Missouri:

Frank A. Theis, Simonds, Shields, Theis Grain Co., Kansas City.
Rocky Mountain Grain & Commission Co., Kansas City.

Montana:

Paul R. Trigg Elevator Co.

Montana Flower Mills Co.

Nebraska: J. Gordon Roberts, Roberts Dairy Co., Omaha.
North Carolina :

Henry J. Allison, Allison-Erwin Co., Charlotte.
L. D. Nuchols, Charlotte.

North Dakota: Harold Schaffer, Bismark.

Ohio:

H. D. Cran, The T. W. Bingham Co., Cleveland.
Walter C. Beckjord, Cincinnati.

J. B. Poston, Columbus & Southern Ohio Electric Co., Columbus. Tennessee:

R. C. Dickerson, American Cotton Shippers Association, Memphis.

Edmond Orgill, Orgill Bros. Co., Memphis.

W. F. Stephenson, Stockran-Warren Hardware Co., Memphis. Texas:

S. A. Moncreif, Moncreif Lenoir Manufacturing Co., Houston.
H. H. Baker, Humble Oil & Refining Co., Houston.

H. E. Conner, Peden Iron & Steel Co., Houston.

J. B. Thomas, Texas Electric Service Co., Fort Worth.
Jack P. Burrus, Tex-O'Kan Flower Mills, Dallas.

Ray Grisham, Western Cotton Oil Co., Abilene.

S. Zork, Zork Hardware Co.

Utah: J. A. Hale, Utah Power & Light Co., Salt Lake City. Alabama : Mrs. Una G. Ramsey, Alabama Retail Hardware Associa

tion, Birmingham.

Arkansas: Col. Robert Baker, Fones Bros. Hardware Co., Little Rock. California Curtis Hayden, Dunham, Carrigan & Hayden Co., San Francisco.

Michigan:

Robert Walohan, Birch Run.

C. H. Buhl, Buhl Sons Co., Detroit.

E. B. Morley, Morley Bros., Saginaw.

Minnesota:

Ben C. McCabe, International Elevator Co., Minneapolis.
Allan Hill, Janney, Sentle, Hill & Co., Minneapolis.

Missouri:

F. J. J. Schanakenburg, St. Louis Cordage Mills, St. Louis.
A. Wessell, Shapleigh Hardware Co., St. Louis.

Montana: Frank Bird, Montana Power Co., Butte.

New Jersey: Dewitt J. Paul, Beneficial Industrial Loan Corp., Newark.

New York:

Wilmot Wheeler, American Chain & Cable Co., New York.

Dr. Edwin R. Masback, Masback, Inc., New York.

North Carolina: N. A. Cooke, Duke Power Co., Charlotte.

Ohio:

M. G. Nussbaum, Swan Rubber Co., Bucyrus.
W. P. Tracy, The Tracy-Wells Co., Columbus.
A. J. Rorabuck, Cleveland.

Pennsylvania: E. K. Tryon, Edward K. Tryon Co., Philadelphia.

I just wanted to give you an idea of the picture of these great friends of farmers throughout the United States who are contributing to this racketeering crowd that is sending out all kinds of scurrilous literature. I will have a lot more to say a little later when they put their witnesses on the stand.

That is all, Mr. Chairman.

Mr. CAMP. Mr. Chairman?
The CHAIRMAN. Mr. Camp.

Mr. CAMP. Mr. Voorhis, I want to again congratulate you on the help you have given this committee. I am always glad to have you

come to see us.

Mr. VOORHIS. Thank you.

Mr. CAMP. I, like all the other members of this committee, receive these letters that we have referred to; and I am convinced that the businessmen of my section, small-business men and larger-business men, are under a false impression regarding cooperatives.

Mr. VOORHIS. I am convinced that they are.

Mr. CAMP. They are honestly of the belief that their competition. as represented by the cooperatives, are escaping taxes entirely. Mr. VOORHIS. That is what they think.

Mr. CAMP. And they are honest in that belief.

Mr. VOORHIS. Yes.

Mr. CAMP. Now I think that that challenges the cooperatives of America to come here and ask that a clarifying law be passed so that you can rid the minds of our business people of this false impression. I was hoping that the cooperatives would get together and stop this kind of declaring of dividends and allocations to the farmers, without paying the money to him.

