covered by the unemployment compensation laws of all the States except Alabama and Wisconsin, and in the case of the latter State they may be brought within the coverage of the act upon election of the employer. Although the various State laws bear a general similarity to each other, there are multitudinous differences between them in matters of detail. Some of these are pointed out in the memorandum submitted herewith entitled "Some Aspects of the Effect, on Employers, of Coverage of Employment by the Unemployment Insurance Laws of More Than One State." As a consequence, the burdens, of reporting and paying taxes, of employers that operate in a number of States, are multiplied.

Also, many railroad workers are employed in more than one State. But not all the States have the same test of including all the employment of a worker, part of whose employment is performed in the particular State. Thus, a number of workers are likely to find that although all their employment is performed in States each of which has an unemployment-insurance system purporting to be applicable to their kind of employment, they are not covered by any of them. (See on this point also the memorandum referred to above.) Further inequalities between workers exist by virtue of the varying scales of benefits, conditions of eligibility, and disqualifications provided in the State acts.

The consequent burden upon the railroads and the differences in the treatment of workers of even the same railroad are considerable. It therefore appears to be clear that legislation removing these unnecessary burdens from interstate carriers, providing a uniform unemployment insurance system for interstate railroads in all of their operations wherever conducted, and providing for equal treatment of all of the employees of such railroads, is intimately related to interstate commerce. (South Carolina State Highway Department v. Barnwell Brothers (58 S. Ct. 510).) In that case it was held that the determination whether multifarious regulations by States of interstate carriers constituted an undue burden upon interstate commerce was a legislative function to be exercised by Congress.

In Steward Machine Co. v. Davis (301 U. S. 548), and in Helvering v. Davis, supra, it was held that Congress had the power to levy a tax upon an employer with respect to having individuals in his employ. The taxes there imposed were levied upon a large class of employers, including those subject to the proposed Railroad Unemployment Insurance Act. It has long been recognized that railroads need not be taxed by the same statutes applicable to other persons and could be taxed pursuant to an especially devised system. The special treatment of railroads for this purpose, in the manner of the proposed Act, appears to be unassailable. (Steward Machine Co. v. Davis, supra, especially at page 584.)

Furthermore, the tax to be imposed by the Railroad Unemployment Compensation Act is substantially equivalent to the tax imposed by title IX of the Social Security Act, upheld in the Steward Machine Co. case. The railroad unemployment compensation bill imposes a tax upon this special class of employers, but to substantially the same extent it relieves them of the tax imposed by title IX of the Social Security Act. Thus, the burdens imposed by the proposed Railroad Unemployment Insurance Act and title IX together are no greater than the burdens imposed by title IX alone. And if the tax imposed by title IX is a valid tax, no reason is perceived why the imposition of the same tax levied by two acts instead of one is thereby rendered invalid.

That the expenditure of the tax receipts for unemployment insurance purposes would be a proper Federal expenditure seems clear from Helvering v. Davis, where it was said (at p. 641): "Unemployment spreads from State to State, the hinterland now settled that in pioneer days gave an avenue of escape. * * * Spreading from State to State, unemployment is an ill not particular but general, which may be checked, if Congress so determines, by the resources of the Nation. If this can have been doubtful until now, our ruling today in the case of Steward Machine Co., supra, has set the doubt as rest."

Mr. MAPES. Mr. Chairman.

Mr CROSSER. Mr. Mapes.

Mr. MAPES. Did you see the criticism of the Secretary of the Treasury in his letter as to the earmarked provisions which you have referred to?

Mr. HAY. Yes.

Mr. MAPES. Did you comment on that question yesterday?

Mr. HAY. I did not, but I will this morning. I wish to offer these first, Mr. Mapes, and after that I want to pay my humble respects to the communication from the Treasury Department.

