Page images
PDF
EPUB

Senator Cain. Mr. Goldberg, without being misunderstood, I want to say that you are actually a resident of Washington, D. C. You are speaking feelingly now of something that takes something out of your personal pocket.

STATEMENT OF NATHANIEL GOLDBERG, ATTORNEY, REPRESENT

ING WHOLESALE TOBACCO COMPANIES OF WASHINGTON, D. C. Mr. GOLDBERG. With the slight exception that I do not smoke.

That alone being the exception: I am a resident of the District of Columbia and have been for 26 or 27 years. I am a practicing attorney and am here solely to testify in connection with this cigarette tax.

Mr. BATES. Do you abstain from smoking because it is prejudicial to your health?

Mr. GOLDBERG. Perhaps I should not answer that question.

Senator Cain. The other day, Mr. Bates, our friend Kronheim was here representing the alcohol side. If I am not very much mistaken, he never had a drink in his life.

Mr. BATES. I do not want to have it appear prejudicial, but I do not smoke either, Senator.

Senator Cain. So you have a very sympathetic listener, Mr. Goldberg.

Mr. GOLDBERG. Yes; I have something in common with the Congressman.

In connection with the bill and our opposition to it, I represent a group of local companies. I would like, for the purpose of the record, to name them: The Washington Tobacco Co., Standard Cigar & Tobacco Co., Capital Cigar & Tobacco Co., William Deiches & Co., George W. Cochrane & Co., and the District Tobacco & Candy Co.

I also represent the District Grocery Stores, Inc., the United Food Stores, Inc., the Nationwide Service Stores, Inc., and the Independent Food Distributors of the District of Columbia, which latter organization is the retail grocers association of Washington.

These firms would like to register their opposition to the pending tax bill, for several important reasons.

There are in the District of Columbia approximately 25 wholesalers, vending-machine operators, or retailers, buying cigarettes directly from manufacturers who would have the burden of affixing the stamps to the packs of cigarettes.

Because of the problem that they would face in the way of affixing the stamps, I think most of them will have to buy these socalled metering machines to affix the stamps.

As I understand it, these metering machines are available and have been offered for sale to the wholesalers and they cost approximately $800 a piece.

In addition to that, the actual meters which run the machines are not for sale, as I understand it, but require a monthly rental of $15 per meter.

Now, we have, as I say, around 25 wholesalers who are going to have to assume the burden of affixing the stamps. When they lay out $800 for the machines, that represents an initial outlay in cash of some $20,000.

On top of that, these 25 merchants are going to have to pay out in yearly revenue for the rental of these machines a total of about $4,500 per year.

As I understand it, the same wholesalers would have the job of removing the cartons of cigarettes from the cases. And they come 50 cartons to a case.

They would have to, by machine or otherwise, slice open the tops of the individual cartons, and, by machine or otherwise, stamp the individual packages.

Senator Cain. May I stop you there?
Mr. GOLDBERG. Yes, sir.

Senator Cain. You make those observations probably on the basis of your research, which has determined that that is what must be done in those several States now under taxing law?

Mr. GOLDBERG. That is right. As a matter of fact, there are several States, Senator, that do not, for some reason, allow meter machines: which puts upon the wholesaler a worse problem, of having to affix the individual stamps by hand.

Senator Cain. It is a tough business, this tax subject, yes.

Mr. GELDBERG. The stamps have to be affixed to the individual package, the cartons have to be closed in a firm position again, and offered for sale.

Now, it so happens that the Washington wholesalers, by their geographical location, serve storekeepers in Maryland and Virginia.

The packages sold by Washington wholesalers to retailers in Maryland and Virginia would not have the tax stamps affixed, because the tax is on the sale to consumers. So the individual wholesalers would have the problem of having cigarettes in their inventories bearing tax stamps on the one hand, and a special allotment of cigarettes not bearing tax stamps, for sale to their Maryland and Virginia customers.

