dealers. Seven were apparently designed to exclude the product from the State. As with so much legislation of this kind, the motives that led to its adoption were complex, Certainly the prohibitive laws were strongly sponsored by dairy interests and apparently market exclusion was a major consideration in securing their adoption. Yet the claims of the dairymen that the purpose was to prevent fraud upon the public also has validity, for unscrupulous elements in the margarine industry in the early period did successfully pass off for butter considerable quantities of their product. Moreover, passage of restrictive legislation was rendered additionally easy, as pointed out by a contemporary student, by the popular prejudice against this new food. A considerable number of people honestly regarded margarine as ". . . foul in its nature and deleterious to the public health, or, perhaps, a positive poison.""

These early laws, insofar as they were prohibitive and seriously interfered with interstate commerce, were rendered inoperative as a result of the Federal act of 1886 and of Supreme Court decisions which found completely prohibitory laws unconstitutional. As a result, those who were opposed to margarine sponsored laws prohibiting its manufacture or sale when colored to resemble butter. By 1902 more than half the States had adopted such legislation. These laws held up satisfactorily under court appeal, but were not regarded as adequate by those who wished to curtail the use of all margarine including the uncolored product.

Another and more drastic type of legislation was attempted in this early period. Five States 7 attempted to deal with the situation by adopting laws requiring that butter substitutes should not be offered for sale unless colored pink. These laws became inoperative when in 1898 the New Hampshire law was declared unconstitutional by the United States Supreme Court. In rendering its decision the Court stated in part:

"Although under the wording of this statute the importer is permitted to sell oleomargarine

BANNARD, H. C., THE OLEOMARGARINE LAW: A STUDY OF CONGRESSIONAL POLITICS, Political Science Quarterly, vol. 2, p. 547, 1887. 'New Hampshire, 1885; Vermont, 1886; Minnesota and West Virginia, 1891; and South Dakota, 1897.

freely and to any extent, provided he colors it pink, yet the permission to sell, when accompanied by the imposition of a condition which, if complied with, will effectually prevent any sale, amounts in law to a prohibition." 8

Very little State legislation regarding margarine was adopted between 1902 and the early 1920's. Increasing difficulties appeared in connection with the enforcement of the Federal 10 cents-per-pound tax on artificially colored margarine which had been adopted in 1902. About 1909, manufacturers began to utilize in the production of margarine ingredients like peanut oil and soybean oil, which could be used to impart a naturally yellow color to margarine. As the Federal tax of 10 cents per pound applied to the "artificially" colored product, a serious enforcement problem arose, and the United States Bureau of Internal Revenue urged the need of legislation that would carefully define the term "artificially colored." Congress took no action until 1931. In that year the 10-cent tax was applied to all yellow margarine and the meaning of "yellow in color" was defined.

The last 15 years have seen a revival of State legislation directed against margarine. At first this new movement took the form of laws prohibiting the sale or manufacture of butter substitutes in which milk or cream was combined with edible oils. The prohibitory character of these laws arose from the fact that some milk or cream is necessary to the production of palatable butter substitutes.

The legislatures of Oregon and Washington passed such an act in 1923. But in both States the law was defeated on being subjected to popular referendum. In 1925, Wisconsin adopted similar legislation, but here again without lasting success. In this case the supreme court of the State permanently enjoined the dairy and food commissioner from enforcing the law. The court found that the purpose of the act was to prohibit the sale and manufacture of oleomargarine within the State of Wisconsin. 10

Although losing out in this skirmish, those

Collins v. New Hampshire, 171 U. S. 34 (1898).

"Vegetable fats" in the case of the Oregon and Washington laws.

10 John F. Jelke v. Emery, 193 Wis. 311 (1927).

wishing more restrictive margarine legislation presently led the attack on a new and this time much more successful front. Two States, Montana and California, had earlier experimented with a State excise on margarine, but no State had such an impost at the beginning of 1929. In that year Utah placed a 5-cent-per-pound excise on uncolored margarine. In 1931, following Utah's lead, 10 States adopted margarine excise taxes. Today over half the States of the Union have margarine excise legislation of one kind or another. In addition, many of these States have increased or for the first time have imposed license fees upon those who manufacture or sell margarine. Since 1929, therefore, we have entered a period in which margarine taxes have a place on the statute books of more than half of our States.

