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Mr. ELLENBOGEN. But very few of them paid any tax that took in a period subsequent to February? Mr. DORR. Oh, yes. But I think you are wrong on that.

Dorr
Mr. KELLER. Was there a letter? If so, what did it contain?

Mr. Dorr. All that was written, Mr. Ellenbogen, was the suggestion to the mills that until the matter can be further considered that adjustments be held pending that further consideration. That further consideration was taken and the recommendation went out to the mills to make those adjustments just as promptly as they could be made.

Mr. ELLENBOGEN. But the letter was written asking them to withhold the adjustment, wasn't it?

Mr. Dorr. Asking them to hold it. I think it was suggested to them until further conferences; that the matter remain in status quo.

Mr. KELLER. In other words, not pay the tax?
Mr. Door. No; it was not a question of paying the tax at all.

Mr. ELLENBOGEN. The letter had been sent out long before this letter in January asking them not to pay any taxes?

Mr. DORR. No; there was never a letter such as that.

Mr. ELLENBOGEN. The industry was notified not to pay the processing tax after this decision.

Mr. Dorr. Not by the institute, not ever. As a matter of fact, the industry kept on paying taxes very generally and, in fact, completely, I would say until the circuit court of appeals had held them invalid.

Mr. ELLENBOGEN. But, Mr. Dorr, the taxes are not collected. But when they are collected they are not paid up to the date of collection but for a period prior to that; so the industry, in most of the cases only paid the taxes up to February, and the contracts you have told us about are only 120-day contracts. What are you going to do with the money the industry has collected as the agent of the Government prior to this 120-day period?

Mr. Dorr. It did not collect money as an agent of the Government. Mr. KELLER. Did they collect money for processing taxes? Mr. DORR. From whom? Do you mean from customers? Mr. KELLER. Yes; from customers. Mr. DORR. The processing tax was an element of cost like wages. The selling prices, as indicated by the examination of returns to the Federal Trade Commission, 1934, in many instances did not cover the processing tax. A large part of the goods were goods on which the mill had absorbed the tax and did not pass it on. It paid the tax to the Government but did not succeed in passing it on to the customer.

Mr. KELLER. If a manufacturer was really not collecting and not paying to the Government

Mr. Dorr. No; they paid to the Government. They pay to the Government before they sell the goods, or, at any rate, about the same time.

Mr. KELLER. They really did the paying over to the Government? Mr. DORR. The tax is on the mills. It is not on the customer.

Mr. KELLER. And it was the duty of the mill to pay it directly to the Government? Mr. Dorr. Yes; and they did pay it.

. Mr. KELLER. That is what I am trying to get at.

Mr. ELLENBOGEN. The mill passed it on.
Mr. Dorr. In some cases, yes, and in some cases, no.

Mr. ELLENBOGEN. You mean in practically all of the cases it was yes and in one or two cases it was no?

Mr. DORR. No, I do not. I mean in a large part of the industry, for instance, such as the production of basic gray fabrics, the prices which have prevailed have not brought the mills out whole.

I think you can get some testimony that would interest you very much on that from the Tariff Commission, which made an examination under that situation in connection with Japanese competition where it appeared from the examinations they had made of mill records that that was the situation. I cannot give it to you in detail, but you can find it there.

Mr. ELLENBOGEN. There is at present an organized campaign. Every Member of Congress is getting letters every day urging him to fight the enactment of the tax in this case. And your institute is behind that.

Mr. DORR. Mr. Ellenbogen, the situation which the mills are interested in and the only thing on which they have expressed a view, is this, that it would wreck the industry if it has to pay the amount it has to pay under its contracts with its customers and then has to pay those same amounts in a new retroactive tax to the Government. That is the one thing on which the industry has taken the position and is asking the aid of Congress. And we are going to ask your aid for that very thing. And when that matter comes up before a committee of Congress I am convinced that we are going to have your aid in what we asked for, and you will feel that we are not asking for a thing that we are not entitled to or not 1 cent more than we should, or not one more bit of protection than we should have.

Mr. ELLENBOGEN. Suppose you should be given credit for any tax you paid?

Mr. DORR. And which we have refunded to our customers?
Mr. ELLENBOGEN. Yes; which you have refunded..

