[Previous]
 
INDEX

                                                               Page
Admissions:

By permanent use or lease of boxes or seats                     116

Sold by proprietors or employees in excess of                   113
established price

Ticket broker's sales for amounts in excess of                  109
established box-office price

To any place for which charge is more than 40 cents             103

To roof gardens, cabarets, etc., to which the charge            120
is wholly or in part included in the price paid
for refreshment service, etc.

Automobiles                                                      40

Beverages:

Carbonated                                                       71
Carbonic acid gas                                                81
Cereal                                                           66
Fruit juices, unfermented                                        71
Grape concentrate                                                22

Grape juice:
Evaporated                                                       22
Unfermented                                                      68

Grape syrup                                                      22
Still drinks                                                     74
Syrups, finished or fountain                                     79
Table waters, natural or artificial                              77

Bonds of indebtedness, corporate, issue or transfer of     132, 136
Brewer's wort                                                    19

Butter:
Adulterated                                                     143
Process or renovated                                            143
Cable dispatches and messages                                    90
Cameras                                                          58
Candy                                                            62
Capital stock, issue or transfer of                             133
Cartridges                                                       56
Checks (including drafts and orders for money)                   98
Chewing gum                                                      64
Cigars                                                          100
Cigarettes                                                      100
Cigarette papers and tubes                                      100
Coconut oil, processing                                           1
Cotton futures                                                  149

Crude petroleum:
Processing                                                        7
Refining                                                          7
Sale                                                              4
Transportation                                                   93

Deeds of conveyance                                             135

Documentary stamp taxes:
Deeds of conveyance                                             135
Foreign insurance policies                                      135
Issues of bonds of indebtedness by corporations                 132
Issues of capital stock                                         133
Passage tickets                                                 134
Playing cards                                                   135
Sales of produce on exchange for future delivery                134
Sales or transfers of stock and similar interests               133
Transfers of corporate bonds of indebtedness                    136
Transfers of interests in silver bullion                        136

Dues, athletic, social, or sporting club or organization        125

Electrical energy                                                83

Filled cheese                                                   146
Firearms                                                    56, 139
Foreign insurance policies                                      135
Furs                                                             33

Gas, carbonic acid                                               81

Gasoline:
Produced or recovered in the United States from                  11
natural gas
Sale or use by producer or importer                              86

Inner tubes                                                      25

Jewelry                                                          36

Lubricating oil                                                  15

Machine guns                                                    139
Malt, extracts, liquid, syrup                                    19
Matches                                                     60, 149

Membership fees, athletic, social, or sporting club or          125
organization

Mixed flour                                                     145
Motorcycles                                                      40

Narcotics                                                       140
Notes used for circulation                                      149

Oil, lubricating                                                 15
Oleomargarine                                                   147

Palm oil, processing                                              1
Palm-kernel oil, processing                                       1
Parts and accessories, automobile                                45
Passage tickets                                                 134
Pistols                                                         129
Playing cards                                                   135
Processing of certain oils                                        1
Produce, sale of on exchange for future delivery                134

Radio dispatches and messages                                    90

Radio receiving sets or combination radio and phonograph         48
sets, components thereof

Records, phonograph                                              48

Refrigerators, mechanical household type and certain             48
components thereof

Revolvers                                                       129

Safe deposit boxes                                               97
Sesame oil, processing                                            1
Shells                                                           56
Silver bullion, interests in, transfers of                      136
Sporting goods, games and parts of games                         53
Sunflower oil processing                                          1

Telegraph dispatches and messages                                90
Telephone conversations                                          90
Tires                                                            25
Tobacco                                                         100
Toilet preparations                                              28
Trucks, automobile                                               40

White phosphorous matches                                       149

Tax On Processing Of Certain Oils Section 602 1/2 Of The Revenue Act Of 1934.


     Yield for the fiscal year -- 1936 -- $ 27,691,080.79
     Yield for the fiscal year -- 1937 --   30,000,000.00  Estimated
     Approximate number of taxpayers   --   340
     Rates of tax -- 3 and 5 cents a pound.

