TAXATION OF INTERSTATE CARRIERS AND EMPLOYEES WEDNESDAY, APRIL 21, 1937 HOUSE OF REPRESENTATIVES, Washington, D. C. The committee met at 10:30 a. m., Hon. Robert L. Doughton (chairman) presiding. The CHAIRMAN. We have before us H. R. 6448, a bill to levy an excise tax upon carriers and certain other employers and an income tax upon their employees, and for other purposes. (H. R. 6448 is as follows:) A BILL To levy an excise tax upon carriers and certain other employers and an income tax upon their employees, and for other purposes Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, DEFINITIONS SECTION 1. That as used in this Act (a) The term "employer" means any express company, sleeping-car company, or carrier by railroad, subject to part I of the Interstate Commerce Act, and any company which may be directly or indirectly owned or controlled thereby or under common control therewith, and which operates any equipment or facilities or performs any service (other than trucking service) in connection with the transportation of passengers or property by railroad, or the receipt, delivery, elevation, transfer in transit, refrigeration or icing, storage, or handling of property transported by railroad, and any receiver, trustee, or other individual or body, judicial or otherwise, when in the possession of the property or operating all or any part of the business of any such "employer": Provided, however, That the term "employer" shall not include any street, interurban, or suburban electric railway unless such railway is operating as a part of a general steam-railroad system of transportation, but shall not exclude any part of the general steam-railroad system of transportation now or hereafter operated by any other motive power. The Interstate Commerce Commission is hereby authorized and directed upon request of the Commissioner of Internal Revenue, or upon complaint of any party interested, to determine after hearing whether any line operated by electric power falls within the terms of this proviso. The term "employer" shall also include railroad associations, traffic associations, tariff bureaus, demurrage bureaus, weighing and inspection bureaus, collection agencies, and other associations, bureaus, agencies, or organizations controlled and maintained wholly or principally by two or more employers as hereinbefore defined and engaged in the performance of services in connection with or incidental to railroad transportation; and railway labor organizations of employees, national in scope, which have been or may be organized in accordance with the provisions of the Railway Labor Act, as amended, including their State and National legislative and general committees. (b) The term "employee" means any person in the service of one or more employers for compensation. (c) The term "employee representative" means any officer or official representative of an organization of employees other than a labor organization 1 included in the term "employer" as defined in section 1 (a), who before or after the enactment hereof was in the service of an employer as defined in section 1 (a) and who is duly authorized and designated to represent employees in accordance with the Railway Labor Act, as amended, and any person who is regularly assigned to or regularly employed by such officer or official representative in connection with the duties of his office. (d) A person is in the service of an employer wherever his service is rendered if he is subject to the continuing authority of the employer to supervise and direct the manner of rendition of his service, which service he renders for compensation: Provided, however, That a person shall be deemed to be in the service of an employer not conducting the principal part of its business in the United States, Alaska, Hawaii, or the District of Columbia only when he is rendering service to it in the United States, Alaska, Hawaii, or the District of Columbia. (e) The term "compensation" means any form of money remuneration earned by a person for services rendered as an employee to one or more employers, including wages paid for time lost as an employee, but wages paid for time lost shall be deemed earned in the month in which such time is lost. Compensation which is earned during the period for which the Commissioner of Internal Revenue shall require a return of taxes hereunder to be made and which is payable during the calendar month following such period shall be deemed to have been paid during such period only. INCOME TAX ON EMPLOYEES SEC. 2. (a) In addition to other taxes, there shall be levied, collected, and paid upon the income of every employee a tax equal to the following percentages of the compensation of such employee not in excess of $300 per month, earned by him after December 31, 1936— 1. With respect to compensation earned during the calendar years 1937, 1938, and 1939, the rate shall be 24 per centum. 2. With respect to compensation earned during the calendar years 1940, 1941, and 1942, the rate shall be 3 per centum; 3. With respect to compensation earned during the calendar years 1943, 1944, and 1945, the rate shall be 34 per centum; 4. With respect to compensation earned during the calendar years 1946, 1947, and 1948, the rate shall be 32 per centum ; 5. With respect to compensation earned after December 31, 1948, the rate shall be 334 per centum ; (b) The tax imposed by this section shall be collected by the employer of the taxpayer by deducting the amount of the tax from the compensation of the employee as and when paid. Every employer required so to deduct the tax is hereby made liable for the payment of such tax and shall not be liable to any person for the amount of any such payment. (c) If more or less than the correct amount of tax imposed by this section is paid with respect to any compensation payment, then, under regulations made under this Act by