Senator MATHIAS. But you're not saying that the disrespect for law and order isn't Tennessee's problem because it's happening somewhere else.

Mr. NORTON. I really think that more of those taxpayers in that situation escape taxation because we never know about them than we find out that are not doing it.

Mr. MANNEAR. Senator, I'd like to suggest that there's not much respect for tax collectors anywhere to start with, but I don't think we have created such a problem by our inability to equally enforce the law. Instead the business community in general is disrespect ful of us. They recognize the difficulties we have in collecting it even as well as we recognize the difficulty they have of reporting and paying it fairly.

Senator MATHIAS. When you talk about respect from the public, Congress can't hold up any high record of having attained that there. We don't show up very well in the polls either, but I think one of the reasons we have this problem is perhaps the public doesn't perceive us as being practical in matters just of this sort and that makes it worthwhile to struggle a little harder here.

But one of the reasons it seems to me that we have to go back and look at this problem again and continue to look at it is the kind of problem which is suggested by Mr. Barnes' testimony. If Mississippi taxes income on a direct accounting basis and other States tax the same income on the apportionment basis, doesn't that give the interstate taxpayer a legitimate complaint of double taxation?

Mr. BARNES. Senator, I would have to say yes, that I think that it does create perhaps an unfair-however, as I tried to point out, we have attempted to approach this whole proposition of attempting to devise or assign formulas or require use of direct accounting for no other purpose than to really tax the income that was actually earned in the State without exploiting losses incurred here or exploiting income earned within the State, and my suggestion is-I just would throw out that if direct accounting more accurately reflects the income earned within the State, we feel like we should have that right to tax the income other than perhaps a loss in another State for reason of a profit in Mississippi through an arbitrary apportionment formula, whether it be equally weighted or weighted to perfect certain components of it. It's just an ordinary splitting up of the profits so to speak. To me it loses its fundamental principle of income taxation in the State field.

Senator MATHIAS. Let me turn again to Louisiana. You said you had 193 local taxing jurisdictions?

Mr. MANNEAR. One-hundred-ninety-two within the State, so there's 193.

Senator MATHIAS. One-hundred-ninety-three taxing jurisdictions in your State. Is there any degree of uniformity?

Mr. MANNEAR. Well, the statutes are substantially identical. They're all patterned after the State statutes. The only difference would be the rates. The State rate is now a total of 3 percent and the various cities and parishes and school boards and levee boards usually have kept it to 1 percent; maybe in some cases 2 percent for a total of

somewhere between 6 and 7 percent, depending upon the locality. I might also add that there are many, many more jurisdictions which have the option to impose these taxes but haven't done so.

Senator MATHIAS. That's for the future.

Mr. MANNEAR. If they feel the need to obtain revenue on a local level, and certainly we feel that under the State constitution or legislature they have that right, and we feel that under the U.S. Constitution we have the right and power to do the same.

Senator MATHIAS. Now turning from the interstate to the intrastate picture, what is being done in any one of your States toward examination of the uniform approach as an alternative to Federal regulation in this area? Are we making any progress any place that you see it?

Mr. BARNES. Now are you referring to the income tax or the sales tax?

Senator MATHIAS. Well, of course the income tax, I think we've mentioned, that some 19 States have joined together and have made some motion there, but in the sales tax area? And 19 States isn't even a majority.

Mr. BARNES. Mississippi, we feel like, has one of the best revenue statutes in this particular deal, perhaps than any State. We have only one taxing jurisdiction in the State of Mississippi and that is the State tax commission. In 1950 the State legislature enacted an act that permits cities to hold city taxes, but even then the State of Mississippi does not administer to the various cities. The combined returns were filed with the tax commission. In 1968 we even improved on the situation by permitting all of the tax to be paid at one rate; our general rate in Mississippi is 5 percent that is collected and paid by the merchant at the 5-percent rate. And through a coding system in our computer we know that this sales tax is generated in the city of Biloxi, and through this computer we then divert 19 percent of our total sales tax back to the city as their share of the city sales tax. In other words, the vendor never knows that he's paying the tax. In essence he's paying 4 percent State tax and 1 percent city tax but it's all collected at the 5-percent level and there is complete uniformity between these two bases in the State government now.

When it comes to the use tax, that is the 5 percent that would be generated by reason of a shipment originating outside of the State and coming to Mississippi, the rate is still 5 percent and here the cities do not share in this revenue. This is all 5 percent general fund revenue to the State, so therefore, it is not necessary that an out-of-State vendor attempt to identify or otherwise give a listing by geographic locations of where his goods will be shipped to. He just says what his total sales were in the State and multiples that by 5 percent and sends us a check for it and that's the end of it. That is no effort.