Statutory Background. -- Section 602 1/2(a) of the Revenue Act of 1934, effective May 10, 1934, imposed a tax at the rate of 3 cents per pound upon the first domestic processing of coconut oil, palm oil, palm-kernel oil, sesame oil, sunflower oil and combinations or mixtures of such oil, which was paid by the processor. An additional tax of 2 cents per pound was imposed on the first domestic processing of coconut oil or any combination or mixture of coconut oil except when it was established that such coconut oil (1) was wholly the production of the Philippine Islands or any other possession of the United States, or (2) was produced wholly from materials the growth or production of the Philippine Islands or any other possession of the United States, or (3) was brought or produced from materials brought into the United States on or before the 30th day after the enactment of the Act, or (4) was purchased under a bona fide contract entered into prior to April 26, 1934, or produced from materials purchased under a bona fide contract entered into prior to April 26, 1934. All taxes collected with respect to coconut oil wholly of Philippine production or produced from materials wholly of Philippine growth or production, were held as a separate fund to be paid to the Treasury of the Philippine Islands subject to the condition that if at any time the Philippine Islands provided by any law for any subsidy to be paid to the producers of copra, coconut oil, or allied products, no further payments to the Philippine Treasury would be made. First domestic processing was defined as the first use in the United States in the manufacture of an article intended for sale. The use of palm oil in the manufacture of tin plate was specifically exempted from the tax. No similar taxes upon these products were imposed under any of the prior Revenue Acts.

Section 402 of the Revenue Act of 1935, effective August 30, 1935, imposed a compensatory tax upon the importation into the United States of any products which although manufactured or produced from any of the oils subjected to tax under section 602 1/2(a) of the Revenue Act of 1934, or section 601(c)(8) of the Revenue Act of 1932 (relating to an import tax on fish and marine oils), did not come within the scope of the taxes levied under these sections. Section 402 of the Revenue Act of 1935 was to continue in effect only during the time section 602 1/2 of the Revenue Act of 1934 and section 601(c)(8) of the Revenue Act of 1932 were in existence, but such section 402 was repealed on August 21, 1936, by section 703 of the Revenue Act of 1936.

Section 702 of the Revenue Act of 1936, effective August 21, 1936, amended section 602 1/2 of the Revenue Act of 1934, by eliminating sesame oil and sunflower oil from the taxable products, and by adding thereto fatty acids and salts of the remaining taxable oils, or coconut oil, palm oil, and palm-kernel oil. The section was further amended to provide that the tax shall not apply to (1) fatty acids or salts resulting from a previous first domestic processing taxed under section 602 1/2, or upon which an import tax had been paid under section 601(c)(8) of the Revenue Act of 1932, as amended, and (2) any combination or mixture by reason of its containing an oil, fatty acid or salt with respect to which there was a previous first domestic processing, or upon which an import tax was paid under section 601(c)(8) of the Revenue Act of 1932, as amended. Although sesame oil and sunflower oil were eliminated from the taxable products, the tax still applies to such oils, or combinations or mixtures thereof, as were imported prior to August 21, 1936.

The tax will remain in effect until Congress makes provision for its repeal.

Economic Basis. -- The tax is an excise tax upon the processing of the specified products and is paid by the processor thereof.

Some of the more important industries affected by the tax are domestic crushers of copra, domestic producers of refined oil, manufacturers of soap, cooking oils and shortening, salad oils, paints, ten, tiles, and manufacturers of foods, such as pies, pastries, etc.

It should be noted that the tax on coconut oil is 3 cents per pound, and in some cases, 5 cents per pound. The average cost of refined coconut oil was approximately 1 1/2 cents per pound at the time the tax first became effective. The tax, therefore, equaled approximately at least twice the value of that product and correspondingly increased the cost of such oil to the users thereof. In some cases, tax was imposed on the use of a product of such oil which was in fact a waste product, the value of which prior to its processing was negligible. These conditions also applied to the other oils subjected to the tax. Consequently, the tax has encouraged the use of substitutes for the taxable products. These substitutes consisted of domestic tallows and oils and of foreign oils not included in the taxing statute, one in particular being babassu oil.

Administrative Difficulties. -- Many difficulties arose in the administration of the tax, primarily because the tax involved a comparatively new field of taxation and because the law was silent as to its application with respect to various trade practices. The law was not definite enough to determine the problems which did arise and, moreover, contained many "loopholes". In addition, the tax conflicted with import dues and was confused by many taxpayers with the processing taxes imposed under the Agricultural Adjustment Act. It is believed that these difficulties have been overcome to a great extent through the amendments enacted in section 702 of the Revenue Act of 1936. However, the amendments are so recent that the Bureau is without sufficient experience to indicate how the amended statute will function in actual practice or to show what new problems, if any, will arise under the amendments.

The audit of the returns of this tax requires a detailed examination of production records, the uses of the products by the taxpayer, sales and other distribution records, and the evidence relied upon to support claims for exemption, refund, or credit.

No statistics are available from which the actual cost of collecting this tax may be determined.

Since this tax was not recommended nor sponsored by the Treasury Department, it is immaterial to the Bureau whether it is continued or repealed. It should be noted, however, that the tax will continue indefinitely under the present law. Unless the tax is repealed in the near future, certain amendments will doubtless be necessary from time to time to correct inequities and to prevent tax avoidance. The most recent amendments became effective August 21, 1936, and in view of the short time the revised law has been in operation, the Bureau prefers to reserve recommendations for a time until the effect of the amendments, as revealed by actual developments, can be studied and appraised.

