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Mr. BOBIER. May I make this one remark, sir? There is a photostat of a certificate of indebtedness attached and I attached that because the Federal courts have held that such a certificate is not taxable in the year that it is issued, but only if and when we pay.
The CHAIRMAN. On the ground that it has no value at the time it is issued ?
Mr. BOBIER. Yes, sir.
If not, we thank you, sir, for your appearance and the information you have given the committee.
Mr. BOBIER. Thank you for listening.
UNITED STATES SENATE,
January 16, 1958.
House of Representatives, Washington, D.O. DEAR MR. CHAIRMAN: Enclosed are two letters I have received from my constituent, Mr. Clyde H. Shaffer, with respect to the tax hearings your committee is holding. I will appreciate it if these letters are made a part of the record. Sincerely,
JOSEPH S. CLARK.
BREYER ICE CREAM Co.,
Philadelphia, Pa., January 10, 1958. Hon. JOSEPH S. CLARK, Senate Office Building,
Washington, D.O. DEAR SENATOR CLARK: On March 18, 1957, I wrote to you requesting your aid in scheduling a hearing before the House Ways and Means Committee on the subject of cooperative tax equalization. As I wrote then, the fact that cooperative earnings can be retained free, or substantially free, from income tax, has given cooperatives a definite competitive advantage over the proprietary corporation.
Paying little or no income taxes permits the cooperatives to undersell proprietary companies and still retain sufficient money to improve and expand. One form of expansion of cooperatives is through the acquisition of taxpaying companies who then discontinue paying income taxes, causing a substantial decrease in tax revenue to our Federal Government.
With proprietary corporations paying 52 percent of their earnings in Federal income taxes and the cooperatives paying practically nothing, the cooperatives can pay almost twice as much for acquisitions than proprietary corporations.
The House Ways and Means Committee announced last fall that, beginning January 7, 1958, hearings will be held on general tax revisions. During these hearings the dairy industry, with which I am connected, along with other industries, will seek new legislation to reduce the tax advantage of cooperatives. I hope that you will again see what you can do to help us gain favorable action from the Ways and Means Committee and from your colleagues in the Senate when such legislation comes before you. Respectfully yours,
CLYDE H. SHAFFER, President.
BREYER ICE CREAM Co.,
Philadelphia, Pa., March 18, 1957. Hon. JOSEPH S. CLARK,
Senate Office Building, Washington, D. C. DEAR SENATOR CLARK: In a letter dated July 26, 1955, to Hon. Jere Cooper, chairman of House Ways and Means Committee, the Secretary of the Treasury, George M. Humphrey, made recommendations on cooperative tax equalization. It was understood that these recommendations would be considered during the 1956 session of Congress; however, they were not considered.
As an executive of an ice-cream company doing business in direct competition with cooperatives, I wish to express to you a few facts regarding cooperative organizations in the hope that you will do everything possible to aid in scheduling a hearing before the House Ways and Means Committee and that you will actively support Secretary Humphrey's recommendations.
The fact that cooperative earnings can be retained free or substantially free from income tax has given cooperatives a definite competitive advantage over the proprietary corporation. One of the cooperatives with which we have had competitive experience is the Lehigh Valley Cooperative Farmers, operating from Allentown, Pa. Their financial report for the year ending January 31, 1956, shows that they had total sales of $15,381,830.98, representing an increase of 14 percent over their previous fiscal year, while our company and similar proprietary businesses were suffering a decrease in their sales. Their increase, in my opinion, is due directly to the tremendous tax advantage enjoyed by this cooperative, which enables them to undersell proprietary companies, and still retain sufficient money to improve and expand their business. This is borne out by the following quote from the same annual report: “A very large portion of the increase in our dollar sales has been in manufactured products; most important of which has been the increase in the sale of ice cream. Competition in the sale of ice cream has become more acute during the year, and it has been necessary for us to reduce prices on some of our ice-cream products." This report also states that "during the entire year 25 cents per hundredweight was retained from milk shippers for capital purposes. For the retain of 25 cents per hundredweight, milk shippers have received during the year our 5-percent cumulative stock." This stock of course is tax free.
On page 15 of this cooperative's financial statement under "liabilities and capital." I find under withholding and social securities taxes payable only $33,505. I see no indication of moneys allocated for Federal income tax for this corporation having assets of over $6 million.
From statistics compiled by Farmer Cooperative Service, United States Department of Agriculture, farmer cooperatives did a net business of $9.6 billion in the fiscal year 1954–55, an increase of 1.4 percent over 1953–54. It is easy to see the tremendous value of revenue lost to the Federal Government through the present tax program, which unfairly allows cooperatives their tax-free status.
