTS, HOLLYWOOD, CALIF.

The CHAIRMAN. Will you state your name for the record?
Mr. EINZIG. Ben White Einzig.

The CHAIRMAN. Of Hollywood, Calif.?

Mr. EINZIG. Yes.

The CHAIRMAN. Representing whom?

Mr. EINZIG. The repairers of auto accessories and parts of Los Angeles.

The CHAIRMAN. Is it clear that the House bill intended to impose the tax that you are now complaining of, or is it a question of interpretation?

Mr. EINZIG. It is a question, I believe, of clarification.

The CHAIRMAN. Is there anyone here representing the Treasury or the staff?

Mr. RAY (George E. Ray of Office of the Legislative Counsel of the Treasury). Yes, sir.

The CHAIRMAN. Was it intended to cover in this bill the repairs about which these gentlemen are complaining?

Mr. RAY. No; the intention of the bill was not to cover repairs, but in certain cases transactions which might be construed as repairs or sales are confusing, and in such cases the Bureau of Internal Revenue has prescribed rules to determine what constitute merely repairs and what constitutes accessories.

The CHAIRMAN. All right. You may proceed.

Mr. EINZIG. Mr. Chairman, the act specifically provides that there shall be a tax in the old bill of 2%1⁄2 percent upon manufactured parts and accessories. We contend that these repairers do no manufacturing whatsoever. There is an exchange that takes place, and upon that exchange a repair is made. These individuals do no manufacturing or casting of any kind, they merely exchange the old unit, repair the old unit, and then again give it back to the garageman.

We have been told heretofore by the Treasury Department that we can have this matter adjusted by the administration, but the fact remains that in the State of California, especially in Los Angeles, the collectors of internal revenue say that the tax shall be paid because these gentlemen are manufacturers. Four hundred miles away in San Francisco the same operators have been told that the operations. are repairing, therefore there is no tax. In Denver, Colo., the same thing exists, there is no tax; they have been told that they are not taxable; and in Chicago they have been told that they are not taxable.

The CHAIRMAN. This would get right down to the point, and you will help us by answering this: Do you want us to insert an amendment here that will clarify that? Is that the idea?

Mr. EINZIG. Mr. Dockweiler has presented that amendment. There seems to be some difficulty with the Treasury Department as to whether we are manufacturers or not; we have therefore brought three gentlemen who are repairers, who have the parts, the old parts, and I believe can demonstrate within the period of 3 or 4 minutes what we do.

Senator TAFT. Do you mean you do not want a tax on remade parts or accessories? Is this business a sort of remade parts and accessories, or are they just repairs?

Mr. EINZIG. It is strictly repairs. We have to have an old unit as an exchange. You see, the old unit we exchange, we repair the unit and hold it for the next one.

Senator TAFT. Your amendment is "rebuilt parts or accessories". That implies the sale of second-hand parts that have been repaired. Mr. EINZIG. It is an exchange plus a repair charge.

Senator TAFT. It may not be. Under this amendment it may be no exchange at all.

Mr. EINZIG. When sold as such; when sold not as a used unit.

Senator TAFT. You are talking about exchanges and repairs. It is the suggestion that the repaired work, according to this amendment, would be excepted?

Mr. EINZIG. Yes; that is correct.

Senator TAFT. Does not that apply to all second-hand parts, practically, where any work is done?

Mr. EINZIG. That is correct. In this situation, however, the price of the repair is usually $1 or $2, plus the fact that on the exchange they place a deposit until we get the old unit back, until we make the repair, and we keep the money for the repair and we must refund the deposit.

Senator TAFT. I do not see what that has got to do with this amendment; if you feel to do that you have got to treat it in some other way. This covers the second-hand repairs, no matter whether it is an exchange or not.

Mr. EINZIG. There seems to be tremendous confusion in the Treasury Department whether we should or should not pay on those items. The only purpose of this particular amendment is to clarify that particular point. If there are no other questions, I should like to have Mr. Van Alen, a repairer of Los Angeles, to bring forth a generator.

The CHAIRMAN. Suppose you bring him around as a witness? You do not need to make any exhibit, because I think we can understand what you are getting at.

STATEMENT OF RALPH A. VAN ALEN, REPRESENTING THE REPAIRERS OF AUTO ACCESSORIES AND PARTS, LOS ANGELES, CALIF.