States provide not only that stores selling margarine shall make that fact known in some conspicuous way, but also require that similar clear notification shall be given to all patrons of public eating places and boarding houses. Arkansas and Missouri even prescribe that the dishes upon which margarine is served be clearly labeled with the term "oleomargarine." About one-half of the States prohibit the serving of margarine in State institutions, including, in some States, the State prisons. Thirty-one States prohibit outright the sale of colored margarine.

State license fees for margarine manufacturers and dealers are by no means new. Seventeen States now have such laws, seven having adopted them before 1930. In some States the fees are nominal. Thus, Minnesota assessed $1 per year against manufacturers, wholesalers, and retailers, and Utah collects $5 annually from whole

"To a considerable extent these merely duplicate Federal laws and regulations.

salers and retailers. In certain other States the charges are more substantial; some are not only higher than those assessed by the Federal Government, but cover a larger number of agencies. Thus, three States-North Carolina, Pennsylvania, and Wisconsin-require $1,000 annually from each manufacturer. Montana collects a $400 annual license fee from retailers. Of all the States, none assesses more comprehensive license fees than Wisconsin. Not only do manufacturers pay $1,000 annually, but wholesalers must pay $500, retailers, restaurants, and hotels $25, boarding houses $5, and bakers and confectioners and individual consumers who buy in interstate trade must pay $1.

At least half the States now have excise taxes on margarine.12 Some of these apply only to margarine made from certain specified raw materials. 13 Nine States have excise taxes on all uncolored margarine. Of these, Idaho, Iowa, and Utah 14 levy 5 cents per pound, Oklahoma,15 North Dakota, South Dakota, and Tennessee, 10 cents per pound, and Washington and Wisconsin, 15 cents per pound.

THE "PROTECTIVE" PURPOSE OF MARGARINE LAWS

Although elimination of fraud was undoubtedly an important basis for much of the early margarine legislation, this is obviously not the object of the recent movement for high margarine sales taxes and license fees. The practice of passing off margarine as butter has practically disappeared in recent years.16

Generally those favoring margarine legislation have been frank to say that their object is to "protect" the dairy industry. When the Washington tax of 15 cents per pound was carried to the Supreme Court the sponsors of the act candidly stated that their purpose was to help the butter industry and they made their arguments on that basis. The report of the South Dakota Tax Conference in 1931 typifies

13 See table 2.

13 These laws are described on p. 20.

14 Idaho and Utah double this rate if the margarine is colored. 15 A 1937 amendment exempts margarine manufactured from "domestic" products from this tax. This law has not yet been put into effect and is now held up by a legal dispute.

16 Based on an examination of the reports by the U. 8. Department of Agriculture of violations of the Federal Food and Drug Acts.

"The South Dakota farmers and dairymen are developing a great dairy industry which should be encouraged and protected in every legitimate way. The use of substitute dairy products, such as oleomargarine, limits the use and lowers the market of butter.

"A tax of ten cents per pound on butter substitutes will afford a measure of protection to the dairy interests and at the same time protect the general public from the use of substitutes inferior in every way to pure South Daokta butter.

"This tax will operate to the benefit of the dairy industry in reducing the amount of such substitutes used or, if the sale of butter substitutes is not curtailed, will be a fair revenue producer. As between the two possibilities, we would prefer that it operate in a reduction of the use of butter substitutes."

The recent wave of margarine excise laws exempting from taxation margarine made from "domestic" ingredients illustrates a new development of the protective principle in State margarine legislation. Until the close of the World War oleo oil, a beef product, was the chief constituent of margarine. Gradually, however, the use of vegetable oils was perfected and cottonseed oil in particular became increasingly important as a margarine constituent. By 1915, cottonseed oil made up 30 percent of the fats and oils used in the manufacture of margarine in this country. About that time the use of coconut oil began to increase rapidly, and, by 1933, 75 percent of all fats and oils used in the manufacture of margarine came from this source.