Tax On The Sale Of Crude Petroleum Section 604 Of The Revenue Act Of 1934.


     Yield for fiscal year  --   1936   --  $563,766.88
     Yield for fiscal year  --   1937   --   520,000.00   Estimated
     Number of taxpayers                     694
     Rate of tax -- 1/25 of 1 cent per barrel of 42 gallons.

Statutory Background. -- Section 604 of the Revenue Act of 1934, effective June 9, 1934, imposes a tax on the sale of crude petroleum by the producer. The tax does not apply with respect to the sale of crude petroleum produced from any well which is not capable of producing more than 5 barrels per day. As defined in this section, a taxable sale includes the refining of crude petroleum on the premises where produced, the removal of crude petroleum therefrom, or any transfer or other disposition of crude petroleum. The tax was levied originally at the rate of 1/10 of 1 cent per barrel of 42 gallons. Section 407 of the Revenue Act of 1935 reduced the rate to 1/25 of 1 cent per barrel of 42 gallons, effective September 1, 1935.

Section 604 specifically provides in subdivision (d) that any person subject to any of its provisions may be required, under a specific penalty, to give bond or other security for the protection of the revenue and to assure compliance with such section and other provisions of law applicable with respect to the tax. It also provides in subdivision (e) that records, reports and returns required under such section or any other applicable provision of law, shall, wherever held, be open to inspection at all reasonable hours by any duly authorized agent of the United States or any State having supervisory or regulatory powers over the production of crude petroleum.

This tax was enacted as an adjunct to section 9(c) of the National Industrial Recovery Act which prohibited the shipment in interstate and foreign commerce of petroleum or its products produced in excess of the amount permitted by a State law. Such section was later declared unconstitutional by the United States Supreme Court. The tax now operates as an adjunct to the Act of February 22, 1935 (Public No. 14 -- 74th Congress), and to Executive Order No. 1 issued under the authority of such Act. The latter Act ceases to be in effect on June 16, 1937, but the tax will remain in full force and effect until specifically repealed by Congress.

Economic Basis. -- The tax is a regulatory measure in the form of an excise tax, and is payable by the producer of the crude petroleum. The tax applies to every person producing crude petroleum from wells capable of producing more than 5 barrels per day. The purchaser is required by the statute to collect the tax from the producer by withholding the amount thereof from the purchase payments of the product. The purchaser in turn remits to the collector for the district in which the producing wells are located. A check of the returns for one month shows that the number of taxpayers filing crude petroleum sales tax returns is approximately 694.

The crude petroleum producing industry is one of the major industries of the country. The value of crude petroleum varies according to supply and demand, as well as to its grade or its lubricating oil or gasoline content and the area or district in which produced. Examination of statistical records, trade journals, etc., show that the price of crude petroleum ranges from 70 cents per barrel, of 42 gallons, to $2.45 per barrel according to its grade and the area in which produced.

Inequities. -- With respect to any conflict in the subject taxed, it may be stated that most of the crude petroleum producing States levy excise taxes on crude petroleum. No information is available to show in what manner and to what extent the State taxes may conflict with the Federal tax.

From the standpoint of Federal taxation, crude petroleum is also affected, directly or indirectly, by the following taxes:

(a) The tax imposed on the importation of crude petroleum and derivatives of crude petroleum under section 601(c)(4) of the Revenue Act of 1932 at the rate of 1/2 cent per gallon. This tax is administered by the Bureau of Customs, and is paid by the importer.

(b) The tax imposed on the transportation of crude petroleum and liquid products thereof, under section 731 of the Revenue Act of 1932 at the rate of 4 per cent of the amount paid for such transportation, or a fair charge therefor where no such amount is paid. This tax is paid by the transporter.

(c) The tax on the refining or processing of crude petroleum in the United States imposed by section 605 of the Revenue Act of 1934, as amended, at the rate of 1/25 of 1 cent per barrel of 42 gallons.

(d) The tax on the sale or use of lubricating oil by the manufacturer or producer thereof, under section 601(c)(1) of the Revenue Act of 1932, as amended, at the rate of 4 cents per gallon. This tax is paid by the manufacturer or producer.

(e) The tax on the sale or use of gasoline by a producer of the importer thereof under section 617 of the Revenue Act of 1932, as amended, at the rate of 1 cent a gallon. This tax is paid by the producer or importer.

It is believed that the statistical and economic surveys of crude petroleum and petroleum products made each month by the Petroleum Economics Division of the United States Bureau of Mines will show that there has been no curtailment of consumption of crude petroleum due to the imposition of this tax. No evidence is available to show that the use of substitutes has been resorted to since the effective date of this tax.

