of the collection of the revenue. to distillery premises.

Similar provisions of law exist as

Senator KING. Was there any suggestion made in the hearings before the House that there should be a distinction between nonintoxicating beer and intoxicating beer, as to the amount of license which would be paid, or tax which would be paid?

Mr. HESTER. I have no recollection on that.

Mr. FORREST. Section 608 of the Revenue Act of 1918, which at that time assessed a tax of $6 a barrel, was amended by the Liquor Tax Act of 1924 to make it $5 a barrel, and that act provided [reading]:

That there shall be levied and collected on all beer, lager beer, ale, porter, and other similar fermented liquor, containing one-half of 1 percent or more of alcohol

And anything under that would not be subject to the tax.
Mr. BERKSHIRE. This did not tax at all the near beer.
Senator KING. Proceed.

Mr. HESTER. Section 3340 of the Revised Statutes is amended by section 317 to provide for the forfeiture of brewer's premises for flagrant and willful removal of taxable malt liquors for consumption or sale without payment of the tax thereon. The present law does not provide for such forfeiture, and this amendment is considered necessary in aid of the collection of the revenue. Similar provisions of law exist as to distillery premises.

The section further provides that the brewery premises shall consist of the lands and buildings described in the brewer's notice, notice when he is going to start business, and that such premises shall, as to breweries established after the enactment of this act, be used solely for the manufacturer of beer, lager beer, ale, porter, and similar fermented malt liquors, cereal beverages containing less than one-half of 1 percent of alcohol by volume, vitamins, and ice; of drying spent grain from the brewery, and recovering carbon dioxide and yeast.

It further provides that brewery bottling houses established after the date of the enactment of this act shall be used solely for the purposes of bottling such fermented malt liquors, and cereal beverages containing less than one-half of 1 percent of alcohol by volume. The section provides that notwithstanding such amendments, where established breweries and brewery bottling houses are, on the date of the enactment of this act, being used by the brewer for other purposes, such use may be continued by such brewer. The section further provides that the bottling house of any brewery shall not be used for the bottling of the product of any other brewery. A penalty of $50 is provided with respect to each day upon which any brewery or brewery bottling house is used contrary to the provisions of this section.

This amendment is considered necessary because of the danger to the revenue occasioned by the conduct of other businesses on brewery premises and in browery bottling houses. Such business necessitates the presence in the brewery and brewery bottling houses of employees who have a part in the making or bottling of fermented malt liquors, and increases the danger of fraudulent removal of un-taxpaid malt liquors. During prohibition, many breweries built up other businesses in their brewery premises, and it was deemed equitable to permit such businesses to be continued. However, as to breweries

and brewery bottling houses established after the date of the enactment of this act, only the businesses enumerated in the section will be permitted.

This simply means that on and after the date this act becomes effective breweries can make beer, near beer, yeast, recover carbon dioxide and dry spent grain. It eliminates the soft drink business, after this act goes into effect, with respect to any new breweries, but it is not retroactive in effect.

Senator KING. Then a brewery, so-called, that now manufactures soda water and soft drinks and at the same time beer would not be affected by this bill?

Mr. HESTER. That is right.

Senator KING. But in the future a person that was manufacturing beer could not, on the same premises, manufacture soda water?

Mr. HESTER. That is right. I do not like to take up your time, Mr. Chairman, but I would like to have Mr. Berkshire, the Deputy Commissioner of Internal Revenue, make a statement for the record as to why this provision or this prohibition as to the future should be enacted into the law. May he do that?

Senator KING. I will be glad to have him do that.

Mr. BERKSHIRE. I do not know there is any necessity for any statement of that sort. We think it is rather apparent that it certainly does not lend itself in any way which would assist in the collection of the revenue, and you can conceive of many instances where it would confuse the proper supervision. There is too much business being negotiated around there. In a brewery establishment we know what to look for when we go in there, and if you conduct every other sort of business in there it would merely confuse an inspector going in there and attempting to make his inspection of the premises, with trucks driving in and out, with a lot of other employees than those who may be employed in connection with the ordinary brewery operation.

Mr. HESTER. It would permit the mixing of beer with soft drinks too.

Mr. BERKSHIRE. Yes; that is possible.

