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Mr. HINES. Right.
Mr. Duncan. You are in a position then where you have got to borrow money,
if you are in a position where you can get the money, to pay the taxes?
Mr. HINES. Yes, sir.
Mr. McCORMACK. You have got to pass that increased amount on, but if the distiller or the wholesaler does not pass it on, then it puts you and others in your position at a disadvantage?
Mr. HINES. Positively.
Mr. McCORMACK. In other words, if they would agree with the wholesaler, with the retailers that they would increase their price 25 cents, the amount of the floor tax, then your position would be solved. Is that right?
Mr. HINES. To some extent.
Mr. McCORMACK. Well, to the extent where you would not be in a position where you would be compelled to oppose this bill?
Mr. Hines. Well, there are a number of questions that were asked here pertaining to that particular issue, and I think myself that where you people have asked: "If the bill was enacted today with the 25-cent tax to stop this increased amount of withdrawn liquor, would that answer the question?" It would to one degree, provided that the distiller did not absorb that tax, because if he did absorb that tax and his wholesale prices or his prices to the wholesaler were the same, then the wholesaler loses, and naturally the retailer as well, because we would suffer approximately a 12-percent loss of the profit that we have on our merchandise, and we positively could not exist under those conditions.
Mr. McCORMACK. So far as the present supplies are concerned that you have on hand July 1?
Mr. Hines. That is correct.
Mr. McCORMACK. Has any effort been made by the dealers, by your association, to try and reach an understanding in that respect?
Mr. Hines. Not by our organization in particular, but I understand that the wholesale organization has approached some dealers, and they positively have said that they could not make any guarantee as to the protection. I think in the discussion that was had, there were one or two distilleries who did say that they would protect their wholesalers, who in turn, naturally, would protect the retailer. But those are only two.
Mr. McCORMACK. Now, what about the suggestion of Mr. Buck here, of 500 gallons redemption. Would not that be exceedingly beneficial?
Mr. Hines. It would, tremendously.
Mr. McCORMACK. And from a practical angle would tend to solve
Mr. Hines (interposing). It would not cover everything:
Mr. McCORMACK. But it would tend to solve the main problem that confronts you, because if you knew that was going to go through between now and July 1, you could get rid of your present stock and try to bring it as near to the 500 gallons, assuming that that did become law-and I am in favor of anything that we report out of here increasing that 50 gallons—but you could then regulate your business between now and July 1?
Mr. Hines. I think you would be safe in bringing that figure to 1,000 gallons from a package-store standpoint, because, you take 500
gallons, there is only 30 cases of liquor, and there is not a store in the State of Massachusetts but can
Mr. Buck (interposing). You say 30 cases is 500 gallons?
Mr. THOMPSON. Three gallons to the case, 30 cases? Your arithmetic is a little off there. [Laughter.]
Mr. McCORMACK. You can correct that. We all know you unconsciously made a mistake, and you can correct it afterward when you revise your remarks.
Mr. Hines. There are very few stores that would carry a stock of 100 cases of liquor, or 125 cases.
Mr. Buck. Now, let me get this right. You mean to say there are very few stores that carry a stock of as much as 125 cases of liquor?
Mr. HINES. That is right.
Mr. McCORMACK. Well, we are confronted with a very practical problem here. You have got to be practical, and you fellows-I see your position. You are in the position that you are fearful that the distillers and wholesalers will absorb the floor tax and leave you fellows, in plain language, "holding the bag”?
Mr. HINES. Correct.
Mr. McCORMACK. And that brings me to another thing. I am concerned about the larger group of you people--not that I have any particular concern-I never drank in my life, but I am interested in seeing that no part of the business gets an advantage over the other. Now this is the practical situation: If the committee were to report out this bill—and I am not saying they will, but assuming they will if they were to make a 500-gallon exemption—and I do not say they will; I do not know-assuming that did happen, would not that, for all practical purposes, meet the problem that confronts you? I am not saying that it will meet the problem, but for all practical purposes would not that meet the problem that confronts you?
Mr. HINES. It would help considerably.
Mr. McCORMACK. And for all practical purposes it would meet the problem of you boys?
Mr. HINES. Yes, sir.