the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, proper adjustments with respect both to the tax and the amount to be deducted, shall be made, without interest, in connection with subsequent compensation payments to the same employee by the same employer. EXCISE TAX ON EMPLOYERS SEC. 3. (a) In addition to other taxes, every employer shall pay an excise tax, with respect to having individuals in his employ, equal to the following percentages of the compensation not in excess of $300 per month paid by him to any employee for services rendered to him after December 31, 1936: 1. With respect to compensation paid to employees for services rendered during the calendar years 1937, 1938, and 1939, the rate shall be 24 per centum ; 2. With respect to compensation paid to employees for services rendered during the calendar years 1940, 1941, and 1942, the rate shall be 3 per centum; 3. With respect to compensation paid to employees for services rendered during the calendar years 1943, 1944, and 1945, the rate shall be 34 per centum; 4. With respect to compensation paid to employees for services rendered during the calendar years 1946, 1947, and 1948, the rate shall be 31⁄2 per centum ; 5. With respect to compensation paid to employees for services rendered after December 31, 1948, the rate shall be 34 per centum. (b) If more or less than the correct amount of the tax imposed by this section is paid with respect to any compensation payment, then, under regulations made by the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, proper adjustments with respect to the tax shall be made, without interest, in connection with subsequent excise-tax payments made by the same employer. REFUNDS AND DEFICIENCIES SEC. 4. If more or less than the correct amount of the tax imposed by section 2 (a) or 3 (a) of this Act is paid or deducted with respect to any compensation payment and the overpayment or underpayment of the tax cannot be adjusted under section 2 (c) or 3 (b), the amount of the overpayment shall be refunded, or the amount of the underpayment shall be collected in such manner and at such times (subject to the statute of limitations properly applicable thereto) as may be prescribed by regulations under this Act as made by the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury. INCOME TAX ON EMPLOYEE REPRESENTATIVES SEC. 5. In addition to other taxes, there shall be levied, collected, and paid upon the income of each employee representative a tax equal to the following percentages of the compensation of such employee representative not in excess of $300 per month, earned by him after December 31, 1936: 1. With respect to compensation earned during the calendar years 1937, 1938, and 1939, the rate shall be 52 per centum; 2. With respect to compensation earned during the calendar years 1940, 1941, and 1942, the rate shall be 6 per centum; 3. With respect to compensation earned during the calendar years 1943, 1944, and 1945, the rate shall be 62 per centum; 4. With respect to compensation earned during the calendar years 1946, 1947, and 1948, the rate shall be 7 per centum; 5. With respect to compensation earned after December 31, 1948, the rate shall be 72 per centum. The compensation of an employee representative for the purpose of ascertain, ing the tax thereon shall be determined in the same manner and with the same effect as if the employee organization by which such employee representative is employed where an employer as defined in section 1 (a) of this Act. DEDUCTIBILITY FROM INCOME TAX SEC. 6. For the purposes of the income tax imposed by title I of the Revenue Act of 1934 or by any Act of Congress in substitution therefor, the taxes imposed by sections 2 and 5 of this Act shall not be allowed as a deduction to the taxpayer in computing his net income. COLLECTION AND PAYMENT OF TAXES SEC. 7. (a) The taxes imposed by this Act shall be collected by the Commissioner of Internal Revenue and shall be paid into the Treasury of the United States as internal-revenue collections. (b) The taxes imposed by this Act shall be collected and paid quarterly or at such other times and in such manner and under such conditions not inconsistent with this Act as may be prescribed by the Commissioner of Internal Revenue with the approval of the Secretary of the Treasury. If a tax imposed by this Act is not paid when due, there shall be added as part of the tax (except in the case of readjustments made in accordance with the provisions of this Act) interest at the rate of 6 per centum per annum from the date the tax became due until paid. (c) All provisions of law, including penalties, applicable wtih respect to any tax imposed by section 600 or section 800 of the Revenue Act of 1926, and the provisions of section 607 of the Revenue Act of 1934, insofar as applicable and not inconsistent with the provisions of this Act, shall be applicable with respect to the taxes imposed by this Act. (d) In the payment of any tax under this Act, a fractional part of a cent shall be disregarded unless it amounts to one-half cent or more, in which case it shall be increased to 1 cent. COURT JURISDICTION SEC. S. The several district courts of the United States and the District Court of the United States for the District of Columbia, respectively, shall have jurisdiction to entertain an application by the Commissioner of Internal Revenue to compel an employee or other person residing within the jurisdiction of the court or an employer subject to service of process within its jurisdiction to comply with any obligations imposed on such employee, other person, or employer under the provisions of this Act. The jurisdiction herein specifically conferred upon such Federal courts shall not be held exclusive of any jurisdiction otherwise possessed by such courts to entertain actions at law or suits in equity in aid of the enforcement of rights or obligations arising under the provisions