RECOMMENDATION The National Association of Railroad & Utilities Commissioners strongly urges the Congress to repeal the existing Federal excise taxes upon both local and toll telephone and upon telegraph communication services. SUBJECT: FACILITIES AND SERVICES COMMUNICATIONS— WITNESSES: T. V. BIHLER, TREASURER, AND JOHN J. SUMMARY OF STATEMENT A. Presentation of legislative history of the excise tax on wire and equipment services. B. Discriminatory aspects of the excise tax on wire and equipment services. (1) Department of Agriculture's new market news service and letter of the Commissioner of Internal Revenue to Senator Harry F. Byrd dated March 4, 1964, on this subject matter. (2) U.S. Court of Claims; trial commissioner's recommended decision in Dow Jones News Service case. C. Constitutional aspects of imposing taxes on news services. SUBJECT: FACILITIES AND SERVICES WIRE AND EQUIPMENT SERVICES COMMUNICATIONS BACKGROUND MUSIC WITNESS: C. C. COWLEY, PRESIDENT, MUZAK (DIVISION OF WRATHER CORP.). SUMMARY OF STATEMENT 1. INTRODUCTION Mr. Cowley's name, title, and a brief mention of the subject of his appearance, which is the elimination of the 8-percent Federal excise tax levied against the background music industry under section 4251 of the Internal Revenue Code of 1954. 2. THE MUZAK FRANCHISE SYSTEM Its method of operation, its product, its contribution to production and work efficiency, and the extent of its franchise operations conducted by some 200 Muzak franchisers throughout the United States with 1 or more in each of the 50 States. 3. COMPETITION Brief statement of methods engaged in to carry on the background music service by competitive operations. 4. DISCRIMINATION All methods of transmitting a background music are exempt from the 8-percent Federal excise tax except transmission by telephone line. 5. HISTORY Background of the application of this tax to air and wire transmission and the elimination by court decision or by congressional act of the tax on all methods of transmitting a background music service except over telephone lines. 6. SUMMARY AND RECOMMENDATION A plea for equality and the end of discrimination in the application of the tax and a reference to the report of the Forand Subcommittee on Excise Tax, Technical, and Administrative Problems dated April 20, 1956. 7. CONCLUSION Plea for removal of the tax as an unfair handicap to small businessmen throughout the Nation and a solicitation for the cooperation and support of the members of the House Ways and Means Committee to the elimination of the tax; which plea is made on behalf of Muzak and its franchisers throughout the 50 States. SUBJECT: FACILITIES AND SERVICES COMMUNICATIONS— WIRE AND EQUIPMENT SERVICES-BACKGROUND MUSIC WITNESS: E. A. ALBURTY, PRESIDENT, BUSINESS MUSIC CORP. SUMMARY OF STATEMENT Business history. Competitive disadvantage. History of individual efforts to secure relief and variability of Internal Revenue Service-court rulings thwarting these efforts. Recommendations and request for help. Summary. SUBJECT: FACILITIES AND SERVICES COMMUNICATIONS WIRE AND EQUIPMENT SERVICES-BACKGROUND MUSIC WITNESS: GEORGE R. MONTGOMERY, PRESIDENT, CUSTOM ELECTRONICS, INC., AND VICE PRESIDENT, BUSINESS MUSIC, INC. SUMMARY OF STATEMENT SUBMITTED FOR THE RECORD In the background music industry only those who transmit by means of leased wire are subject to an 8-percent excise tax. All others in the industry, who either transmit by FM multiplex, or place tape or record equipment on subscriber locations, are not subject to the tax, which gives them an unfair competitive advantage. Those who do use leased wires as the transmission means are in a discriminatory and punative situation. We seek immediate relief from this tax so that we may at least be on a par with our competition. SUBJECT: FACILITIES AND SERVICES WIRE AND EQUIPMENT SERVICES COMMUNICATIONS- WITNESS: DAVID M. MYERS, OWNER, AUDIO ELECTRONICS CO. SUMMARY OF STATEMENT SUBMITTED FOR THE RECORD As the owner of Audio Electronics Co., franchiser for Music By Muzak in the Portland (Oreg.) metropolitan area, I wish to point out the discriminatory effect of the 8-percent Federal excise tax under Internal Revenue Code 4251 on Audio Electronics Co.'s ability to compete. I am sure I do not stand alone in the request that this tax be deleted, and I wish to provide you with sufficient knowledge about our industry, my own company, and the discriminatory effects of the 8-percent excise tax on my company's ability to compete. At the inception of the present 8-percent excise tax on wired services, the background music industry primarily distributed its services via leased telephone wire. However, within the past 10 years conditions have changed radically. Now, in addition to distribution of background music via leased telephone wires, services are now distributed via FM multiplex (not subject to excise tax), on premise recordings (not subject to excise tax), on-premise tape playback machines (not subject to excise tax), and on-premise tape cartridge machines (not subject to excise tax). Each of these four sources of background music are infinitely competitive in product and price structure with Audio Electronics Co. But only Audio Electronics Co. is