H.R. 101, Harrison (Democrat, Virginia) In substance these bills would provide that the level of imposing the Federal gasoline tax would be changed so that the tax would be imposed at the time of sale by the jobber or wholesale distributor. We urge that this committee approve the provisions of these bills and that such provisions be included as an amendment to any bill ap proved by this committee which has to do with the financing of the highway program, or if no such bill is forthcoming from this committee, then we urge that the committee approve one of these bills and submit it to the House for action at the earliest possible date. Our request for this action is more particularly based on the following facts: Currently the jobber must encumber approximately 20 percent of his inventory capital because of the Federal gasoline tax and, in addition, he must suffer the losses due to evaporation and unavoidable spillage between the time of purchase and the time of delivery into the tank of the person to whom he sells. Neither of these burdens is imposed on the major oil company with whom this small independent businessman must compete. On the basis of figures available to us, the jobber's losses due to evaporation and unavoidable spillage range up to, and in some instances exceed, 2 percent of the volume of gasoline handled. A majority of the States imposing gasoline taxes recognize this inequity and allow the jobber varying percentages to compensate for these losses. It is a matter of common knowledge that one of the greatest difficulties faced by the small businesman today is that of capital shortage. In the case of oil jobbers a change of the level of imposing the gasoline tax would release millions of dollars of capital which this group of small businesmen could use to advantage in maintaining their position in the marketplace. Let us give you an example of what this means to the average small town gasoline jobber. This jobber sells 100,000 gallons of gasoline per month at 25 cents per gallon. Six cents of the sale price represents the State tax; 3 percent represents the Federal tax; 3 percent represents the jobber's gross margin of profit; and 13 cents represents the cost of the gasoline. This jobber maintains a permanent gasoline inventory of 50,000 gallons which represents $1,500 in Federal gasoline taxes that is constantly tied up and unavailable to him. On the basis of 1,200,000 gallons of gasoline purchased annually, he must pay Federal excise taxes of $36,000. Unfortunately, however, he does not collect all of this $36,000 by way of resale price since he has an evaporation loss of 2 percent. This means that in addition to the capital he has tied up in taxes, he loses, out-of-pocket, $720 per 44357-59- year, an amount which would be almost enough to keep one of his children in college. Unfortunately this evaporation loss will increase as gasoline becomes more volatile due to the high octanes now being marketed. These increases, however, may be offset as the jobber is continuously engaged in minimizing his evaporation and spillage losses by more efficient means of handling. Now, mind you, these amounts do not include the capital which might be tied up in State gasoline taxes and the losses incident to handling those taxes. While these amounts may not appear of much consequence to this committee and the Treasury Department who think in terms of millions and billions, it is significant to a small independent businessman who is faced with constantly rising costs of products, labor, trucks, and tanks, as well as personal living expenses. Having gone through several conferences with Treasury Department officials relative to these proposed changes, I am aware that they object to these bills. As fast as I have answered their objections they come up with new objections. I am not aware of the current objections which have undoubtedly been submitted to this committee. I would welcome the opportunity of responding to any objections they have raised, and if I am not able to overcome these objections with facts and reasons, I will not bother this committee again about this issue. It appears to us, however, that here is one instance where, with relatively little cost and difficulty, a change could be made in the law that would create more equitable conditions in the competitive arena as between the "big" and the "little." Mind you, we are not asking to be relieved of the handling of Federal taxes. We are not asking for preferential consideration over the giant oil company competitors. We simply ask an equal chance with them in the handling of Federal taxes on motor fuels. The jobber is already suffering from the increased burden of gasoline taxes, and if this committee imposes additional burdens in this regard on the jobber and without granting the relief requested, you will have driven another nail in the jobbers' coffin. The CHAIRMAN. Thank you, Mr. Ellis, for