The CHAIRMAN. Our next witness is Mr. Austin W. Carpenter. Mr. Carpenter, please come forward and identify yourself for the record by giving your name, address, and the capacity in which you appear. STATEMENT OF AUSTIN W. CARPENTER, EXECUTIVE DIRECTOR, EASTERN FEDERATION OF FEED MERCHANTS, INC., SHERBURNE, N. Y.

Mr. CARPENTER. I am Austin W. Carpenter, Sherburne, N. Y., the executive director of the Eastern Federation of Feed Merchants.

The CHAIRMAN. Mr. Carpenter, if you would prefer to be seated you may do so. I recognize you for 5 minutes to proceed in your own

way.

Mr. CARPENTER. Thank you.

Mr. Chairman and members of the Ways and Means Committee, I represent a trade association of 720 livestock feed manufacturers and retailers doing business in New York, Pennsylvania, New Jersey, Delaware, Maine, Maryland, New Hampshire, Vermont, Massachusetts, Connecticut, and Rhode Island.

Most of the members of our association are independent operators who manufacture and retail livestock and poultry feeds at country points throughout the Northeast. The territory in which they operate is identical to that of two large cooperatives, the Cooperative Grange League Federation Exchange and the Eastern States Farmers Exchange. The combined feed and grain sales of these 2 cooperative corporations in 1955 amounted to more than $150 million. Their total sales were $227 million, so you can readily see that their sales efforts are heavily concentrated in direct competition with the members of our association.

Now these are two very unusual cooperatives whose operations differ greatly from those of many other cooperatives. Nevertheless, the chief competitive advantage that they have over the members of my association is their ability to determine how much Federal income tax they are willing to pay. Now mind you, most of us have to cast up our accounts at the end of the year to determine how much income we have made and the United States Treasury says, "That is fine that you have had a profit. We need about 30 to 50 percent of that in taxes if you are a corporation or maybe more if you operate as an individual or partnership." This is not so for the cooperatives. They can say, "How much profit do we want to pay taxes on?" Or better still, "How much income tax do we want to pay?" Paying their income tax is never difficult for them because, as you members of the committee know, they can allocate profits as patronage dividends payable at some future date at the discretion of their board of directors and keep the cash income in their capital structure for expansion, free of any income-tax payment. Of course, most cooperatives elect to pay very little or no Federal income tax.

Now in the case of the Cooperative Grange League Federation Exchange we have a very unusual situation-this conservative and well-operated business has found it expedient to pay a substantial amount of Federal income tax. For years it operated as a completely exempt cooperative; that is, it qualified to escape all payment of Federal income tax. But the conditions of this tax escape interfered with its business operations. As a wholesale organization, it

supposedly distributed its merchandise through local retail farmer cooperatives, but with its move into manufacturing-it owns 4 feed mills, 13 fertilizer and insecticide plants, and has partial investments in such things as petroleum refineries, operation of an airline, seed plants, and a procurer and manufacturer of various farm suppliesit has wandered far afield from farm operations.

To increase volume, it distributed part of its products through taxpaying independent merchants who were required to keep extensive records on the purchase of GLF merchandise so that patronage payments could be made to individual farmers. Naturally, these records entailed voluminous bookkeeping on the part of GLF and raised questions concerning whether or not this business was done with farmers, a prime requirement for tax escape. As a result, it gave up its tax exemption at the close of 1947 and for years has paid substantially the Federal income tax that a regular business would pay. Why are the independent feed merchants complaining? The answer is simple. They compete with more than 200 local cooperatives that GLF has succeeded in organizing and still controls. These local cooperative retailers are able to avoid the payment of Federal income taxes which takes a sizable portion of the feed merchant's income. They can expand on their tax savings and still give what would be normal profits after taxes to their members to encourage them to do business the cooperative way.

Now Eastern States Farmers Exchange has one of the largest feed mills in the world located at Buffalo, N. Y. It still retains its complete exemption from the payment of Federal income taxes. Unlike most other big cooperatives, Eastern States Farmers Exchange sells directly to farmers through more than 400 farmer representatives. Its earnings in 1956 amounted to $3,484,594. Of this amount, $1,105,000 was retained for expansion and $2,379,594 was distributed as a cash refund. Now a regular corporation with similar earnings would have paid $1,806,000 to Uncle Sam in Federal income taxes. This cooperative was not required to pay anything.

Income-tax freedom enjoyed by the cooperative constitutes, a distinct competitive advantage, which becomes more pronounced when the income-tax dollars of independent businesses are used by Government agencies, such as the Farmers Cooperative Service and the Agricultural Extension Service, to help sell the cooperative philosophy.

Our members also resent bitterly the fact that when these taxfree cooperatives have arrived at maturity they are able to make appropriations for advertising on a basis which is inconceivable to the small-business men who comprise our association. I have here, and I desire to enter it into the record, if you please, an advertisement of the big Grain League Federation which appeared in the New York Times exhorting homeowners to obtain their lawn and garden supplies from local cooperative stores. This is not farmer business and I understand that the big GLF does millions of dollars of nonfarmer business. This we think is not fair. This type of unfair competition is killing the initiative of small-business men throughout our rural areas.

