Mr. McMACKIN. Two years and less, probably 50 percent. Mr. BOEHNE. Twenty-five percent of the 400,000,000 gallons is less than a year old? Mr. McMACKIN. That is right. As to the ability to bottle up any great quantities between the time this bill should become a law and the 1st of July, all of the larger plants put together, if permitted to work night as well as day, and under the revenue laws, work is allowed between sunrise and sunset, and only when an emergency exists will the Alcohol Tax Unit grant permits for overtime work, they could not bottle up any sizable quantity, to have any material effect on the market, as their present equipment is based on their normal demand and supply and would not meet any unusual conditions such as we are confronted with now. We strongly favor coming back to the rightful popularity of the use of properly matured American whiskies, encouraging American goods made by Americans for Americans. In the past year, the United States used over 3,000,000 cases of Scotch whisky that were brought into this country, and which should be replaced with our own good American whisky, made by Americans and drunk by Americans. What is the motive of those in favor of this tax? Is it for the purpose of forcing sales to clean out present stocks on hand by wholesalers, or for the purpose of again overloading dealers with new goods, solely for the purpose of reducing the present distillery stocks, which are at present overloaded? The average wholesaler cannot stand it, and we trust that your committee will not pass this bill, as, according to the Alcohol Tax Unit, the revenue to be obtained has been estimated by Mr. Berkshire here at $3,750,000, and no doubt the cost may exceed the collections, although he has testified otherwise. Mr. Berkshire did not bring out to you the position of the wholesale house. I am somewhat familiar with previous conditions, when we had only stocks--when we had to rip open every case and put on a serial stamp number with the individual wholesaler's name on it, and stamp it on every bottle, showing that the floor stock tax had been paid. If one of Mr. Berkshire's men came in, and found a bottle on my premises without a tax stamp, I would be fined $10 for each bottle on which that stamp did not appear. The expense that the wholesaler is going to be put to, the expense that the Government will be put to in order to have the men go around and visit these places, I think will more than offset what Uncle Sam will get out of it. You will be interested to know that since the inception of the F. A. A., there has been a tremendous loss of wholesalers of alcoholic beverages throughout the United States, and in some States such as ours, we have lost over 50 percent of the wholesalers dealing in alcoholic beverages. I recall I may be wrong in my figures, but when I had occassion to work with the N. R. A., we had some 12,000 wholesalers. You heard the testimony of Mr. Berkshire today, telling you that you have 5,000 wholesalers here in the United States. What has brought that condition about? Now, as to the tremendous number of wires, and so forth, that have been coming in, I can very well tell you gentlemen of this committee that if I am a franchise holder, and I am making some money out of it, and I get a wire from the home office saying that they want me to send in a wire to Congressman Cullen favoring that tax, I am going to do that. That is the situation. Mr. CULLEN. Your time is up. Mr. McMACKIN. May I have 2 minutes more, with your permission? Mr. CULLEN. Yes. Mr. McMACKIN. I want to introduce as evidence or exhibits a couple of telegrams, and a letter from a wholesaler in Boston, protesting against the floor tax. The telegrams are from Philip N. Poulleys, of Boston, and from the Consolidated Liquor Corporation of Worcester, Mass., and there is also a letter outlining certain objections from a rectifier, giving his reasons. I will put those into the record, if you have no objection. Mr. CULLEN. Very well. Mr. McMACKIN. Thank you for your kind attention. (The two telegrams and the letter referred to are as follows:) BOSTON, MASS., May 12, 1938. HUGH J. McMACKIN, Secretary: Please be advised that the J. S. Contas Co., Inc., is opposed to the increase of taxes. We feel that the liquor industry is already excessively penalized with more than its share. Sorry I am unable to attend the meeting. PHILIP N. POULLEYS. WORCESTER, MASS., May 12, 1938. HUGH MCMACKIN, Massachusetts Wholesale Liquor Dealers Meeting: Cannot attend meeting. Wish to protest additional 25-cent tax. CONSOLIDATED LIQUOR CORPORATION. NORTHEASTERN LIQUOR CORPORATION, The Honorable JOHN W. MCCORMICK, House of Representatives, Washington, D. C. DEAR SIR: The writer is of the opinion that a floor tax assessed on inventories on hand will prove detrimental to the wholesale liquor business. The wholesalers will have to provide additional capital to operate their business with the increase of taxes on distilled spirits because their stocks of merchandise and their accounts receivable from customers will require larger investments than heretofore. A floor tax would further aggravate the capital situation because: 1. The money to pay this tax will have to be raised by the wholesalers within a short period of time; this means, of course, an additional investment. 