your appearance before the committee and giving us the thinking in connection with the Oil Jobbers Council. Mr. Harrison will inquire. Mr. HARRISON. Mr. Ellis, with reference to the objections to the bills that you mentioned, it has been objected that the change in the level of the tax as you propose would greatly increase the number of gasoline taxpayers, and at present there are less than 1,000 payers of gasoline tax. If there are 10,000 gasoline wholesalers, this would mean an increase of 9,000 taxpayers. What are your comments? Mr. ELLIS. That would be approximately 10,000 gasoline taxpayers under this change. I don't know how many now pay the gasoline tax. But I would like to point this out-that if the Treasury, or whoever raised that objection, brought that up, they may have been misleading for the simple reason that the jobbers I represent are already paying direct to the Federal Government the taxes on diesel fuel and special motor fuel. Those payments are reported on form 720. On a recent survey that we made we found that 50 percent of our jobbers are already paying taxes to the Federal Government. On that same form, form 720, in the line right next to diesel fuel is the line for gasoline taxes. So all they would have to do would be to fill in the line on gasoline taxes. In brief, you would add, in reality, approximately 5,000 taxpayersthe other 5,000 being taxpayers who are already paying motor fuel taxes direct to the Government and would only be adding 1 other item on the same form. Mr. HARRISON. In other words, how many jobbers would be represented in the 9,000 increase who already pay the taxes? Mr. ELLIS. I would estimate somewhere a little under 50 percent. We made a survey, sent out to 3,000 people, and on the return of that survey we got 1,202 responses-48 percent of that group were already paying taxes direct to the Federal Government. Mr. HARRISON. It has been stated that this would introduce a new concept of taxpayer not heretofore used-namely those engaged in wholesale distribution. What are your comments on that? Mr. ELLIS. When they say it will introduce a new concept of taxpayer, that is entirely wrong, because the existing law says that the tax will be paid by the producer. Now, a producer is defined to be a blender or importer. A blender or importer need not be, and in most instances is not, a producer or manufacturer. There are several jobbers who qualify as blenders, and, as such, they are paying the Federal gasoline tax direct now. So this is not a new concept. Actually, what it amounts to is you just let a few more people in under the existing concept. Mr. HARRISON. It has also been objected that it would constitute a precedent for shifting other manufacturer's excise taxes to the wholesale level. Do you want to comment on that? Mr. ELLIS. Well, I know they have raised that objection with me, that this would constitute a precedent, would open a door, and everybody else that paid taxes at the manufacturer's level would want it changed to another level. I would like to point this out: In the handling of gasoline, we are in a special category, as I interpret it. We are handling a product, a portion of which is consumable in the handling. I know of no other product that has that sort of situation applied to it that is subjected to a manufacturer's tax. In most of these other cases-let us take tires, for example. The tire people have had this idea, too. My people handle tires and we know something about that. But the tire people, the wholesaler, and retailer, do not have the capital tied up that we have tied up because he can buy tires on consignment and the tax does not apply until he has sold it as the consignee. In addition, the tire dealer does not have to compete to the extent we do with the manufacturer of that tire. Sure, there are some tire companies that have their own outlets and they compete with their own dealers. But not to the extent we do. Neither is that tire evaporating. So I think that in our case we are entitled to some different consideration than for merchants who handle hard goods, subject to being purchased on consignment without the tax applying. Mr. HARRISON. I notice that you said the loss from spillage and evaporation is about 2 percent. It has been contended that in an efficient operation that need not be over a half of 1 percent. Is that correct? Mr. ELLIS. I didn't hear you. Mr. HARRISON. I said it has been contended that your figures on spillage and evaporation are excessive and that the actual loss should not be over a half of 1 percent. Mr. ELLIS. That objection must come from the Treasury. They brought that up with me in a conference about a year ago where some man in Texas had made the statement that the wholesaler's evaporation and spillage losses should not exceed one half of 1 percent. At that conference with Treasury officials I told them that I would send a questionnaire