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The most productive of the excise taxes here under consideration is the one cent gallonage levy imposed on the sale of gasoline. The tax is payable by the producer or importer on the sale or use of gasoline and was originally imposed by Section 617 of the Revenue Act of 1932. For the latter half of 1933, (June 17 to December 31) the rate was temporarily increased to 1 1/2 cents per gallon but since the end of that year has been consistently imposed at its initial rate. Collections amounted to $203,000,000 in 1934, $162,000,000 in 1935, and $177,000,000 in 1936.

The gasoline tax, being collected at the relatively few distribution centers, is easily administered. The Bureau of Internal Revenue reports only minor attempts at tax avoidance or evasion. This, together with its high productivity, renders it a desirable source of Federal revenue. Other considerations, however, particularly the magnitude of other automotive taxes and conflict with other Federal taxes and with State and local levies, should be weighed before judgment is passed on the long-run desirability of this tax.

The incidence of the gasoline tax is on the motor fuel consumer and while, according to economic surveys made by the Petroleum Economics Division of the United States Bureau of Mines, gasoline consumption has not been adversely affected, it may not be out of order to inquire whether motor vehicle users as a class are not excessively burdened. It will be recalled that in addition to the Federal levies, they are also subject to State registration fees, State and local gasoline taxes and drivers' permits which, collectively, account for approximately $1,500,000,000, or 1/10 of all Federal, State and local tax revenues. If, on the other hand, it is held that automotive taxes are imposed solely for the benefit of highway users then it is important to recognize that annual highway expenditures in the United States are still in excess of the yield of the numerous automotive taxes.

Of important significance is the conflict which may be presumed to exist between the Federal tax on gasoline sales and that imposed by all of the States and not a few local governmental units. State taxation of gasoline was initiated by Oregon in 1919 and was rapidly adopted by all of the other States. Today the rates range from 2 cents per gallon in Missouri, and the District of Columbia to 8 cents in Florida. In some of the States additional levies are imposed by counties and/or cities, not infrequently bringing the total gallonage tax in excess of 10 cents. Gasoline taxes have thus acquired a prominent place in the revenue structures of State governments, accounting on the average for a third of all State tax receipts. With this source of revenue as primary security, State governments have issued several billion dollars worth of highway bonds, approximately $3,000,000,000 of which are now outstanding, whose necessary servicing precludes the possibility of State withdrawal from the gasoline taxation field.

While the preemption of this field of taxation by the States cannot be denied, some credence may be given to the contention that the imposition of the Federal levy is exclusively for the benefit of those taxed, since its proceeds are less than adequate to finance Federal highway grants to States. The argument that the system of Federal aid was well established before the imposition of the Federal levy and that it is predicated upon the nation's interest in good roads for postal and military purposes, is somewhat weakened by the States' unwillingness to relinquish Federal highway aid even though the national system of roads may be said to be adequately established.

Consideration of all factors involved points to the advisability of appraising the case for the Federal gasoline tax without regard to the system of grants-in-aid. Since its imposition was predicated upon emergency considerations and with full recognition of the preemption of the field by State governments, the withdrawal of the Federal Government from the field should be retained as the ultimate objective when fiscal circumstances make such a step feasible. In the interim, the continuation of the Federal tax on gasoline sales appears to be desirable.

(2) Gasoline Produced From Natural Gas;

(3) Sale Of Crude Petroleum;

(4) Refining Of Crude Petroleum:

The three enumerated taxes were originally enacted upon the recommendation of Secretary of the Interior Ickes, in conjunction with that provision of the National Industrial Recovery Act, which prohibited the shipment of petroleum or its products in excess of State quotas in interstate and foreign commerce. These taxes were clearly regulatory in character. The rates were fixed originally at 1/10 cent per barrel of 42 gallons, but have since been reduced to the nominal rate of 1/25 of 1 cent. Inasmuch as the objectives of these levies, the control of oil production and distribution, have been declared unconstitutional, no necessity remains for their continuance. Taxes such as these enter into industrial cost and generally result in an increase in price to consumers. Their regressive nature, together with their outlived utility as regulatory measures and their negligible revenue yield, contributing during 1936 only $1,000,000, point to the desirability of their elimination.

