Senator KING. You may submit it, and the committee, if it feels the situation calls for its insertion in the record, it will be inserted, but you must submit it tomorrow.

Mr. DAVIS. I will be glad to do so.

(Subsequently the following brief was submitted by Mr. Davis:)

BRIEF COVERING THE MANNER, PLACE, AND TIME WITHIN WHICH TO AFFIX STAMPS ON DISTILLED SPIRITS IN THE DISTRICT OF COLUMBIA

Mr. Greenhut, appearing in behalf of the Copeland amendment, which was offered to the subcommittee of the Senate Finance Committee by Senator Copeland, made various statements as to the method by which stamps were affixed to distilled spirits in package form. The statements made by Mr. Greenhut relative to this phase of the District law are unbasic and without foundation. I quote section 26B of the liquor regulations of the District of Columbia, which set out the manner, place, and time within which stamps must be affixed to packages of distilled spirits in the District of Columbia. It can be readily noted that it is the exceptional case when the law requires the retailer to affix the stamp:

"1. Manufacturer in District of Columbia to affix stamps.-On all beverages manufactured in the District of Columbia by a licensed manufacturer, the stamps so required shall be affixed to the immediate container, as the same is hereinafter defined, of the beverage if the beverage is sold by such manufacturer in broken-case lots. If the beverage is sold or delivered by such manufacturer in unbroken-case lots, the manufacturer shall either affix the stamps to the immediate container, as the same is hereinafter defined, or affix the stamps by placing the required number of stamps in an envelope and firmly and securely affixing the envelope containing the stamps to the outside or case container of the beverages."

In all events the stamps must be so affixed by the manufacturer before the beverage is removed from his warehouse or licensed premises.

"2. Wholesaler in District of Columbia to affix stamps.-(a) Upon beverages, except taxable light wines, imported or brought into the District of Columbia by any licensed wholesaler, the stamps shall be affixed by the wholesaler to the immediate container, as the same is hereinafter defined, of the beverage if the same is sold or delivered in broken-case lots. On beverages, except taxable light wines, imported or brought into the District of Columbia by any licensed wholesaler and sold and delivered by him in unbroken-case lots, thewholesaler shall either affix the stamps to the immediate container, as the same is hereinafter defined, or affix the stamps by placing the required number of stamps in an envelope, firmly and securely affixing the envelope to the outside or case container of the beverages. In all events the stamps must be affixed before the removal of the beverage from the place of business or warehouse of the wholesaler for delivery to a purchaser.

"(b) Upon taxable light wines imported or brought into the District of Columbia by any licensed wholesaler, the stamps shall be affixed to the immediate container, as the same is hereinafter defined, within 24 hours (excluding Sunday from the count) after such wines are received at the licensed premises of the wholesaler and before such wines are sold by the wholesaler.

"3. Retailer to affix stamps.-Upon beverages purchased outside the District of Columbia by any licensed retailer, the stamps so required shall be affixed by the retailer to the immediate container, as the same is hereinafter defined, within 24 hours (excluding Sunday from the count) after the beverage is received at the licensed premises of said retailer and before the beverage is sold by the retailer. Upon beverages purchased by a retailer within the District of Columbia from a licensed manufacturer or licensed wholesaler and upon which. the stamps have not been affixed to the immediate container, as the same is hereinafter defined (the stamps being in an envelope attached to the outside container), the retailer shall affix the stamps to the immediate container of the beverages within 24 hours (excluding Sunday from the count) after such beverages are received at the licensed premises of the retailer and before said beverages are sold by such retailer."

Pursuant to an act of Congress, passed during the first session of this Congress, the Commissioners adopted section 11 of the regulations, which regulation, in effect, further restricts the placing of stamps on packages of distilled spirits. Section 11 is quoted as follows:

"(a) No licensee shall purchase any beverages within the District of Columbia for resale except from the holder of a license to sell such beverages to such licensee for rosale.

