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 CAIN. 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 conceru 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 flow 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,

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if that same department store chose to use machines instead of overthe-counter selling.

This would amount to a tax on a mode of selling rather than on the merchandise sold.

Moreover, there are many outlets here in this city which, in addition to selling cigarettes through a vending machine, also carry them behind the counter in small quantities for the purpose of having same on hand should the machine go out of order, or more frequently, to carry brands which are not stocked in the machines.

The manner in which the bill is now written would require the retailer to purchase a license and would also require the vending machine operator to purchase a license.

Moreover, by setting up a separate classification for retailers and vending machines, the license for each of which is separately stated, "at a rate not to exceed $5," it is possible, although not probable— in view of the fair-mindedness of the Commissioners-that a license fee of 50 cents might be set up for retailers and a license fee of $5 for each and every vending machine.

Operators of vending machines seek no special tax privilege. However, if each establishment is required to pay "X" dollars for a license to sell cigarettes, the vending machine operator is willing to pay "X" dollars to operate a machine or machines in that same establishment. The vending-machine operator does not want to be singled out for special taxation.

For the information of the committee, there are at least 11 States in which licenses for cigarette retailers and cigarette vending machines are identical and in the amount of $1 each, or less. Included among them are Massachusetts, New York, Rhode Island, Vermont, and Washington.

Incidentally, there was killed in the Vermont Senate on April 3 a bill to provide for a fee of $5 for each vending machine outlet; therefore, the present law remains, that a cigarette-vending machine is classed as a retail outlet, a $1 fee being required for same.

The above arguments may appear a trifle academic to the committee. However, my particular industry has been battling over the last 20 years to remove from the public's mind the idea that machines should be taxed per se.

The profit from our business comes from the sale of merchandise which the machine contains and not from the machine itself, just as the retailer makes no profit from the number of shelves on which his merchandise is stocked.

Attached to the formal memorandum which I am submittting, is a copy of the cited bill, showing the slight changes which would accomplish the effect desired; namely, to establish one category composed of the retailer, and the vending machine.

Now, finally, to descend to a practical matter which concerns our business probably even more than the previous one:

- We refer to the amount of the license, which may be set, at the discretion of the Commissioners, at a rate not to exceed $5 for each and every such machine. It is respectfully pointed out to the committee that a license of $5 is altogether out of proportion to the regulation

necessary and, in the case of our business alone, would require an annual payment of $7,725 for the 1,545 machines installed within the District of Columbia.

Audited records for our fiscal year, which I am perfectly agreeable to submit to the committee in closed session, show that the net profit from each cigarette-vending machine is slightly less than $18 before Federal income tax.

It must be remembered that the sale of cigarettes through machines is a supplementary, casual sale.

In those retail establishments where there is a large volume of business, the proprietor will always prefer to provide a cashier or other person to sell them.

The committee will probably be surprised to learn that the average daily sale of cigarettes through machines in the District of Columbia: amounts to 15 packages.

For the most part, machines are located in outlets only having an occasional call for cigarettes, and particularly in out-of-the-way offices, shops, and buildings, where management desires cigarettes to be available on the premises. Thus, with a net profit of only $18 per machine, a license of $5 would amount to a levy of more than 27 percent of the profits of this entire business.

In one fell swoop it would more than double the taxes we already pay to the District, since we paid $7,000 last year.

This is an unreasonable burden which we do not think it is the desire of your committee or the Congress or the District Commissioners to impose on any particular category of retailer.

Nevertheless-and this is the important point-just such a condition can be created if the present bill is permitted to stand as it is written.

Therefore, we earnestly request your committee to remove this serious threat to our business by setting a maximum license of not more than $1, which, as it has been mentioned earlier, is the very amount. in the same States in which most of this committee's members reside. In conclusion, may I again state my basic feeling, that the tax is undesirable because of the geographical nature of the District, which would cause a decrease in local cigarette sales.

Should the committee fail to be impressed with these objections: which the other speakers and myself have made, I respectfully ask. them to make the alterations in the bill which I have suggested (1) to put the vending machine and the retailer on a parity, both as to classification and as to amount of license; and (2) that the license fee be prescribed at a rate not to exceed $1, which is certainly adequate for regulatory measures.

I thank you, gentlemen, for your kind attention.

Senator CAIN. You have raised several questions in my mind about your business, with which I am totally unfamiliar, and I appreciate that very much.

If you will leave what you care to leave for the record then

Mr. GOLDMAN. I should like to leave this whole memorandum, with the attached statement.

Senator CAIN. Very well.