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STATEMENT OF WESLEY E. DISNEY, WASHINGTON, D. C., REPRE

SENTING THE NATIONAL BUILDING GRANITE QUARRIES ASSO-
CIATION, INC.
The CHAIRMAN. Sit down and be comfortable, Mr. Disney.

Mr. DISNEY. Mr. Chairman and members of the committee, my name is Wesley E. Disney, 501 World Center Building, Washington, D. C.

Senator CARLSON. I would like to state for the record that it was my privilege to serve on the House Ways and Means Committee for several years with Mr. Disney and I certainly at that time never anticipated that I would be sitting here to hear him as a witness.

Mr. DISNEY. You are sitting in judgment on me.
The CHAIRMAN. It is a pleasure to have you.
Mr. Disney. It is my pleasure to be here this morning.

I represent the National Building Granite Quarries Association, Inc. You will recall that within recent years you gave granite 5 percent depletion. We are not squealing but we need some help.

At page 156 of the bill, at paragraph (f), we propose and hope the committee will adopt an amendment on this order, that

In the case of granite, limestone, marble, sandstone, slate, and other natural stones, ordinary treatment processes shall include any of the following: Sawing, grinding, cutting, polishing, and otherwise fabricating to dimension,

Our proposed amendment may include others who are not interested in it, in which event the committee may be at liberty, so far as we are concerned, to eliminate the words "limestone, marble, sandstone, and slate," so as to make the amendment read:

(f) In the case of granite and other natural stones, ordinary treatment processes shall include any of the following: Sawing, grinding, cutting, polishing, and otherwise fabricating to dimension.

A quick glance at the definition of ordinary treatment processes, which begins on page 155, will illustrate that the Congress heretofore has singled out many minerals—for instance, coal, sulfur, iron, and so on—to give its expression as to what ordinary treatment processes shall be considered in the specific instances.

The uses of granite are many. For example, it is used as a building material, bridge material, crushed stone for construction and roadbuilding, street curbing, poultry feed, monuments, and other uses. Building material, usually under architectural specifications, is required to be processed to form. Likewise bridge material. Street curbing must undergo a process to shape it for uniformity. One member of our association makes large quantities of slabs or markers for cemetery uses. These are required to be within certain specifications by the War Department.

We are led to believe that the Treasury has the impression that the point at which percentage depletion begins is that point at which the rough blocks of granite are loaded on cars or trucks at the quarry, and the transportation to the processing mills will not be allowed, nor will the milling of the rough blocks be allowed. This would -eem to be in the face of what the Congress has provided in its

Jefinition of what "ordinary treatment processes” includes, when it j.as said, in paragraph (2), page 155 of the present bill:

The term “mining" includes not merely the extraction of the ores or minerals from the ground but also the ordinary treatment processes normally applied

by mine owners or operators in order to obtain the commercially marketable mineral product or products.

Now, section 613 (a) in the definition of ordinary processes goes ahead to specify, in certain instances.

I believe that statement will be readily recognized by every member of the coinmittee.

There is a very good reason why this matter should be clarified hy the Congress at this time. The granite producers are convinced that they are entitled, in making their calculations for percentage depletion, to have included therein ordinary treatment processes. They are further convinced that the courts will hold, in line with the other provisions already in the law defining ordinary treatment processes, and as a matter of statutory construction, that they will be allowed what is provided in our proposed amendment. However, we do not want to have to resort to or rely on the courts, if the Congress will make its definition. It can readily be seen how much litigation will be avoided if the committee will adopt this amendment, because it will put granite and other natural stones in a class where ordinary treatment process is specifically defined. This will not only aid the granite producers but will be of assistance to the Treasury Department, to have a definite understanding what ordinary treatment process in the granite business should consist of. In other words, if the Congress indicates the cutoff point at which percentage depletion ends, it will be a clarification of the statute that will be of great value.

For instance, talc producers, under a decision of the Tax Court, are allowed as ordinary treatment process to fine grind the tale into its ordinarily merchantable product before the cutoff point attaches, and this bill makes the fine grinding of talc a part of the ordinary treatment process. Other illustrations might be offered relating to iron, sulfur, coal, et cetera.

The question of the cost might naturally arise. One friend, in writing to Senator Byrd, makes the statement that “by spelling out the processes in our proposed amendment, it is going to cost the Treasury no more than was provided for in the enactment of this section, and he cites the other defined treatment processes provided at paragraph (4).

We cannot believe that the cost will be considerable, if any. If it will lose the Treasury an inconsiderable amount of money, it may be said that by the very paragraph which we are seeking to amend, other industries are accorded a cutoff point by the definition of ordinary treatment processes which the Treasury follows.

