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The tax at point of dressing is fair. For, with the tax placed here, the entire fur industry from raw fur source to retailer can and will bear a portion of the tax load in order to lighten the burden on the consumer and thus keep demand for furs high, business active, profits and subsequent tax gains to the Government assured.

2. A TAX AT POINT OF DRESSING CAN BE POLICED AND COLLECTED EFFICIENTLY AND SIMPLY

Why? Because it's the bottleneck of the industry. There are only 111 dressing plants, but there are 70,000 to 75,000 potential fur outlets for fur articles. You can't police a huge metropolis with a village constable!

And it's impossible to keep check on 75,000 establishments without a large and expensive force of collectors, bookkeepers, clerks, inspectors, etc. Much criticism has been leveled at bottlenecks in industry.

Yet here is one bottleneck which can serve to advantage!

Let us pause for a moment and consider what is meant by dressing a fur. When a pelt is sold at one of the big auctions to which thousands of trappers send their furs, it is in a raw state.

Before the skin can be made into a coat it must be "cured." This is one of the jobs done by the dresser. The skin is made pliable, given toughness and wearing quality, and processed so the hairs will not shed.

Another service performed by the dresser is to dye the skin. The shade and blend is usually prescribed by the owner. The dresser does not own or deal in skins. He is merely a processor.

An undressed skin is a raw skin and one which cannot be used in manufacture. On either side of the point of dressing, the business of getting fur from animal to coats for consumers, fans out from and into the hands of thousands of people involved in various aspects of the fur industry.

To place a tax at any other point is to create a gigantic problem.

This inefficient and unnecessary complication of admistration is one of the chief objections to the proposal for a tax at point of retail sale.

The simplicity of collecting the tax at the point of dressing is further emphasized by the fact that 80 percent of all skins are dressed within 25 miles of the New York City fur market.

Furthermore, more than 90 percent of all skins dressed are handled by less than 25 percent of the total of 111 fur dressers.

The close cooperation of the Internal Revenue Department with these 25 fur dressers would insure the collection of more than 90 percent of the potential tax.

3. COST OF COLLECTING A TAX AT THE POINT OF DRESSING WOULD BE AT A MINIMUM

One of the main advantages of the tax at point of dressing would be that it would take the impost out of the tin-cup collection class and make it a profitable and just levy.

The ease of collecting a tax at the point of dressing of furs through the existing 111 firms handling this business is obvious.

Contrast with the economy and ease of administration of the point of dressing tax the numerous problems and the great expense inherent in the proposed point of retail sale tax. This would require the examination of a maze of transactions, possible schemes, and tax-evasion devices, and a general policing of tens of thousands of retail fur outlets.

4. INCOME TO THE GOVERMENT FROM A TAX AT POINT OF DRESSING WOULD FAR EXCEED ANY OTHER TYPE OF TAX ON FURS

This point needs no support. The tax that yields the greatest revenue-and still is fair and equitable-is preferable, although still painful.

It was once said that “taxation without representation is tyranny." It is equally true that taxation without effective administration and maximum return is an abuse of serious nature.

The total value of skins dressed, inclusive of dressing charges, is $200,000,000 annually.

The Government would obtain, by imposing a 10-percent tax at the point of dressing, the sum of $20,000,000. A 10-percent tax at the point of dressing would net more than the Government is seeking.

C1977-41-54

Since so very little expense would be required for the enforcement of the point of dressing tax, the Government would receive and benefit by practically this whole amount.

A tax imposed at the point of retail sale would bring considerably less than $20,000,000, as is evidenced by the experience of the Government under the last fur tax.

During the period that the last fur excise tax was in effect (1932-38) the Government did not obtain in any 1 year even as much as $8,000,000. At that time the tax was levied on the sale by the manufacturer of an article made of fur. The Government received the following revenues annually from this tax:

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5. A TAX AT POINT OF DRESSING WOULD INSURE EQUITABLE AND INCLUSIVE ASSESSMENT

Under the proposed point of retail sale tax, the manufacturer of cloth garments which are fur trimmed escapes assessment. Thus he will be enabled to price his fur-trimmed cloth coat at an even lower figure when he competes with the furrier in the retail field.

This is unfair and will tend to depress the fur market.

A tax at point of dressing will be collected from all users of furs, for whatever purpose.

Obviously this is both fair and democratic.

6. A TAX AT POINT OF DRESSING WOULD INSURE ACCURATE VALUATIONS BEING PLACED ON THE FURS FOR TAX PURPOSES

When the owner of a fur sends it to the dresser a certain valuation is placed on it.

This valuation is the basis for any claims which might be made later because of loss from fire, theft, or damage during the dressing process.

Obviously the owner of the fur is going to declare it at its full and accurate value. His statement of their worth, fixed at point of dressing, would then provide the Government with a fair and accurate estimate for taxation purposes. Furthermore, checking these valuations would be a simple matter for the Government.

It would be simple because the tax-collection agency would need check only the books of the comparatively small group of 111 dressers.