Mr. DORR. That is one of the things we are hoping to ask for if that sort of a bill goes through.

Mr. ELLENBOGEN. But what are you going to do with the money collected by those mills prior to the 120-day period?

Mr. DORR. As to that, Mr. Ellenbogen, the industry has taken no position. We are examining to see whether there will be that type of situation.

Mr. ELLENBOGEN. You know it exists. You say it exists in a few mills. I say it exists in most mills.

Mr. DoRr. The view of the industry on that point is that if we make the refunds to our customers which we are bound to make, and take the losses on inventory which we are taking, that that will just about balance the situation.

Mr. ELLENBOGEN. You are not going to take any loss because you do not pay the tax.

Mr. Dorr. A good many mills have paid the tax. I know some of them have.

Mr. ELLENBOGEN. Oh, yes; some of them have.

Mr. DORR. And, of course, if you impose a retroactive tax on all of these goods we will pay a tax, although we have sold them and are selling them now.

If I may say this, the view of the industry, so far as I know, is that there is a very serious situation with regard to the equities of the situation. We want to work the equities of the situation out and, if any such legislation is introduced in Congress, we propose and want to put the whole facts before you gentlemen and have your assistance in working it out.

Mr. ELLENBOGEN. Will you agree with me that the industry should not be asked to pay a tax twice but it should not be permitted to retain a tax which it has collected and passed on.

Will you agree with that statement?

Mr. Dorr. If you want my expression of opinion

Mr. ELLENBOGEN (interposing). I would like to have it because you are the chairman of the board of that institute.

Mr. Dorr. I cannot speak for the institute. It is my feeling, and I believe the feeling of the industry, that it neither wants to make a profit or sustain a loss by reason of this situation and that, if this situation comes up, as presumably it will, we want to put that situation squarely before Congress. We do not believe that you gentlemen in the end will want, as you just said now, you do not want to create a double liability and I do not believe there is any sentiment in the industry for trying to make a profit out of this situation.

Mr. ELLENBOGEN. That is the view of the administration, as far as I am advised, that they will not permit the industry to retain a tax which it has collected. This amounts to about $50, I think.

Mr. DORR. I cannot give the amounts but I am talking about people who have been approaching it practically and trying to find out how it will work out.

I do not think it is possible yet to give a complete answer on that because the situations are so varied and there has to be a lot of study of it made both by the Government, by you, and by the industry itself before they can get the actual, factual picture.

Mr. ELLENBOGEN. We can agree on principles. Will you agree on the principle that the industry should not be asked to pay twice, but should not be permitted to retain taxes which the industry has collected and passed on? Will you agree with that?

Mr. Dorr. Personally, that is my view.
Mr. ELLENBOGEN. Well, that is fine.

Mr. Wood. The textile manufacturers have asked for a return of all taxes that have been paid since the institution of the processing tax, have they not?

Mr. Dorr. No, sir.
Mr. Wood. But, they intend to?
Mr. DORR. Do they intend to?
Mr. Wood. Yes.
Mr. Dorr. Not to my knowledge.

Mr. ELLENBOGEN. They are considering that question, are they not?

Mr. DORR. Individuals?

Mr. Wood. Every manufacturer is considering it; there is no question about that.

Mr. Dorr. I have not seen, and I do not think any manufacturer thinks that he would get back, I will not say “any”--there may be some-I would say the view of the industry as a whole is that they do not expect

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Mr. Wood (interposing). I asked you a question but you have not answered it. Are the textile manufacturers going to attempt to get back the processing tax, if they will attempt to get back the processing tax which they have paid since the institution of the law?

Mr. Dorr. I cannot say what individual mills will or will not do but I will say this, that I do not believe, personally, that they will.

Mr. Wood. Well, from your testimony, and from the letter written on January 24, it appears that the textile manufacturers have passed this tax on to the consumers in every instance.

Mr. DORR. No.

Mr. Wood. They are fearful now that this tax, if it is impounded, if some retroactive measure of law is passed which would compel them to return that money-I believe you said that if they collected this tax there would be an instant drop in prices.

Mr. DORR. If they collected it?
Mr. Wood. Yes.

