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paid by a nonprofit hospital for services furnished to such organization. For purposes of this exemption the term “nonprofit hospital" means a hospital referred to in section 170(b) (1) (A) (iii) which is exempt from income tax under section 501 (a). Prior to the amendment to section 4253(h) of the Code by section 101 (j) (27) of Public Law 91-172, effective January 1, 1970, that term meant a hospital referred to in section 503(b) (5). In either instance, the organization must be a hospital.

The legislative history of section 4253 (h) suggests that Congress was using the term "hospital" in what we believe to be its commonly understood meaning. That is an institution providing in-patient care. Section 4253(h) was section 202 (b) of P.L. 89-368, The Tax Adjustment Act of 1966, 89th Cong. 2d Sess. The Committee Reports are published in C.B. 1966–1, at 436. References to this provision are at pages 461 and 472. It is stated at page 461 that the purpose of the amendment was to accord to nonprofit hospitals the same treatment accorded Government hospitals under present law. These references are specifically to nonprofit hospitals and Government hospitals. The language is also specific on page 472 where it is stated that, "Under this amendment, private nonprofit hospitals will receive the same tax-exempt treatment on their payments for communication services as is applicable under section 4292 to hospitals operated by a State or local government." (Underlining added. )

The exemption from the communications tax under section 4253 (h) of the Code is limited to "nonprofit hospitals." For purposes of such exemption, an organization must be organized and operated as a charitable organization for the purpose of operating a hospital for the sick, and its primary function is providing hospital care. The exemption does not extend to an organization established and operated primarily as an out-patient clinic.

In view of the above, and based on the information furnished, it is our conclusion that the Community-Group Health Foundation, Inc., in operating as an out-patient clinic would not be considered a hospital within the intendment of section 4253 (h) of the Code. Therefore, the exemption provided by that section would not apply to amounts paid for communication services furnished to the Foundation.

In accordance with the request contained in a power of attorney on file in this office, a copy of this ruling is being mailed to Mr. William J. Lehrfeld, 1815 H. Street, N.W., Washington, D.C. 20006.

Very truly yours,

BERNARD H. FISCHGRUND,
Chief, Excise Tar Branch.

EXHIBIT (B)

EXCERPTS FROM H. REP. 89-1285

(TAX ADJUSTMENT ACT OF 19669
Page 31

Exemptions for hospitals.-Your committee's bill provides an exemption from the excise tax for telephone services furnished to nonprofit hospitals exempt from income tax. This is to accord such hospitals the same treatment accorded Government hospitals under present law.

Page 48

(b) Nonprofit hospitals.-Subsection (b) of section 202 of the bill adds a new subsection (h) to section 4253. The new subsection (h) provides that no tax shall be imposed under section 4251 on any amount paid by a nonprofit hospital for communication services furnished to such hospital. A "nonprofit hospital" is defined in the new subsection (h) to mean a hospital referred to in section 503 (b) (5) which is exempt from income tax under section 501(a). Under this amendment, private nonprofit hospitals will receive the same tax-exempt treatment on their payments for communication services as is applicable under section 4292 to hospitals operated by a State or local government.

EXHIBIT (C) NEWSPAPER CLIPPINGS

[Washington Evening Star, June 27, 1969]

$1.4 MILLION GRANTED FOR CARDOZO CENTER

The first federal grant for rebuilding in the District's riot-damaged Upper Cardozo area was announced yesterday by the Commerce Department: $1.4 million toward a health center that will serve 20,000 residents.

The grant was called "really good news" by Mayor Walter Washington, who was on hand when the Economic Development Administration announced it. It will be matched by a $1.4 million loan from the Equitable Life Assurance Association.

At present, the Cardozo area, with a population of more than 111,000, has no medical facilities whatsoever. The new medical center, a glass-front building to be erected near 14th and Irving Streets NW, will have two emergency rooms, 16 consultation rooms, 32 examining rooms, a pharmacy, and a physical therapy room. Feets will be based on the patent's ability to pay.