Such a task is insignificant compared to the work and expense of checking these valuations individually with thousands and thousands of retailers. The skin owner's cost bills representing purchases (which are almost always made at large auction sales) could always be utilized to refute false valuations and false low valuation would result in large profits and high income taxesless desirable to the skin dealer and manufacturer (most of whom pay income taxes in the higher brackets) than paying the proper dressing tax.

It also follows that it is much more difficult to arrive at a fair and accurate valuation at point of retail sale. This is because so many variables have entered into the picture. A finished coat can be priced anywhere within a considerable range. But a skin has a definite price tag.

Taking the valuation of the furs at point of dressing is the only way to secure a fair and accurate valuation.

This is not true of the proposal to tax at point of retail sale.

7. A TAX AT POINT OF DRESSING WOULD BE IN THE BEST INTERESTS OF DEFENSE, LABOR, AND THE INDUSTRY

The fur industry is a highly specialized field.

Trappers, fur fabricators, dyers, and dressers cannot apply their experience in other fields.

This means industrial maladjustment, unemployment, and a decrease in national production if an unfair tax jeopardizes the fur industry.

Nor can the skilled workmen employed in the fur industry be classified among those whose talents can be converted to defense work.

A jeweler can use his talents in making instruments for flying or navigation. A machinist can be converted into an expert airplane worker.

But a breeder, trapper, or skin dresser operates in such a specialized field that their experience and skill cannot be diverted into other channels.

In connection with this picture, it should also be noted that the fur industry indirectly contributes to the defense picture by freeing materials vital to preparedness. Huge amounts of wool, leather, cotton, and other fabrics are made available for uniforms and other purposes as a result.

For these additional reasons, then, it is important that a tax on the fur industry be one which does not threaten its very existence.

This means it should be a tax at point of dressing.

8. A TAX AT POINT OF DRESSING HAS ALREADY PROVEN ITSELF SUCCESSFUL IN CANADA

It is only common sense to profit by somebody else's experience.

The proposal to tax furs at point of dressing works.

A tax at point of retail sale is an experiment and might be a failure.

In fact the former excise tax on furs-repealed in 1938 because it was impractical and too costly to administer-revealed the same weakness in structure that would occur if an attempt were made to tax furs at point of retail sale.

The oil tax, collected from fur manufacturers, proved unsound because there were too many outlets to police and collect from.

Yet a tax at point of retail sale would expand even that unwieldy set-up. Let us take a look at the point of dressing tax employed by the Canadian Government.

It is approximately identical with the one herein recommended,

From 1926 to 1929 the Canadian tax was 8 percent. In 1939 it was raised to 12 percent. Section 86 of the special War Revenue Act reads as follows: "There shall be imposed, levied, and collected a consumption or sales tax of 12 percent upon the current market value of all furs dressed and/or dyed in Canada, payable by the dresser or dyer at the time of delivery by him."

This plan has proved eminently successful. It has yielded revenue beyond expectation. It has been economical to administer. It has worked no injustice to consumer or industry.

The success of the Canadian fur dressing constitutes conclusive proof of the foregoing reasons in favor of a tax at point of dressing.

(Signed)

RETAIL MANUFACTURING FURRIERS OF AMERICA, INC.,
FUR TAX COMMITTEE,

JACK FINE, Chairman, Baltimore, Md.
P. W. WILDERSON, Co-chairman, Des Moines, Iowa.
LOUIS KROLL, Treasurer, New York City.

The foregoing subscribed to by leading associations, such as the National Fox Breeders' Association, leading firms and individuals within the entire fur industry, and such interested organizations as the National Retail Dry Goods Association.

TAX COMMITTEE, RETAIL MANUFACTURING FURRIERS OF AMERICA, INC.,
New York, N. Y., August 19, 1941.

Hon. WALTER F. GEORGE,

Chairman, Committee on Finance,

United States Senate, Washington, D. C.

DEAR SENATOR GEORGE: Yesterday I promised that I would present to you additional data on the question of imported furs.

At the present time, there is a tariff on the importation of dressed skins, paragraph 1519 (a). This duty is 25 percent ad valorem. There is no tax on undressed (raw) furs.

Clearly, the importer would not be inclined to import dressed skins in preference to undressed skins for the simple reason that he would be compelled to pay a 25-percent duty. As to the imported undressed skins, they would pay their share of the tax when dressed or cured, under our proposal.

At this very moment the Government has in its employ a number of experts who determine the values of imported dressed fur in order to insure the collection of the full duty.

We believe that placing the fur tax at the point of dressing will benefit the Government-by adequate taxes-and the consumers-by holding down pricesand the fur workers-by removing the threat to their employment-and our industry-to whom you gentlemen are looking for tax revenue in this emergency. Although I fear that the pressure of time upon your committee does not permit it, I do wish you and your colleague Senators would have an expression from a Canadian official of their satisfaction with the more than 22-year successful operation of their fur tax-operated on the basis we now recommend. Respectfully yours,

The CHAIRMAN. Mr. Zachry.