(5) Automobile And Auto Truck Chassis And Bodies And Motorcycles;

(6) Accessories For Automobiles, Trucks And Motorcycles;

(7) Tires And Inner Tubes:

These three items represent an annual revenue of approximately $100,000,000. Specific attention is called to the levy on auto trucks, yielding approximately $7,000,000, which tends to be incorporated in selling price and thereby becomes a cost of production to all industry utilizing auto trucks, affecting the price of various unrelated articles. Most of the other items in the group, however, have proven satisfactory for tax purposes. For the most part they are borne by those who use the articles and have not affected the industries adversely; there has been little tax evasion or avoidance; and the cost of compliance has been moderate. These taxes may, therefore, be recommended for continuance.

Attention should be directed, however, to the possible elimination of the tax on automobile parts and accessories. Although this tax is fairly productive, yielding annually in excess of $7,000,000, it has certain objectionable features in that it partially duplicates the tax on completed cars. It may thus be considered as a tax upon the misfortunes of a motorist who finds it necessary to replace damaged or worn-out parts. These considerations, together with the facts that the tax is widespread in application and involves administrative difficulties in connection with the classification of specific articles as automobile parts or accessories, depending upon whether such articles are primarily adapted for the use of automobiles, suggest the advisability of its elimination. Attention, however, may be directed to the desirability of modification of the taxes on automobiles and trucks, primarily with the purpose of including freight trailers and tractors in the definition of automobile trucks; and, similarly, for including passenger trailers in the definition of passenger automobiles. See discussion under section F-a.

(3) Sale Or Use Of Lubricating Oil:

The four cent gallonage tax on lubricating oil dates from 1932 and is producing approximately $27,000,000 per annum. It doubtless affects the price of the commodity and is thus weighted against the general public. There is no direct conflict with other Federal taxes, though certain of the Federal taxes have sufficient bearing upon lubricating oil to be considered in connection with this tax.

Several States have imposed some form of excise tax on certain types of oils. However, no information is available regarding the extent to which these State taxes conflict with the Federal tax. The Internal Revenue Bureau reports no administrative difficulties. In view of these considerations it is concluded that no immediate necessity exists for repealing the tax on the sale or use of lubricating oils. It is more properly classed with that group of taxes which should receive only secondary consideration for discontinuance.

(9) Imports Of Crude Petroleum, Gasoline, Refined Petroleum, Products:

These taxes, first introduced in 1932, present no greater inequities and produce no more administrative difficulties than do the other automotive taxes. Consideration, however, should be given the fact that they may properly be classed as customs duties rather than excise taxes and ought therefore be treated under the tariff laws. This, together with their small revenue yield, points to the desirability of their discontinuance as excise taxes.

(10) Transportation Of Crude Petroleum By Pipe Line:

This tax was first imposed in 1917 at the rate of 5 percent, increased to 8 percent in 1918, and repealed in 1922, only to be enacted anew at a 4 percent rate under Section 731 of the Revenue Act of 1932. It is payable by the person furnishing the transportation service. The pipe line transportation business is an integral division of the oil and gasoline industry. The greater part of crude petroleum liquid products produced or imported into the United States is transported by pipe lines. Crude petroleum and its liquid products are subjected to a variety of State and local taxes. There has been practically no evasion or avoidance of this tax and the tax has not affected the use of this means of transportation. Its administration is relatively simple and the cost of collection is believed to be comparatively low. In view of these considerations it may be recommended that the tax on pipe line transportation be continued.

II. The Group Of Admissions Taxes

Taxes on admissions are well established in the Federal tax system, having been collected uninterruptedly since the World War, and at present represent approximately $17,000,000 in annual revenue. Admissions to places of amusement are also subject to taxation by many State governments. All amusements are subject to taxation in only comparatively few States. These are Mississippi, North Carolina, Ohio, Pennsylvania, South Carolina, South Dakota, Utah, Washington, and West Virginia. In the case of about 30 States admissions taxes are limited to such specific classes of amusements as boxing, wrestling, and racing. To the extent to which admissions are taxed by States the Federal levies may be said to be duplicated, producing some degree of conflict. From the point of view of the States' revenue, however, admissions taxes are of minor significance since their collective annual yield does not exceed $10,000,000.

It is submitted that the entire group of admissions taxes may be considered for permanent inclusion in the federal tax structure. As will be indicated below, the general admissions tax exempts those admissions which are likely to affect the majority of those in the lower income brackets and where the tax factor may affect theater attendance. Its continuance in permanent form would, therefore, cause no inequity. The other taxes imposed on admissions fall clearly into the categories of either luxury taxes or regulatory taxes. As such they too are suitable for permanent retention.