"(b) No licensee holding a retailer's license, class A, B, C, D, or E shall transport, or cause to be transported, into the District of Columbia, any alcoholic beverage (except the regular stock on hand in a licensed railroad club or dining car or passenger-carrying marine vessel, and beverages owned by a retail licensee at the time of the adoption of this regulation): Provided, however, that the Alcoholio Beverage Control Board may issue a special permit or permits to the holder of a retailer's license to transport, or cause to be transported, into the District of Columbia, alcoholic beverages which said Board is satisfied that beverages bearing the same brand or trade name are not obtainable by such retail licensee from a licensed manufacturer or wholesaler in the District of Columbia in such quantity as reasonably to satisfy the immediate needs of such retail licensee. Such permit shall specifically set forth the quantity, character, and brand or trade name of the beverages to be transported and the names and addresses of the seller and of the purchaser. Such permit shall accompany such beverages during their transportation in the District of Columbia to the licensed premises of such retail licensee, and shall be exhibited upon the demand of any police officer or duly authorized inspector of the Board. Such permit shall, after said beverages are received by the retail licensee, be retained by him and shall be marked "cancelled" by the retail licensee as soon as the stamps denoting the payment of the tax to the District of Columbia are affixed to said beverages. Each holder of a retailer's license who shall have transported, or caused to be transported, into the District of Columbia, any alcoholic beverages during any calendar month, shall, on or before the 10th day of the succeeding month, furnish to the Board, on a form to be prescribed by said Board, a statement under oath showing the quantity and character of each brand of beverages so transported, the name and address of the seller, the number of the special permit, and the date of receipt of such beverages by such licensee."

Summarizing this phase of the District of Columbia liquor laws, it can be readily ascertained that the retailer can purchase stamps for distilled spirits for only that merchandise which is not handled by a local wholesaler. This merchandise amounts to less than 10 percent of all the distilled spirits sold in package form in the District of Columbia.

Mr. FILLIUS. Mr. Senator, Mr. Harry L. Lourie, the executive secretary of the National Association of Alcoholic Beverage Importers, was very anxious to appear and be heard, but he was unavoidably called to New York. He did not learn of the hearing until last night, and he would like to have the privilege of filing a brief.

Senator KING. He may do that, but it will have to be done promptly.

Mr. FILLIUS. When may it be filed?

Senator KING. Just file it as soon as you can.

Senator BAILEY. Is that on the Copeland amendment?

Mr. FILLIUS. Yes.

(Subsequently the following letter was submitted by Mr. Harry L. Lourie, executive secretary, National Association of Alcoholic Beverage Importers, Inc.:)

STATEMENT IN OPPOSITION TO SENATOR COPELAND'S AMENDMENT H. R. 9185

NATIONAL ASSOCIATION OF ALCOHOLIC BEVERAGE IMPORTERS, INC.,
Washington, D. C., March 9, 1936.

Senator WILLIAM H. KING,
Chairman, Subcommittee, Senate Finance Committee,

Washington, D. C.

DEAR SENATOR KING: This association, representing more than 90 percent of the total importations of alcoholic beverages in the United States, desires to go on record as being opposed to the amendment proposed by Senator Copeland in H. R. 9185 with respect to a change in the method of collecting internal-revenue taxes on imported and domestic distilled spirits. This association, after careful examination of available public facts, as well as of the facts in its possession, does not believe that the proposed legislation will increase the revenue of the United States $300,000,000 a year, nor does it believe that

will destroy bootlegging, smuggling, and other illicit operations. Its position is summarized below:

1. An examination of the tax-paid withdrawals of United States' whisky for the years 1934 and 1935 indicates that in 1935 the withdrawals were approximately 62,000,000 gallons of whisky, which is only slightly below the quantities tax paid and withdrawn in the preprohibition period, 1910 to 1918. The taxpaid withdrawals of imported whisky for 1934 and 1935 were between three and four times as great as the quantities prior to prohibition. The sharp increase in revenues collected by the Federal Government in 1935 over 1934 is in itself a sufficient indication that the operations of bootleggers and smugglers are definitely on the decline.

This association has spent considerable time and money in investigations with respect to illicit operations. It abandoned such work in the spring of 1935 when it became convinced that the Federal Government, through its own operations, had reduced the illegal sale of distilled spirits in wet States to a minimum. An indication of the decline in illicit operations is shown by the fact that in Chicago, which at one time was the hotbed of bootleggers, one group offered members of this association for a rather small sum the dies which they had used for counterfeiting labels and capsules on foreign spirits. This association feels convinced that the efforts of the Treasury Department in the past 2 years have reduced bootlegging to a minimum. We admit that the illicit distillation of spirits has not been stopped and we do not feel that it ever will be stopped since in certain sections of our country it has been going on for a hundred years. It is our belief that illicit operations in the United States may be divided into the following classes:

(a) Illicit distillation of spirits to be distributed mainly in dry States or in States having a liquor-store monopoly.