CHARLES GOLD, General Counsel.

STATEMENT OF A. L. ZACHRY, ATLANTA, GA., PRESIDENT, ATLANTA RETAIL MERCHANTS ASSOCIATION

Mr. ZACHRY. Mr. Chairman and gentlemen of the committee, my name is A. L. Zachry. I am president of the Atlanta Retail Merchants Association and a director of the Georgia Mercantile Association. I am appearing here in behalf of the Georgia retailers.

I shall confine my remarks to the retailers' excise taxes.

I shall present three reasons why the proposed taxes on jewelry, furs, and toilet preparations should be imposed at the level of manufacturing rather than at the retail level.

Let me say at once that retail merchants are completely willing to pay their share of the national-defense effort. But the proposed retail excise taxes will not be paid by the retailer. He cannot afford to absorb a 10-percent tax, because he does not make anywhere near that much net profit. He must, therefore, pass the tax along to the public. The three reasons are: First, an excise tax at the manufacturing level will be easier to administer and will offer less chance for evasion. Second, they will be cheaper to collect. Third, the burden of determining the exact amount of the tax is tremendously easier for manufacturers than for retailers.

I should like to discuss each of these reasons briefly.

1. The tax at the manufacturing level is easier to administer. Obviously, there are fewer manufacturers producing these lines than there are retailers selling them, and there will be fewer returns to audit. More careful auditing will prevent evasion, and the more efficient collection will undoubtedly yield a larger net return to the Government. Take furs, for example. You have already been told that there are more than 40,000 retail fur outlets in this country, about 1,500 fur manufacturers. To impose the fur tax at the manufacturing level would require the auditing of about 1,500 returns as compared with more than 40,000, a ratio of about 1 to 25. This example is conservative. Furs are a specialized business.

Many kinds of retail units sell jewelry and practically all of them sell toilet preparations: Department stores, drug stores, 5-and-10cent stores, crossroads stores, wayside stands, beauty parlors, and barber shops.

Moreover, the retail store carries a tremendously larger number of different items than are made by a single manufacturer. For instance, of the large number of different items carried by such units as department stores, drug stores, and variety stores, some would be taxable and some would not. It is inevitable that many retailers, with no intention whatever of evading taxes, would fail to report the sales of tax

able items, simply because of the sheer size of the physical job of classification. The manufacturer specializes in a few items and, therefore, could make the determination with relative ease.

2. The tax at the manufacturing level is cheaper to collect. This is closely related, of course, to the first reason. The Government is interested most of all in net revenue. That is why this is worth separating as a special reason. Mr. Sullivan, Assistant Secretary of the Treasury, in his own testimony before your committee, gave an excellent illustration which proves that the tax would be cheaper to collect at the manufacturing level than at the retail level. He said that 3,800 extra employees would be required to collect the proposed use tax on automobiles, which was expected to yield $160,000,000. He contrasted this with the gasoline tax, which yields $343,000,000 and is collected by 15 employees, and with the tobacco tax, which yields $698,000,000 and is collected by 88 employees. The contrast might not be so startling with the jewelry, fur, and toilet preparations taxes, but if you combine the evasion possibilities with collection costs, it is reasonable to suppose that a larger net revenue would come from taxes at the manufacturing level.

The cost of collecting these retail taxes from the wide variety of retail outlets would be tremendous. We are in sympathy with the fact that a certain amount of revenue must accrue from these taxes. We do not believe that the net result of a retail tax on these items will be as great as a tax placed at the manufacturing level because of the excessive cost of collection. We are as interested as you are, in being sure that the money raised by any such tax will go primarily to defense projects and that too much of it will not be absorbed by administrative costs.

3. The determination of the tax is easy for manufacturers and may be impossible for retailers. The third and last reason can be illustrated best by simple illustration. Suppose that a retailer is selling some costume jewelry, say a necklace, for 25 cents. He cannot collect 212 cents as tax. He must either collect 2 cents or 3 cents. If he collects only 2 cents, he must himself absorb a portion of the tax, a half-cent, which is 2 percent of the selling price, or approximately his net profit. If he collects 3 cents, there will be plenty of customers to complain and accuse him of gouging them. But, under the bill, as passed by the House, the retailer would be compelled to take one course or the other. On the other hand, the manufacturer sells these necklaces by the dozen. The retailer will probably pay somewhere between $1.80 and $2.40 a dozen for these necklaces which he retails for 25 cents each. You can readily see that it will be a simple matter for the manufacturer to compute and remit the exact tax on any such amount.

These examples could be cited without end. It would be particularly illuminating if you would take a personal trip through the toilet preparations departments of department stores, variety stores, or drug stores. But since the principle should now be clear, I will not take up your time with more examples.

You will hear, of course, that since the manufacturer's price is inevitably lower than the retail price, the Government's revenue would be less from a tax at the manufacturing level. That depends in part upon the rate of the tax imposed.

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