(11) Amounts Paid For Admission To Any Place:

This tax on admissions originally enacted during the War and retained since in modified form is levied at the rate of one cent for each 10 cents in excess of 40 cents. Unless amended, the present 40 cent exemption will expire on June 30, 1939, and will be replaced by an exemption of $3. The tax is an excise tax payable by the persons paying admission charges, and therefore affects the public directly.

It should be noted that the exemption of 40 cents covers the usual admission charge to motion picture theaters. Motion picture representatives appearing before the Senate Committee in 1932, testified that out of 14,329 motion picture theaters in operation, only 1,214 charged a top admission price of 50 cents and that only in the case of 500 (including vaudeville) did the fee range from 50 cents to $1.00. In the case of 13,115, or 92 percent of the total, even top admission fees amounted to less than 50 cents. (Revenue Hearings, Senate Finance Committee, 1932, pp. 1200-1202.) Thus the tax does not affect the majority of theater-goers, those purchasing admissions costing more than 40 cents can hardly be considered subject to an undue tax burden. It is not believed that there has been any retarding of trade or curtailment of business due to this tax. The nature of the subject taxed precludes the use of substitutes to escape the tax. Partly as a result of 20 years experience with the tax, the Bureau reports little administrative difficulty aside from an occasional failure, possibly because of ignorance of the provisions of the law, to collect the tax upon amounts paid for admissions.

In view of the preceding considerations, it is recommended that this tax be maintained at its present rate and with the present exemption, but that the administrative provisions of the law be amended to provide that any person who, regardless of the reason, fails to collect the tax upon amounts paid for admissions shall be liable for the tax. Under the existing statute liability is chargeable only in the cases of proven "wilful failure" to collect the tax.

(12) Tickets Of Admissions Sold At Places Other Than The Ticket Office Of The Theater, Etc.:

(13) Excess Admission Charges Made By Proprietors, Managers, Or Employees Of Theaters, Etc.:

These taxes were imposed to curtail excessive charges for admission tickets. They act as regulatory measures and therefore should be continued. In 1932 the then existing tax on ticket brokers' sales of 5 percent on the first 75 cents of the excess over the established price and 50 percent of the amount by which the excess charge exceeded 75 cents was changed to a straight 10 percent of excess charge (Section 711) on the grounds that the previous tax had penalized ticket brokers. It is believed that it would be desirable to control excessive charges for tickets of admissions more effectively than is possible under present law. It is therefore suggested that the present statute be amended so as to limit the present 10 percent tax to excess charges of not more than 75 cents over established price plus the amount of admissions tax and to increase the tax to 25 percent on excess charges over 75 cents.

(14) Use Or Lease Of Seats Or Boxes In Opera Houses, Etc.

The tax on the use or lease of seats or boxes in opera houses, theaters, etc., is imposed at the rate of 10 percent of the amount for which a similar box or seat is sold for each performance or exhibition, at which the box or seat is used or reserved by or for such lessee or holder. This tax is imposed on an item which be classed as a luxury, and has been in effect almost without change since 1917. It is not believed that there has been any retarding of trade or curtailment of business due to this tax, and it has not been responsible for any administrative difficulties. Experience gained during the past 20 years has simplified the tax collection process. It is therefore recommended that the tax be continued in force.

(15) Admissions To Night Clubs, Etc.:

Like the tax on the lease of boxes, this tax is a luxury tax and payable by those who can afford to enjoy such luxury. The tax has not hindered business and it is recommended that it be continued, subject to amendment indicated below.

The tax, as imposed at present, is at the rate of 1 1/2 cents for each 10 cents of 20 percent of the amount paid for refreshment, services, or merchandise, provided that such 20 percent exceeds 50 cents. In effect this means a tax of 1 1/2 cents for each 50 cents or fraction of full amount of charge if such charge exceeds $2.50. It has in many cases been the cause of difficulty to determine what part of the total admission fee represents a charge for admission and what part is attributable to entertainment or food. It is therefore recommended that the tax as now imposed be changed to the rate of 2 percent and be made to apply to the amount received by proprietors or operators of such establishments for refreshment and service, as well as for entertainment furnished their patrons.

III. The Group Of Documentary Stamp Taxes

(16) Sales Or Transfers Of Stock And Similar Interests:

Transfers of stock and similar interests have been subject to taxation since 1919. The basic rate is that imposed by Title VIII of the Revenue Act of 1926, namely, 2 cents on each $100 of the par or face value of the certificate or fraction thereof, or 2 cents on each share in the case of no par stock. Section 723 of the Revenue Act of 1932, however, temporarily increased these rates from 2 to 4 cents, with the further provision that in the case of stocks selling at $20 or more per share, the rate shall be 5 cents instead of 4 cents. These 1932 rates have been thrice reenacted and will revert to the 1926 rates after July 1, 1939.