(b) The smuggling and sale of tax-paid legal spirits into dry States and into States maintaining a liquor monopoly.

We do not believe that in retail package stores there is any important sale of illicit spirits. The records of the Alcohol Tax Unit indicate a continuous check-up of the operations of retail establishments.

2. The tax-collection system' proposed to our mind will be difficult to enforce and may result in losses of revenue. There are 235,000 establishments in the United States holding retailers' tax stamps issued by the Treasury Department. The physical impossibility of maintaining a close supervision over every one of these retail outlets is obvious. It is from these retail establishments that the tax would be collected under the proposal. Contrast collecting the tax from 235,000 individual business establishments with the present system whereby the tax is collected from some 300 distillers and 600 rectifiers. In the case of importers, the tax is collected by the customs at the time of withdrawal of the goods from customs custody. Obviously, it is easier to collect the tax at the source from approximately 1,000 individuals than it would be to collect it at the point of distribution from some 235,000 individuals. The cost of collecting the tax to the Government would increase tremendously and at the same time it is doubtful if a control could be exerted to prevent evasion of the payment of the tax.

3. The proposal would not stop bootlegging in the United States. It might result, if effectively enforced, in the collecting of the internal-revenue tax on illicit spirits, but it would not stop the manufacture of the spirits. It might result in the introduction of illicit spirits in legal channels and the tax being collected on such spirits. It is obvious that under the present and proposed system illicit operators, even if their products finally paid the Federal taxes, could still operate at a profit, because they do not pay the occupational taxes imposed by the States, nor do they operate under the heavy bonds required by both the Federal and State governments.

4. The cost of the necessary bonds would definitely offset any of the benefits the consumer is supposed to obtain through the proposed method of collecting the tax. Under the amendment, bonds to cover the taxes involved would have to be posted by distillers, rectifiers, importers, wholesalers, and retailers. At the present time wholesalers and retailers and importers do not post bonds. Bonds are posted by distillers and rectifiers to cover their general operations. Presumably the new bonds would be in addition to those now required by the Government. It is estimated that the bonds which would be required by the amendment would amount to the amazing sum of between 300 to 400 million dollars a year.

It is doubtful if the bonding companies could afford to issue such large sums of bonds for a particular industry at a low rate. Many bonding com

panies could not afford to take on more than a small percentage of their total business in the form of bonds for the liquor industry. The bulk of the bonding costs would fall on the retail establishments which at present represent the weakest chain in the financial structure of the liquor industry.

5. Retailers would face a difficult financial burden if they had to advance the funds for the Federal taxes. At the present time retailers purchase goods at a price which includes the various taxes involved. Their business is financed on such a basis. If the system is changed and retailers purchased their goods on a tax-free basis, it would be necessary for them to change their financial set-up in order to obtain funds for the purchase of the Federal tax stamps. Furthermore, the cost of doing business to retailers would be greatly increased not only because of the time it necessarily will take for a retailer to affix the proper stamp to the particular bottle in question, but also because of the necessity of keeping close and accurate records for the Federal Government. The question of the stamps, themselves, represents an interesting problem. Distilled spirits of various kinds are not sold in uniform bottles. For whiskies, gins, rums, brandies, and similar distilled spirits, the following-sized bottles are allowed: 1 gallon, 2 gallon, 1 quart, % quart, 1 pint, 2 pint, 2 ounces, 1.6 ounces, and 1 ounce.

For cordials, liqueurs, and similar specialties, there are no standards, and it is a well-known fact that the bottles vary in size from a 1-ounce container up to a 1-quart 2-ounce container. There are encountered in the trade, particularly with respect to imports, cordials, and liqueurs, not only in bottles varying by an ounce from 1 ounce to 34 ounces, but varying in fractions of an ounce. The tax stamp would have to be one which exactly coincided with the quantity of spirits in each bottle. Furthermore, the alcoholic proof of all of these spirits varies tremendously from as low as 25 proof in the case of mixed distilled spirits, such as highballs, to as high as 152 proof in the case of certain rums. Thus an impossible tax-stamp situation is presented. We estimate at least 1,000 different stamps would have to be employed in order for the retailer to place a stamp on the bottle which accurately reflects the necessary tax. We regard this feature of the bill as impossible of achievement without greatly increasing the costs to the retailers. It is, of course, obvious that in the 235,000 retail establishments any number of errors will be made with respect to the affixing of the proper tax stamp to the proper bottle.