There is only one solution, as we see it. That is tax equality and it must be real tax equality-not a compromise which still leaves a substantial advantage in the hands of these competitors.

Give small-business men tax equality so that competitively they can take care of themselves.

The CHAIRMAN. Without objection the advertisement will appear in the record in connection with your remarks.

40 X

(The advertisement referred to follows:)

GARDENS

THE NEW YORK TIMES, SUNDAY, MARCH 10,

LONG ISLAND

Bridgehampton

HIS SPRING, when you're ready to seed your lawn, and talk with your G.L.F. Lawn and Garden Center.

The folks at G.L.F. are specialists in this lawn and garden business. They know what slants need to grow well... the fertilizers to use... the tools to select.. and the right sprays or dusts to keep away weeds and bugs. And most important- they tan give you plenty of helpful advice on lawn and gardet care.

This specialized knowledge was not picked up just over night. G.L.F. personnel have acqured their know-how and experienced from years of working with professional farmers and supplying their needs. Also important, this practical knowledge is kept up-to-date with the latest résearch from public and private services.

What is G.L.F.?

G.L.F. is an organization that farmers started 37 years ago, so they could obtain high quality farm supplies at reasonable prices. Fully named Cooperative Grange League Federation Exchange, Inc., it took its name from three sponsoring farm organizations- the Grange. Dairymen's League and Farm Bureau Federation.

The nearby G.L.F. Lawn and Garden Center is one of 650 retail points in G.L.F.'s three state area. Therefore, with this combined large volume buying your Lawn and Garden Center can provide high quality, reliable supplies at very reasonable prices. Every commodity added to the G.L.F. line is thoroughly tested to be sure it is practical and useful... but no item is considered more important at G.L.F. than reliable, helpful service.

Get All Your Supplies in One Stop...

Weed Killers and Insecticides
Barbecue and Recreational Equipment

For Reliable Advice.... Reliable Supplies ...

See Your Nearest G.L.F. Lawn and Garden Center

Bridgehamptes G.L.F. Service

Huntington G.L.F. Service

High Falle

Riverboad

Suffvil G. L. F. Service

High Falls Hardware Co
Kerhonksen

Accord Farmers' Cesa. Asse

at your G.L.F. Lawn and Garden Center

The CHAIRMAN. Are there any questions of Mr. Carpenter?

If not, we thank you, Mr. Carpenter, for your appearance and the information given the committee.

Mr. CARPENTER. Thank you for the opportunity.

The CHAIRMAN. Our next witness is Mr. A. S. Moake. Mr. Moake, will you please identify yourself for the record by giving your name, address, and the capacity in which you appear?

STATEMENT OF A. S. MOAKE, REPRESENTING SOUTHWESTERN PEANUT SHELLERS ASSOCIATION

Mr. MOAKE. Mr. Chairman, my name is A. S. Moake. I am president of the Bain Peanut Co., of San Antonio, Tex., and am immediate past president of the Southwestern Peanut Shellers Association. I represent the Southwestern Peanut Shellers Association, consisting of 18 shellers of peanuts in the States of Oklahoma and Texas.

The CHAIRMAN. Can you complete your statement in 5 minutes? Mr. MOAKE. Yes, sir.

The CHAIRMAN. All right, sir. You are recognized for 5 minutes. Mr. MOAKE. With two exceptions all of our members are smallbusiness men.

Our association recommends the elimination of the income-tax advantages now enjoyed by cooperative corporations. Cooperative corporations should be required to pay income taxes on all their net earnings just like any other business, and individuals receiving cash payments, patronage dividends or certificates of interest, should pay income tax on same just like the receivers of dividends from any other corporations.

At the present time private business enterprise is in a most unfair position when competing with cooperatives. Private business enterprise pays the income taxes, while the cooperatives largely escape them. This permits the accumulation of funds by cooperatives through the retention of earnings for expansion through internal growth and through purchases of noncooperatives. They are now expanding very rapidly and not only dealing for and with their own members, but buying, processing, and selling on the open market in direct competition with the small-business man that has to pay the

taxes.

To illustrate the practical significance of this tax advantage to cooperatives, I want to discuss with you briefly one giant cooperative corporation-the Cotton Producers Association.

The Cotton Producers Association, with headquarters in Atlanta, Ga., today is the largest sheller of peanuts in the United States. Thirteen months ago it was not in the peanut shelling business. The CPA was formed in 1937 and is engaged in cotton storage and marketing, feed and fertilizer manufacturing, oil milling, pecan and peanut shelling, and such unrelated activities as insurance.

In early 1957 the CPA purchased the Georgia Peanut Co. and its 11 affiliated companies. This group of companies represent by far the largest peanut-shelling capacity under the control of any group in the United States. The CPA is operating in both the southeastern peanut-producing area (Georgia, Florida, and Alabama) and in the southwestern peanut-producing area (Oklahoma and Texas), yet