During the fiscal year 1936 the Federal stock transfer tax yielded $33.1 million. Collections during the current year are expected to be somewhat higher. These figures compare with $15.7 million for 1935 and $33.2 million for 1933. During the period when the transfer tax was 2 cents per $100 of par value, annual collections ranged from approximately $10 million in relatively inactive years to $46.7 million during the peak year, 1930.

It will be observed that the stock transfer tax is largely independent of the value of the financial transaction involved, being generally based upon nominal par value. The only other determining factor is whether selling price is above or below $20. In consequence, the burden of the tax generally varies inversely with the selling price of the security, and its yield depends upon the volume of trading. As was pointed out in a memorandum to Secretary Morgenthau, dated January 21, 1937, the tax considered in relation to the amount of money involved in the transaction may and often does become very small in the case of stocks quoted at a high price per share or in the case of stocks with a small par value quoted under $20 a share, and often does become very large in the case of stocks of $100 par value or of no par value quoted at a low absolute price per share. Consider the following examples:


                            Market      Par      Tax     Tax/Market

 Homestake Mining             366      $100     5.00 cents   .0137%
 Kelsey-Hayes Wheel "B"       18-1/8      1      .04          .0022
 Seaboard Air Line (common)   2         n.p.    4.00         2.0000

The tax on Seaboard Air Line, it will be noted, is 146 times as large in proportion to the amount of money involved as the tax on Homestake and 909 times as large as the tax on Kelsey-Hayes Wheel "B". There thus appears to be both a great inequity and a great loss of revenue in the present scale of taxation. This inequity and the accompanying loss of revenue can be rectified by the substitution of a stock transfer tax based on the value of the financial transaction involved. Such a stock transfer tax base is now employed in Great Britain.

The rate at which such a tax should be imposed depends in part upon revenue requirements and in part upon social objectives. The British tax is imposed at approximately 1 percent. It has been estimated that a flat tax of 0.106 percent of the market value of stocks transferred would, during the current calendar year, yield approximately the same amount of revenue as the present law. A somewhat higher rate, however, appears to be desirable, partly for revenue considerations and partly as a precaution against possible stock price declines. At all events a rate moderately higher than 1/10 of 1 percent is not likely to prove unduly burdensome to security trading.

In determination of the rate, consideration should also be given to the probable effects of an increased transfer tax upon the volume of transactions and stock speculative activity in general. It has been strongly urged in some quarters that speculative activity should be discouraged and that that goal could be obtained through a substantial stock transfer tax.

Accordingly, it is recommended that (a) to insure the present yield of the stock transfer tax during possible periods of severely declining stock prices, (b) to increase such yields under present prices, and (c) to provide a minor deterrent to speculative security trading, the existing tax on stock transfers be permanently replaced by a tax based on the value of the financial transaction and imposed at approximately 1/4 of 1 percent.

Other Documentary Stamp Taxes

(17) Issues Of Bonds; (18) Transfers Of Bonds; (19) Issues Of Capital Stock; (20) Passage Tickets; (21) Foreign Insurance Policies; (22) Deeds Of Conveyance; (23) Sales Of Produce For Future Delivery; (24) Playing Cards; (25) Documentary Stamps Sold By Post Offices; (26) Silver Bullion Transfers.

The documentary stamp taxes now in effect represent an important source of revenue. Exclusive of those from the stock transfer tax already discussed, collections during the fiscal year 1936 amounted to $36,000,000, distributed as follows:


Bonds of indebtedness, issues and                       $24,869,524
transfers; issues of capital stock,
passage tickets, foreign insurance
policies, deeds of conveyance

Sales of produce for future delivery                      2,943,542
Playing cards                                             4,143,699
Documentary stamp sales by post offices                   3,293,134
Silver bullion transfers                                    685,188
Total                                                   $35,935,587

All of these taxes, with the exception of the impost on silver bullion transfers which was imposed under the Silver Purchase Act of 1934, and the taxes on conveyances and transfers of bonds imposed by the Revenue Act of 1932, have been in effect since 1926 and have caused no administrative difficulties. With the exception of the taxes on passage tickets, foreign insurance policies, playing cards, and transfers of silver bullion, the above stamp taxes now in effect are subject either to discontinuance or change in rate or base after June 30, 1939.