6. In the case of importers there will be a divided tax collection. Collectors of customs will exact the usual tariff rates from imported spirits, but the internal-revenue tax will be collected presumably from the retailers. Nevertheless, the importers will be held responsibe under a bond for the collection of the proper internal-revenue tax after the goods have left customs custody. At the present time all taxes are collected at the time of withdrawal from customs custody and the importer who distributes the goods is relieved of any further requirements under the bonds he has filed with collectors of customs. 7. For probably 2 or 3 years retail establishments would have on their shelves tax-paid goods which they have purchased under the present system as well as tax-free goods which they would purchase if this proposal is adopted. The confusion attendant by the maintaining of a stock of goods of such mixed elements is obvious. The difficulty of controlling such a situation appears to us insuperable.

CONCLUSION

This association feels that the present tax system which has been followed in the United States for almost a hundred years should not be abandoned at this time. The system is similar to one adopted by the leading spirit-producing countries of the world. The proposal overlooks the important fact that in addition to the Federal taxes which are collected with respect to distilled spirits practically everyone of the wet States imposes a State gallonage tax. The State gallonage taxes are collected at various points and such collection is usually indicated by the affixing of a stamp to the bottle. Obviously, uniformity in tax collection cannot be achieved when both the Federal and State Governments are collecting different taxes from the same product. We believe that there is no merit to the contention that the Federal Government has been deprived of $700,000,000 revenue with respect to spirits. Nothing has been shown at the public hearings to prove the validity of the claim. We, therefore, respectfully recommend that the Senate Finance Committee reject the proposed amendment because it is not only unworkable but will not achieve the ends claimed by its proponents.

Respectfully submitted.

HARRY L. LOURIE, Executive Secretar

STATEMENT OF JAMES P. McGOVERN, GENERAL COUNSEL FOR THE INDUSTRIAL ALCOHOL INSTITUTE, INC., NEW YORK CITY

Mr. McGOVERN. Mr. Chairman, at the last session, you gave me permission to file a brief after the Treasury submitted its amendment, and I would like to ask if there will still be time for me to submit for the record such a brief?

Senator KING. You mean in reply to the amendment?

Mr. McGOVERN. Yes. There are two amendments, one to section 308, as to which I would like to submit some further statements, if the Treasury Department and ourselves do not reconcile our differ

ences.

Senator KING. What is the amendment?

Mr. McGOVERN. That is the amendment that seeks to amend section 602 of the Revenue Act of 1918. That was a statute relating solely to alcohol, which antedated the passage of the National Prohibition Act. In looking up in the Code Revisions, I find it was superseded by title 3 of the National Prohibition Act and has not been carried into official or the Annotated Code and I am apprehensive lest any attempt to revive that statute for the purpose of the registered distilleries, especially if similar language be used, might actually jeopardize the objects and the purposes of title 3. Senator KING. I suggest you confer with Mr. Hester, and if you do not reconcile your differences opportunity will be given to file a brief.

Mr. McGOVERN. I would also like to set forth here at this time a bulletin I prepared for the members of the Industrial Alcohol Institute on a feature of the Murphy amendment which was just slightly touched upon today. I did not intend to appear as a witness at all, but Senator Capper wanted to know whether, if this amendment were not entirely satisfactory to the proponents, was there any amendment that might be suggested.

Dr Doran spoke about the possibility of the pharmaceutical interests being affected. Having that in mind, and having reached the conclusion that the amendment as drawn would seriously affect the status of ethyl alcohol under the Food and Drugs Act and other laws, for medicinal purposes, and mind you, I am addressing myself entirely now to the nonbeverage uses of alcohol, my institute not having taken any stand as such, on this beverage phase, because this is primarily an Industrial Alcohol Institute, but, of course, if the amendment be not adopted, then the neutral spirits or ethyl alcohol, as the law now provides, could be utilized for all lawful purposes.

I would like to have in the record this bulletin which confines itself to that rather serious effect, which the passage of the Murphy amendment might have on the status of ethyl alcohol under the Food and Drugs Act for medicinal purposes.

My own opinion is that as drawn, the Murphy amendment provides that ethyl alcohol for medicinal purposes could only be that made from grain, despite the fact that according to the United States Pharmacopoeia the specifications of alcohol would be identical regardless of the source from which it comes.

Senator KING. We would like to have that bulletin in the record. Mr. McGOVERN. The bulletin is as follows (reading):