subject to an 8-percent Federal excise tax on the sale of its services; and this only because Audio Electronics Co. chooses to distribute its services via leased wire, deemed in our experienced opinion to be the most reliable method for distribution of background music services. Inasmuch as Audio Electronics Co. must charge an 8-percent excise tax, it also must absorb the additional burden of (1) collecting the tax, (2) recording the various bookkeeping entries upon collecting the tax, and (3) carrying the expense for submitting tax receipts monthly to the Internal Revenue Service. Admittedly, for a large concern this is a hidden expense. However, Audio Electronics Co. is a small business with a total of five employees, including the undersigned, and easily 1 day a month is required to handle the above three phases of excise tax collection; yet another day taken from business operation; another day virtually given to our nontaxed competitors.. SUBJECT: FACILITIES AND SERVICES COMMUNICATIONS WIRE AND EQUIPMENT SERVICES BURGLAR ALARMS WITNESS: MALCOLM GOLDSTONE, PRESIDENT, OWL PROTECTIVE CO., NATIONAL BURGLAR & FIRE ALARM ASSOCIATION, CENTRAL STATION ELECTRICAL PROTECTION ASSOCIATION, AND CENTRAL OFFICE ALARM CO. 1. Introduction: SUMMARY OF STATEMENT (a) All companies being represented are small business corpora tions. (b) Revenue losses from repeal of excise tax on burglar and fire alarm systems will be partially offset by increased income taxes. (c) Alarm systems protect life and property and are therefore necessities, not luxuries for which excise tax was originally established. 2. Competition from nontaxed industries : (a) Large business corporations that sell equipment outright without providing service compete with our industry; i.e. Minneapolis Honeywell, Mosler Safe Co., Sylvania, General Electric. (b) The insurance industry provides burglary and fire policies without discount on premium and offsets savings to consumer, eliminating installation and service of alarm systems. 3. Increased labor potential: (a) Industry is basically a labor maintenance business. (b) Increased volume in business will increase labor utilized. ment. (d) Increased employment is consistent with the Federal Government's interests. 4. Small business establishments will be able to avail themselves of alarm services: (a) Lower costs will attract very small businessmen to utilize services of alarm systems. (b) Crime in cities will be further reduced. (c) Whereas national program is somewhat limited in protecting private properties (usually local and municipal responsibili ties), tax elimination will assist small businessmen and in effect the Federal Government will be giving assistance. 5. Conflict between wire and equipment service versus wire mileage service: (a) Alarm systems presently defined as wire and equipment service. (b) Excise Tax Technical Changes Act of 1958 eliminated from the excise tax all interior communication systems. (c) Central office alarm systems with remote connection are presently being taxed. (d) Central office systems are identical in scope and nature with the exception of wire connecting protected premises and remote monitor. (e) Demonstrate to the committee by means of monitor equipment that a local alarm and a central office alarm are identical and that it is only the wire connecting the two that is the basis for the tax on alarm systems. (f) The above discussed connecting wire should be referred to as wire mileage service and taxed under 4252F. (g) Wire mileage service when used in the conduct and trade of a business, which our connecting wire is, was eliminated from tax in the Excise Tax Extention Act of 1962. 6. Request special law to delete burglar and fire alarm systems from wire and equipment section 4252E and include same under 4252F as wire mileage service and in net effect remove burglar and fire alarm systems from the tax because wire and mileage service used in the conduct and trade of a business is no longer subject to tax. SUBJECT: FACILITIES AND SERVICES— COMMUNICATIONS COMMUNITY ANTENNA WITNESS: ROBERT D. L'HEUREUX, GENERAL COUNSEL, NATIONAL COMMUNITY TELEVISION ASSOCIATION. SUMMARY OF STATEMENT The National Community Television Association, Inc. (NCTA), is a nonprofit trade or industry association. Its membership consists of persons or organizations operating community antenna television (henceforth called CATV) systems or engaged in manufacturing or supplying community antenna components of related equipment. Its current membership includes approximately 540 system owners and 44 manufacturers or suppliers. NCTA, which is the only national organization to represent the interests of the CATV industry and the public which it serves, is affiliated with 17 regional and State community television associations, each of which is represented on the board of directors of the national association. The combined membership serves an estimated 90 percent of the total owners of television receivers in the United States who are subscribers to CATV services. CATV operators make clear reception of multiple television signals possible in remote areas or small communities where mountains or other obstacles would otherwise make such reception impossible or |