18

The results of this technological change were reflected before long in Federal and State legislation. Not only did the Federal Government (1934) place an excise tax of 3 cents per pound on coconut oil from the Philippines or other United States possessions, 19 but a curious new form of State margarine legislation flowered,

17 See p. 14, Report of the South Dakota Tax Conference. [S. Dak. Div. of Taxation, Bull. 14.]

18 DEWEES, ANNE, op. cit., p. 14.

19 5 cents per pound if from foreign countries.

especially in the cotton- and cattle-producing States. In the 3 years 1933-35, 14 States passed legislation providing in effect for an excise of from 10 to 15 cents per pound on margarine containing certain foreign ingredients. 20 Typical of these laws is that of Texas which provides for a 10-cent tax on margarine containing any fat or oil other than oleo oil, oleo stock, oleo stearine, neutral lard, corn oil, cottonseed oil, peanut oil, soybean oil, or milk fat.

More restrictive are the laws of certain important cattle-producing States outside the Cotton Belt. Thus, Minnesota, Nebraska, and Wyoming penalize cottonseed along with coconut and other foreign oils by providing for an excise tax on all margarine not containing a substantial percentage of animal fats.21

EFFECTIVENESS OF MARGARINE TAXES AS REVENUE AND AS PROTECTIVE MEASURES

Students of the tariff have long recognized that customs duties low enough to bring in appreciable revenue give little or no protection and that those that really give broad protection bring in practically no revenue. So State excise taxes may be a source of revenue or they may afford protection, but they cannot effectively do both at the same time.

Table 1 shows, as far as such data are available, the annual revenue collected during the calendar year 1937 or the fiscal year 1938 from State margarine excises and licenses. Iowa, with a 5-cent excise on all margarine, is the only State that has obtained considerable revenue from a margarine excise. In recent years this State has realized approximately one-quarter million dollars annually from this source. Utah collected about $44,000 during the fiscal year 1938. Other States have received much less revenue, and some none at all. States that exempt domestic oils from the excise collected

20 The actual wording of the laws usually specifles that margarine made from certain products is exempt from the tax. These products are "domestic" only in the sense that they are commonly produced in this country. In most cases they are also imported in considerable quantities.

21 To be exempt from the excise tax, margarine must contain animal fats up to at least 65 percent in Minnesota, 50 percent in Nebraska, and 20 percent in Wyoming. Minnesota and Nebraska also discriminate against foreign vegetable fats and oils.

nothing from the margarine excise, with the exception of North Carolina which received $2.40.

The story is similar for license fees. Pennsylvania with its $100 annual license fee from retailers received over $400,000 from these fees in the calendar year 1937. California collected nearly $60,000 from license fees in the same. period. Other States received much less. As a source of revenue, therefore, margarine taxes and license fees are not important except in Iowa, Pennsylvania, and perhaps, though in less degree, in Utah and Montana.22

What has been the effect of these taxes on the consumption of margarine? Unfortunately there are no statistics on margarine consumption by States. Neither State nor Federal revenue reports on margarine excises are in such form as to give a satisfactory measure of the quantity of margarine consumed. However, the annual reports of the United States Commissioner of Internal Revenue do give the number of retailers licensed to sell margarine in each State. These data provide our best indication of the effect of margarine taxes on consumption. But obviously they must be used with caution as other factors besides taxes may influence the number of dealers. Thus, for example, shifts in the number and size of all retail establishments, changes in the quantity of margarine sold by licensed dealers, changes in the number of licensed dealers due to manufacturers' sales campaigns or business conditions, may somewhat obscure the picture.

Tables 2 and 3 present an analysis of the data by States, showing the number of retail dealers having Federal licenses to sell uncolored margarine. Table 2 shows a comparison of the number of dealers licensed in 1928 and 1937. In 1928, no States had margarine excise taxes, but by 1937 one-half of the States had margarine excises of some kind. The table is arranged to show the changes that have taken place for groups of States having different types and rates of tax.

12 The figures given are for gross returns. The net revenue realized would be somewhat smaller.