Since you mentioned that, Mr. Mapes, I will at this time offer a memorandum in support of my contention that even if it should be held that this constitutes an earmarking, which I think might well be contended, it would be nevertheless a valid provision, and I offer a memorandum headed "Constitutionality of section 10 of the proposed railroad unemployment insurance bill providing that the taxes collected pursuant to section 8 shall be credited to a special account from which benefits shall be paid."

I wish to offer that memorandum for insertion in the record at this place.

Mr. CROSSER. Without objection, it may be inserted in the record. (The memorandum referred to is as follows:)

CONSTITUTIONALITY OF SECTION 10 OF THE PROPOSED RAILROAD UNEMPLOYMENT INSURANCE BILL PROVIDING THAT THE TAXES COLLECTED PURSUANT TO SECTION 8 SHALL BE CREDITED TO A SPECIAL ACCOUNT FROM WHICH BENEFITS SHALL BE PAID

Article I, section 8, of the Constitution provides: "The Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States." The power is not qualified by the requirement that the proceeds of taxes be converted into the general fund of the Treasury.

The fact that a tax is earmarked for a particular purpose does not deprive the tax of its character as such. It would seem clear that a tax is no less a revenue measure because imposed to raise revenue for a specific purpose. Since taxes are levied to provide funds to carry on governmental activities, it seems apparent that there is a natural and proper relation between specific, anticipated governmental expenditures and the revenues to be raised by taxes. There can be no valid objection if an act levying a tax also specifies the uses to which the proceeds are to be put, if that use be a valid one; and similarly, there can be no valid objection if an act expending governmental funds for a proper purpose of Government specifies the funds from which such expenditures are to be made.

In

Many States lay taxes for special purposes, such as for roads, schools, etc. fact, many State constitutions provide that no tax shall be laid unless its object is clearly specified (see e. g. New York Constitution, art. III, sec. 24; Iowa Constitution, art. VII, sec. 7; Michigan Constitution, art. X, sec. 6). In addition, it is common practice in the States for taxes to be earmarked for specific purposes. A number of such State statutes are collected in footnote 14 of the majority opinion in Carmichael v. Southern Coal & Coke Co. (301 U. S. 495). Congress, itself, has from the beginning of the Government levied taxes and earmarked or appropriated the proceeds to particular purposes. (1 Stat. 199, 213-214; 1 Stat. 259, 262; 1 Stat. 267, 270; 1 Stat. 503; 2 Stat. 84; 2 Stat. 291; 3 Stat. 152; 31 Stat. 77; 32 Stat. 54; 36 Stat. 11, 84-85; 38 Stat. 114, 193; 39 Stat. 1000; 42 Stat. 858, 935; 43 Stat. 106; 46 Stat. 301, 590; 7 U. S. C. 615 (f), 26 U. S. C. 1463, 1480 (c), 48 U. S. C. 740); 7 U. S. C. 615 (f) is of peculiar interest in that the special fund to be expended for a special purpose was not established by Congress, but authority was given to the President to establish it by proclamation.

Moreover, the point has been expressly decided in Cincinnati Soap Co. v. United States (301 U. S. 308), in which Mr. Justice Sutherland wrote the opinion for an unanimous Court. The statute there involved (26 U. S. C. sec. 999) provided that the proceeds of certain taxes collected with respect to the processing of coconut oil, wholly of Philippine production, "shall be held as a special fund and paid to the treasury of the Philippine Islands." The funds had not been expended at the time of the decision and were referred to, on page 321 of the Court's opinion, as being in the Treasury of the United States "in the form of a trust fund.'

After determining that the tax, viewed independently of its earmarking, would be a good tax, the Court continued (p. 313):

"Standing apart, therefore, the tax is unassailable. It is said to be bad because it is earmarked and is devoted from its inception to a specific purpose. But if the tax, qua tax, be good, as we hold it is, and the purpose specified be one which would sustain a subsequent and separate appropriation made out of the general funds of the Treasury, neither is made invalid by being bound to the other in the same act of legislation."

