Sec. 309.

goods, materials and supplies consumed or sold in the regular course of business, plus the amount of all receipts during the year from sales and other sources connected with said business, excluding, however, receipts from the sale of capital assets and property not sold in the regular course of business and also receipts from interest, dividends, rents and royalties separately allocated as above provided.

Accounts payable for compensation and purchases and accounts receivable from sales and other sources arising from business during the year, shall be included in the formula if the taxpayer's return is made on the accrued basis.

For the purpose of this subdivision, payments for wages, salaries and other compensation shall be assigned to the office, agency or place of business of the taxpayer at which the employe chiefly works or from which he is sent out or with which he is chiefly connected.

Payments for purchases shall be assigned to the office, agency or place of business of the taxpayer at or from which such purchases are chiefly handled and attended to with respect to the negotiation and execution.

Receipts from sales and other sources shall be assigned to the office, agency or place of business of the taxpayer at or from which the transactions giving rise to such receipts are chiefly handled and attended to with respect to the negotiation and execution.

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For the purposes of this section, the word "sale" shall include exchange and the word manufacture" shall include the extraction and recovery of natural resources and all processes of fabricating and curing.

ALLOCATION IN SPECIAL CASES.

If any taxpayer believes that the method of allocation and apportionment hereinbefore prescribed as administered by the Tax Commission and applied to his business has operated or will so operate as to subject him to taxation on a greater portion of his net income than is reasonably attributable to business or sources within the state, he shall be entitled to file with the Commission a statement of his objections and of such alternative method of allocation and apportionment as he believes to be proper under the circumstances with such detail and proof and within such time as the Commission may reasonably prescribe; and if the Commission shall conclude that the method of allocation and apportionment theretofore employed is in fact inapplicable and inequitable, it shall redetermine the taxable income by such other method of allocation

and apportionment as seems best calculated to assign to the state for taxation the portion of the income reasonably attributable to business and sources within the state, not exceeding, however, the amount which would be arrived at by application of the statutory rules for apportionment.

CHAIRMAN WHITNEY: Gentlemen, I know that this conference and the association appreciate very much this finished report which has been submitted by Mr. Lamb and the other members of the committee.

At the request of Professor Bullock, I desire to announce that immediately after the close of this meeting, the committee on nominations, made up of Messrs. Bullock, Haugen, Link, Query and myself, will meet in this room.

We have today another paper which will be of particular interest to all those in attendance at the conference. It is now three o'clock, and I propose, unless the conference wills otherwise, to give half an hour for the discussion of this report of the committee, to be followed by a paper on the subject of United States capital stock taxes, and discussion of that, and then, if we have time, a discussion of either or both of them. If there is no objection we will proceed with the discussion of this paper. Each speaker will be limited to five minutes and no one can speak a second time without unanimous consent, if there is any one who desires to speak who has not spoken before. I don't know what members of the committee are here. I see that Professor Haig is here, and some others, and it may be that they can give us some added light on the committee's report. Is Professor Burbank of Harvard here?

(No response)

CHAIRMAN WHITNEY: Professor Haig, do you care to say a few words to us on this subject? I know you have been through it. You may assist in the discussion of it. We should like to hear from you.

PROFESSOR R. M. HAIG, of Columbia University: I had not intended to speak and have nothing, I think, which justifies taking your time. I do subscribe very heartily to the plan presented in this report. I think it represents the soundest scheme for solving this very tangled problem that has yet been presented. It seems to me to approach very closely to the theoretical ideal of fair distribution, and it has also the very important and practical merit of offering a plan which holds a good deal of promise for adoption in the various states.

The plan, I might say, has been tried out to considerable extent on a statistical basis, and it is rather surprising to see that there are such small deviations from some of the plans which are already

in force in the states which have made a real attempt to solve the problem. It can be adopted by states like Massachusetts, New York and Wisconsin without involving a very substantial sacrifice from their present arrangement. I think those of us who are interested in seeing a business income tax established which is fair to the taxpayer who is unfortunate enough to have a business which extends into different states, will have an opportunity to support a plan which will offer a chance of fair taxation.

CAPTAIN WHITE: As a question for information, my understanding is that an attempt is now to be made by the different states to allocate an income tax on the income of business on this device, that if there be an agency, for instance, in New York City, selling material, that part of the income derived from the use of that material in Massachusetts would be allocated to the state of New York. Am I correct?

MR. LAMB: There is the manufacturing profit and the selling profit part of the profits would be allocated to New York, yes, sir. CAPTAIN WHITE: Now, the person in New York selling this material sells it to a customer in Wisconsin. Does any of the profit of that sale go to the State of Wisconsin?

MR. LAMB: Not if the seller has no place of business in Wisconsin.

CAPTAIN WHITE: Only in case they have a place of business in Wisconsin.

