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If not, Mr. Gressens, we thank you for your appearance and the information you have given.

Mr. GRESSENS. Thank you, Mr. Chairman.

(The following supplement was filed with the committee:) NATIONAL COAL ASSOCIATION SUPPLEMENT TO STATEMENT OF OTTO GRESSENS,

CHAIRMAN, TAX COMMITTEE, BEFORE THE HOUSE COMMITTEE ON WAYS AND MEANS, JANUARY 21, 1958

ELIMINATION OF 2 PERCENT PENALTY FOR FILING CONSOLIDATED RETURNS Section 1503 (a) of the 1954 code contains the unfair burden of an additional 2 percent penalty tax upon corporations filing consolidated returns. We urge strenuously that this penalty be eliminated. The reason originally stated for imposition of the penalty in 1942 was to equalize the other tax advantages supposedly arising from filing consolidated returns. However, structural changes in the income tax since 1942 have largely eliminated such advantages and the 2 percent penalty now remains as merely an historical anomaly. When added to the existing corporate tax structure, corporations filing consolidated returns are faced with a 54 percent tax rate. This results in artificially preventing intercorporate business groups from filing consolidated returns even though the consolidated basis produces a natural as well as a conceptually correct measurement of taxable income of the economic groups.

From an administrative standpoint, consolidated returns permit tax concepts to harmonize more completely with accounting standards and simplify administration. Corporations desiring to achieve consolidated return effects without the penalty are forced artificially to carry on business on a division or department basis when this course of action may be otherwise economically unsound.

INTERCORPORATE DIVIDENDS CREDIT Under section 243 (a) of the 1954 code, a corporate shareholder receiving a dividend is entitled to a deduction equal to 85 percent of the amount of the dividend. Such corporate shareholder is therefore subject to an additional tax on 15 percent of these intercorporate dividends. We urge that the intercorporate dividends tax be eliminated.

Shareholders of a dividend-receiving corporation are subject to at least a triple tax on the earnings of the original dividend-paying entity under the present statute. The 1954 code recognized the inequity of the double tax on corporate earnings by providing (in sections 34 and 116) for a limited dividends received exclusion and deduction. The retention of the tax on 15 percent of intercorporate dividends is not only wholly inconsistent with the philosophy of sections 34 and 116 but also is inconsistent generally with corporate level taxing principles. Thus, under section 301 (b) (1) (B), the tax effects of intercorporate distributions in kind are clearly colorless-except with respect to the intercorporate dividends tax-and the elimination of this tax is hereby requested.

REPEAL OF 4 CENTS PER TON TAX ON TRANSPORTATION OF COAL The announcement of the chairman of the House Committee on Ways and Means relating to the general tax-revision hearings of January and February 1958 (dated September 11, 1957), pointed out that the Subcommittee on Excise Taxes held extensive hearings in the fall of 1956, and stated that those hearings would be incorporated by reference in the 1958 hearings.

In accordance with this announcement and since there are no new developments concerning this excise tax, the National Coal Association foregoes repetition of its 1956 testimony and invites the committee's attention to the following statement: Statement of Russell W. Laxson, chairman, tax committee, National Coal Association, December 3, 1956, hearings before a subcommittee of the Committee on Ways and Means, House of Representatives, 84th Congress, 2d session, on excise taxes, pages 422-442.

The CHAIRMAN. Our next witness is Mr. Rolla D. Campbell. Mr. Campbell, will you please come forward.

Mr. Campbell, for the purposes of the record, will you identify yourself by giving us your name, address, and the capacity in which you appear.

STATEMENT OF ROLLA D. CAMPBELL, PRESIDENT, NATIONAL

COUNCIL OF COAL LESSORS, INC. Mr. CAMPBELL. Mr. Chairman, my name is Rolla D. Campbell. I appear here as president of the National Council of Coal Lessors, Inc., which is a trade association of owners of coal land and lessors of coal lands.

The CHAIRMAN. Mr. Campbell, before recognizing you, I recognize Mr. Jenkins.

Mr. JENKINS. I just want to say for the benefit of the committee generally that here is a man that knows his business. I have known him for many years, and I think he is the leading lawyer in the State of West Virginia. He knows the coal business from one end to the other, and I know what he says to us today he believes himself.