This decision was cited and quoted from Carmichael v. Southern Coal & Coke Co. (301 U. S. 495, 521).

Mr. HAY. In connection with and somewhat supplementary to the first memorandum which I have offered, and elaborating upon some of the remarks which I made yesterday with respect to the complication of the State acts on the coverage of employers and employees, I wish to offer a memorandum headed: "Some aspects of the effect, on employers, of coverage of employment by the unemployment insurance laws of more than one State."

Mr. CROSSER. If there is no objection, that may be made a part of the record.

(The memorandum referred to above is as follows:)

SOME ASPECTS OF THE EFFECT ON EMPLOYERS OF COVERAGE OF EMPLOYMENT BY THE UNEMPLOYMENT INSURANCE LAWS OF MORE THAN ONE STATE Many difficulties center around the different concepts of employment embraced in the various State acts. There are in general two types of definitions of employment, but it should be borne in mind that there are numerous and substantial variations even within the two general types. Forty of the fifty-one jurisdictions fall into the "localization" class, i. e., define as employment subject to the act, employment which is "localized" within the State. The application of the term "localized" to concrete situations is necessarily left to administration; the statutes generally provide as a guide in interpretation only that the service shall be deemed localized within the State if it is performed entirely within the State or the service outside the State is "incidental" to service in the State, and give as an example of "incidental" service that which is "temporary" or "transitory" or "consists of isolated transactions." The typical provision of this type provides further that if the work is not localized in any State, employment, part of which is performed in the State, shall be employment subject to the act if the “base of operations" is in the State, or if there is no base of operations then if the "place from which the service is directed or controlled" is in the State, or if there is no State in which there is a base of operations or from which the service is directed or controlled then if the individual's "residence" is in the State.

Thus, even if all the jurisdictions had such provisions in identical terms, the reporting of employment to one State or another would be left to tests of coverage that do not readily delimit to one State employment performed in several States. The first significant problem arises from the application of the various definitions to different units of time, i. e., to a week, month, pay-roll period, job, tax period, tax year, contract-of-employment period, etc. Thus, one State may apply any given test to, say, a tax period. while another may apply the same test in the same manner to the period of time covered by the contract of employment. Accordingly, if work is performed in two States, the determination of which service is "incidental" to the other, or which is "temporary," may well be different if looked at with regard to different periods of time. If States apply different units of time the employment in any overlapping units may become subject to the laws of both States, since the overlapping period may balance the entire unit of time one way or the other. Some of the States have already differed on what unit of time should apply. Of course, the complications increase with the number of States involved.

But if the unit of time to which the tests should be applied were no problem, the criteria of coverage are indefinite and are likely to prove unsatisfactory. Localization is defined only in terms of work performed in a State to which the service performed without the State is "incidental"-a definition of questionable utility. The examples of "incidental" work-work which is "temporary" or "transitory" or "consists of isolated transactions"-do little to fix the concept more definitely or clearly, since such terms are hardly less vague than the term they are supposed to clarify.

The tests alternative to "localization" are also not free from interstate problems. Thus "base of operations" or "place from which the service is directed or con

1 Some of these variations are pointed out, infra.

2 For example, New York determines whether the employment of any particular employee is subject to its act by considering whether it meets the provisions of its statute during the calendar quarter under consideration, while New Jersey views the employment during the period of contract of employment under which the services were rendered.

trolled" are not definite concepts. The word "residence" is also susceptible of various applications; the statutes do not indicate whether by "residence" is meant domicile or some more or less definite legal concept. The confusion arising from the use of these uncertain terms is illustrated by the agreement entered into between Kansas and Missouri, which provided:

"The term 'base of operations' refers to the scene of operations if such scene of operations is the permanent point of direction or control of employees' services; if not, the term 'base of operations' refers to that place at which the next higher point of direction or control of employees' services is located."

