taxes on toiletries, cosmetics, and inexpensive jewelry and leather goods should be repealed because such levies are

(1) regressive in that they fall most heavily upon lower income families. This regressive feature, of course, is true of sales taxes generally;

(2) arbitrary and discriminatory. The application of the taxes to certain products but not to others of comparable nature is the rankest kind of economic discrimination and results in competitive injury to both the manufacturer of covered products and to all retailers handling them.

(3) no longer serving the purposes for which they were introduced early in World War II. In fact, such purposes no longer make either economic or political sense. The Federal Government should not be trying at this time to discourage the production and consumption of toiletries and cosmetics.

In addition, independent druggists find especially burdensome the(1) expensive and complicated recordkeeping requirements for collecting and turning over such taxes to the Government;

(2) extreme difficulty in distinguishing between taxable and nontaxable goods, with hundreds of new products coming on the market every year;

(3) frequent, time-consuming, and disruptive store audits conducted by IRS agents;

(4) general customer dissatisfaction directed toward such taxes and those who must collect the levies. (NOTE.-NARD files are crammed with complaints about the retailers excise taxes received from thousands of druggists and their customers from all over the country.)

SUBJECT: RETAILERS-TOILET PREPARATIONS WITNESS: C. W. EVANS, VICE PRESIDENT, NATIONAL ASSOCIATION OF CHAIN DRUG STORES.

I. Collection:

SUMMARY OF STATEMENT

A. Determination of application of tax to individual product. B. Marking and records for breakage, pilferage, sale markdowns, etc.

C. Collection at time of sale: (1) Errors via survey report; and (2) effect on clerk efficiency.

D. Data and cash assembly for transmission of collections.

II. Audit procedures and specific unfairness to chains.

III. Cost of administration of tax to chains.

SUBJECT: RETAILERS TOILET PREPARATIONS

WITNESS: GERALD D. MORGAN, COUNSEL, TOILET GOODS

ASSOCIATION.

SUMMARY OF STATEMENT

I. Reasons for elimination of tax on toilet preparations.

(a) Discrimination.

(b) Administrative difficulties.

(c) Problems relating to determination of taxable toilet preparations.

(d) Assessment problems.

II. Shifting of tax to manufacturer of toilet preparations. (a) Specific problems of manufacturers.

(b) Pyramiding of costs to consumer.

(c) Specific problems of retailer with respect to a manufacturers' excise tax.

SUBJECT: RETAILERS TOILET PREPARATIONS

WITNESS: WILLIAM F. WEIGEL, COUNSEL, PROPRIETARY

ASSOCIATION.

SUMMARY OF STATEMENT SUBMITTED FOR THE

RECORD

The Proprietary Association, a national trade association of manufacturers of packaged medicinal preparations, advertised and sold directly to consumers, urges the repeal of the retail excise tax on cosmetics and toilet preparations. The statute, although not intended ás a tax on medicines, has interferred with or inhibited the business practices of manufacturers of certain proprietary medicines. This has occurred in a number of ways:

1. A substantial number of proprietary medicines have actually been subject to the tax as a result of their method or manner of use or promotion.

2. Manufacturers of proprietary medicines have been precluded from making certain important and necessary claims of an incidental cosmetic nature without subjecting their products to the tax.

3. The tax has on occasion prevented manufacturers of proprietary medicines from making desirable or necessary improvements in their products, since such changes might result in attributes of a cosmetic

nature.

4. The conservative manufacturer, who does not make broad or extravagant claims for the treatment or cure of some diseased condition, may be penalized by having his product classified as a cosmetic for tax purposes

5. Manufacturers of medicinal preparations offered for prophylaxis purposes are often subject to the tax, since there has been no recognition for tax purposes of the very important field of preventive medicine.

In addition to the inherent weaknesses in the statute, it is the position of the Proprietary Association that the Internal Revenue Service in the administration of the law has failed to follow the congressional intent to the detriment of proprietary manufacturers in the following respects:

1. The failure to exempt preparations that are designed for the prevention of an undesirable condition, as well as those designed for the alleviation or mitigation of such conditions.

2. The application of the tax to products which are held out as relieving certain symptoms of a pathological condition, e.g., falling hair associated with infectuous dandruff.

3. The application of the tax to preparations which are held out primarily for their medicinal properties, but in connection with which incidental claims for toilet purposes are made as a direct adjunct

thereto.

4. The failure to recognize certain conditions, such as chapping, chafing, excessive perspiration, etc., as pathological conditions.

5. The arbitrary classification of certain skin conditions according to their cause rather than their character.

6. The classification of preparations according to the use to which they might be put and over which the manufacturer and retailer have no control, rather than according to the uses for which they are primarily designed or promoted.

The consumer should not be forced to pay a tax because a medicinal preparation he needs and desires might also in some way improve his personal appearance or prevent, as well as alleviate, a pathological condition. Accordingly, the repeal of the retail excise tax on cosmetic and toilet preparations is respectfully recommended.

SUBJECT: RETAILERSGENERAL

WITNESS: HON. LEONOR K. SULLIVAN, MEMBER OF CONGRESS, STATE OF MISSOURI.