If it should be contended that granite is a type of mineral which, under paragraph (C) is "customarily sold in the form of a crude mineral products," our answer is that very little of the granite produced in the United States is sold in its crude form, although there is a small quantity of granite that is sold as crude granite.

The term "crude mineral product” as defined in the regulations and as used herein, means the product in the form in which it emerges from the mine or quarry. There is practically no market for granite in its crude form. Only a small portion of that produced in the United States is sold crude. It is necessary to subject the crude granite to various processes before it has a market value. Granite

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is sold in various grades or forms for various uses, and the treatment processes are determined by those uses.

In general, the types of equipment used and the types of treatment processes applied for a particular use, are similar throughout the industry. From these facts, it appears that the “gross income from the property” in the case of a granite producer is the gross sales of the product, whether sold in the form or grade for building material, bridge material, crushed stone for construction and roadbuilding, street curbing, poultry feed, or monuments, or for any other use. The statute does not contemplate nor require a producer to change or disturb its ordinary and usual business operations.

We understand that this bill is for the purpose of clarification of the law to the end, among other reasons, that less litigation will ensue rather than more difficulties with the Treasury. With that purpose in mind, this amendment will make definite the cutoff point for depletion for granite, rather than leaving that to the courts in the many cases that are sure to arise. Attention to this detail at this time, will contribute to taxpayer satisfaction, lessen his costs, and enable him to avoid many troublesome problems.

Thank you, Mr. Chairman.
The CHAIRMAN. Thank you, Mr. Disney.

Senator CARLSON. You mention that little granite would be sold as quarried. That would apply to most stones, wouldn't it?

Mr. DISNEY. That is right. Most of our granite has to be processed in order to sell it, at all. For instance, street curbings here in Washington. If you go anyplace in Washington, you will find granite. In our area, they are concrete, but here they are granite and they have to be processed. There would be no sale for it at all in crude blocks as it comes from the quarry.

The CHAIRMAN. Don't they have establishments that do nothing but the final finishing of the granite ?

Mr. DISNEY. Yes. For instance, 1 mill I have visited up in Massachusetts, they have a huge quarry and they get the granite out in huge chunks in rough form and then it is moved over there 2 or 3 miles to a mill that has all the modern sawing and polishing equipment.

The CHAIRMAN. Is that mill owned by the quarry ? Mr. DISNEY. Owned by the same corporation, yes, sir. It is a part of it.

Seantor CARLSON. That same would be true out in our section, limestone that is now cut and processed for building stone, and Bedford lime which is used for trim all over the Nation, which is an Indiana stone.

The CHAIRMAN. Thank you very much.
We are glad to have had you with us.

.
Mrs. Springer, do we have any more witnesses ?
Mrs. ELIZABETH B. SPRINGER, clerk. We have no more witnesses.
The CHAIRMAN. We will meet at 10 o'clock, Monday morning.

(By direction of the chairman, the following is made a part of the record :)

THE O'MALLEY LUMBER CO.,

Phoenix, Ariz., April 17, 1954. Hon. EUGENE D. MILLIKIN, Chairman, Senate Finance Committee,

Senate Office Building, Washington, D. C. DEAR SIR: Following instructions of Elizabeth Springer, chief clerk of your Finance Committee, I am submitting the enclosed written testimony for your tax bearings.

I appreciate this opportunity of being able to express my views and those of my associates on this very important matter. Sincerely yours,

JAMES C. O'MALLEY, Secretary and Sales Manager.

TESTIMONY OF MR. JAMES C. O'MALLEY BEFORE THE FINANCE COMMITTEE OF THE

UNITED STATES SENATE

My name is James C. O'Malley, of Phoenix, Ariz., where I am the secretary and general sales manager of the O'Malley Lumber Co. I come before your committee to speak for myself as an individual businessman interested in the tax problems of business and my country, and also as a delegated representative of the following organizations: Arizona Retail Lumber & Builders Supply Association, Inc. Implement Dealers Association of Arizona Arizona Agricultural Chemicals Association Arizona Pest Control Northside Hay Mill & Trading Co. (Glendale) Arizona Association of Security Dealers Arizona Hotel Association Southwest Flour & Feed Phoenix Retail Merchants Association Arizona Plant Food Arizona Cotton Traders Association Arizona Appliance Merchandisers Association Retail Grocers Association of Arizona Arizona Tire Dealers Association Arizona Automobile Dealers Association Arizona Liquor Dealers Association Comptrollers Association of Arizona

I myself and these organizations and their members are deeply concerned with the subject of Federal taxation, particularly as it relates to tax exemptions or favoritism granted to cooperative and mutual types of businesses competing with me and also many members of these organizations. But I wish also to call your special attention to the fact that several of these organizations and their members, for whom I speak, have no direct competition from tax-exempt groups, but nevertheless are equally concerned about being called upon to pay higher taxes because others are permitted to escape their fair share of the load. I am certain you will find that this feeling exists not only in my own State, but in all States of the Republic.