The CHAIRMAN. Will you please give your name?

Mr. VAN ALEN. Ralph A. Van Alen, Los Angeles, Calif.

The CHAIRMAN. How do you describe your business, Mr. Van Alen? Mr. VAN ALEN. Mr. Chairman and members of the committee: We are in the business of repairing used automobile parts and accessories, to provide a faster and better service for the car owner, the truck owner, or the tractor owner.

The CHAIRMAN. Do you sell any new parts?

Mr. VAN ALEN. We do not sell new parts, we do not make any new parts, and we must have the old part repaired or we could not continue in business. The process of the business is all for the purpose of saving time for the owner of a piece of equipment repaired if the unit is repairable, or for the purpose of saving time for the owner of a car or a truck or tractor. A repaired unit is available so that when the garageman wants one he does not have to tie up the piece of equipment for several hours either while he is doing the work on that car or while he is doing work on some other car. All of the units that we furnish are made from old units, such as will be returned to us.

The process of the business, the flow of trade, is that if we have such a unit on hand, the garageman may call upon us for a generator, or pump, to fit a certain model of car, and we will send it out to him, receiving in return the one that he has removed from that car on which a tax was paid, and then we will repair that unit so that it will be available for the next one.

Senator TAFT. The title passes in each case? You acquire title to the one you get back?

Mr. VAN ALEN. Yes, sir; we do.

Senator TAFT. You sell the other piece to him?

Mr. VAN ALEN. We sell the piece on which a tax has once been paid. If that unit was taxed every time it came into our hands it may imply taxation six or seven times in a couple of years on the same article. We do not make any new articles, we could not make any new articles, we must have the old one to work on, we must have the one which has come from that automobile as a complete unit to work on. The part that we placed in that unit, if parts are required, if it is more than labor and adjustment, those parts are purchased from factories who pay taxes on those parts and who pass the taxes on to us. many cases the parts we use are offered to the car owner for doing the same work that we do. In fact, in some instances they are put up in packages and labeled "Repair kit," so that the car owner in the remote territory may purchase such a kit and make his own repairs.

In

In our case what happens is we may get a unit such as this, a Ford distributor, sent in to us, which is very dirty, which needs to be cleaned, which needs to be adjusted, and probably needs a new set of contact points. When we receive it we will take it apart, we will wash it completely and check the parts in it, see what parts, if any, are needed, and if such parts are needed they will be replaced with tax-paid parts. The Revenue Bureau has consistently and repeatedly told us if we put that unit back on the same automobile there would be no tax on it, because it would be a repair job, but if it went into some other automobile it would be considered manufacture, although, frankly, the work is identical in either case. We do not know where to draw the line.

They have also told us if we wash one of these at a time it is a repair job, but if we wash 2, 5, or 10 at a time it becomes manufacture. For the purpose of improving our service we will wash several at one time, because we can wash 5 or 10 at a time faster than we can wash 5 or 10 individual pieces.

They have told us in some instances the item is not taxable, and in other instances such an item is taxable.

In every case the unit we sell has come from a tax-paid automobile, and the unit we work on is a complete unit. We cannot make any parts in the unit; we must have all of the parts to work on. When it goes back it is exactly the same kind of unit that we received. We have not created anything new or different.

If we have received an armature, as sometimes happens, a man wants an armature, such as this article [indicating], or a shaft with this particular armature gone, where the commutator is all dirty or sooted or carboned up, it is not making a good contact or performing properly, or it may be that the shaft is bent and sprung from service. In such a case we would clean up the commutator and make certain it was round before we put it back, or we might straighten the shaft

by pounding it, and it would have a complete contact bearing surface and performing in good order. It would look like this [indicating]. It is still the same article when we get through, but the Revenue Bureau has said it would be a manufactured armature in a great many instances.

Senator TAFT. Mr. Chairman, may I ask the Treasury what happens if a second-hand automobile is extensively repaired, because the car is broken up in an accident, and then sold as a second-hand automobile?

Is there a tax on that?

Mr. RAY. There is no tax on second-hand automobiles.

Senator TAFT. No matter how much repair is done on them?
Mr. RAY. No.

Senator VANDENBERG. Is this problem localized in California?