Mr. DORR. No; I said that the decision of the Supreme Court voting the tax invalid occasioned a drop in prices.

Mir. Wood. Why would it occasion a drop in prices?

Mr. Dorr. Because the decision of the Supreme Court had removed an element of cost which had previously existed. Now, some mills, in some branches of the industry, had been able to reflect that element of cost completely in their selling price, and a great many had not, and, in certain large areas, they had only been able to reflect a part of it. If you would look at tħat record before the Tarif Commission-

Mr. Wood (interposing). How would that affect the market when you passed the tax on to the consumer?

Mr. Dorr. We are talking about the current market prices of goods on contracts, on forward contracts, which have not been completed.

Mír. Wood. You mean to say the processing tax would not enter into the prices of the goods sold when contracts were made for the goods?

Mr. Dorr. The object of the act was, I suppose, to have it completely reflected in the price of the goods. As a matter of fact, in our industry it has not been completely reflected in the price of the goods. Part of it has been absorbed by the manusacturers. It was not intended by Congress that it should.

Mr. Wood. Why would it affect the market if the textile manufacturers have passed this tax on, according to your testimony and the letter sent out by the Textile Institute which indicates that they have passed the tax on?

Mr. Dorr. Well, I would say this: I expressly said that the price has not completely reflected the tax as to broad areas of the industry and some of the most important areas. As to its effect on the market, why, that is a matter of factual record. It did, immediately after the Supreme Court's decision, result in a drop in the market price on goods, the current market price. In some cases, the full amount of the tax; and, in other cases approaching, that is just a fact. It did happen and it is what customers expected would happen and they wanted protection against just such a happening.

Mr. Wood. It seems to me, if they have absorbed all the taxes, the processing tax all being reflected in the price of the commodity to the

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consumer, that with the decision of the Supreme Court it would have enabled the manufacturers to institute an immediately lower price.

Mr. Dorr. They did.

Mr. Wood. But, in most cases, they have passed it on to the consumer.

Mr. Dorr. No.

Mr. Wood. I know they are exercised about the retroactive feature you are speaking of.

Mr. Dorr. Let me explain it.
Mr. Wood. Certainly.

Mr. Dorr. We will say that you had a contract with a customer to deliver so many yards of a particular type of cloth and you were going to be making those deliveries, some in January, some in February, some in March, and some in April of this year. Now, you had made that contract in December, we will say, or November, and, in making the price on that contract, you took account of the 5 cents a pound, approximately, tax on the cotton and the cloth or, at any rate, you got 4 cents of it which was going to be reflected in that price.

Now then, along comes January 6 and the price of that type of cloth on spot deliveries from then on drops 5 cents a pound. Now, your customer feared that very thing and thought he might be buying his cloth at 5 cents a pound above the market in March and April. Consequently, he was not willing to pay, last November, unless we agreed upon the happening of the invalidity we would scale down that price, and that we have done so that the customer now is getting goods at 5 cents a pound less than the price he originally contracted to pay.

Those goods of ours, which, we will say, will be delivered during this time, say we maufactured them in December or November, prior to the decision. Now, if a retroactive tax is passed, we have not paid any tax on those goods because it was not due under the law. If you should now impose a tax on those goods of 5 cents a pound then we would be out just 5 cents a pound on every yard of cloth we deliver from now on.

Is that clear, Mr. Ellenbogen?

Mr. Wood. That contract price has not been disturbed according to your testimony.

Mr. Dorr. Oh, it has. We lowered it immediately after the-it was lowered immediately after the invalidity of the act because the industry had contracted to protect the customer in that way against just what has happened and it was done immediately, the day after.

Mr. Wood. Why were the textile manufacturers so exercised about the processing tax when the tax was on the consumer and the business was improving all of the time?

Mr. Dorr. What we have done now; we are delivering goods now which were manufactured in November and December, at a price which does not include the processing tax because--although the original prices included all or a part of it-under our contracts with them, immediately upon the Supreme Court decision, we obliged to reduce that price. Now, that is not doing us any harm now because, under the law, we were not obliged to pay our taxes in November and December but if you want to now go back and impose a retroactive tax on November and December then we would be, as I say, out 5 cents on every pound of cotton cloth that we deliver and that would be a very serious thing.

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