to the field and ascertain exactly what the percentage was. We sent those questionnaires to the field and the average percentage, based on 1,202 responses, was 1.23 percent. The range of those percentages was from about 0.86 to 2-plus percent, with the average, as I said, 1.23 percent. So when some fellow in Texas says that they could be held to that amount-well, Texas is known for exaggeration, and this is probably another instance. Mr. HARRISON. Your people would be willing to give the bond required, would they? Mr. ELLIS. We would be very happy to give bond for faithful handling of this. As a matter of fact, we do it on the handling of State taxes now. Mr. HARRISON. What about the claimed loss of $2 million? Have you any comment to make on that? Mr. ELLIS. You must have been reading Treasury's mail or something, because they have used that same figure to me, Congressman Harrison. They base their $2 million loss on that one-half of 1 percent which they would suffer because they didn't get the tax on evaporated and spilled gasoline. My answer to that is I don't consider that as a loss. They were never entitled to it in the first place. As to whether that amount is correct, that would be whatever the percentage was. I don't think they should have had it in the first place. Mr. HARRISON. You do not want to be taxed on your spillage; is that correct-your losses? Mr. ELLIS. That is right. Mr. HARRISON. But taxed on everything else. Mr. ELLIS. We will take the tax on the gasoline we handle and sell, but we don't think we should pay tax on what floats around in the air. Mr. HARRISON. Thank you. The CHAIRMAN. Thank you, Mr. Ellis. Our next witness is Mr. William L. Oswald. Please identify yourself for the record, Mr. Oswald, by giving us your name, your address, and the capacity in which you appear. STATEMENT OF WILLIAM L. OSWALD, CHAIRMAN OF THE LEGISLATIVE COMMITTEE OF THE KANSAS OIL MEN'S ASSOCIATION Mr. OSWALD. My name is William L. Oswald. I am representing the Kansas Oil Men's Association. The CHAIRMAN. Where do you live, Mr. Oswald? The CHAIRMAN. You may proceed, Mr. Oswald. Mr. OSWALD. My name is William L. Oswald, and I am a resident of Hutchinson, Kans., where I am an independent oil jobber. I am a former president of the Kansas Oil Men's Association, and have served on the board of directors of that organization for the last 16 years' time. At the present time, I am chairman of the legislative committee. The Kansas Oil Men's Association is made up of a majority of about 90 percent of the independent jobbers in Kansas, and there are about 700 jobbers in the State. As jobbers, we collect pretty close to 65 percent of both the State and Federal gasoline tax. Some of you men probably don't know what an independent jobber is, and I will try to explain that to you as briefly as possible. An independent jobber is a man who owns his own bulk plant, his own service station, buys his gasoline, his lubricating oils, his greases, and his accessories from either one or several suppliers, and who carries his own credit and generally conducts his own business independently of his supplying company. I have been in this business as a jobber since 1932. My little company has grown until now I have 14 people in my employ, and one of these men has been in my employ 18 years and the majority from 6 to 10 years' time. Now, as a representative of the Kansas Oil Men's Association, I am appearing before this committee in opposition to any proposed increase in Federal gasoline tax. Today I am collecting a tax of 8 cents per gallon on every gallon of gasoline I sell in my service stations, 3 cents Federal tax and 5 cents State tax. I will tell you gentlemen one thing, after I have paid my income tax, both private and corporate, when I have paid my utility bills, when I have paid my State and local taxes, and when I have paid for the insurance premiums on my employees, I make a whole lot less on each gallon of gasoline I sell than the 3 cents a gallon that I collect for the Federal Government. When I learned through trade publications and the press that the Federal Government proposed to increase the tax on gasoline anywhere from 12 to 112 cents a gallon, I decided to make a personal survey at my stations and ask my customers what they thought of an increase in Federal gasoline tax. I wanted to be fair about it, so I took a little longer time than just asking them whether they were in favor or against the Federal gasoline tax increase, and I tried to point out to them the following things: First, the Federal Government spends 90 percent of the money on interstate systems and the State 10 percent. On the intrastate system and other Federal highway aid to our State, the Federal Government puts up 50 percent and our State puts up 50 percent. Then I pointed out to my customers that the Federal Government collected in automotive excise taxes on gasoline, lubricating oils, |