Development of such a center was originally proposed by the Cardozo Heights Association for Neighborhood Growth and Enrichment (CHANGE), and the center's board of directors will include four members from CHANGE as well as four from the Howard University Medical School and four from the Group Health Association.

The federal grant-and the insurance company's matching loan-are being made to the Community Group Health Foundation, Inc., of 3308 14th St. NW. The center will also serve as a training ground for 75 medical and paramedical personnel a year. It will provide for teams of physicians acting as personal doctors to neighborhood residents.

Commerce officials said yesterday the center will not be ready for operation for about two years. Interim medical services will be offered in a temporary health office at the Riggs National Bank Building, 14th and Park Road NW, beginning August 1.

[Washington Post, June 30, 1969]

CARDOZO HEALTH CENTER

Much more than physical rebuilding is involved in the decision to go ahead with construction of the Cardozo Health Center near 14th and Irving Streets, NW. astride the 14th Street riot corridor. There has been a pooling of resources to fund it-$1.94 million in construction money from the Commerce Department, matched by a loan of the same amount from Equitable Life and $1.5 million from the Office of Economic Opportunity to operate it. The center itself is a joint venture of CHANGE, Inc., a Cardozo neighborhood action group; Howard University Medical School and the Group Health Association. Medical service will be provided residents on an ability-to-pay basis and 75 persons a year will be trained in medical and para-medical jobs. Construction will take two years, but meanwhile, medical service will start Aug 1 in the Riggs Bank building at 14th and Park Road. It is an imaginative effort to meet the needs of the 111,000 Cardozo residents, particularly the 20,000 in Upper Cardozo who, according to Mayor Washington, now lack any medical facilities.

The CHAIRMAN. Thank you, sir, for bringing this matter to our attention.

Are there any questions? Mr. Conable.

Mr. CONABLE. Are there any other institutions similarly situated that have this problem? Is this a general interpretation that the IRS has made, or is it one that applies only to your organization?

Dr. SMITH. I would assume that it applies to all of the neighborhood health centers. There are 49 such centers presently funded throughout the country and another 26 on the drawing boards. So, in all probability, this would be the ruling which would affect all of these centers.

Mr. CONABLE. You are speaking only for yourself, but you assume there are other institutions similarly situated?

Dr. SMITH. That is correct.

The CHAIRMAN. If there are no further questions, we thank you for bringing this matter to the attention of this committee.

That completes the calendar for today. Without objection, the committee is adjourned until 10 o'clock tomorrow morning. (The following letters were received for the record:)

AUTOMOBILE MANUFACTURERS ASSOCIATION, INC.,

Washington, D.C., September 17, 1970.

Hon. WILBUR MILLS,
Chairman, Committee on Ways and Means, U.S. House of Representatives,
Washington, D.C.

DEAR CHAIRMAN MILLS: We respectfully request that this letter, setting forth the views of the Automobile Manufacturers Association, be made a part of the record of the Ways and Means Committee's hearings to extend present excise rates on new automobiles.

Although we do not wish to comment with respect to the presently proposed extension of the two percentage points due to expire on December 31, the Association would like to take this occasion to reiterate its position that the excise tax on new automobiles should be repealed under a phased repeal schedule. We would also like to reserve our right to propose, at an appropriate time in the future, the repeal of the new truck excise and the excise on truck parts—which are not true user taxes.

As we have stated at numerous times in the past before this and other committees of the Congress, the new car excise tax discriminates against one form of consumer expenditure and it is therefore bad tax policy to retain it.

Your committee's recognition of the discriminatory nature of the tax was shown in the report which accompanied the "Excise Tax Reduction Act of 1965" which stated, "Most of these taxes were imposed in time of national emergency to raise needed revenues and in many cases to stem inflationary pressures and divert essential resources to defense-related uses. With these emergencies past, the selective taxes are now the source of undesirable discrimination. Consumers of the taxed product where the tax is passed forward must pay a premium, over and above the market price, for the taxed items, which consumers of untaxed items do not pay."