Now, I am perhaps not being very legal, but being practical as I can, I know the wholesalers have this problem, and they are going to have it if the tax should be passed—God forbid such a thing.

They have only ordinary help, colored help, making up orders and assorting merchandise. If they have two separate inventories of cigarettes, one with the tax stamps, and one without, and a truck driver gets on a truck to make a delivery, he might be the best intentioned person in the world, but somewhere along the line he is going to take tobacco with no stamps and deliver it to a District merchant. The merchant might pay the bill without even looking at the merchandise, and perhaps some clerk of his is going to sell those without the tax stamps affixed. And then the law provides that he is liable for a $1,000 penalty or a year in jail.

Seriously, the act, insofar as penalties are concerned, does not even require that any violation be willful or intentional. It just says the violation of the act; so if a person inadvertently, by carelessness, by the mistake of a new employee, makes a sale under those conditions, the employer is subject to criminal penalties.

Another problem is this: You mentioned before, Senator that there is no way of figuring specifically how much business is going to be lost by the application of a tax. All we do know—and we have tried to find out from other places, where the situation would be reasonably similar to what it will be in Washington—is that loss is

a

substantial. We know also that cigarettes are sold primarily as a loss leader. The wholesaler buys cigarettes at a cost of almost $1.33 a carton and sells them on the average at about $1.37 a carton.

In turn, the retailer, or some of the retailers, sell the cartons of cigarettes in this city for $1.39 and $1.41. There is just no profit in it.

In other words, it is used primarily to get people into retail stores with the idea that they will make other purchases.

The same idea is involved as in the recent starting of parking lots, with the idea that if people could park they would go in and buy things. Such a tax would drive a substantial portion of Washington's tobacco business into the nearby States. People, instead of buying cigarettes by the pack in Washington, will become accustomed to buying, or having friends and relatives and fellow employees buy cartons of cigarettes for them in the surrounding counties, which cigarettes would be free of the Washington tax.

It means reduced income tax. On top of that, it means less inventory required in the stores, and less inventories mean less payments of personal-property tax.

By the time you figure out the reduced income taxes, the reduced personal-property taxes, and the cost of handling the cigarette tax, the actual net gain in taxes is going to be very, very small.

Senator Cain. Our answer to your entire position is very clear and simple.

This joint committee wishes that it did not have to recommend any additional tax-raising measures. That is obvious. But in view of the fact that we are in need of considerable new moneys, we consider this whole tax problem, and we try to come out with what is the fairest imposition of taxes in the several fields. And still, at this time, we have no opinion as to your tax.

Mr. GOLDBERG. I understand your problem, I believe, but any tax that imposes a cumbersome burden on a small group of people, for the benefit perhaps of a large number, is certainly not equitable. On top of that, I think, to look at these things from a sensible standpoint, you are not worrying about the gross tax, but the net tax, when the other things are taken into consideration, such as the loss of personalproperty tax, and so forth, that I have mentioned.

So, instead of the $800,000 estimate, that might be reduced by 40 percent. Then, you have reduced income taxes and reduced personalproperty taxes against that, and you are liable to be left with a net gain of a quarter of a million dollars, after imposing this burdon and trouble.

There are so many problems involved in the thing that for the quarter of a million dollars that the city might gain, it is not worth it. It is not fair to the city as a whole, 'nor to the retail merchants, who are going to testify.

The only other thing I would like to do, Senator, is to leave for submission into the record a letter which Mr. W. C. Evans, who is the head of the Washington Tobacco Co. here, the biggest wholesale tobacco firm in the city, received a week or 10 days ago from a firm by the name of F. A. Davis Sons, of Baltimore, with reference to the working of the Baltimore tax and the workings of their business.

He had also prepared something in rough, because he thought he was going to submit a statement today. I would like to submit these.

Senator Caix. We will be glad to receive them, and we certainly know exactly where you stand and what your several criticisms are. The rest of the responsibility lies with us, as you will understand and appreciate.