Whether the imposition of a tax on financial transactions has detrimental effects on the volume of such transaction, and if it does, whether such result is necessarily undesirable, is subject to conjecture. The continued and almost universal use of such levies in foreign countries points to a negative conclusion.

In view of the facts that all of these taxes are paid by the relatively well-to-do, are not excessive, do not directly affect the public at large, yield a large amount of revenue, cause no administrative difficulty, and afford a basis for regulation, it is concluded that these taxes should be continued at their present rates as permanent features of the tax structure.

It may be pertinent to refer particularly to the present tax on transfers of bonded indebtedness because of the recommendation herein contained to replace the present stock transfer tax with one based on the value of the financial transactions. Some justification may be presented for a corollary replacement of the tax on transfers of bonds. However, as is well known, the relative variations between the face value and market value of bonds are by no means as great as those between the par and market value of stocks. For this reason the inequity inherent in the existing stock transfer tax is apparent to only a small degree in the bond transfer tax. The regulatory feature in the proposed stock transfer tax is neither required nor desirable in connection with bond dealings.

Because of the above considerations, the retention of the existing tax on transfers of bonded indebtedness seems justifiable.

IV. Other Taxes

(27) Brewers' Wort And Malt Products.

The tax on brewers' wort was enacted in 1932 and was a regulatory measure. Its avowed purpose was to discourage the illegal use of malt products in the manufacture of beer. Products used in the manufacture of malted milk, medicinal products, foods, cereals, beverages, and textiles being outside the scope of the prohibition laws, Were exempt. In view of the repeal of the Eighteenth Amendment the need for this tax no longer exists. It yields no substantial revenue. Discontinuance is recommended.

(28) Imports Of Coal And Coke.

(29) Lumber.

(30) Copper And Copper Concentrates.

These taxes were imposed under the Revenue Act of 1932. They have not been the cause of any administrative difficulty, and for the fiscal year 1936 their yield was approximately $5,684,000. Nevertheless, if the purpose of these taxes is the giving of protection to domestic producers of these articles or the regulation of their domestic consumption, these ends may more properly be achieved under the tariff laws. It is therefore suggested that these levies be removed from the excise tax list end if necessary, reinstated by appropriate tariff legislation.

(31) Imports Of Certain Oils, Etc.

These taxes on imports of certain fish and marine animal oils were first imposed under the Revenue Act of 1934 and amended by the Revenue Acts of 1935 and 1936. Unlike the other excise taxes on imports, however, these taxes will remain in effect until specifically repealed. Figures are not available as to their separate yields, but in the aggregate, the yield for 1936 did not exceed $1,500,000. As has been indicated in the discussion of the other import taxes, it is believed that these items could be more suitably taxed under the tariff laws.

(32) Toilet Preparations:

The tax on toilet preparations was first enacted in 1917, revised in 1918 and repealed in 1921. Thus the present 5 percent and 10 percent tax, enacted in 1932, represents no innovation. The 5 percent rate applies to tooth and mouth washes, dentrifices, tooth pastes, toilet soaps and similar articles or preparations; the 10 percent rate applies to perfumes, cosmetics, etc. Collections have increased from $9,603,000 in 1933 to $13.3 million in 1936.

A degree of conflict has been observed between the tax on toilet preparations and the tax on lubricating oils imposed by Section 601 (c)(1), Title IV, of the Revenue Act of 1932. A considerable amount of lubricating oil is used as a basic ingredient in the manufacture of hair oil, cosmetics, and creams. Real conflict, however, has been lessened, if not entirely eliminated, by administrative provisions permitting tax-free sales of materials to be used as raw materials in connection with the manufacture of other taxable articles under this title.

The industry concerned considers the tax to be too high and ruinous. As a result tax minimizing devices have been utilized, rendering the administration of the tax troublesome and difficult. The statute stands in need of revision if it is to cope effective with existing practices.

The most commonly used tax avoidance method is that of selling in bulk to a subsidiary comply which in turn packages the product and sells it back (tax free) to the parent company for ultimate final sale to consumers.

The selling price of toilet goods is attributable not so much to the cost of basic ingredients but to expensive packaging and advertising. Hence bulk sales, made at very low prices, carry a small tax burden.

From the character of the items taxed it is readily apparent that the tax affects the public generally and falls upon products which today are practically regarded as necessities.

Collection costs are thought by the Bureau to be somewhat above the average for miscellaneous and sales taxes.