Then further on in the report it was stated concerning your committee's recommendations "it could not justify leaving the 5 percent tax on passenger cars" when nearly all other excises of a similar nature were repealed.

Your committee also recognized the adverse impact "too large a decrease in the tax as of any one time" would have on the prices of used cars and on the market for new cars immediately preceding a large reduction in the tax. Therefore, the Congress provided a schedule for reduction of the tax.

This schedule has been modified for fiscal reasons arising out of the Vietnam conflict and from the inflationary pressures on the economy. However, each postponement in the scheduled reduction has been simply that-a postponement. Because the Association has been convinced that the reasons for these postpone ments justified such action, we did not object to them.

The passenger car excise results in a heavy and unfair burden on the car owner's purse. Each percentage point of the tax averages $27. The current 7 percent tax results in an average additional burden of $190 to each new car purchaser. Furthermore, this is not a tax on a luxury. The automobile is a necessity in today's living. Because the tax is related only to the price of a car and not to the income of the purchaser, it falls most heavily on those who can least afford to pay the tax and is thus regressive.

Your committee recognized this regressive aspect of the auto excise tax when it said concerning selective excises: "Many of these excises also now are objectionable in that they are generally regressive in their impact, absorbing a larger share of the income of low-income persons than of those of higher income. This stems from the fact that low-income families find it necessary to spend a higher proportion of their incomes for consumption than those with larger incomes." While only three percent of new car buyers in 1969 had incomes of $3,000 or

less, the average tax of $190 per car nevertheless represented nearly over 6 percent of their income. This percent decreases to 4 percent for purchasers with incomes of $5,000 per year. It represents 1.9 percent of income of purchasers whose incomes are $10,000 per year, and 1.3 percent of income for purchasers earning $15,000 per year. Two-thirds of used car buyers and over 40 percent of new car buyers had, in 1967, annual family incomes of less than $10,000 per year. In addition, since new and used cars are in direct competition with each other over a wide range of prices, the existence of the excise on new cars affects the price of both, new and used cars. As your committee recognized when the present phased approach to excise tax repeal was adopted, the tax does affect the prices of both new and used cars. When account is taken of this fact, the regressivity of the tax becomes even more apparent. Data from the University of Michigan's Survey Research Center show that the direct price competitiveness of new and used cars extends over a range of from under $1,500 to over $3,500.

With excessive tax burdens on its products, the industry cannot be expected to continue to make its fullest contribution to meet long-term economic and social goals. As anyone who reads the newspapers knows, emission and safety improvements required by government standards have resulted in substantially higher production costs for all motor vehicles. The excise tax applies to these new added costs as well as to the rest of the vehicle. Manufacturers will, of course, meet the requirements of standards as efficiently as possible. The phased decline and elimination of this tax will help offset the impact on consumers of these rising production costs.

The impact of continuing the automotive excise taxes extends from basic industries to hundreds of thousands of small businesses. On the basis of data developed in the 1967 Census of Business, Construction Industries and Manufacturing it is estimated that in excess of 800,000 individual American businesses depend on the motor vehicle. This includes some 300,000 automobile dealers, automobile accessory stores and gasoline stations, and over 100,000 independent automobile repair shops.

While the total employment opportunities generated by those who supply the industry and service and distribute its products run into the millions; the manufacturers of automobiles, trucks and parts provide work directly for nearly three-quarters of a million people. The Committee on Ways and Means recognized the adverse impact of the auto excise on those employed by the industry when it stated in its report on the 1965 excise reduction act "These selective excise taxes tend to reduce sales and therefore reduce incomes and jobs in the industries which produce the taxed goods."