MR. LAMB: And the sale is made through the agency in Wisconsin.

CAPTAIN WHITE: Yes. Now, how are you going to take care of the condition where the agent does not conduct the sale, but simply gets a commission? Is he taxed then on his commissions in the State of New York or is the parent company still taxable on the sales made in New York.

MR. LAMB: If he is a commission merchant, simply acting as selling agent, then I should say the business of the company, if done through an agent in New York, would be regarded as New York business, in so far as the sale was concerned.

CAPTAIN WHITE: It would be, so far as the sale was concerned. MR. LAMB: Yes, that sale would become a part of the formula in accordance with the recommendations of the committee.

CAPTAIN WHITE: Of course, the objection I see in regard to that allocation is this: It will eventually result in the displacement of business organized for selling purposes in New York City, which will devolve upon traveling agents. If the parent company has a

desire to establish an office in New York City, it will have to be prepared to subject its sale made in that office to New York City, although the sales from that office may not necessarily make a profit. They may conduct the business, for instance, in foreign. countries. I feel that the effect of this law will be to drive the business of the manufacturer, for instance, the merchandising of his product in New York City, back to where it is manufactured, and New York City, where so many of the manufacturing interests of the United States go, instead of getting an income derived from this kind of business will lose the business it now has.

MR. S. S. KALISHER of Pennsylvania: I wish to speak on this subject just a moment, from my experience. I have not had a chance to read the recommendations. There are, of course, manufacturers in this country who produce, transport, manufacture and sell their products, all within the same organization; they make no purchases of raw material. It would seem to me that a discrimination would result from the scheme of the committee unless some provision is made to take care of purchases. In a business organization such as I mention, all of the interdepartmental profits are wiped out in the last analysis and the final result is you have one turn-over-possibly one and one-quarter-which is very small, and it is small only because of the elimination of the interdepartmental transactions of producing, manufacturing, transporting and selling. In my experience also I find that the cream of the products, so to speak, is sold, in certain states, whereas the by-products are sold where the goods are manufactured. There again is a discrimination with respect to the value of your product. I have no scheme to offer except perhaps that if the value of the product, the finished product, the cream, so to speak, sold in certain states, can be reduced in some way to the average value of the product of the company as a whole, it will relieve some harmful discrimination. I don't know what to suggest in lieu of purchases with respect to production, unless some scheme could be evolved which would permit of a value of products produced above wages and salaries. of course in line with what the market would bring for that product if purchased. I don't know whether I make myself clear or not. Those two things bother particularly such large corporations and companies as are engaged in all the phases of producing, transporting, manufacturing and selling the product. The saving clause, of which you speak, is of course very essential, and we have found in certain states that the tax commissioners seem to be as fair as they reasonably can be.

MR. R. H. MINER of Ohio: Just one point that occurs to me there, that this scheme may possibly not take care of situations where there is a manufacturing loss, or possibly a small profit, the

loss more than offsetting the profit and nothing being left to tax. I was wondering whether all the tax commissions in all the states would be satisfied under an arrangement like that.

MR. RYDER Of New York: The suggestion for an additional section providing for a credit in case of taxes levied by another state, is an excellent suggestion to facilitate the acceptability of a business income tax somewhat, in a state where it is being agitated, but in New York we have a theory that it is also advisable to encourage other states to do the same thing, and in our income tax law we provide for a credit for taxes paid to other states in case the other state reciprocates. I think the committee might well consider an addition to this section of a provision that it shall apply only in case other states reciprocate.

CHAIRMAN WHITNEY: Any further discussion, gentlemen, on this able report?

MR. CHARLES J. TOBIN of New York: I should like to make an inquiry. Take these big grocery concerns which have their own separate and distinct retail stores, and have also separate corporations which do their buying and are simply in the nature of holding companies. I should like to know just how the committee handles that particular situation, of a company which is entirely a holding company.

CHAIRMAN WHITNEY: A distinct entity?

MR. TOBIN: Yes, sir, and yet receiving whatever profits there may be from the operation of those different companies.

CHAIRMAN WHITNEY: Has that phase, Mr. Lamb, been covered or discussed?

MR. LAMB: That phase of the subject was discussed and we feel that the form of our recommendations cover the holding company, in case a holding company is actually transacting business as defined under this law. If it is merely receiving dividends,. I don't think there would be any tax, and I don't think there should be any tax, if you are administering a business tax; but this draft, I think, reaches out to the holding company that may be in part a holding company and in part engaged in business.

MR. TOBIN: If I may interrupt, I was referring especially to paragraph (a) of section 308-2, and also to subdivision 1 of paragraph (c), as to whether such a company would fall in that classification. Is that where you would bring it in?

MR. LAMB: The question of holding companies, we thought, would be covered in the event that the holding company were actually engaged in mercantile or manufacturing business, but this