Senator BAILEY. When one person sells to another person more than 5 gallons? Mr. FORREST. He is a wholesaler. Senator BAILEY. Does that mean one person in one day or one person at the same time? Mr. FORREST. At the same time. Senator BAILEY. That means he can sell him 41⁄2 gallons as often as he pleases? Mr. FORREST. Yes. It is just a matter of how much is purchased at the same time by one person. Senator BAILEY. If I could sell 41⁄2 gallons to you this morning at 10 o'clock, 41⁄2 at 10:30, 421⁄2 at 10:45, I could do right good business at the close of the day with you. Mr. BERKSHIRE. We would probably question the transaction. Senator BAILEY. I am not specially interested in it. You might fix that up. The people in my State can manufacture wine. Under your law they will all qualify as retailers. We will have no trouble in getting $25. Mr. HESTER. We will have to go into that section. Senator BARKLEY. There will be a line drawn between a retailer and a wholesaler. Any line is an arbitrary line. Suppose that there are circumstances where an evasion is in operation continuously, you have authority to look into that? Mr. HESTER. That is correct, Senator. Senator BAILEY. I think the language is rather general. Most of the criminal laws are construed strictly in favor of the defendant. Senator KING. Has your experience demonstrated that there is no better line of demarcation than 5 gallons? Mr. HESTER. That is correct. Senator KING. That is the present law? Mr. HESTER. Yes, and has been for many years. Senator BAILEY. Five gallons to the same person on the same day. You have got the same time here. Senator KING. Has there been any difficulty under the present law which fixes that? Mr. HESTER. No. This is in the interest of the brewing industry and the Government believes that this amendment can be made without jeopardizing or endangering the revenue. Senator KING. All right. Mr. HESTER. Section 325 reenacts section 3450 of the Revised Statutes and amends it by increasing the penalty for removal, deposit, or concealment of taxable articles with intent to defraud the Government of the tax thereon, from a fine of not more than $500, to a fine of not more than $5,000 or imprisonment for not more than 3 years, or both. The purpose of this amendment is to obviate the possibility of a construction that section 3450 was so amended by section 26 of title II of the National Prohibition Act (transportation of intoxicating liquor) as to make section 3450 inapplicable to transportation of liquor. Since transportation is the backbone of liquor law violation, it has been considered necessary to increase the penalty in the manner provided in this amendatory section, so as to combat effectively the transportation of illicit liquor. Senator KING. On page 38, you do not think that a jump from $500 to $5,000, and with an increase in the maximum pentitentiary offense, is too severe? Mr. HESTER. The situation is simply this, that the United States attorneys throughout the country will not prosecute under section 3450 because they say the penalty is not high enough. Senator KING. Why will they not prosecute if the offense has been committed and they have evidence of the commission of the offense? Mr. FORREST. Their statement is, Senator, that after they have prosecuted a case very vigorously a man may be only sentenced to pay a fine of $500 as the maximum, so they look around for another section of law under which they may prosecute him, for instance under the liquor taxing act of 1934, or under section 3296 of the Revised Statutes which has to do with the removal of distilled spirits from the distillery to a place other than the distillery warehouse authorized by law, but there you are under the difficulty that when you find the liquor you cannot prove what distillery it came from or what distillery warehouse it should have been removed to. It makes the proof a great deal more difficult. Senator BAILEY. Isn't this to protect the licensed dealers? Senator BAILEY. As against the illicit dealers? Mr. FORREST. It is to protect the Government against the tax cheater. Section 3450 provides whoever shall remove or conceal any article upon which there is a tax for the purpose of defrauding the Government of the tax, then these things shall happen, and that forfeiture shall be incurred. Senator BARKLEY. Is this transportation across the State line? Mr. FORREST. Any removal, deposit, or concealment. Senator BAILEY. If a man makes liquor unlawfully, without a license, in my State and he moves it in any way he falls under this law? Mr. FORREST. Not only under this law, but under section 3281, for carrying on the business of a distillery without giving the bond required by law, in an attempt to cheat the Government out of its In seeking to move the upper limit of 3450, moving it upward, we went to 3296, which has to do with removal to a place other than the distillery warehouse, and we found the upper limit was $5,000 as to fine and imprisonment 3 years, and so we made it the same here. tax. Senator BAILEY. I am in agreement with you on