Mr. Campbell, I am glad to welcome you here as one neighbor to another.

The CHAIRMAN. Mr. Campbell, you are recognized to proceed in your own way for 15 minutes.

Mr. CAMPBELL. Thank you very much, Mr. Chairman, and thank you also, Mr. Jenkins, for those complimentary remarks. I hope I can live up to them.

I have a prepared statement, Mr. Chairman, which I would like to ask to have filed, and then I shall not attempt to read it, but only to comment on several of the points.

The CHAIRMAN. Without objection, the entire statement will appear in the record. Mr. CAMPBELL. Thank you very much. (The statement referred to is as follows:)

STATEMENT OF ROLLA D. CAMPBELL, PRESIDENT, NATIONAL COUNCIL OF COAL LES

SORS, INC., BEFORE THE WAYS AND MEANS COMMITTEE, HOUSE OF REPRESENTATIVES, JANUARY 21, 1958

Mr. Chairman and gentlemen of the committee, my name is Rolla D. Campbell. I live in Huntington, W. Va. I have practiced law for 38 years. My principal clients are coal operators and coal-land owners. I am financially interested in the coal business. I am president of Dingess-Rum Coal Co., a coal-land owner and lessor, and of National Council of Coal Lessors, Inc., a trade association of coal-land owners with members in most of the coal-producing States. I appear before you today on behalf of the national council. THE CHANGES IN THE CODE REQUESTED BY NATIONAL COAL ASSOCIATION AND AMERI

CAN MINING CONGRESS SHOULD BE MADE At the outset I would like to say that I strongly support the changes in tax laws which have been recommended to you by representatives of National Coal Association and American Mining Congress. These changes are, in my judgment, Deeded, they will aid the mining industry of this country, and will have minor, if any, effect on the financial condition of the Treasury. Indeed, by promoting a sound mining industry, they should benefit the Treasury. Certainly, I think we can all agree that it is not in the interest of this Nation to become a have-not country devoid of minerals vitally needed to support an expanded economy and the national defense.

TAX REDUCTION IS NEEDED TO INCREASE REVENUE Next, I would urge you gentlemen seriously to consider whether the point of diminishing returns has not long since been reached in the realm of Federal taxation. A slowed-down economy points up dramatically how dependent this country is upon a continued and expanding high level of income and profits. A speeded up defense program will require more money. This additional money

should come in part from reduced spending in nondefense fields. The other part must come from the higher profits and incomes incident to a more active business tempo. I hope you will try the experiment of reducing taxes on business income with the aim of increasing revenues. Higher taxes would now, in my humble judgment, produce less, not more, revenue.

A LOWER CAPITAL-GAINS TAX WILL INCREASE REVENUE One tax which definitely can be regarded as a retardant of profits is the capitalgains tax. The existing 25 percent rate definitely discourages the taking of profits. It tends to create artificial scarcities of all kinds of properties, land, securities, buildings, etc., with resulting higher prices. It affects artificially the tempo of trading activity. Too often it controls rather than follows policy decisions. Its only justification is that it does produce revenue. It is my beljef that it should be eliminated. But if that is impossible, then in my opinion the least this committee should do is to soften the capital gains tax rate. A rate of 10 percent and certainly not more than 15 percent should have marked benefit on the economy and bring about an increase in the tax yield from this source. I sincerely hope that this subject will have your very serious consideration.

THE CAPITAL GAINS TAX SHOULD NOT TAX DEPRECIATION OF THE CURRENCY Whether or not any change is made in the rate, the present method of computing capital gains should be changed to eliminate as far as possible taxes on currency depreciation. Revaluation of basis should be permitted to give effect, without penalty, to changes in the buying power or worth of the dollar. The same reasoning applies equally to the method of computing the depreciation de duction. I recognize that the principle to be attained is easier stated than spelled out in a detailed section of the code, and that many technical difficulties both of drafting and of administration would have to be carefully worked out. But something of this sort should be done if the tax on capital gains is to be truly such and not a tax on depreciation of the currency. Certainly, unless it can be done, the best course would be to eliminate altogther any tax on capital gains. SECTION 614 (C) OF THE 1954 INTERNAL REVENUE CODE, DEALING WITH AGGREGATION