of this Act. SOCIAL SECURITY ACT SEC. 9. The term "employment", as defined in subsection (b) of section 811 of title VIII of the Social Security Act, shall not include service performed in the employ of an employer as defined in section 1 (a) of this Act or service performed for an organization of employees by an employee representative who is subject to the tax imposed by section 5 of this Act. SEPARABILITY SEC. 10. If any provision of this Act, or the application thereof to any person or circumstance, is held invalid, the remainder of the Act, and the application of such provision to other persons or circumstances, shall not be affected thereby. REPEAL OF PRIOR TAX ACT SEC. 11. The provisions of this Act are in substitution for the provisions of the Act of August 29, 1935, entitled “An Act to levy an excise tax upon carriers and an income tax upon their employees, and for other purposes", which is hereby repealed. All moneys payable under the Tax Act which is repealed by this Act and not heretofore paid shall cease to be payable and all proceedings pending for the recovery of any such moneys shall be terminated. All sums paid into the Treasury of the United States as and for taxes under the Tax Act which is repealed by this Act shall be refunded, except eleven-fourteenths of the sums so paid as and for taxes with respect to compensation earned after December 31, 1936, and the sums not required to be refunded shall be retained in the Treasury of the United States and credited on taxes due and payable under this Act. All sums deducted by employers from the compensation of employees as and for taxes under the Tax Act which is repealed by this Act shall be refunded to such employees, except eleven-fourteenths of the sums so deducted as and for taxes in respect of compensation earned after December 31, 1936, and the sums not required to be refunded shall be paid into the Treasury of the United States and thereupon shall be credited on taxes due and payable under this Act. SHORT TITLE SEC. 12. This Act may be cited as the "Carriers Taxing Act of 1937." STATEMENT OF GEORGE M. HARRISON, PRESIDENT OF THE Mr. HARRISON. My name is George M. Harrison. I am the president of the Brotherhood of Railway Clerks. I appear here this morning as the chairman of the Railway Labor Executives' Association, which is comprised of the executive heads of the 21 railway labor unions, representing substantially all of the 1,150,000 railway workers in the United States. I am also the chairman of the committee that handled the negotiations with a committee of railway presidents which brought about the agreement resulting in the introduction of this legislation now covered by the bill H. R. 6448 here under consideration. Perhaps it would be of assistance to the committee if I gave you a little background leading up to the preparation of this legislation. In 1935, on August 29, Congress passed and the President signed a railroad-retirement tax act and at the same time Congress passed a railroad retirement act providing for benefits in the nature of annuities to retired railway workers. Following the enactment of that legislation, the railways of the country challenged the legislation in the Federal courts. A trial was held and they secured an injunction against the Government collecting the taxes provided for in the Railroad Taxing Act. The tax rate in that act was 312 percent on the compensation paid by the railways to their employees up to $300 in any 1 month, and an income tax in amount of 312 percent was levied on the wages of railway workers up to $300 in any 1 month. The court, after extensive hearing on the litigation brought by the railways, did, as I say, enjoin the Federal Government from collecting the taxes. That then created a considerable degree of uncertainty as to the future of the whole system of railroad retirement benefits for railway workers. Consequently we, who represent the workers, advised them to be very careful about retiring, because the legislation might ultimately be declared unconstitutional and they would find that they had left the service and would not be entitled to receive any benefits. A few railroads, however, that were not parties to the general litigation had paid taxes under the act and, as I understand it, in the year of 1936 there was $229,000 paid into the Federal Government under the law. Some few railway workers had retired because of reaching advanced age. They were removed from the service by mandate of the management of the individual railways. They applied for their annuities under the act, even though it was in litigation, and about $1,000,000 was expended in the year 1936 in the way of paying benefits to employees that had retired. As a result of that litigation, the President of the United States wrote a letter to Mr. Pelley, who is the president of the Association of American Railroads, and to myself, as chairman of the Railway Labor Executives' Association, and he set forth, in view of the controversy in the courts surrounding existing railroad retirement legislation, that the railways and their employees get together in conference to see if they could reach a mutually satisfactory understanding on railroad retirement legislation. Responsive to the request of the President of the United States, our association selected a committee of five, and the railways, through the Association of American Railroads, selected a committee of seven railway presidents. Conferences got under way on the 7th day of January 1937. They continued intermittently until the 18th day of February 1937, at which time the employees and the railways reached an agreement on certain revisions in the railroad retirement benefit. measure and certain revisions in the Railroad Taxing Act. During the conferences from January 7 to February 18 we had the assistance of the members and the actuarial staff of the Railroad 141567-37- -2 |