I have been informed that two bills, H. R. 501 and H. R. 502 have been introduced in the House of Representatives which would deny deductions for paid or accrued patronage dividends and would subject certain types of cooperatives to the same tax as is now imposed on corporate business of like nature. I respectfully request your support of our position. Respectfully yours,
CLYDE H. SHAFFER, President. CONGRESS OF THE UNITED STATES,
HOUSE OF REPRESENTATIVES,
Washington, D.C., January 10, 1958. Hon. WILBUR MILLS, Chairman, House Committee on Ways and Means,
House Office Building, Washington, D. C. DEAR COLLEAGUE: Attached hereto is a copy of a self-explanatory letter re lating to the effect of cooperatives in Kansas, which, if hearings are held, should be included therein as a part thereof. With best wishes, I am, Yours sincerely,
ERRETT P. SCRIVNER.
FAIRMONT Foods Co.,
Kansas City, Mo., January 14, 1957. Hon. ERRETT P. SCRIVNER,
House Office Building, Washington, D.O. MY DEAR CONGRESSMAN: The income tax advantage now enjoyed by cooperatives threatens the dairy industry in the State of Kansas.
Approximately 3 years ago a cooperative dairy entered the Wichita, Kans. market. Because of benefits derived from nonpayment of income taxes, they were able to sell milk at lower prices than the proprietary concerns. They ac quired, by these lower prices, a substantial portion of the Wichita, Kans. milk market. At the annual stockholders meeting of this cooperative, held in the
spring of 1954, the president of the cooperative is reported to have said that their plant would some day be the largest milk-bottling plant in the State of Kansas. Since that time they have started distributing milk throughout central Kansas to a distance of as much as 200 miles from their plant.
Due to their lower prices, they have little difficulty getting established. When individually owned dairies, or corporations, meet their price, it causes disastrous milk wars, thus forcing established concerns in these areas to return to previous price levels and see their business dissipated gradually. If cooperatives paid the same taxes as individually owned businesses or corporations, they would not have this unfair advantage.
At the present time, a milk war is being waged in Topeka because of milk bottled by two competing cooperatives, each trying to become established in that market.
For many months the Salina, Kans., market has suffered sporadic milk wars because of competition between two competing cooperatives, each of whose product is available to dealers at a price which cannot be met by income-tax-paying business concerns.
I urge you to investigate and take every step possible to insure that cooperatives are required to pay income taxes comparable to their competitors. Yours very truly,
E. O. GIBB, Southwestern Division Manager.
CONGRESS OF THE UNITED STATES,
HOUSE OF REPRESENTATIVES,
Washington, D. C., January 13, 1958. Hon. WILBUR D. MILLS, Chairman, House Appropriations Committee,
The Capitol, Washington, D. C. DEAR MR. CHAIRMAN: I enclose a copy of a letter to me from Mr. F. L. Putnam, president of the Whiting Milk Co. with headquarters at 40 Cambridge Street, Charlestown 29, Mass., urging that cooperatives be taxed the same as others.
I should appreciate it if Mr. Putnam's views could be made a part of the record before the committee hearing this item, and be brought to the attention of the members of the committee. Yours sincerely,
WHITING MILK Co.
Charlestown, Mass., January 9, 1958. Hon. LAURENCE CURTIS,
House Office Building, Washington, D.C. DEAR SIR: In connection with the general tax revisions hearings to be held in the immediate future, I would like to urge you to use your influence on members of the Ways and Means Committee to act favorably on legislation which would require cooperatives to pay income taxes on the same basis as proprietary corporations with which they compete.
The present law is certainly inequitable. For illustration, let me state that we are in the process of attempting to build a new processing plant. With our high tax rate of 52 percent, it is difficult for us to finance this construction. On the other hand, one of our close-by competitors, a cooperative, has been able to put aside tax-free earnings for this same purpose. The same cooperative was also able to buy another business at a higher price than any of its proprietary competitors. Again due to their freedom from tax.
There is a trend toward cooperative monopoly of supply and distribution. They are exempt from prosecution for violation of antitrust laws, and apparently are permitted to buy out as many competing proprietary processors and distributors as they please in a single market. Millions of dollars of Federal aid seems to be available to cooperatives from the Central Bank for Cooperatives. The Government has charged the Maryland-Virginia Milk Producers Association with monopoly of the milk supply of the city of Washington, D. C. The Bank for Cooperatives loaned them over $3 million with which to purchase the Embassy Dairy, a large distributor of milk, cream, and other dairy products in the Washington market. In recent weeks they have purchased another processor and distributor of dairy products in the Washington market.
We have no objection to cooperatives as such but only to the tax law and rulings which permit them to legally avoid Federal income taxes which proprietary competitors are required to pay. There can be no good reason for subsidizing cooperatives at the expense of other taxpayers.
We are not concerned about bargaining cooperatires which do not compete with proprietary dealers in the processing and distribution of dairy products.
However, everyone should pay bis fair share of income taxes. No important group should have an advantage over competitors. Very truly yours,
F. L. PUTNAM, President.
CONGRESS OF THE UNITED STATES,
HOUSE OF REPRESENTATIVES,
Washington, D. O. January 10, 1958. Hon. WILBUR MILLS, Chairman, Ways and Means Committee,
House of Representatives, Washington 25, D.O. DEAR MR. CHAIRMAN: Enclosed is a copy of a letter I received from one of my constituents relative to the tax privileges enjoyed by the cooperative organizations.