Mr. HESTER. They might bring nontaxed beer into the brewery and bottle it and take it out.

Mr. BERKSHIRE. It makes it very much easier to defraud the Government of its revenue, there is no doubt about that.

Senator BAILEY. I do not follow you on that. I do not see why a new brewery, as well as the old one, should not be allowed to have the use of the premises to make ice cream or anything else. I do not like to limit a man's use of his property.

Mr. BERKSHIRE. That always has been done. If we do it with respect to distilleries we should do it with respect to breweries. We certainly would not want in a cistern room, where distilled spirits are being drawn off, we would not want at the same time to have them manufacture other products and have all kinds of employees bottling Coca-Cola, manufacturing Coca-Cola, or have tanks of any kind of soft drinks in there, and confuse that with the process of distillation directly.

Senator BAILEY. If that is so why give the present breweries this privilege?

Mr. BERKSHIRE. We just merely did not want to confiscate an investment that was already made. During prohibition large amounts have been invested in converting the breweries, and it may be they are entitled to consideration.

Mr. HESTER. They were driven into this business.

Mr. BERKSHIRE. They were driven out of this business and into the other business.

Senator BAILEY. I would much rather let everybody have the same chance and be on the same footing. This makes a distinction based

on use.

Mr. BERKSHIRE. We are rather inclined to the belief that there is something to our contentions that it does confuse the orderly supervision of these plants to have every kind of manufacturing take place there.

Senator BARKLEY. Does this privilege extend to any breweries who did not change the type of their product during prohibition days? Many of them were driven to manufacture other things during prohibition. Of course, they could not make beer, but they made ice cream and various kinds of drinks. I imagine they have resumed the manufacture of beer and some of them want to retain the nonintoxicating activities. Those who did not of course would not have to, but if anybody retained it you think they should be entitled to keep it. The object here is to permit them to go ahead and do it, but ultimately the whole thing would be simply a brewery in the future? Mr. BERKSHIRE. That is correct.

Mr. HESTER. A penalty of $50 is provided with respect to each day upon which any brewery or brewery bottling house is used contrary to the provisions of this section.

Senator KING. Is that a civil penalty?

Mr. HESTER. Yes; it would be a civil penalty.
Senator KING. It would not be a crime?

Mr. HESTER. Oh, no.

Mr. BERKSHIRE. You would have to sue for it.

Senator BAILEY. On the top line it says "shall be fined."

Senator KING. What line were you referring to?

Senator BAILEY. The first line on page 31.

Mr. FORREST. It says "shall be subject to a penalty."

Senator BAILEY. The statement that it was a civil penalty is not correct, because a fine is not a civil penalty.

Senator KING. What does that mean?

Senator BAILEY. "Shall be fined not more than $50." That is not a

civil penalty.

Mr. HESTER. That is correct. I made a misstatement then.

Senator BAILEY. You will correct that, then, will you?

Mr. HESTER. Yes.

Senator BAILEY. Make that a civil penalty.

Mr. HESTER. You are making the suggestion that that should be changed and made a civil penalty rather than a criminal penalty? Senator BAILEY. Yes. He is not convicted of a crime.

Mr. HESTER. I am glad you corrected me on that.

Section 318 authorizes the Secretary of the Treasury to authorize the amelioration and fortification of wine without supervision by any officer of the United States, whenever he determines that this may be done without danger to the revenues. The present law requires.

the amelioration and fortification of wines by the winemaker to be conducted under the supervision of a Government officer. This is deemed unnecessary since wine must be tax-paid upon removal from bonded winery premises.

Section 319 amends section 605 of the Revenue Act of 1918, and is a provision parallel to section 317, relating to the business of rectification.

This section provides that the premises of a rectifier shall be as described in his notice, and that it shall be used exclusively for the business of rectification, the bottling of liquors rectified by him thereon, and the bottling of wines and spirits without rectification. In the event that rectifying premises in existence on the date of the enactment of this act are being used for purposes other than those described above, that use may be continued for not more than 60 days after such date. A penalty similar to that contained in section 318 is prescribed.

Do you want any explanation on that?

Senator KING. No.