OF NONOPERATING MINERAL INTERESTS, SHOULD BE CHANGED The 1954 code contained for the first time a definition of the word "property" when used in connection with depletion. The definition set out in section 614 (a) had no foundation in actual practice in the coal industry. Aggregations of separate mineral interests were allowed on several bases, the principal elements being practicality in each particular instance and consistency of adherence to practice once established. H. R. 8381, now pending before the House, attempted to deal with the problems of property and aggregation by preserving rights existing under the 1939 code. This approach apparently grew out of the self-imposed limits of action which this committee created, namely that it would undertake to correct only the inequities of the 1954 code. But I want this committee to know that the changes made in section 614 (c) by H. R. 8381, if they should be enacted into law, will continue to be inequitable and unfair to the owner of nonoperating mineral interests. In the first place, the law under the 1939 code relating to definition of property and aggregation of mineral interests had not been clearly etched out by case decisions and was and is therefore shrouded in doubt and uncertainty. Administrative practice with respect to aggregation of nonoperating mineral interests of coal lessors apparently varied widely from taxpayer to taxpayer. I will not burden you with a recitation of such varied instances but I do know that they exist and can cite chapter and verse if need be.

If section 614 (a) defining property is to be left in the law unchanged, then section 614 (b) dealing with aggregation of operating mineral interests, and section 614 (c) dealing with aggregation of nonoperating mineral interests, should by all means be rewritten. The changes contained in H. R. 8381 are not sufficient. Both American Mining Congress and National Coal Association are urging revision of the text of section 614 (b) and I heartily support their efforts and their reasons therefor. The National Council of Coal Lessors, Inc., have drafted, and I append to this paper, a proposed revision of section 614 (c) (1) dealing with aggregation of nonoperating mineral interests, together with a statement of the changes which will be accomplished by such text. I urge you to adopt this revision. It is not merely a technical change but a very vital one

of great importance to taxpayers who would like to have more certainty as to their rights and a reduction in expense and confusion in computing depletion allowances aned adjustments of basis. OTHER CHANGES IN THE TAXATION OF CORPORATE EARNINGS AND PROFITS ARE NEEDED

Without going into extended argument, I suggest that this committee should look with favor on and adopt the following changes in existing practices :

1. The double taxation of dividends has long cried out for correction, particularly since rates on corporate and individual incomes were raised to their present levels. Existing credits for dividends received by individuals should be substantially increased.

2. The tax on intercorporate dividends has no rightful place in our tax strueture and should be abolished. It is a definite hindrance to business transactions and to corporate flexibility and the tax is entirely out of line with any supposed benefit.

3. Capital gains taxed to a corporation should be free of income tax when passed on to the corporation's stockholders. Under the present law such gains are taxed as capital gains to the corporation but as ordinary income when paid to the stockholder.

4. Depletion allowances to corporations which are paid to stockholders as dividends should be free of income tax to the stockholders. Under the present law such allowances when paid to stockholders are treated as ordinary income.

5. Corporations holding property and receiving income therefrom and paying out 90 percent or more of their incomes or dividends should be treated in the same manner as regulated investment companies, so that gains and profits distributed would be taxed to the stockholders and not to the corporation which is serving largely as a conduit for the collection and distribution of income. In this connection there is no reason why a regulated investment company should not be permitted to own land and to distribute rents, mineral royalties, and gains from the sale of lands and interests in lands free of tax to itself provided of course that it makes a distribution each year of at least 90 percent of such income. There seems to be no substantial reason why a corporation which regularly distributes at least 90 percent of its net income to stockholders should be charged a high tax rate for the privilege of serving merely as a conduit for the collection and disbursement of income. CONCLUSION—THE COAL INDUSTRY NEEDS THE FRIENDLY INTEREST OF THE

CONGRESS The coal industry continues to suffer from excessive competition from oil and gas. Its share of the energy market continues to decline. It has been, I am sorry to say, the victim rather than the beneficiary of Federal legislative policies. The Government is spending vast sums to develop electric power from atomic fuel and from hydrogen fusion with the aim of supplanting coal and other fossil fuels as soon as possible. I think the coal industry is vital to the continued growth and prosperity of this country. If the industry is to live and to continue to contribute to the energy needs of the country it must have, I submit, sympathetic help from the hands of Congress and particularly from the hands of this committee.