2. The majority of the retailers are slow in meeting their obligations, as it is now. If required to pay a substantial sum as a tax on their floor stocks, they would become even more delinquent toward the wholesalers. Such a condition would again require more capital on the part of the wholesalers, in order to carry a larger sum total of unpaid retailers accounts on their books. Now, it is very difficult for the average wholesale liquor dealer at the present time to get accommodations from the banks, as the latter are familiar with the present chaotic condition of our industry. Many wholesalers will therefore find it necessary to borrow from private lenders or factors and pay high rates of interest; some may even be forced into bankruptcy when these loans become due. We feel that you will give first consideration to the smaller wholesalers rather than to the large distiller. The writer believes that the distillers, having pro 70769-38- 4 duced in 1 year about four times as much whisky as was tax-paid, brought on the turmoil that now exists in this industry. We would appreciate your keeping our views in mind when you act on the question of a floor tax on distilled spirits. Very truly yours, NORTHEASTERN LIQUOR CORPORATION, By L. M. SINGAL. Mr. DUNCAN. Mr. McMackin, would it be practical from a wholesaler's or distributor's viewpoint, to place a floor-stock tax on liquor in addition to the amount in stock on May 15 or on any other arbitrary date prior to the effective date of this act? That would be, in other words, to prevent any unusual amount of liquor-say that you have in stock now 5,000 gallons; that is a normal stock? Mr. McMACKIN. That is or ly 100 barrels of whisky. Mr. DUNCAN. Let us take that as an arbitrary amount. Say that that is the normal stock that you carry. Then what would you say to imposing the floor-stock tax on all quantities in excess of that amount? Mr. McMACKIN. On the wholesaler? Mr. DUNCAN. On everybody. It would have to be general. Mr. McMACKIN. That would not apply to the ordinary retailer, because he would not have that amount. I think that the retailer ought to be protected and should be exempted up to a sizeable quantity. Mr. DUNCAN. That is the thought that I have, and you could arrive at that by inventorying his stock or knowing what he had prior to any unusual purchases in anticipation of this law becoming effective. Mr. McMACKIN. That is very true. The only danger, of course, that we are distrubed about is the unfair discount of the absorbing of this floor tax by the larger groups, by the distillers, and it puts the wholesaler at a disadvantage. If they absorb it, it is really a discount that they are giving, and they are giving discounts now, but that would be a further discount. Mr. DUNCAN. Following my thought, if the distributor or wholesaler were not called upon to pay a tax in excess of his normal stock, then it would not be a burden on him, it seems to me. In other words, if he has more than a normal stock, it would be persuasive evidence at least that he has stocked up in order to avoid the payment of the tax, and if some point could be arrived at that would be fair, that might be considered. My personal disposition is not to impose this tax upon the innocent dealers of liquor, those who have considerable stocks and who must carry considerable stocks at all times in order to supply the normal trade. If they are subjected to this additional floor tax, it seems to me that it is an unfair burden that they must carry. Mr. McMACKIN. You hit it right on the head. You have an excellent idea there. I am quite in accord with it. Mr. TREADWAY. I did not hear the first of your testimony, but I did notice that you referred to a franchise. Is the word "franchise" used in your line of business to indicate an agency? Mr. McMACKIN. As an agent, as a jobber or distributor. Mr. TREADWAY. It is synonymous with agency? Mr. McMACKIN. Yes, sir. Mr. TREADWAY. Are those exclusive agencies as a rule? Mr. McMACKIN. In some territories. In Pittsfield they would give a man an exclusive agency; in Springfield they would give a man an exclusive agency; in North Adams they would give a man an exclusive agency, and in Greenfield they would give a man an exclusive agency on a particular line as long as he did not carry a competitive line in the same price bracket. Mr. TREADWAY. And does that mean more or less the thing that Mr. Duncan referred to this morning, the requirement that those agents dispose of a certain quantity? Mr. McMACKIN. Absolutely. There is plenty of pressure put on to increase the volume, to overload. Mr. TREADWAY. And