that. You ought to increase the penalty with a view to bringing all the manufacturers under the law. Mr. FORREST. I thought one of you asked the question. Senator KING. Yes. Mr. HESTER. Section 326 amends section 203 of the Liquor Taxing Act of 1934 so as to authorize the redemption of the strip stamps issued under the authority of that act. The purpose of this amendment is to remove the incentive to bootleg these stamps, by providing a means for the purchaser to secure reimbursement for those stamps which he cannot use. Senator KING. Mr. Hester, you have a considerable manuscript before you and I suppose it would take some little time for you to conclude your statement. We will adjourn subject to the call of the Chair and those who wish to be heard will keep in touch with the secretary, because the chairman of this subcommittee will keep in touch with him, and he will advise you as early as possible. Senator KING. Senator Walsh is present, and desires to bring a matter to the attention of the subcommittee before we adjourn. Senator WALSH. Mr. Chairman, I present a memorandum from Haffenreffer & Co., Inc., of Boston, with reference to H. R. 9185. I shall appreciate the subcommittee's considering these statements and the suggestions made therein before action is taken with a view to reporting H. R. 9185. (Memorandum referred to is as follows:) A MEMORANDUM RELATIVE TO A PART OF BILL H. R. 9185 This memorandum is confined to that part of the bill which offers a refund of taxes to brewers who, after repeal, had paid the tax and bottled substantial quantities of their beverage which later they destroyed under Government supervision at the brewery premises because it was unmarketable. The law requires that the tax be paid by brewers prior to the beverage's being transferred to the bottling house and in the case of the unmarketable beer above referred to the tax was paid and thereafter the beverage was bottled and became unmarketable because of its condition. The present law offers no method of getting a refund for taxes paid in such circumstances. The taxes paid are often referred to as stamp taxes, as for instance the present Federal tax on malt beverages which is a tax of $5 a barrel; and where the beverage is sold in barrels it is represented by a stamp affixed to the barrel. Where it is sold in bottles the stamps are canceled and returned to the Government. The present law relating to the redemption of stamps is contained in 31 Statutes at Large 177, being a law enacted May 12, 1900, but this law is confined to a refund in respect of spoiled, destroyed and useless stamps. The statute is as follows: "SEC. 1424. Redemption of stamps. "(a) Authorization.-The Commissioner, subject to regulations prescribed by the Secretary, may, upon receipt of satisfactory evidence of the facts, make allowance for or redeem such of the stamps, issued under authority of law, to denote the payment of any internal revenue tax, as may have been spoiled, destroyed, or rendered useless or unfit for the purpose intended, or for which the owner may have no use, or which through mistake may have been improperly or unnecessarily used, or where the rates or duties represented thereby have been excessive in amount, paid in error, or in any manner wrongfully collected.” The Government in its taxing acts has generally allowed for a refund of taxes improperly paid. This is true of the Federal income tax (Revenue Act of 1934, sec. 322) and of the estate tax, the gift tax, and other taxes such as the capital stock tax and the excess profits tax. It is also true as to the taxes for documentary stamps. In the event a corporation, upon the issue of its shares, has through error affixed to the stub of the stock-certificate book and canceled stamps to a larger amount than required by law, it is always possible to obtain a refund of such excess. Furthermore, special relief has been given to the manufacturers of tobacco products of a kind similar to that requested by the brewers. The statute granting this relief to the tobacco interests is 46 Stat. 1510 approved March 3, 1931, and is as follows: "SEC. 898. Redemption of stamps. "Internal-revenue stamps affixed to packages of tobacco, snuff, cigars, or cigarettes which, after removal from factory or customhouse for consumption or sale, the manufacturer or importer withdraws from the market, may, under regulations prescribed by the Commissioner of Internal Revenue with the approval of the Secretary of the Treasury, be redeemed if issued after December 31, 1931, and if claim for their redemption is presented by the manufacturer or importer within three years after the year of issue as indicated by the number or symbol printed thereon by the Government, irrespective of the date of their purchase. Beginning with the year 1933, stamps of any issue shall not be sold until those of the previous year's issue have been disposed of or later than one year after the year of issue." In justice there is no reason why the refund should not be allowed. Nothing of value has inured to the benefit of the brewer, in