Now we perhaps are guilty in our rate structure or have maybe aeverything but a favorable situation there. We have nine rates of tax ranging from 1/8th of 1 percent to our high rate of 5 percent and it does create in some instances-what is the applicable rate with respect to a sale of manufactured machinery or how do you tell a manufacturer? Does it carry a 1 percent rate or does it carry a 5 percent rate?

Now this, we feel like, can be approached as I suggested here by perhaps where there is multiple rates applicable to a certain industry or perhaps through some type of direct pay permit, that the purchaser or the manufacturer classified its own purchaser to remit the tax to us in the right amount. It creates a problem, too.

Senator MATHIAS. What percentage, or express it either in dollars or percentages, is the easiest for you, of taxes that you think you might be owed, that you would be due, you think you're missing because of difficulties in assessment and collection under the present system?

Mr. BARNES. Well, it's difficult to know and it amounts to, I'm sure, quite a few millions of dollars that the State just frankly is unable to collect, because frankly we do not have jurisdiction of the vendors that would require them to collect it, and frankly we just don't have the personnel to go out and seek and collect this amount. It's a commonsense approach, if you will, or an attempt to see what is the most economical way we can pay an auditor back $25 a day to go out and make a $10 assessment. We lost $15 to begin with. This is what we are doing. There's a lot of this merchandise from all over, these catalogs, that are flooding our mail every day, that are coming in here. We just wipe that off, because we just cannot go out there and collect it. Senator MATHIAS. Is there any disagreement among any of the States represented here that there is a substantial loss of revenue? I think you said for Tennessee that you thought the largest amount of money you were missing was these transactions you couldn't reach?

Mr. NORTON. Our State legislature last year passed a bill-that's right, this spring-passed a bill which would provide that mail order sales into Tennessee are taxable. That's clearly unconstitutional on National Bellas Hess, but in passing that legislation. someone with the legislature who did provide the testimony said that if we could tax mail order sales in Tennessee that would raise an additional $11 million. I think that that's sort of typically a little high but that is a figure that was attached to that piece of legislation.

Mr. MANNEAR. Senator, I recognize the relationship between this question and some of your introductory remarks to the bill. I think you've indicated that your experience-I know that you've been working in this area for quite some time-indicates that there is a lot of tax money which the States feel they are entitled to that they are not collecting because of the difficulty of administering the tax laws in the interstate areas.

Senator MATHIAS. Well, that leads me to the question I want to ask you now. Don't you have an interest on behalf of the States that you represent in uniformity which would help you to reduce this area of uncollectible taxes?

Mr. MANNEAR. Well, it would be nice to reduce it by collecting them all, but we feel that the best approach is to limit what we can ask and then maybe have 10 percent of the tax base. We would like to of course we would like to increase our

Senator MATHIAS. Of course we really don't know what we're talking about, do we, any of us, because we talk about a speculative figure?

Mr. MANNEAR. Certainly. We can't tell what is out there that we haven't found.

Senator MATHIAS. But if you got 100 percent of a smaller base, you might be better off than getting 75 percent of a slightly larger base. Mr. MANNEAR. Well, that's why we would like to find out what we can get with the changes that which you have proposed.

Senator MATHIAS. And we have to protect the tax base of the States, I think we're all agreed with that. Nobody's trying to erode the tax base of the States but we need your advice and counsel and the information and statistics you can give us in order to make those kinds of determinations.

Well, we will hold the record open for 2 weeks. If you need more time than that, let us know. We'll agree now that we'll hold it open at least that long, and that applies not only to those of you who did not have written statements, but if Mississippi and Louisiana want to add any additional information, we will be very happy to have that.

I think the committee will recess now. We'll resume at 1:30 p.m. and at that time we'll ask Mr. McLeod, the director of research of Mississippi Economic Council and Mr. Richard Tveter of the International Minerals and Chemical Corp. to form a panel and resume at 1:30 p.m. The committee will stand in recess.

[AFTERNOON SESSION]

PANEL OF BUSINESS TAX EXPERTS:

STATEMENT OF CLYDE MCLEOD, DIRECTOR OF RESEARCH, MISSISSIPPI ECONOMIC COUNCIL, AND RICHARD C. TVETER, MANAGER, STATE AND LOCAL TAXES, INTERNATIONAL MINERALS AND CHEMICAL CORP.