Mr. VAN ALEN. No, sir; the problem exists throughout the country. We have objected to the Revenue Bureau interpretation by taxing us and not taxing someone else. They said, "Maybe the collector in that district is not on the job as well," but they will get around to him. We say, "We do not know which of these units we are expected to pay a tax on and which we are not," and then he says, "You better have Congress clarify the law for you." They have come in to us and told us, at one time or another, that certain articles are not subject to the tax, and then after several years they come back and make another assessment of the tax upon us based upon different values. Sometimes they tax the work we do only, on the repair charge, and in other cases they have done this, they have said, "You have exchanged that to a man for a dollar"-perhaps I can explain better with the distributor. They said, "You have exchanged that to a man for a dollar, you have given him this new article in place of one which is not new, but is second-hand, the exchange man ordered this from you before he took the old one, maybe, from the car." Now, maybe the man wants to keep his car running, so when we send it out to him we bill him $1 for the repair service and $5 for a deposit, so we will get the old unit back. If we did not get the old unit back we would not have another to work on for the next customer. We would be out of business if we were to do that. The Treasury Department has taxed us on the basis of $6 in this instance, although our total income was just the $1. They have told us the tax applied, they have repeatedly held to the ruling that the tax applies to the value of the repair plus the old article taken in.

The CHAIRMAN. If you buy any new parts from the dealer, the wholesaler, or the factory, you have to pay a tax on it?

Mr. VAN ALEN. If we buy new parts from a manufacturer or wholesaler, those parts have been taxed at the point of manufacture, and in most cases the invoice states specifically, at the bottom of the invoice, "excise tax," or "manufacturer's excise tax, 2%1⁄2 percent."

Senator CONNALLY. What about the old parts that you take out from a knocked-down automobile?

Mr. VAN ALEN. You mean if we use them? You mean if we rebuild and recondition such a part?

Senator CONNALLY. No. A fellow comes along and he wants a new part, you are going to repair his car, you need a part, and instead of giving him a new part you give him a part out of another car.

Mr. VAN ALEN. He does not order a new part from us, because we are not in that business, but in such an instance what would happen

Senator CONNALLY (interposing). I understand what would happen. The question is: You take the car to the shop to be repaired, it needs a certain part and instead of using a new part you use a used part off of some car that has been junked; then what?

Mr. VAN ALEN. I do not know what you mean by "Then what?" but that circumstance would not occur very frequently.

Senator CONNALLY. I did not ask you that. Supposing it did occur, what would happen? Don't you do that at all? Don't you use any used parts in repairing the automobile?

Mr. VAN ALEN. Sometimes they might; yes, sir.
Senator CONNALLY. That is what I am asking you.
Mr. VAN ALEN. Yes; sometimes they might.
Senator CONNALLY. Do they pay any tax?

Mr. VAN ALEN. Those parts had taxes paid on them when they were put in the automobile.

Senator CONNALLY. Do you pay any tax on them?

Mr. VAN ALEN. Not in that case.

Senator CONNALLY. That is going a long way around to get the question answered.

Mr. VAN ALEN. Not in that case. What has happened is this: This is an exact case. We received a telegram from down in Arizona that they needed a starter for a certain automobile. We did not have such a starter on hand, so we went to looking around here and there for a suitable starter. We went to the wrecking yard and bought a starter. The wrecking yard would have sold it as a second-hand starter and there would be no tax, there would be no assessment made on that second-hand starter. We bought it, we brought it to the plant, washed it up a bit, got to working on it, tested it to make certain that it worked properly, and shipped it out. In a few days we got back the old starter from the car in Arizona, which we then fixed up to go out on the next call for such a unit. Some day the Treasury Department will come along and go over our billing and charge us a tax on the starter even though we never touched it, even though we did not open it up, simply because we handled it in a different manner than the wrecking yard, or because it went into a different car from the one that it came out of.

Senator RADCLIFFE. Mr. Van Alen.

Mr. VAN ALEN. Yes.

Senator RADCLIFFE. Do I understand the part from the damaged car is used in substitution for the repaired part, the idea being that the damaged part will then be put in condition, repaired if necessary, cleaned, and put in a condition to be available for some subsequent transaction?

Mr. VAN ALEN. That is right, sir.

Senator RADCLIFFE. That presupposes, I suppose, that the damaged part can be repaired and fixed up?

Mr. VAN ALEN. Yes.

Mr. RADCLIFFE. I would assume in many cases it could not be done, and in that event there must be a need for second-hand parts that would not come through that transaction.