fact, he has lost the cost of brewing the beverage and of placing it in bottles. It would seem that although the excise tax on beer is laid upon the brewer at the time the beverage leaves the 41765-36- -3 brewery, nevertheless the privilege for which the excise is exacted is the privilege of making beverage which will ultimately find its way into commerce and be consumed by the public. Where it still remains on the brewery premises and is of a kind that cannot be marketed it seems to me that the brewer has not had the privilege for which the excise is exacted. The right to refund should be limited so that no fraud will be perpetrated upon the Government and in the event the beverage is destroyed under Government supervision it would seem that the Government would be protected against fraudulent acts. In the case I have in mind all of the beverage was on the brewery premises and the Government inspector was present and satisfied himself that the product was unmarketable and remained on the premises until all of the beverage had been destroyed, that is, dumped into the sewer, and thereafter the Government agent made an affidavit of the facts which had occurred. The tax paid on such beverage seems to me to be unjustly paid and that the law should provide a means whereby it can be refunded. At the present time the beers and ales are under much better control than they were immediately after prohibition was repealed and the possibility of refunds in the future amounting to any appreciable sum have accordingly been minimized. The repeal of prohibition created a tremendous demand forthwith for beers and ales and such of the brewers as then had breweries in operation tried to meet this demand and accordingly at the time some of the product was not as well under control as it is now. As will be recalled, the demand was very insistent and this in a way placed an obligation upon the brewers to satisfy it and the brewers in such circumstances should not be penalized where some of their product turned out to be unmarketable and they felt it ought to be destroyed, by having to pay the stamp taxes upon such product. The taxes are severe, amounting to $5 a barrel of 31 gallons, and accordingly if any appreciable part of the product was unsalable the tax thereon was appreciable. It seems to me therefore that that part of the bill which permits a refund for the stamp taxes paid in respect of beverage in the year 1933 which became unmarketable, not because of the lack of alcoholic content but because of some inherent quality, should be refunded to the brewer and the act should include relief for any time since the repeal of prohibition. JANUARY 11, 1936. F. V. BARSTOW. (Whereupon, at 12 noon, the committee adjourned subject to the call of the Chair.) LIQUOR TAX ADMINISTRATION ACT TAXES ON WINES WEDNESDAY, JANUARY 15, 1936 UNITED STATES SENATE, SUBCOMMITTEE OF THE COMMITTEE ON FINANCE, Washington, D. C. The subcommittee met, pursuant to call, at 10 a. m., in room 310 Senate Office Building, Senator William H. King presiding. Present: Senators King (chairman), Barkley, Bailey, Clark, and Capper. Also present: C. M. Hester, Stewart Berkshire, Norman C. Forrest, and Dr. O. V. Emery, of the Treasury Department; and L. H. Parker, chief of staff, and C. F. Stam, counsel, Joint Committee on Internal Revenue Taxation. Senator KING. The committee will resume its hearing. You may proceed, Mr. Hester. STATEMENT OF C. M. HESTER, TREASURY DEPARTMENT-Resumed Mr. HESTER. Section 327 provides that full tax-paid fermented malt liquor lawfully removed from breweries to brewery bottling houses, which has become unsalable without fraud, connivance, or collusion on the part of the brewer, and without removal from such bottling houses, may be destroyed in the presence of a representative of the Bureau of Internal Revenue, and the tax paid thereon may be refunded to the brewer or a credit allowed therefor, provided that the brewer files a claim for such refund within 90 days after the destruction of such fermented malt liquor. The section is made retroactive to March 22, 1933, and provision is made that where such fermented malt liquor became unsalable and was destroyed before the date of enactment of this act, the brewer must file his claim within 90 days after such date. Since the tax-paid fermented malt liquor on which refund is sought may not be removed from the bottling house, and must be destroyed in the presence of an officer of the Internal Revenue, that would appear to be no opportunity for fraud upon the revenues. This was not a Treasury amendment, but a committee amendment. Section 328 amends section 3246 of the Revised Statutes by providing that a wine maker may be exempt from occupational tax for the sale of wine of his own production at the place of manufacture or at his principal office or place of business, but can have only one such exemption. Under existing law such exemption is granted only to vinters who make wine of grapes grown by them or purchased from others, which obviously affords no exemption to wine makers 31 |