(The letter from the Attorney General referred to above is as follows:) Hon. GEORGE S. GRAHAM, Chairman Committee on Judiciary, DEPARTMENT OF JUSTICE, Washington, D. C., March 13, 1924. House of Representatives, Washington, D. C. MY DEAR CONGRESSMAN: I have the honor to acknowledge receipt of your letter of the 11th instant, submitting bill H. R. 6584, amending the present law providing for special taxes on business and trades in Alaska, for the consideration and recommendation of this department. I have given the bill careful consideration, and it is my judgment that the same should be enacted into law. It is suggested, however, that certain changes in the bill be made as indicated in pencil notations on the bill transmitted and herewith returned to you. At the bottom of page 2, line 25, the word "accorded" should be added before the word "taxes," and the words "or debts" following the word "taxes" should be stricken out. This for the reason that the bankruptcy law makes a distinction between the priority given to taxes and that given to debts of the United States. In line 23, page 3, the words "may be, at his discretion" should be stricken out and the word "shall" should be substituted, making the requirement of the bond mandatory so that the provision will operate the same on all licensees. The amendment to the present law set forth in H. R. 6584 are necessary for the proper administration of the license laws in Alaska, and it is therefore urged that the bill be enacted into law. Mr. A. G. Shoup, United States attorney at Juneau, Alaska, is now in Washington and concurs in the above recommendation. He will be glad to appear before your committee at such time as may be convenient to you to explain the necessity for the proposed law. Respectfully, ALBERT OTTINGER, Assistant Attorney General STATEMENT OF MR. ARTHUR G. SHOUP, UNITED STATES ATTORNEY FOR THE FIRST DIVISION OF THE TERRITORY OF ALASKA. Mr. BOIES. Mr. Shoup, you may proceed. Mr. SHOUP. This bill, as Mr. Michener has explained, amends certain provisions of laws of the Territory of Alaska relative to the imposition of special taxes upon certain businesses and trades in Alaska. The reason we have to come to Congress for this legislation is because there is a provision in the organic act of the Territory of Alaska by which these particular provisions of law are kept within the exclusive control of Congress. The law, as it is now, provides only a criminal penalty for failure to pay the required taxes, with no lien upon the property of the debtor and no manner of execution against the property of the tax debtor except by execution rendered upon a criminal judgment. Some of this taxation is based upon the amount of business done, or it is based upon sales that are made. By that I mean that under the law there are certain tax schedules like that applying to the fish pack, under which so much per case is assessed against the amount of fish packed during the season. Of course, that tax can not be determined until the end of the fishing season. The same sort of taxes apply to lumber and other things of that kind. There are certain other businesses that are taxed upon the basis of fixed sums. But these taxes that I have re ferred to are indeterminate, and the amount of such taxes, of course, can only be ascertained at the end of the season, when the firms or corporations are able to make their returns and payments. The law as it is now provides only a criminal penalty for failure to pay the required taxes, with no lien upon the property of the debtor and no manner of execution against the property of the tax debtor, except by execution rendered upon the criminal judgment. The law also provides that no person shall engage in any of the enumerated businesses without having first paid for and obtained a license. That is practically impossible on business upon which there is no fixed amount of tax, such as canneries, sawmills, and other businesses upon which the amount of license is based upon production. The practice heretofore has been to issue a license upon application of the petitioner, supported by affidavits that the money would be paid at the end of the season. This has not worked out at all satisfactorily, particularly with reference to the salmon canning business. Numerous foreign corporations have domesticated in Alaska and engaged in the salmon canning business and then pulled out and left the jurisdiction at the end of the season with the taxes unpaid. By" foreign corporations I mean corporations foreign to the Territory of Alaska. The judgments for such taxes in some instances are of no value, for the reason that all the assets of the corporations were hypothecated before they ever began operations. These canning companies mortgage themselves for everything they can in order to start