It is recommended (a) that the articles now subject to the 5 percent tax (tooth paste, toilet soaps, and dentrifices, etc.) which yielded $4,823,968 for the fiscal year 1936, be exempt from taxation in consideration of the fact that they are common necessities; and (b) that Section 603 of the Revenue Act of 1932 be amended to extend the scope of the 10 percent tax to persons who prepare or package taxable toilet preparations in the from in which they are to be sold to the consumer for consumption or use. As an alternative the statute may be amended to specifically define "manufacturer, producer, or importer," to include a person who prepares and packages such preparations in the form sold to the consumer.

(33) Furs

A 10 percent tax on furs was in operation from 1919 to 1922. This tax was reenacted in the Revenue Act of 1932. In the 1934 Revenue Law it was amended to apply only to articles selling for $75.00 or more. The statute was further amended by the Revenue Act of 1936 to cover all sales of fur articles, but the tax rate was made 3 percent. The 1936 yield therefrom was approximately $3,000,000. It affects approximately 2,100 manufacturers, producers and importers, 75 percent of whom are located in the New York collection district.

This tax has been a constant source of administrative difficulty to the Bureau and a cause of turmoil within the fur industry in that the Bureau must determine in the case of fur-trimmed garments whether the fur constitutes the component material of chief value. Regulations have aided to make the administration less troublesome, but it is still complicated, because determination requires detailed investigation of the cost records of manufacturers of fur-trimmed garments. From the nature of the tax it is readily apparent that it is far reaching in its application. Moreover, while many fur garments come within the class of luxury, the great majority, particularly the fur-trimmed garments, are necessities. Hence, by reason of the difficulties incident to its administration and the widespread application of the tax, the repeal of the tax is recommended.

(34) Radio Parts

This tax is imposed on chassis, cabinets, tubes, reproducing units, power packs, phonograph records, and phonograph mechanisms suitable. for use in connection with or as a part of radio receiving sets or combination radio and phonograph sets.

The statute imposing this tax has been found unsatisfactory because the tax applies only to certain specified parts of radios and not to the completed article. As a result manufacturers have been required to maintain records, otherwise not necessary, to show the taxes paid with respect to parts purchased by them and used in the manufacture of completed radios. In addition, the tax necessitates an intensive audit of taxpayers' records to determine tax liability. The tax is widespread in its effect, since practically every household now has a radio. The radio is also coming into use for educational purposes.

In view of these considerations and the fact that the tax may not be classed as a relatively highly productive one, it should be included as one of those whose repeal is recommended. At all events, the tax should be revised so as to apply only to completed radio sets, with provision for allowance of tax-free sales of parts. See Section 620, Revenue Act of 1932.

(35) Mechanical Refrigerators And Certain Components Thereof:

This tax is imposed on household-type mechanical refrigerators and also on certain of its component parts sold separately. The tax dates from the enactment of the Revenue Act of 1932 (Section 608) and is levied at the rate of 5 percent on the producer's or the importer's price. The tax is easily administered, attempts at avoidance and evasion are few and cost of collection, while unknown, may be presumed to be low. It has produced an increasing amount of revenue as this type of refrigerator became perfected for home use. The 1936 yield therefrom was approximately $8,000,000.

The major objection to the tax is that it is imposed on an article which today is essentially a household necessity. Nevertheless, because of its substantial yield, and ease of administration, and considering that the article taxed has a relatively long life and therefore is not a frequently recurring tax burden to the specific vendees, it is recommended that this tax should be continued.

(36) Sporting Goods:

Sporting goods were taxed from 1917 until 1921 in which year the tax was repealed, together with other so-called war taxes. The present levy was enacted in 1932 and imposes a 10 percent tax on sales by manufacturers, producers, or importers.

Both the Bureau of Internal Revenue and the taxpayers are experiencing difficulty in determining the specific articles to which the tax applies. The tax, for instance, exempts children's games but whether an article of sporting goods is primarily suitable for children rather than adults is at times difficult to ascertain. In many cases the question has been resolved by setting up arbitrary standards based upon the size of the article involved. Such standards, however, are not wholly satisfactory for they have made the tax applicable to such articles as baseball gloves made of cheap imitation leather and sold for as little as 10 cents. The chief criticism made against the tax is that it falls on articles used for health and recreation by the public at large.

The yield from the tax has been $5,500,000 for 1936.