Mr. McCORMACK. No, but he has been very frank in his testimony. He says that for all practical purposes it would meet their problem, That is true, is it not?
Mr. Hines. Yes, sir.
Mr. McCORMACK. Just one more question. If this bill is reported out, as I understand it, speaking for your organization, insofar as you can speak for your organization, your organization will wholeheartedly recommend that as large an exemption as possible, and certainly up to 500 gallons be exempted? Is that right?
Mr. HINES. We would.
Mr. KNUTSON. In the final analysis would not this proposed floor tax be absorbed by the distillers?
Mr. HINES. Absolutely no. They have so far stated their position in that matter that they positively are not going to protect any retailer, wholesaler, or otherwise on that.
Mr. KNUTSON. I am speaking of your dealings as between the distillers after July 1. Who would absorb that 25-cent tax after July 1?
Mr. HINES. Well, we do not know. I cannot answer for the distilleries. I am sure that the wholesalers cannot absorb it, and the package store cannot absorb it either, and retain his present price.
Mr. KNUTSON. You say can or cannot?
Mr. HINES. Cannot. He is not in a position to do that. That would mean 75 cents a case, or 68 on 90 proof to a wholesaler, and the wholesaler is not in a position to absorb that 68 percent. To the retailer it would mean actually about a 12%-percent tax.
Mr. KNUTSON. Are you acquainted with the prices that the distillers receive?
Mr. Hines. The prices that the distilleries receive? No.
Mr. Knutson. Well, what is your guess? Do you think this tax would be absorbed by the distillers?
Mr. Hines. That is a question. I could not answer that either.
Mr. BOEHNE. If that is all, we thank you, Mr. Hines. We will now hear Mr. Steinberg. Will you state your name and your representation, Mr. Steinberg ?
STATEMENT OF WILLIAM STEINBERG, PRESIDENT, NATIONAL
RETAIL PACKAGE STORES ASSOCIATION, NEW YORK CITY Mr. STEINBERG. My name is William Steinberg, New York City. I am President of the National Retail Liquor Package Stores Association.
Mr. Buck. How many members are there in that association?
Mr. STEINBERG. Approximately 16 member associations. I want to say that there are present in this room Mr. Patterson of the Massachusetts Package Stores Association, Mr. Jaffee of the Rhode Island Package Stores Association, Mr. Waldron of the New Jersey Package Stores Association, and Mr. McKee of the District of Columbia. Some of these gentlemen have come a long distance to testify, to help this committee find a solution, but because of the necessity for conserving time we have yielded to the suggestion of the chairman this morning, and I will make the only presentation; however, I should like to have the privilege of calling Mr. Patterson of Massachusetts, for the reason that, inasmuch as the opposition was solely from that particular State, I think I ought to have the privilege of permitting Mr. Patterson to qualify as to the number of retailers that he represents and the number of retailers that the others represent.
Now, Mr. Chairman and gentlemen, originally, when this act was passed, we were opposed to the tax. Naturally, being the dispensers to the consumer, and trying to keep the cost of the product as low as possible to the consumer, we were against any tax whatsoever, and with the objection of the Senate Finance Committee we thought that this tax was out of the picture, and took no action whatsoever after that. When the conferees reinstated the tax we were caught flat-footed, so to speak, and no opposition was apparent from any organization. I was called by my attorney representing the association in the District, and like all small retailers we objected to the floor tax because the small man is very seldom in position to pay this revenue. Then we began a study of the thing and we found that the large outlets, such as the chain stores, the department stores, and the particularly large price cutters that exist in our business, began to make inquiries and began to place orders for a lot of merchandise. We have enough trouble with those gentlemen from time to time, due to the fact of their large resources, ability to buy, and so forth, and their well-known tactics by which they disrupt the business and place the small men in jeopardy. When it became apparent that that was going to be their tactics if the tax prevailed—and the tax is now a fact-it became apparent to us that, for the preservation of the small man, we must have a floor tax.