(The correspondence referred to was not received.)
Senator Cain. Mr. A. Goldman is next.
You represent the Macke Corp.?

STATEMENT OF AARON GOLDMAN, PRESIDENT AND GENERAL

MANAGER, G. B. MACKE CORP., WASHINGTON, D. C. Mr. GOLDMAN. In part; yes, sir.

Senator Cain. You will properly identify yourself to the reporter, and tell us what that corporation is.

Mr. GOLDMAN. Yes, sir.

Gentlemen of the committee, the name is Aaron Goldman. I am the president and general manager of the Macke Corp., a concerti which has operated cigarette-vending machines here in the District of Columbia for the last 21 years; a very specialized case, Senator.

I am, in addition, one of that rare species, a native of the District of Columbia, having been born and educated here.

I am here this morning to express my objections to House bill 2281 and Senate bill 838, cited as the District of Columbia Cigarette Tax Act.

I would regret any inference on the part of the committee that, because I appear on an individual bill, I do not have a real interest in the entire fiscal problem here in the District of Columbia.

I have been for a number of years an active member of the board of trade, and serve at present as a subcommittee chairman on the Public Education Committee.

I know what the needs are for the public schools. The publicschool budget has been whittled down from the estimate by the school system of some $9,000,000 to about $3,000,000 by the Commissioners, and then down again to $1,900,000 by the Appropriations Committee, and I know that our children are not receiving the educational facilities in this city that they should.

I am also director of one of the social-service agencies here in this city, and I know the relief problem that is being created here in this city, because of the low purchasing power of the dollar that exists at present.

When I finish my statement, I would like to leave copies of a formal memorandum, setting forth in detail my position.

First let me say that I agree with the previous speakers in their arguments against the passage of the present bill to tax cigarettes sold in the District.

Surrounded as we are with two jurisdictions which have no such tax, it is apparent that every merchant selling cigarettes in the District of Columbia stands to lose a large volume of sales through the simple operation of economic law.

I think, Senator, you recognize that the law of diminishing returns apply there.

To paraphrase the well-known slogan, I doubt if anyone would walk a mile to save a penny, but I can assure you from my observation of other communities that where a 10-cent differential in the carton price

of merchandise exists, sizable quantities of cigarettes begin to How E into the taxed jurisdiction.

I therefore trust that the committee, recognizing the soundness of this point of view, will see fit not to recommend the passage of this particular act.

Nevertheless, realizing the always present possibility that the bill may pass, I feel called upon to point out certain specific objections to the bill as regards our particular business.

These points are fully outlined in the memorandum I want to leave with the committee, but I would like to take just a couple of minutes to indicate the main objections.

Under the licensing provision of the bill, as totally distinct from the 1-cent-tax provision itself, three categories are set up, namely, the retailer, the vending machine, and the wholesaler.

It is our contention that in order to avoid the possibility of discriminatory taxation between the retailer and the vending machine, these two categories should be treated as one.

The operator of merchandise vending machines is a retail merchant. Along with other retail merchants he already pays all required taxes and licenses.

I am attaching to the memorandum which I will leave with the committee, a certified schedule of District taxes paid by my company alone; and there are some six other companies in the city engaged in the same thing. It is a certified schedule which shows that for the fiscal year ended September 30, 1946, we paid District of Columbia taxes out of pocket, not talking about gasoline taxes, or hidden taxes, in the amount of $7,029.81.

You will note from this schedule that we are paying already a personal-property tax on our machines and their contents, income tax, real-estate tax, and all other taxes required of retail merchants. Therefore, to include us as a retailer would require us to pay the prescribed license at each and every premise in which we operate machines, which would certainly satisfy the intent of the bill, namely, to require a license on each premise where cigarettes are sold.

As the bill is now written, a license would be required on each and every machine. This would mean that a department store, for example, could sell cigarettes in half a dozen places throughout the store by paying one license fee, while we would have to pay six license fees,

а

[ocr errors]

а

[blocks in formation]
« PreviousContinue »