All factors considered, the sporting goods tax should not be singled out for repeal prior to other taxes whose incidence is more widespread, such as chewing gum, matches, etc.

The present statute should be amended to define more clearly the characteristics of sporting goods liable to the tax. In this connection, attention is called to a memorandum entitled "The manufacturers' excise tax upon sporting goods with special reference to points raised by Mr. Julian W. Curtiss, Chairman, Tax Committee, Athletic Goods Manufacturers," dated April 8, 1937, and addressed to the Secretary. Therein is contained an extensive analysis of the tax on sporting goods with recommendations that would tend to eliminate the difficulties attendant to the existing levy. In general, the proposed amendments would classify taxable items and thereby eliminate the necessity of determining whether certain sporting equipment falls within the province of children's games. In addition, it would free from tax uniforms and shoes, but add certain specified items to avoid confusion. Finally, it would eliminate the catch-all phrase "all similar articles commonly or commercially known as sporting goods."

It is believed that amendments to the present tax accomplishing these ends would aid materially in the elimination of the difficulties encountered in the present law and would make the tax a more desirable one for continuation. The recommended revision of Section 609, Revenue Act of 1932, applying to sporting goods, is as follows:

There is hereby imposed upon the following articles, sold by the manufacturer, producer or importer, a tax equivalent to 10 per centum of the price for which so sold: Tennis rackets (measuring 22 inches over-all or more in length), tennis racket frames (measuring 22 inches over-all or more in length), tennis balls, tennis string, tennis nets, polo mallets, polo balls, baseball bats (measuring 26 inches or more in length), baseballs, baseball gloves and mitts made of leather in whole or in part, baseball masks, baseball body protectors and shin guards, footballs, football helmets, football harness, golf bags, golf clubs, golf balls, lacrosse sticks, lacrosse balls, hockey sticks, hockey pucks, hockey balls, cricket bats, cricket balls, basketballs, soccer balls, billiard and pool tables (measuring 45 inches over-all or more in length), billiard and pool balls and cues for such tables, bowling balls and pins, skates, and fishing rods and reels.

(37) Firearms, Shells, And Cartridges:

The 10 percent tax on firearms, shells, and cartridges, is of minor revenue significance and may be regarded as regulatory in character. The Department of Justice has under consideration an amendment to the National Firearms Act to include therein regulatory provisions for firearms generally. In that event, regulation by taxation will become unnecessary. The tax may therefore be repealed at such a time as the proposed amendment to the National Firearms Act is enacted.

(38) Cameras:

The 10 percent tax on cameras, imposed by Section 611 of the Revenue Act of 1932, is relatively simple to administer but is a minor revenue producer. The tax falls upon an article which, strictly speaking, is not within the luxury class, but is used by the general public for recreational purposes. There seems to be little justification for singling out this article and not taxing like types of articles which may be similarly classified. The statute imposes a tax only on completed cameras and not on parts thereof, and in that respect may be considered faulty. In view of these considerations and since the loss in revenue involved would not be appreciable, it is considered desirable that this tax be discontinued.

(39) Matches:

The tax on matches (2 cents a thousand on ordinary matches, 1/2 cent a thousand on paper matches in books; 5 cents a thousand on fancy wooden matches) yields a sizeable amount of revenue and has not caused any serious administrative difficulties. Furthermore, it is an article frequently taxed in foreign countries. The product, however, is such a universal necessity that the tax thereon should not be retained permanently. Matches represent an instance in which the incidence of the tax is in doubt. Matches are sold at well established prices and it is probable that most of the tax is absorbed by the producer, leaving the price of the article unaffected.

It may be noted, too, that fancy wooden matches having a stained, dyed, or colored stick or stem are taxed at 5 cents a thousand. These fancy matches are of the type imported from Japan and other foreign countries, and this higher rate discourages the importation of such matches from these countries, thereby protecting domestic match manufacturing which is a sizeable industry but is confined to about 15 manufacturers and importers. In this connection it is suggested that if it is desired to give these domestic manufacturers protection, that end be accomplished through the tariff laws.

(40) Chewing Gum:

Chewing gum was originally subjected along with candy and soft drinks to the emergency excise taxes imposed under the Revenue Act of 1932. Subsequently, the tax upon candy was dropped, but the 2 percent tax on chewing gum, although considered for repeal by the Senate Finance Committee, was continued. Since it is an article which competes in may respects with candy, it would seem desirable to discontinue the tax thereon.

Although the tax has been fairly simple to administer, it has not produced substantial amounts of revenue. These reasons, added to the fact that chewing gum is not in any sense a luxury would make it advisable that the tax be repealed.