Let us look right here in the adjoining State of Maryland. Maryland, and particularly the city of Baltimore, have a chain of drug stores operating approximately 40 retail package stores. In other words, in conjunction with their drug department they have a small department for liquor. They are in a position financially to purchase a great deal of merchandise without paying the additional tax, lay it aside in the warehouse, and for a considerable time, maybe for a month or more, they could advertise to the consuming public that they are selling whisky lower than the small retailer, because of the tax saving. We have in this business many a dealer who is not very ethical; who would not care how he used publicity, just as long as he obtained his means for the purpose of attracting customers from the small stores to their own, and they would advertise the tax saving even though they did not have it. What I mean is that perhaps 6 months later, when their supply was exhausted, they would still advertise a tax saving, and there is no way to prove whether it was so or not. So that the small retailer would at all times be at a disadvantage.
Up until now all the testimony was just guesswork, but we have a real good, concrete example of what happened in this industry only a year ago. A year ago this July 1 the State of Rhode Island passed à similar tax, increased the tax from 50 cents a gallon to 75 cents a gallon, effective July 1, 1937. The conditions in that particular state became so chaotic-now I am going to quote you, with the permission of Commissioner Costello, given to Mr. Jaffee—if you choose, Mr. Chaffee can come up here and verify it, and make a statementthat the conditions in the State of Rhode Island became so bad that Commissioner Costello was forced to issue a price-fixing regulation so as to stop the death rate of the small retailer. Since that time most of the States have passed credit limitations on the retailer. In other words, the State of Kentucky at the present time has a law where you must pay cash, and in other States they run anywhere from 30 to 40 days, and in some instance 90 days.
In the places where their credits are limited to the retailer, it is needless to say they cannot go to the bank and borrow. A retail store, particularly a liquor store, with limitations placed by the various liquor authorities in the respective States, does not make good collateral, and their borrowing capacity at the bank is very limited; as a matter of fact, I should say nil, and if you do not pass a floor tax you will have the large outlets and all those fellows in position to take advantage of it who will have a tremendous stock, and the man who must pay his bill within 30 or 40 days can only stock up that much, and sometimes his guess is poor and he may not be able to stock up the proper liquor, so that he might be out of a certain brand much sooner than the 30 days, and we feel that it would be a great field of harm for the small fellow who goes along and tries to conduct a nice, clean business—and when I say that, I qualify it, because the package store system has been proven to be the cleanest type of business in this industry, and so I say that that particular group ought not to be penalized in favor of a group that is líkely to monopolize the business.
Further than that, we feel that if this tax does not go on, or this floor tax, it would work a hardship on the small dealers. It would give the larger wholesaler, those that are operating with Wall Street money, an advantage over the small ones. We would like to have as many people in this business, wholesalers and distillers, as possible, for our own protection. We feel that the more of them there are in the business, the less chance there is of the business being monkeyed around with. So we feel that if the small wholesaler is in jeopardy, or the smaller distiller, it might eventually hurt us, and for selfish reasons we would like to see them preserved.
Now, there have been questions about the average stock. I am sorry that the previous speaker was not qualified, because if his figures were correct there would be something like 230,000,000 gallons in stock for the retail outlets, and the floor tax alone would amount to something like $60,000,000. I do not believe the gentleman gave time enough to consideration. I think he was a little bit hasty in his deductions. So from my observation and inquiries from time to time we feel that the average stock, when we deduct wine and brandy, which are not taxable under the present law, the average stock among retailers is 600 gallons. Some men in the business carry considerably more, the very fellows we are trying to protect, and if you do not equalize them by an equal tax, the fellow that carries the kind of stock that was quoted here before would be in a very hard position. But the average storekeeper who carries around that figure of 600 gallons, or possibly a little less, if he got an exemption anywhere within that quota-I mean it does not have to be to the gallon, but somewhere in that range-he would not be in very much difficulty. You have given him 7 months' time to make that payment, so that he would not have to advance his own money; he would have received the tax long before he paid it to the United States Government. So that would not be a great hardship on him.
Now, I have heard it said that the wholesaler has been squeezed out. There were 12,000 wholesalers at the beginning of this business, and at the present time there are only 5,000. I might say that there are two reasons why the death rate among wholesalers is so great.
The first is that at the beginning of repeal we had an influx of people into the industry that did not intend to remain in this business. They used the liquor business as a stopgap until such time as their own particular business that they were in prior to repeal would be sustaining again, or profitable, and eventually they would go back to it. They merely used our business as a hold-over in between depression times.
Mr. McCORMACK. What was their business?