Populationwise, Arizona is relatively a small State, but the growth of cooperative and mutual corporations in our State, on tax-free earnings, is following the same pattern as that which exists to a greater degree in other and larger States. In spite of this, I do not know of any instance where businessmen or any of their various organizations have come before this or any other committee of Congress seeking punitive legislation against these cooperative and mutual competitors. But I do know that all across this Nation there is a deep resentment, and a growing one, by businessmen and their organizations—whether directly affected competitively or not—that there is no longer any excuse, if there ever was one, for tax discrimination against one type of business and tax favoritism for another.

The technical aspect of this problem has been presented to you many times. I have seen and read much of it. It is not my purpose to go into the technicalities. Your own staffs are fully familiar with them and have, I know, made them available to you.

Most of our members have grown with the State. As a matter of fact, some of them, or their forbears, first came here and established their businesses during territorial days—for example, our corporation was established in June of 1908, during the territorial days, and we have paid our full share of taxes at the corporate level ever since the tax law has been in existence. They believe in fair play and justice and have always placed their duties as citizens above their personal interests. It is only natural, therefore, that they question the integrity of these so-called nonprofit businesses that have begun to invade the State but are unwilling to accept the full responsibilities of citizenship, including that of taxpaying.

In the late twenties and early thirties we began to notice cooperatives being formed to market citrus produce and cooperatives to gin and market cotton ; these were soon followed by retail stores marketing complete lines of farm machinery, lumber, fertilizer, hardware, petroleum products, furniture, and other farm supplies. The volume of business conducted by these cooperative groups has risen from $10 million in 1917 to $26 million in 1952, according to the Farm Credit Administration. That business should produce an income tax of a half million dollars from our little State alone. The business conducted by mutual financial institutions and certain types of mutual fire and casualty insurance companies, according to authoritatize sources, has increased even more than that of cooperative businesses.

There are specific deals being offered all the time to various businesses in our State. I called the attention of our two Senators in February of 1951 to a proposal by a charitable trust from California offering to purchase over 3,000 acres of one of our most successful farming operations in the valley. The general manager of the farm told me the transaction was patterned so as to escape taxes.

Now, we do not object to cooperative or mutual business as such, but the taxpaying citizens of Arizona object to having to reach into their own pockets to make up one-half million dollars to a million dollars or more. That is the reason our automobile dealers, investment bankers, and others have joined to protest this malicious imposition of taxes.

Your committee has before it House bill 8300, a comprehensive bill to revise the internal revenue laws of the United States. In the general statement accompanying that bill, I found this all-important statement:

"In general, the purpose of these changes has been to remove inequities, to end harassment of the taxpayer and to reduce tax barriers to future expansion of production and employment.

“The restrictive effects of the present tax law on economic growth have been bscured and somewhat offset during the past decade by the inflationary pressures (f the war and postwar periods. It is now apparent that prompt adoption of this Lew tax law is especially timely in order to create an environment in which Lormal incentives can operate to maintain normal economic growth."

That is a lofty expression of purpose and we know that it is fundamentally right. We have only to look at the tremendous advance made by cooperatives and mutuals to see what expansion can be made when there are no restrictive tax hurdles to overcome.

In view of the fact that the President had asked for a removal of the inequities in our tax law, I was pleased to see this statement of purpose at the opening of your report on the bill now before you. I looked in vain, however, for any provision that would place cooperative and mutual competitors on the same basis as their taxpaying friends.

The general statement also states that the bill has provisions to remedy many problems of small business. I quote:

“The bill contains many provisions which are important to the growth and survival of small business. These include more adequate depreciation, a more realistic policy with respect to retained earnings, more liberal provision for research and development expenditures, a stimulus to equity financing through dividend relief, recognition of business practices for tax-accounting purposes, and simplified procedures for partnerships and corporate reorganizations.”

Now, I am appearing for small-business men who realize that they need a more realistic policy for setting up depreciation, for providing research and development expenditures, and for equity financing. Yes; we need all of those things but what good are they to us if the big loophole is still left open for our competitors to compete with us on a tax-free basis. The greatest deterrent of many small businesses today is not restrictive provisions of our present tax law but the failure to apply the same tax law to their competitors.

I appreciate this opportunity to let you know how the businessmen and taxpayers of Arizona feel about this problem.

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