Automotive consumption of many industrial materials sustain the growth and development of numerous other industries vital to our industrial base and economic growth. For example, in 1968, 21 percent of all steel, 65 percent of all rubber, 37 percent of all zinc, 10 percent of all aluminum and 55 percent of all lead used in the United States was for automotive purposes.

In light of the foregoing, it is apparent that the adverse effects of discriminatory motor vehicle taxes are widespread throughout not only the industry, but the whole economy.

The Automobile Manufacturers Association appreciates this opportunity to reiterate its strong conviction that the new car excise tax represents a continuing and unjust burden on the industry and its customers. Its reduction and ultimate repeal are clearly in the national interest.

Sincerely,

THOMAS C. MANN.

AMERICAN AUTOMOBILE ASSOCIATION,
Washington, D.C., September 17, 1970.

Re Automobile excise tax, leaded gasoline tax

Hon. WILBUR D. MILLS,

Chairman, Committee on Ways and Means,
U.S. House of Representatives, Washington, D.C.

DEAR CONGRESSMAN MILLS: The American Automobile Association, representing more than thirteen million motorist members, opposes further extension of the Federal Excise Tax on automobiles. The AAA is opposed to the proposed tax on the lead additive to gasoline.

Auto excise tax

The proposal to extend the auto excise tax is yet another in a long line of broken promises by Congress to reduce or phase out this unjust tax. For more than 15 years, we have seen Congress postpone scheduled reductions in the auto excise tax.

Attached and made a part hereof is a two-page legislative history with Congressional citations covering the years 1955 through 1969. This history represents 15 years of frustration and unfair expense to the American car buyer, and demonstrates that only once in that period did Congress reduce the tax despite legislation it passed to either reduce or eliminate that tax.

For more than 40 years, the American Automobile Association has opposed the Federal excise tax on the purchase of private passenger cars because:

(1) The automobile is a necessity, not a luxury. About eighty-two (82) per cent of commuting workers travel to work by automobile and a national survey sponsored by the Highway Research Board revealed that almost eighty-five (85) per cent of the American public uses the car to make those very necessary shopping trips.

(2) The American motorist already is the most heavily taxed person in our nation. Total special taxes, fees and tolls paid by highway users are now in excess of $16 billion a year.

The AAA agrees with the comment made by a member of the Committee during the current hearings, that the annual postponement on scheduled reductions could bring about a "Congressional Credibility Gap."

Lead additive tax

While the AAA has no official policy position on the Administration's proposed tax on the lead additive to gasoline, we nonetheless recognize our responsibility as the representative of more than thirteen million motorists to set forth our views since the tax would be passed on to motorists.

At the outset, it seems logical to assume that if lead additives are truly the environmental and human health hazard the Administration makes them out to be, then a tax is not the answer to eliminating that hazard.

It seems evident, that this proposal is advanced primarily to develop revenue to help balance an unbalanced federal budget.

Further, such a tax would place an additional financial burden on the alreadyoverburdened car owner without benefiting him directly; it would discriminate against those motorists who have no alternative to using leaded gasoline, and the funds would not likely be used to fight pollution.

While AAA is very much opposed to pollution of any sort including pollution caused by the private passenger car we do not believe the proposed leaded gas tax will accomplish the objective of reducing and ultimately eliminating air pollution caused by the automobile. Rather, we feel that Federal regulation authorized by legislative amendments to the Clean Air Act is the proper approach to achieve these objectives. Such regulations should be practical and feasible of accomplishment within the time period established.

We respectfully request that this letter and the two-page attachment be made a part of the official hearing record.

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(Prepared by: Legal Department, American Automobile Association-
September 1970)

Tax Rate Extension Act of 1955 (PL 84-18; March 30, 1955)

Tax Rate Extension Act of 1956 (PL 84-458; March 29, 1956)

10% to 7% scheduled for reduction April 1, 1955

Reduction postponed until April 1, 1956 10% to 7% scheduled for reduction April 1, 1956

Reduction postponed until April 1, 1957

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