Two major problems present themselves from that definition. It is not indicated whether the point of direction and control should be permanent in a geographic sense or with regard to the scene of operations. If the point of direction or control is always at the scene of operations, but such scene shifts from place to place, the definition of "base of operations" in terms of "point of direction and control" adds confusion instead of clarity.

Also, it appears that in that agreement the expressions "base of operations" and "place of direction and control" were regarded as synonymous while the relevant statutory provisions made the second an alternative to be used if the first was inapplicable. That an understanding of the problem does little to mitigate its ramifications is illustrated by the fact that the editors of the Commerce Clearing House Unemployment Compensation Insurance Service after pointing out the misunderstanding in the Kansas-Missouri agreement, and proceeding to suggestions in determining base of operations, suggested that in determining the employees' base of operations the place from which his service is directed or controlled "should be considered" although the statute makes it significant only if the employee has no "base of operations."

Thus far we have assumed that all jurisdictions have the same provisions concerning their coverage of employment. Even assuming that provisions of the same general type are identical, 11 jurisdictions do not fall into the "localization" or "base of operations" category. The more important of these 11 jurisdictions provide substantially that all the employment of an employee shall be subject to their respective acts if the greater part of the services are performed within the State.1 New York has the "greater part of the services" provision, while the contiguous States of New Jersey and Pennsylvania have the "localization" or "base of operations" provision. Thus, if an employee has his base of operations in New Jersey but performs the greater part of his services in New York, it appears that his employment would be subject to tax in both States and that he would be entitled to employee benefits from both States. It should be pointed out also that the complications arising from the omission in the statutes to provide the unit of time with respect to which their definitions of employment are used exist in this group of States also. Moreover, even if the same people were to apply the same tests to the same sets of facts, using the same units of time, it would likely be found that an employee reported to one State for one period should be reported to another State for another period, since the facts (of scene of performance of part or major portion of work, base of operations, etc.) in the case of each employee who works in more than one State will change from time to time and possibly very frequently.

These difficulties are likely soon to become problems requiring immediate treatment, whatever treatment they may receive for the time being by the State administrative agencies. The scope of the employment covered by the act is of significance not only with respect to the payment of taxes but also with respect to the employees entitled to benefits. Inertia by the administrative agency may make it possible for interstate employers temporarily to report employment and pay contributions thereon only to one State although covered by the statutes of more than one State. But the same facts that render employment subject to tax in more than one State render the employee entitled to benefits in the same States, and the payment of benefits to an employee is not conditioned upon the payment of taxes by his employer. It is not to be supposed that employees entitled to benefits in more than one State will long remain ignorant of that fact. When such

3 In par. 1383.

4 Connecticut, one of such States, has by regulation provided: "Regulation 1. Employees, a substantial part of whose services are performed in Connecticut, must be reported as employed wholly in Connecticut, and contributions must be paid on the total wages of such employees until evidence is submitted establishing to the satisfaction of the Administrator that the greater part of such an employee's service is not or was not performed within Connecticut, or that contributions have been paid with respect to such wages to an unemployment compensation fund of another State." Connecticut statute covers the employment if the greater part is performed in that State, regardless of whether contributions have been paid to another State.

an employee becomes unemployed he could apply for benefits not only to the State to which his employer reported his employment, but also to any other State that covered his employment in its statute. The administrative agency of such other State could not refuse him benefits on the ground that his employer had not reported his employment to that State all the States make the payment of taxes and the payment of benefits independent in that respect. The forms of application generally require the name of the last employer. The auditing procedures of the States, if properly administered, will reveal the payment of benefits to an employee whose employer has not paid the tax due from him for such employee's employment.5 Thus apathy and neglect of duty would be required not only on the part of the administrative agency but also on the part of the auditing officers. In those States which maintain employer reserve accounts, the failure to report employment covered by the statute would even more readily appear as soon as the employee applied for benefits. The payment of the overdue tax, then brought to light, would then be subject to such interest and penalty charges as are provided in the statutes.