Now, there is your trouble. Everybody knows that on that you pay to the farmers in cash the farmer is bound to pay taxes on it on his personal income-tax return. But there are some of these cooperatives that send the farmers a paper on which they say, "We have allocated to your account on the books of our company $94.61, which is yours. We hope you will leave it here, and if you don't answer we will take it to mean that you will leave it here to be used by the cooperative." Now, that is the thing, if I may say so, that is the milk in the coconut, and I think that is the thing you have put your finger right on. I think a lot of these cooperatives are paying their tax right now. There are a lot of them, I think, that do not declare an allocated dividend. I think there are many fine cooperatives in this country that are paying every cent of taxes that they owe, but the public does not know it and the public would not believe it if I were to tell them that. Now what you folks need to do-and this is just my own opinion, of course is to meet this thing squarely. You need to say, "We are going to pay to the farmer his dividend which we do not have to pay any tax on, and we will let him pay the tax. And we will pay tax on the profit we retain, the amount we retain, whether you call it profit or whether you call it the accumulation, or whatever you call that money." If you folks did something that would clarify that and would then let us go out and say, "I do not want to hear any more about that, the cooperatives are paying all they owe," if you could do that for us, it would be the greatest favor that was ever done for the Ways

and Means Committee generally because these people down there are just beginning to hound us every time we put our foot on the train.

I have been in my own district just recently. I was down there for 3 days. A man called me on the telephone and I think that if I could have seen him, if there had been a television method of seeing him, he would have been frothing at the mouth. He said, “I look right across the street from me, and there is a hardware store getting all of my customers. Yet you are taxing me and fixing to raise my taxes, and that fellow isn't paying a cent."

That is the way he talked and this man believes that. Now you folks cannot meet this thing by just trying to explain it every time. It is a broader question than that. The cooperatives can take care of it.

Mr. Stam told us that there were from $18 million to $25 million in these allocated dividends. You could pay the tax on that and it would be much more of a help than raising the money to form an organization to fight this organization that Mr. Reed has just described. You could do it by paying the taxes and it would be cheaper for you. It is in that way that I hope the cooperatives will get together and help up solve this problem which reoccurs here every year.

Mr. VOORHIS. Well, Mr. Camp, I would like to just say one or two things. In the first place, I would like to point out that the last time I was before the committee the chairman made a suggestion. He asked whether I would be in favor of having the federation commission, or some similar body-and he did not specify just which onemake a thorough study of this matter and come in with a report on what should be done. I said that I would be very, very much in favor of that-and I would be. I would be in favor of having legislation passed to completely clarify this whole business, as far as I am concerned.

I have already testified that where the cooperative has funds which it does not pay or allocate to its members, I think that is a proper subject for taxation. The only thing that I want to make clear is that that is taxed as of now.

Mr. CAMP. I think it is, but when you said "paid or allocated"Mr. VOORHIS. All right, I would like to speak to that.

Mr. CAMP. Here is what our folks say. Let me tell you this—and, as Mr. Doughton said, I am not arguing it, but am rather just giving you our side of this picture and I would like to say parenthetically that I think the cooperative movement in this country has done a wonderful job. As a former fruit grower, we used to ship our fruit and sometimes we never heard of it any more. The cooperatives have saved the fruit business for the farmer and they have aided other businesses. They have done a wonderful job in other areas and in many farm groups.

But they are faced with this criticism and they can correct it. They can do it as sure as I am talking, and they can do it by just saying, "We are going to pay these profits or whatever they are to the farmer. If we don't pay them we will retain them for expansion and we will pay the taxes on those funds."

Now, if they will do that, you won't hear any more because there will be no grounds for any more talk.

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Mr. VOORHIS. Now, of course, the farmer would have a perfect right to reinvest part of that money in the co-ops, would he not! Mr. CAMP. Yes; but let him first receive it. Then let him send the money back. But this assigning a piece of paper is just not right. Mr. VOORHIS. But, Mr. Camp, you realize that the farmer is taxable regardless of the form in which he receives that. It doesn't matter whether he receives it in cash or in paper.

Mr. CAMP. I realize he is taxable, but then I realize he is not being taxed. That is the point. It is not true in every case, of course. Some of them really are paying it,

Mr. VOORHIS. Well, the farmers should be paying those taxes, and that is what the law says.

Mr. CAMP. Certainly he should be, and I have thought that it could be done very simply by just letting those dividends be paid in cash, which cash would be taxed, and as to that proportion which is retained for expansion purposes let there be some sort of legislation to definitely say what is to be done with it. Now I think you folks yourselves could work that out.