SUMMARY OF STATEMENT

(Prepared by staff of Committee on Ways and Means)

The "wartime" Federal excise taxes on handbags, cosmetics, jewelry, and furs should be repealed. The telephone excises should also be repealed. None of these items are in a true sense a luxury; they are a necessity, and accordingly, the tax on them should be repealed.

SUBJECT: RETAILERS-GENERAL

WITNESS: JOSEPH T. MEEK, PRESIDENT, ILLINOIS RETAIL MERCHANTS ASSOCIATION.

SUMMARY OF STATEMENT

My remarks are confined entirely to the Federal retail (sales) excise taxes at the counter level of collection-cosmetics, handbags,

luggage, jewelry, toiletries, and fur and fur-trimmed garments. It is a large, inclusive list of so-called "luxuries," hard to define, subject to interpretative change, replete with contradictions as to what is and is not to be taxed.

There are many other obnoxious World War II taxes at the manufacturers' level. We are well aware of their vast inequities. We do not like them, either. They are equally discriminatory. Even more costly. Even more un-American in their purpose and effect, for they disguise, mislead, pyramid, distort.

But one must make a beginning. One must break through the remarkable caution which surrounds the elimination of a single tax even while we are spreading relief to other potential taxpayers the world over.

SUBJECT: RETAILERS GENERAL

WITNESS: LESLIE C. HACKLER, JR., TAX COUNSEL, GIBSON DISCOUNT CO., DALLAS, TEX.

SUMMARY OF STATEMENT

The present retailers excise tax should be replaced by a manufacturers tax with rates sufficient to bring in the same revenue as the retailers tax, if needed. Retailers and revenue agents both have trouble in distinguishing between taxable and nontaxable merchandise as billed on manufacturers and suppliers invoices. The retailer is liable for mistakes in identification whether made innocently or otherwise and whether made by the retailer or by a revenue agent. Revenue agents proclivity to resolve errors in the Government's favor cause heavy burdens upon taxpayers. Some revenue agents have attempted to get retailers to pay the tax on their purchases of

taxable merchandise.

If the tax were on the manufacturer rather than the retailer, the manufacturer could obtain a revenue ruling in advance of production and there would be no question as to which products are taxable. If the revenue from the present retail excise tax is needed by the Government, the tax rate could be increased if the tax is placed on the manufacturer so that the yield would be approximately the same as

now.

The trial of excise tax cases is now restricted to the U.S. district courts and the U.S. Court of Claims after the tax has been paid. This is extremely burdensome on a business as a revenue agent theoretically is not limited as to any amount of tax he sets up. Moreover, the retailer must pay the tax and then sue for a refund before he is entitled to his day in court. Litigation of excise tax matters as the law is now constituted is a constant threat to put a retailer out of business. If the Tax Court were given the same jurisdiction to hear excise tax cases as it now has to hear income, estate, and gift tax cases, this problem would be alleviated. The jeopardy assessment provisions of the Internal Revenue Code apply to excise taxes and the Government could be well protected during the trial of excise tax cases in the Tax Court before the tax is paid as it now is in the case of income, estate, and gift taxes.

In the absence of fraud, a revenue agent's examination should establish the Government's position. Revenue agents tend to make hasty examinations and set up a deficiency since the burden of proof is upon the taxpayer and the tax must be paid before an excise tax case can be litigated. This threat of additional expense to the taxpayer causes many taxpayers to settle excise tax cases for more than they feel they owe. If a taxpayer files a suit for refund in connection with an excise tax matter, the Government attorney usually requests an additional examination in order to back his side of the case. If the taxpayer resists this additional examination, the courts threaten appointment of special masters at additional cost to the parties involved. Such additional examination is a great expense and annoyance to both the Government and to the taxpayer.

SUBJECT: RETAILERS GENERAL

WITNESS: PHILIP W. SCHINDEL, EXECUTIVE DIRECTOR, VARIETY STORES ASSOCIATION, NEW YORK, N.Y.

SUMMARY OF STATEMENT SUBMITTED FOR THE

RECORD

The Statement filed by the Variety Stores Association urges that the Federal retail excise taxes be the first to be eliminated and that this be done just as soon as it is possible and prudent to cut taxes. The VSA statement stresses retailers operating problems caused by the retail excise taxes as follows:

Extent of problem.-Small stores with a total sales volume of $100,000 per year, stock from 500 to 2,000 separate taxable items. In large stores this may go to 5,000 or more items.

Cost of collection. The cost of collecting and recording Federal excise taxes cannot be accurately measured, but even a casual examination of the problem shows that the cost is high, the problem is difficult, and the results always subject to retroactive second guessing. The extra work includes (a) identifying taxable merchandise, (b) recording tax collections, and (c) checking results.

Technical problems of compliance.-General merchandise stores, which sell huge quantities of lower priced, taxable merchandise, have two specially troublesome, technical problems obtaining full and prompt rulings on taxability and audits. These combine to cause frustrations and uneasiness because the utmost care may not eliminate serious trouble-an assessment for alleged undercollections by the Government's unpaid tax collectors.

CONCLUSION

In addition to valid reasons cited by others, it urges repeal of the four Federal retail excise taxes because they are so costly for retailers to administer. After repeal, it urges that any and all future selective or broad based Federal retail taxes be rejected and that the retail level be reserved for State taxation.