It might be suggested that the State agencies by agreement could eliminate all or most of these difficulties. Even were the agency free to enter into such agreements the problems would remain with only their form changed, since the principles agreed upon would remain to be applied to specific facts.

8

An analogy may readily be drawn to the sitation under the Federal Employers Liability Act," which applies to employees "engaged in interstate commerce.' The initial problem was to apply that term. The Supreme Court set forth the "rule" that the employee must be engaged in work "so closely connected [with Interstate commerce] as to be practically a part of it." Later the "rule" was modified and the "true test" then set forth substituted the word "transportation" for the word "commerce." The failure of the formulation of a rule to simplify the situation is well known in this instance, with the cases setting forth unpredictable distinctions in the application of the "rule" to specific facts.

The agreement between Indiana and Kentucky, copied in the margin 10 may be taken as an example of the ineptitude of such rule-making in the situation under consideration. Ruling 1 expresses a laudable ambition. Ruling 2 leaves open the application of the word "regularly"; it is no easier, in the case of an employee who works in both States, to determine when he works "regularly" in Indiana than it is to determine when his work in Kentucky is "incidental" to his work in Indiana. Also, no unit of time during which the work is "regularly" performed in one State is prescribed. Ruling 3 does nothing to clarify "base of operations" and might give rise to an additional difficulty, that of reporting some employees on a single job to one State and others to another State. Ruling 4 does nothing to clarify "base of operations" or "residence," but merely repeats the words of the statute. Ruling 5 also does nothing to clarify "base of operations," and adds new the complication of "work in substantial amounts." Ruling 6 adds the new

See e. g., Consolidated Laws of New York, Departments Law, sec. 81 (1); Finance Law, secs. 4, 16, 17, and 21; a separate memorandum on this point will be prepared shortly.

635 Stat. 65, 36 Stat. 291; 45 U. S. C., secs. 51-59.

7 In Pedersen v. D. L. & W. R. R., 229 U. S. 146 (1913).

8 In Shanks v. D. L. & W. R. R., 239 U. S. 556 (1916).

Cases showing the results of this test have been collected in Workmen's Compensation on Interstate Railways (47 Harv. L. R. 389-424, especially at pp. 399-407).

10 Ruling 1. Either all or none of the wages paid to an employee, who performs service in both Indiana and Kentucky, is subject to contribution in 1 of the 2 States.

Ruling 2. A resident of Indiana who regularly performs all of his services, in Kentucky, is subject to the Kentucky law regardless of the situs of the employer, and conversely.

Ruling 3. An Indiana employer who has his base of operations in Indiana and occasionally takes work into Kentucky involving several weeks or months should report in Indiana the employees whom he takes into Kentucky for the particular job, and who intend to return to Indiana with the employer at the completion of the work. However, local employees hired by such employer in Kentucky are subject to the Kentucky law if they otherwise qualify and conversely.

Ruling 4. A resident of Indiana whose base of operations is in Kentucky and who performs services in substantial amounts in both Indiana and Kentucky, is subject to the Kentucky law, and conversely. Ruling 5. A resident of Indiana whose base of operations is in Ohio and none of whose services is performed in Ohio, performs services in substantial amounts in both Indiana and Kentucky. He is subject to the Indiana Law. For the converse, see ruling 6.

Ruling 6. Where an employee performs part of his services in Kentucky under a contract of hire made in that State for an enterprise located in that State and whose base of operations or place from which his services are directed or controlled is not in any State in which some part of the services is performed, he shall be deemed subject to the Kentucky law provided he is not subject to an unemployment compensation law of another State.

Ruling 7. An individual who performs services under the direction and control of an Indiana corporation in Indiana, Kentucky, and several other States, is subject to the Indiana law and conversely.

Ruling 8. Where an individual has his base of operations in Kentucky or where an individual's services are directed or controlled from that State, and part of his services is performed in Kentucky, the services performed outisde of the State of Kentucky shall be deemed incidental to the services performed in that State, and conversely.