if that is not complied with, they lose the agency? Mr. McMACKIN. I testified, Congressman Treadway, just before you came in, that there were, I think, five wholesalers in Boston that lost their agencies last week on an hour's notice; after having had them for 41⁄2 years and having spent a lot of time and energy in building up goodwill for that advertised brand, on a minute's notice they lose it. Mr. TREADWAY. Because their sales decreased, or because somebody else offered a larger price for the goods? Mr. McMACKIN. No; I think it was for the purpose of stimulating and increasing the volume. Mr. TREADWAY. Through some other agents? Mr. McMACKIN. That is right. Mr. BOEHNE. I want to know more about that franchise. If a franchise has not a time element in it, what is a franchise? Mr. McMACKIN. It is a verbal contract, if you can call it such. It is not a written instrument, similar to a bona fide contract. Mr. BOEHNE. It is not a written instrument? Mr. McMACKIN. No. Most of those are verbal, because they can break them overnight. Mr. BOEHNE. Then it is really not a franchise? Mr. McMACKIN. If you are the exclusive distributor in a certain area, you are the franchise holder, exclusive distributor for that line. Mr. BOEHNE. Assuming that you are a distilling company, and that you make a good brand of whisky, and that I would like to sell it, because it is nationally advertised. The only thing that I get is that I can say that I am the exclusive distributor for that whisky in a certain territory? Mr. McMACKIN. That is right. Mr. BOEHNE. And that is a franchise? Mr. McMACKIN. That is right. Mr. TREADWAY. You seem to be familiar with cities in the First Congressional District of Massachusetts. Mr. McMACKIN. Very well. I have many friends there. Mr. TREADWAY. So have I. Mr. McMACKIN. I know that you have. Mr. TREADWAY. And I want to keep them. Those names interest me to this extent, that I want to ask you if you are pretty positive that the wholesalers and the distributors in those places that you named, and let us include Holyoke, if you want to, and Westfield, are opposed to this resolution? Mr. McMACKIN. Oh, no. I testified before you came in that in our organization we got 126 members out of 200. We have some of them who hold franchises, and whether or not pressure has been brought to bear on them to send in wires to the members of this committee favoring it, I cannot say; but if they hold a franchise, or have an exclusive agency, and if I as a distiller tell my agent to send in a wire, he is going to pretty nearly do it. Mr. TREADWAY. Well, if there is a difference of opinion up in that territory, I will get in trouble either way I vote on this thing. Mr. DUNCAN. I do not want to ask any embarrassing question that might be controversial, but there was a gentleman who appeared this morning before this committee, I believe Mr. Rosbeck. Does he represent some other organization than yours in Massachusetts? Mr. McMACKIN. No. Unfortunately, he is not a member of our organization. He is an independent wholesaler there, who is a distributor for the Seagram line, I understand. Mr. DUNCAN. He does not represent any organization? Mr. McMACKIN. No. Mr. BOEHNE (now presiding). Thank you. The next speaker is Mr. Julius H. Soble. STATEMENT OF JULIUS H. SOBLE, COUNSEL, MASSACHUSETTS WHOLESALE LIQUOR DEALERS ASSOCIATION, INC. Mr. SOBLE. Mr. Chairman and members of the committee Mr. THOMPSON. I notice that this gentleman represents the same organization as Mr. McMackin, according to the calendar. I thought that we bad an understanding here this morning that these groups would get together and have a spokesman. Mr. FULLER. There are only four representing any opposition to it. Mr. THOMPSON. I have no intention of cutting anybody off. I just wanted to know what the situation is. Mr. McMACKIN. He is covering other facts that I did not touch on. Mr. BOEHNE. How much time do you want, Mr. Soble? Mr. SOBLE. Not over 5 or 6 minutes. Mr. BOEHNE. You will be recognized for 5 minutes. Mr. SOBLE. Thank you. Mr. BOEHNE. Give your name to the reporter, and whom you represent. Mr. SOBLE. My name is Julius H. Soble, of Boston, Mass. I am counsel for the Massachusetts Wholesale Liquor Dealers' Association. Mr. McMackin has given you a description of that association. Now, considering the matters that have been presented to you this morning by those advocating this tax, it would seem to boil itself down to one fundamental proposition, that unless a floor tax is imposed, someone is going to gain an advantage by buying a whole lot of merchandise in anticipation of the tax that will go into effect on July 1. Now, you have had figures submitted to you this morning, and for the purposes of this discussion I am ready to accept the figures that were submitted to you by Mr. Berkshire. It was indicated to you that some might and probably would buy a 6 months' supply, which would be for this country 60,000,000 gallons. That 60,000,000 gallons |