Mr. VOORHIS. I certainly would welcome an opportunity to have this situation clarified in law. I would only like to point out that if all of the past refunds had been paid in cash and not reinvested, you would not have this structure of cooperatives to do the very jobs that you are talking about because it was the reinvestment of funds on the part of their members into cooperatives that made it possible for the cooperatives to perform the services that they have performed.

Mr. CAMP. Well, you speak as though the Government would take all that in taxes.

Mr. VOORHIS. No, sir.

Mr. CAMP. The Government would not tax that expansion. The rates would not be that high. They could still expand, and I want to see them expand.

Mr. VOORHIS. Let me point out this one thing, that whereas in the case of a corporation, if the corporation retains the funds for expansion, the corporation pays a tax but the stockholders do not. In the case of the cooperative, if it pays its patronage refunds in a form other than cash, the members are taxable on that as income against them even though the cooperative is not. So in order to put it on all fours, if you are going to tax that money which the cooperative receives back, you will be taxing both the member and the co-op because the member owns it.

Mr. CAMP. I never would suggest that at all. I would have the member of the cooperative pay the tax on the actual cash he receives and not have the co-ops pay a tax on that money which is sent back for expansion. It would be only taxed one time.

Mr. VOORHIS. Well, basically I am for you, Mr. Camp; but if you are saying now that we should tax a co-op by an income tax on money that is simply an investment in the co-op, I think we would have to talk about that a long time.

Mr. CAMP. I never would agree to that.

Mr. VOORHIS. I am sure you would not.

Mr. CAMP. I certainly would not.

Mr. VOORHIS. I know that, sir.

Mr. CAMP. But I think you could simplify this whole thing by letting the co-op member pay his tax on the amount of cash dividend

which he receives and is not sent back to the co-op. Then let the co-op pay a tax on that only which they retain. Therefore, the money would be taxed just one time.

Mr. VOORHIS. On any money that the co-op retains on its own name with that I thoroughly agree.

Mr. CAMP. That is all, Mr. Chairman.

Mr. KEAN. Mr. Chairman.

The CHAIRMAN. Mr. Kean.

Mr. KEAN. If a nonexempt cooperative does business with a nonmember and pays the patronage dividends only to members, does the cooperative pay the corporate income tax on the profit it makes from the nonmember business?

Mr. VOORHIS. Yes, sir. Every dime of it at regular rates.
Mr. KEAN. Whether it is distributed or not to the members?

Mr. VOORHIS. Whether or not it is distributed to the members. It cannot distribute that money to the members without first paying the corporate income tax.

Mr. KEAN. Now if the profits are distributed to the members in proportion to their patronage, the members pay income tax on the distribution, do they not?

Mr. VOORHIS. The members pay it if it affects their taxable income. Let me explain that just a moment. If you receive a discount on purchases at the stationary room, for example, of if my wife buys a dress that is marked down from $19.99 to $13.99, we don't regard that as generating taxable income because it simply is a reduction of the cost of a consumable item.

Mr. KEAN. Well, I am talking about nonmember business. I am talking about business that they do with nonmembers.

Mr. VOORHIS. And where they do not distribute?

Mr. KEAN. No. If profits on nonmember business are distributed, will the members pay income tax.

Mr. VOORHIS. In that case that would be income to the members. Mr. KEAN. It would be income to the members?

Mr. VOORHIS. Yes; and the members should be taxable on that as income to them in all cases.

Mr. KEAN. How do you notify the people who do pay these taxes that there is a tax due? For instance, when something is credited on the books to someone and he never sees it, how does he know that he has to pay income tax on that? Do you actually send out notices that there is income tax due on these things?

Mr. VOORHIS. In most cases, yes. I think that practice should be improved in some instances. But he always receives a notice that he has received this form of refund. He always receives that.

Now, whether in every single case he is advised in that notice that his is taxable income to him, I cannot tell you that in every single case I know that is done. I do know that he is always notified-and I think personally that he should always be notified and that in most cases by all of the well-run co-ops he is notified--that this represents an addiion to his taxable income.

Mr. KEAN. Thank you.

Mr. CURTIS. Mr. Chairman.

The CHAIRMAN. Mr. Curtis.

Mr. CURTIS. Mr. Voorhis, what constitutes the cooperative league?