operations in the spring. They have to have a lot of money to carry on their operations. Mr. HERSEY. Who owns the real estate on which they operate? Mr. SHOUP. The cannery companies own the real estate, but, naturally, they mortagage that also. Mr. HERSEY. By this you mean to secure a lien on all of their property for the collection of taxes? Mr. SHOUP. Yes, sir. Mr. HERSEY. And to prevent them from mortgaging their property until the taxes are paid? Mr. SHOUP. Yes, sir. Mr. SUMNERS. Will this lien also apply to the merchandise that they manufacture? Mr. SHOUP. Yes, sir. Mr. SUMNERS. How would they be able to effectuate a sale of their merchandise in the course of business if you have a mortgage or lien upon it? Mr. SHOUP. They ship it out of the country, and that is the reason why we want a lien on the real estate. Mr. SUMNERS. This gives a lien on the real estate, on the merchandise, on manufactured articles, and on articles in process of manufacture, does it not? You have a lien on the land, also? Mr. SHOUP. It gives a lien on the real and personal property of the corporation, but it does not specifically refer to the products. Mr. SUMNERS. What I had in mind was that if you held a lien upon the manufactured product those concerns that are engaged in the manufacture of such merchandise would probably experience great difficulty in selling their output. Mr. SHOUT. No, sir; the Territory of Alaska has a tax similar to this, which is in addition to the tax imposed by the Federal Government. Their law provides for a lien, and there has been no difficulty under it. Mr. HERSEY. Your bill provides that the lien for the taxes due the Government shall be superior and paramount to all mortgages, hypothecations, conveyances, and assignments; in other words, that it shall have priority over all of them. Mr. SHOUP. Yes, sir. Some of these corporations may go into bankruptcy, and they go into bankruptcy in the Federal court for the State of Washington. As the law is now, we have no standing in that court in the bankruptcy proceedings, but with this bill in effect we could file our claim before the referee in bankruptcy and claim our priorities, just the same as in the case of any other Federal taxes. Mr. SUMNERS. Take a lumber mill, for instance, engaged in the manufacture of lumber. If I should buy $1.000 worth of lumber from that mill this year and use it for building purposes, and if the Government's tax liens rested upon all of the property, would it be permitted to enforce that lien as against me? Mr. SHOUP. I do not think so. Mr. SUMNERS. Why not? Mr. SHOUP. I am not prepared to answer that question off-hand. The Territory of Alaska has had the same law, and they have not been enforcing the lien on any other property. As I recall the law now, the tax lien applies to all real and personal property of the corporation. Mr. BOIES. As the law stands, the lien became effective, for instance, on the 1st day of January, and it would remain as a lien upon the real estate, and from that time forth it would also be a lien upon the personal property. However, the lien does not follow the property into the hands of innocent purchasers. Mr. SUMNERS. In my State you can not have a tax lien on merchandise, for instance, in process of distribution. Mr. BOIES. They can not levy on personal property? Mr. SUMNERS. Yes; but I am referring to merchandise in process of distribution. The questions I am asking may not seem to be very pertinent, but I thought that since the gentleman from Alaska was here it might be well to thrash it out. I should have read the bill more carefully, perhaps, before I undertook to interrogate him. As I understand the terms of your bill, you propose to make the lien effective on the 1st day of January, extending through the year, upon the property that comes into the ownership of these corporations? Mr. SHOUP. Yes, sir; but we expect to be able to collect the taxes upon the real estate. Of course, it is not our desire to interfere with the legitimate transaction of business. Mr. SUMNERS. I know it is not the desire to do so, but I think you should be very clear that, in fact, it does not do so. Are you clear on that? Mr. SHOUP. I do not feel any hesitancy about that. Mr. BOIES. Mr. Sumners, in your State even, are not taxes, in a way, a lien upon personal property? If not, they could not levy on it without a proceeding in court. Mr. SUMNERS. Do you mean for taxes? Mr. BOIES. Yes. Mr. SUMNERS. Of course, in my State the lien does not follow the personal property while being transferred in due course of trade. Mr. BOIES. But, necessarily, there must be a lien established by law upon the personal property, because, otherwise, they could not in a summary manner levy upon the personal property to satisfy taxes, but they would have to have a