Senator MATHIAS. The committee will come to order. The first witness this afternoon will be Mr. Clyde McLeod, director of research, Mississippi Economic Council and Mr. Richard C. Tveter, manager, State and local taxes, from International Minerals and Chemical Corp.

Mr. MCLEOD. Thank you, Senator. I am Clyde McLeod, director of research with the Mississippi Economic Council. The State Chamber of Commerce and along with Mr. Barnes of our tax commission we'd like to welcome you to our State. We think it's only right that Senator Eastland chose Mississippi as the site for the first one of these hearings.

Senator MATHIAS. He did that with great care.

Mr. MCLEOD. I'm sure he did. We do have three gentlemen who will be making statements on our panel, each of whom represent a company that has a manufacturing or a processing plant in operation in our State or under construction. We've asked them to comment on particular sections of Senate bill 2173. The first person who will be making a statement is Richard C. Tveter, manager of State and local taxes for International Minerals and Chemicals Co. International Minerals has bentonite clay deposits in Aberdeen and Blue Mountain, Miss. The clay is used in the main for foundry purposes but also a right

interesting sidelight, the Blue Mountain deposit, in the main, is used to make kitty litter. For those of you who might have cats at home and in your house, that's a pretty important item. But Mr. Tveter will discuss title II of Senate bill 2173 covering gross receipts taxes. [The prepared statement of Mr. Tveter follows:]

PREPARED STATEMENT OF RICHARD C. TVETER

Mr. Chairman and members of the committee, the Committee on State Taxation (COST), Council of State Chamber of Commerce, consists of 106 U.S. companies with income from multi-state and foreign sources. COST has been actively involved in the study of state taxation for a number of years. We are pleased that an impetus for Congressional action on interstate tax legislation has been undertaken and that a renewed effort and agreed to approach has been placed before the Congress.

As stated in the introductory paragraph of S. 2173, we have before us a bill to provide for the Federal judicial review of the application of jurisdictional guidelines for the state taxation of interstate commerce. We believe the Bill will regularize the jurisdictional principles by which the various states impose gross receipt taxes.

Title II on Gross Receipt taxes has been included in the new Interstate Tax Bill S. 2173 to "clear up" the uncertainty as to the scope of gross receipts taxes resulting from the 1975 United States Supreme Court decision in the Standard Pressed Steel Case. This goal is accomplished by declaring a uniform jurisdictional standard which codifies the 1951 Supreme Court opinion in the Norton Case. Section 201 provides that no state or political subdivision shall have the power to impose a gross receipts tax with respect to the interstate sale of tangible personal property unless the sale is DIRECTLY SOLICITED THROUGH A BUSINESS OFFICE of the seller performing the activity within the political unit.

The problem which has now developed in the interstate taxation arena is that Standard Pressed Steel Co. decision did not improve upon the nexus question. Rather it compounded the issue and made it unclear by having injected the presence of the seller's instate employee into the discussion. The guidelines of P.L. 86-272 have been circumvented to the detriment of both the political jurisdictions and the interstate seller. Another issue has been raised before a "nexus" test can be applied. The parties to the question must resolve how the instate employer's activity is to be measured as an aide to the furtherance of the instate market in order to determinate a sufficiency for the taxable incidence. The Standard Pressed Steel Co. decision did not, therefore, resolve the burden of showing nexus and left the issue unclear.

In the wake of these decisions, we have witnessed the subsequent action of a few states to expand the scope of their gross receipts taxes to tax all sales by applying jurisdictional standards which include a minimum of sales or missionary activity not necessarily associated with the interstate transaction. The object of Title II is to establish "a certainty" of a taxable situation. A direct solicitation through a business office should be the bare minimum jurisdictional standard!

We also direct the attention of the Committee to the intent of the Uniform Law Commissioners in drafting the Uniform Division of Income for Tax purposes. As stated by Professor William Pierce, a principal drafter of the Act, in reference to Sec. 18, the purpose of Sec. 18 is to insure that the measurement of taxation does not result in "-an arbitrary or unreasonable tax levy in relation to local business activity-". Professor Pierce further stated in an article (35 Taxes) just two months after approval by the Uniform Law Commissioners of the final draft, that it was not their intent to allow tax administrators to bring about tax increases by manipulating the business income apportionment provisions of the Act. Title II must be viewed from the premise that tax administrators should only be asked to act within the express authority conferred by law. Such authority must be subject to the least amount of interpretation and the scope of tax laws are not to be extended by implication or forced construction. Both the tax administrator and the tax practitioner should not be subject to significant manipulations of the definition of the income base.