I thank you for the opportunity of presenting my views to you. A PROPOSAL TO REVISE IRC 1954, SECTION 614 (c) (1), RELATING TO AGGREGATION

OF NONOPERATING MINERAL INTERESTS

EXPLANATION Section 614 (a) defining "property” for depletion purposes and authorizing aggregations of separate acquisitions came into the code first in 1954. Aggregations of nonoperating mineral interests were covered by regulations and by practice established with consent of service.

Aggregations of two or more separate interests were permitted to the taxpayer by the regulations, provided the taxpayer was consistent. Under such permission, many aggregations were effected.

The first version of section 614 dealt only with aggregations of operating mineral interests. Since it authorized aggregations of operating interests only, a new paragraph continuing the practice as to nonoperating mineral interests (such as the interest of a landowner in property leased to an operator on a royalty basis) became necessary, and section 614 (c) (1) was included in the 1954 code revision before it was finally adopted.

But the langauge used in section 614 (c) (1) was more restrictive than intended, in that it imposed the following limitations on prior practice as to nonoperating mineral interests:

(a) Aggregations were limited to the interests in one tract or in two or more tracts which are contiguous and form one boundary, thereby forbidding aggregations of tracts not having common boundaries. Aggregations of tracts not having common boundaries have been permitted prior to 1954.

(0) Only one aggregation of two or more contiguous tracts is permitted. Two or more aggregations of contiguous tracts have been permitted prior to 1954.

(c) A separate mineral interest in 1 tract cannot be subdivided into 2 or more properties or combined partly with 2 or more other aggregations. Such separation and combination were permitted prior ot 1954.

(d) Apparently, if an aggregation is to be had, it must be of all interests of the taxpayer in all different kinds of mineral deposits (e. g., coal, oil, gas, uranium, iron ore, limestone, etc.). Aggregations prior to 1954 were permitted as to each kind or class of mineral deposit.

(e) Proposed regulations limit aggregation only to those interests which are producing revenue. Aggregations prior to 1954 were permitted of productive and nonproductive lands.

(f) A showing of undue hardship on the taxpayer was imposed as a condition of the right to aggregate. No such showing was required prior to 1954.

To restore prior practice and to promote economy and convenience, section 614 (c) (1) should be amended to read as follows:

Proposed redraft of 1954 code, section 614 (c) (1): "If a taxpayer owns 1 or more separate nonoperating mineral interests in a single tract or parcel of land, or in 2 or more tracts of land which are in the same general geographic area, he may elect to treat (for all purposes of this subtitle) such interest or interests (whether or not producing revenue) in each separate kind of mineral as 1 property or as 2 or more properties. If such election is made for any taxable year, the taxpayer shall treat such interests affected by such election in the same manner for all subsequent taxable years unless the Secretary or his delegate consents to a different treatment. This paragraph shall be effective with respect to taxable years ending after December 31, 1953."

Proposed redraft of 1954 code, section 614 (c) (1), showing in detail all deletions and additions proposed (deletions in brackets, additions in italic):

If a taxpayer owns [two) one or more separate non-operating mineral interests in a single tract or parcel of land or in two or more [contiguous] tracts or parcels of land which are in the same general geographic area, [the Secretary or his delegate may, on showing of undue hardship, permit the taxpayer] he may elect to treat (for all purposes of this subtitle) [all] such [mineral] interest or interests (whether or not producing revenue) in each separate kind of mineral as one property or as two or more properties. If such [permission is granted] election is [granted] made for any taxable year, the taxpayer shall treat [all] such [mineral] interests affected by such election (as one property] in the same manner for all subsequent years, unless the Secretary or his delegate shall consent to a different treatment. This paragraph shall be effective with respect to tarable years ending after December 31, 1953.

Mr. CAMPBELL. I might say that the owners of coal lands are really an important part of the mining industry of this country. Therefore, their association is interested in any legislation which promotes the welfare of the mining industry as a whole. For that reason, the association heartily endorses the proposals which have been made here today before you by representatives of the National Coal Association and American Mining Congress. I shall not undertake to repeat or argue any of the points which they have made, except to say that we hope that they will have your favorable consideration.

One point in the paper in which this organization is particularly interested appears on page 3 of the statement. It has to do with the text of section 614 (c) of the 1954 Revenue Act, which defines the conditions under which nonoperating mineral interests can be aggregated.

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