judgment. Mr. SUMNERS. In my State they would be required to have af judgment in order to make a sale of real estate. Mr. HERSEY. The States have different laws for the collection of taxes. I want to be clear about this situation, and I will ask the gentleman how are Federal taxes assessed in Alaska? Mr. SHOUP. This particular tax, of course, is a special tax. Mr. HERSEY. I license tax? Mr. SHOUP. Yes, sir; a license tax. Mr. HERSEY. It is not a regular tax? Mr. SHOUP. No, sir. The only other Federal taxes in Alaska are income taxes, and they are assessed in Alaska in the same manner as elsewhere. Mr. HERSEY. Your Alaska laws that are cited in this bill provide that licenses may be granted by the authorities of the Territorial Government of Alaska for persons to do certain kinds of business in Alaska. Mr. SHOUP. Yes, sir. Mr. HERSEY. Upon the payment of a certain fee or license, which is called a tax? Mr. SHOUP. Yes, sir. Mr. HERSEY. Now, take Mr. Sumner's illustration, and suppose a corporation acquires a piece of land from the owner of the land for lumbering purposes, and operates a sawmill. We will suppose there is a license tax on the timber that is manufactured and shipped out. We will say that they manufacture lumber by means of a portable mill, and ship the lumber away. When is your license fee in that case due and payable? Mr. SHOUP. Under the law, the license fee will be due and payable before they begin operations, and that is one of the things that we want to rectify by this bill. If you are starting to operate a sawmill, you will have to pay a tax of 10 cents upon each 1,000 feet of lumber manufactured, and, of course, you will not be able to pay that tax until you cut the lumber. The law provides that it shall be paid, but, of course, there is no way to anticipate what the amount will be until the lumber is cut. Mr. HERSEY. Suppose the lumber is cut and shipped away, so that when you come to collect the tax, there is no lumber there to which the lien can attach? Mr. SHOUP. The Government is then out that much money. Mr. HERSEY. This proposed law would not help you in a situation of that kind, would it? Mr. SHOUP. Yes, sir; because we have a provision here for a bond. Mr. HERSEY. You have a provision for a bond to guarantee the payment of the license tax? Mr. SHOUP. Yes, sir. Mr. HERSEY. The bond would take care of shipments that he would make under those circumstances I have mentioned? Mr. SHOUP. Yes, sir. Mr. SHOUP. No, sir; the Territory o this, which is in addition to the tax in ment. Their law provides for a lien under it. Mr. HERSEY. Your bill provides Government shall be superior hypothecations, conveyances, an it shall have priority over all of Mr. SHOUP. Yes, sir. Son bankruptcy, and they go into State of Washington. As that court in the bankrupt we could file our claim b our priorities, just the sa Mr. SUMNERS. Take manufacture of lumb from that mill this v Government's tax li permitted to enfor Mr. SHOUP. Id, Mr. SUMNERS. Mr. SHOUP. The Territory been enforcin now, the ta corporation Mr. Bo stance, c upon th upon t prope M cha དཔངོས་ས required, shall be deeme nereof, shall be fined for the ired for the business, trade, or equal to double the amount of the se, three times the license required. days nor more than 6 months. ides for a bond, under which you By collection of the bond, or it proe civil courts. we forced the fish packers and others the amount of business done, to file a bond e season to the effect that the tax would be Here is a grave question as to the power of the payments before issuing permits, and it is antil some one will contest it. ee when the system of requiring bonds was eded by indictment and information against eries, and by that method succeeded in collecting ddtion to that, I collected $6,074.25 by personal and so on, making a total amount of $39,062.32. wever, on April 22, 1922, $8,867.50 still uncollected 1918 1919, and 1920, and $4,756.78 for the year 1921. of that money is still owing to the Government and 0822ty will never be collected. in that connection, that one concern that operated two there last summer did not put up the bond. They o do so from time to time, and we did not begin injuncng against them, because we were not sure of our They packed fish enough for the license taxes to amount $26,000 for the year 1923, and some of those canneries have ach gene into bankruptcy. sy. Is not the bond the gist of the whole matter? SHOP. Yes, sir; and the provision that we may proceed underemedy. There may be some that we might not know about after the season was over. SWNERS. You do not affect the license by this bill, but you st two things: You provide for a bond in advance to cover those yees where the amount to be paid to the Government can not be Gerned, and then you provide for a lien on the property. |