The letter is self-explanatory, and I think you will agree that Mr. Lescure does express the feeling of a great many taxpayers who feel that our present system is inequitable. I would appreciate it if you will have this letter included in the hearings being held by the Committee on Internal Revenue Taxation so that all the members of the committee may consider the statements contained therein.
While I realize that it will not be possible for the committee to consider all the inequities in our present law, I trust that that action will be taken in the present session to correct some of them.
Thanking you for your consideration in this matter, and with warmest personal regards, I am Sincerely,
SAMUEL N. FRIEDEL
SEALTEST WESTERN MARYLAND,
January 3, 1958 Hon. SAMUEL N. FRIEDEL,
House Office Building, Washington, D.O. DEAR MR. FRIEDEL: Exactly 1 year ago today I wrote to you with reference to the inequities that exist in regard to taxation. In the interest of sound business and of added revenue for the Federal Government, there definitely should be a more equitable form of taxation than exists at the present time.
Cooperative organizations over a period of a good many years have had a tax advantage over competitors or proprietary corporations. I am sure that you will agree that everyone should pay their fair share of taxes and this can only be brought about by legislative action that will remove tax privileges which are now granted to cooperative organizations. There is certainly no justification for a program which unfairly helps tax-free cooperatives to take business away from taxpaying proprietary handlers. Cooperatives are buying taxpaying businesses which then quit paying taxes. The loss of revenue is substantial and there is no question that our Government needs all the additional revenue it can get. If proper legislation is enacted hundreds of millions of dollars of additional revenue could come to the Government annually if cooperatives were required to pay their fair share of their now exempt taxes.
Of course, we are and always have been willing to pay our full share of taxes but do not feel so kindly about making up for the failure of others to do their share. The competitive advantage of cooperatives is terrific and permits them to do things to get business which would be impossible for proprietary processors and distributors to do.
Therefore, as a representative of the State of Maryland, I am asking you to support our position and do everything possible to help in getting action through the Ways and Means Committee to the end that new legislation be enacted which would eliminate the tax advantage of cooperatives.
I understand that tax revision hearings before the Ways and Means Committee will start on January 7, 1958, and inasmuch as there is no representation from the State of Maryland on this committee, I urge that you do everything possible with your colleagues to get such action to the end that all businesses will be treated alike and pay their just share of taxes to the Government. Sincerely yours,
CONGRESS OF THE UNITED STATES,
HOUSE OF REPRESENTATIVES,
Washington, D, C., January 10, 1958. CHAIRMAN, COMMITTEE ON WAYS AND MEANS,
House of Representatives. DEAR MR. CHAIRMAN: Enclosed is a photostatic copy of a letter from Mr. D. E. Wilks, manager, Fairmont Foods Co., Topeka, Kans., in which he sets forth his views concerning tax legislation.
As you will note, Mr. Wilks has requested that I bring this letter to the attention of the committee. If such can be included in the record of the current tax revision hearings, it will be appreciated. Yours very truly,
Wm. H. AVERY, Member of Congress.
FAIRMONT Foods Co.,
Topeka, Kans., January 3, 1958. Hon. WM. AVERY, House Office Building,
Washington, D. C. MY DEAR CONGRESSMAN: I understand that a hearing concerning action for legislation on a cooperative tax bill has been scheduled during the period January 7 to February 7, before the Ways and Means Committee on Taxation.
The news of this hearing was received with profound interest by the proprietary corporations and small organizations who are required to pay income taxes. We are vitally interested in legislation which would place the operating cooperatives on the same tax basis. Since they are our competitors in the dairy business, we feel they should carry their portion of the tax load.
This issue is of extreme importance to the dairies in the Topeka marketing area as we have been involved in a price war for some 15 months. This situation has been the result of two operating cooperatives entering the market here one actively and the other indirectly. By way of explanation, we have one cooperative, located out of the Topeka milkshed area, bringing dairy products into Topeka daily and the other cooperative is bottling milk for an out of State dairy who is in our market, also. The keen competition between these two concerns has upset the dairy market here over such a long period of time that the situation is very serious. The local dairies do not have the "cooperative's tax-free" reserve with which they could subsidize losses incurred from a price war of such long standing. It is impossible to meet such competition and keep our businesses on a sound basis.
It is our opinion that everyone should pay his fair share of income taxes with no important group having a tax advantage over competitors. Cooperatives may retain 100 percent of their profits for expansion while the proprietary corporations and small organizations must pay 52 percent of their profits over $25,000 in taxes. We strongly feel that there is no justification in a tax program which unfairly helps tax-free cooperatives take away business from a taxpaying corporation.
I earnestly request that you transmit this letter to a member of the Ways and Means Committee and urge that you contact other members of this important committee to act favorably when legislation to rectify the present unjust tax law is presented to them. When such legislation is brought before the House we cover your active support. With deepest personal regards to you and your family, I am, Very truly yours,
D. E. WILKS, Manager.