Mr. HESTER. Section 320 amends section 609 of the Revenue Act of 1918 by striking from that section the words "industrial distillery of either class established under the act entitled 'An act to reduce tariff duties and to provide a revenue for the Government, and for other purposes', approved October 3, 1913", and substituting therefor the words, "industrial alcohol plant." Under the act of 1913 the alcohol distilleries of both classes were designated as industrial distilleries, whereas under title III of the National Prohibition Act, all alcohol may be produced only at "industrial alcohol plants." The purpose of the amendment is to harmonize section 609 and title III of the National Prohibition Act in this regard.

Section 321 requires every retail liquor dealer to keep records, in such form as he desires, of all intoxicating liquors received by him. Under this section the records must be retained by the retailer for a period of 2 years from the time of the transaction to which they relate, and shall be open to inspection by Government officers. The section provides a fine of $25 for each willful violation. Such records will prove helpful in the enforcement of the revenue laws.

Senator BAILEY. You intended there to impose a fine?

Mr. HESTER. Yes, sir. The only record he would have to keep, Senator Bailey, would be to keep a spindle and put his invoices on the spindle, if he wanted to. There are no elaborate records required at all.

Section 322 amends section 3237 of the Revised Statutes.

Senator BAILEY. Let me suggest something there. You state here "each willful violation of the provisions." Well, that may be a violation of the general provisions. Do you intend to say for each failure to preserve any record of an invoice, for instance, if I went to a man's place and found he lost one or he concealed one, would that failure to keep it be a violation?

Mr. HESTER. If it was willful and we could prove it. Senator BAILEY. Why not put it down there? specific?

Mr. HESTER. We will be glad to look into that.
Mr. BERKSHIRE. I think that is what it means.

Why not make it

Senator BAILEY. I would not think so.

The language preceding it is rather general. The rule of the criminal law is you must be specific otherwise you cannot convict.

Senator BARKLEY. The last sentence provides for willful violation. Senator BAILEY. Each willful violation to keep such records, invoices, or bills. That does not say any record, any invoice, or any bill.

Mr. HESTER. That is a good suggestion. Section 322 amends. section 3237 of the Revised Statutes by requiring the taxpayer to remit his special taxes with his return within the calendar month in which the special tax liability commences. Whereas section 3232 of the Revised Statutes provides that no person shall be engaged in or carry on any trade or business in respect of which a special tax is imposed until he has paid the special tax, section 3237 provides only that the return shall be made within the calendar month in which business is commenced. The purpose of this amendment of section 3237 is to harmonize it with the apparent intention of section 3232 that the tax shall be paid within the month in which the business is commenced.

Sections 323 and 324 amend subsections "Fourth" and "Fifth", respectively, of section 3244 of the Revised Statutes to restate the classifications of retail and wholesale dealers in liquors and malt liquors. Senator KING. Do you increase the present taxes?

Mr. HESTER. No, not at all. The amendments further provide that no retail dealer in liquors or malt liquors shall be held to be a wholesale dealer solely by reason of sales of 5 wine gallons or more to the same person at the same time when such sales are for immediate consumption on the premises where sold. These amendments are considered desirable because hotels frequently serve large quantities of liquors for banquets, thereby incurring special tax as wholesale dealers.

The subsections are further amended by providing that wholesale and retail dealers in liquors and malt liquors who have paid special tax as such dealers shall not again be required to pay special taxes as such dealers on account of sales of fermented malt liquors to wholesale or retail dealers in liquors or malt liquors which are consummated at the purchasers' places of business covered by the stamps issued to the latter to denote the payment of the special tax. The purpose of these amendments is to permit wholesale or retail dealers in liquors or malt liquors who have paid the special tax as such dealers to sell fermented malt liquors to other wholesale or retail dealers at the latters' places of business without prior orders and without incurring additional special tax.

The situation is simply this: A wholesaler cannot sell off of his premises, and if he makes a sale to another wholesaler and goes down there to deliver some more liquors, the other wholesaler says, "I would like to have more than I ordered," he may make that sale there, under this amendment, without incurring a tax as a wholesaler at the point where he made the sale, and the retail dealers could do the same thing.

Senator BAILEY. Is it the idea here to draw a line between the retailer and wholesaler on five gallons?

Mr. HESTER. No, there is no line drawn between them.

Mr. FORREST. As to 5 gallons; yes, sir. Any person who sells the upper limit is a wholesaler.