(41) Electrical Energy:

Although a tax on electricity passed the House in 1917, it was not then enacted into law, and it was not until the Revenue Act of 1932 that this source of revenue was utilized by the Federal Government. The tax, as first passed, was a consumption tax at the rate of 3 percent, in that it was imposed on electrical energy sold for domestic or commercial consumption to be paid by the vendee and collected by the vendor, H. R. 5040 enacted June 16, 1933 amended the law and made the tax payable by the vendor. It is not known to what degree the present tax is shifted to the consumer because detailed and adequate information is not available on the extent to which public service commissions recognize tax liability as a cost of production in fixing rates of electrical energy.

It should be noted in this connection that in the Hearings on the 1934 Revenue Bill before the House and Senate Committees, no power company representatives appeared to oppose the tax.

Electrical energy has long been the subject of taxation by the several States. For the most part, the State taxes are on gross receipts. In some instances there are special taxes on electric companies in the form of capital stock taxes, franchise taxes measured by corporate excess profits and special consumer taxes measured by the number of kilowatt hours consumed. Moreover, some cities impose taxes for the privilege of engaging in the utility business. These taxes are levied at a flat rate or are measured by the proportion of total capital (variously determined) utilized in the municipality or by gross receipts.

Despite the differences in the bases for the Federal tax and the State and local taxes, there seems to exist a definite Federal-State conflict. However, in view of the fact that the tax has caused no great administrative difficulties, has yielded a large amount of revenue -- $33,575,179 for the fiscal year 1936 -- and uncertainty exists as to the extent to which the tax is borne by consumers, it is suggested that this tax be continued at present.

(42) Telephone, Telegraph, Cable And Radio Messages, Etc.:

This tax has proven itself a fairly constant source of large revenue, but affects the public at large. It is not a luxury tax but is one of those imposed under the Revenue Act of 1932, primarily as an emergency measure. It should be noted, however, that the tax applies to telephone messages over 50 cents, telegraph and cable messages, etc., none of which can be said to affect directly those who cannot afford to pay the tax. In so far as it is a business expense, it may be shifted to the price of the article and thereby to the consumer. The extent to which this occurs, however, cannot be indicated. The Federal taxes on these services also conflict in some degree with State-imposed taxes. Although the form of Federal and State taxes are not identical, some 19 States levy special taxes on telephone services and at least 16 levy special taxes on telegraph services. Here, too, it cannot be stated to what degree these taxes are shifted to the consumer of these services.

It is therefore concluded that although it would be desirable to eliminate this tax, its yield and ease of administration are points in its favor and that repeal should be relegated to a place of secondary consideration.

(43) Use Of Safe Deposit Boxes:

Both the tax on safe deposit boxes and the tax on checks were part of the group of emergency taxes imposed under the Revenue Act of 1932. Unlike the tax on checks, the 10 percent tax on safe deposit boxes has been continued and will continue in force unless specifically repealed. As in the case of the tax on checks, the collection was through the banks and the cost to the Government therefore relatively small. Nevertheless, a large number of returns are filed monthly since there are more than 15,000 banking establishments throughout the country.

From a revenue standpoint, the tax on safe deposit boxes has been relatively unimportant. On the other hand, the $2,000,000 yield per annum therefrom is collected without undue difficulty or complaint from either the banks or the users of safe deposit boxes. This lack of administrative difficulty, coupled with the fact that the tax falls ultimately on people of substantial means, makes it undesirable to recommend its discontinuance.

(44) Dues And Initiation Fees:

This tax levied at a 10 percent rate has been in effect since 1917, has produced considerable revenue at small administrative cost, and will continue in force until specifically repealed. The item taxed is one which clearly falls beyond the scope of necessities, and its use is not curtailed by the tax. It is therefore a suitable permanent item for excise taxation. This tax may therefore be continued in force subject to an amendment, making any person who, for any reason fails to collect the tax upon taxable dues and fees, liable for the tax himself; under the existing statute liability is chargeable only in the cases of proven "wilful failure" to collect.

(45) Pistols And Revolvers:

Pistols and revolvers have been taxed since 1919. The present 10 percent levy will continue in effect until repealed. The yield per annum is small -- $61,000 in 1936 -- and the tax is somewhat regulatory in nature. The administrative procedure is relatively simple and the cost of collection is regarded as extremely low. It is recommended, therefore, that this tax should be continued in force.

 
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