Practically no evasions have been uncovered in the administration of this tax. The major companies "police" the industry very thoroughly to stabilize the price structure of the various products of crude petroleum. The industry itself and State and local authorities charged with the administration of similar taxes have cooperated fully with the Bureau in preventing tax evasions.

Administrative Difficulties. -- In view of the purpose of the statute, that is, to make available a complete record of the production and disposition of crude petroleum in the United States, and in view of the specific statutory provisions requiring complete and detailed information relative to the production, transportation and disposition of crude petroleum, the regulations of the Bureau must of necessity impose upon all branches of the industry handling or dealing in this product, the duty of assembling and keeping records containing all necessary information relative thereto. However, the records required by the regulations conform, insofar as possible, to the records usually maintained for business purposes by the various branches of the industry.

In this instance the audit work of the Bureau involves a determination of who is the producer within the meaning of the statute and a detailed examination of the opening and closing inventories, the production and disposition records, the lease under which the producing premises are operated and the terns thereof with respect to royalty interests in the production.

No statistics are available from which the actual cost of collecting this tax may be determined, but the administration indicates that the cost of collection is quite low.

In view of the purpose for which this statute was enacted, the Bureau makes no recommendation with respect to this tax as a source of revenue.

Tax On The Refining Or Processing Of Crude Petroleum In The United States. Section 605(a)(1) Of The Revenue Act Of 1934.


     Yield for the fiscal year  --  1936  --  $561,235.89
     Yield for the fiscal year  --  1937  --   540,000.00  Estimated
     Number of taxpayers                       400
     Rate of tax -- 1/25 of 1 cent per barrel of 42 gallons.

Statutory Background. -- Section 605(a)(1) of the Revenue Act of 1934, effective June 9, 1934, imposes a tax on crude petroleum refined or processed in the United States. The tax was levied originally at the rate of 1/10 of 1 cent per barrel of 42 gallons. Section 407 of the Revenue Act of 1935 reduced the rate to 1/25 of 1 cent per barrel of 42 gallons, effective as of September 1, 1935.

In subdivision (b), section 605 provides in part as follows:

"Every refiner or processor shall (in addition to records otherwise required by law or regulation) keep such records as shall be prescribed by regulations under this section showing daily receipts, stocks, and disposals of crude petroleum and the names and addresses of the persons from whom received. Every person handling, transporting, storing, or dealing in any manner in crude petroleum shall keep such records and make such returns with respect to transactions in crude petroleum as shall be required by regulations under this section. Returns and records required under this section shall be open to inspection at all reasonable hours by any duly authorized representative of the Commissioner or any agency of the United States or any State having supervisory or regulatory powers over the production of crude petroleum".

The tax was enacted as an adjunct to section 9(c) of the National Industrial Recovery Act which prohibited the shipment in interstate and foreign commerce of petroleum or its products produced in excess of the amount permitted by a State law. Such section was later declared unconstitutional by the United States Supreme Court. The tax now operates as an adjunct to the Act of February 22, 1935 (Public No. 14 -- 74th Congress), and to Executive Order No. 1 issued under the authority of such Act. The latter Act ceases to be in effect on June 16, 1937, but the tax will remain in full force and effect until specifically repealed by Congress.

Economic Basis. -- This tax is a regulatory measure in the form of a processing tax, and is payable by the refiner or processor of the crude petroleum.

The crude petroleum refining or processing industry ranks among the major industries of the country. A check of the returns for one month shows that the number of taxpayers filing returns on the refining or processing of crude petroleum is approximately 400.

The value of crude petroleum varies according to supply and demand, as well as the grade of its lubricating oil and gasoline content, and the area or district in which produced. Examination of statistical records, trade journals, etc., shows that the price of crude petroleum ranges from 70 cents per barrel, of 42 gallons, to $2.45 per barrel according to its grade and the area in which produced.

Inequities. -- With respect to any conflict in the subject taxed, it may be stated that most of the crude petroleum producing States levy excise taxes on crude petroleum. No information is available to show in what manner and to what extent the State taxes may conflict with the Federal tax.

From the standpoint of Federal taxation, crude petroleum is also affected, directly or indirectly, by the following taxes:

(a) The tax imposed on the importation of crude petroleum and derivatives of crude petroleum under section 601(c)(4) of the Revenue Act of 1932 at the rate of 1/2 cent per gallon. This tax is administered by the Bureau of Customs, and is paid by the importer.

(b) The tax imposed on the transportation of crude petroleum and liquid products thereof, under section 731 of the Revenue Act of 1932 at the rate of 4 per cent of the amount paid for such transportation, or a fair charge therefor where no such amount is paid. This tax is paid by the transporter.

(c) The tax on the sale of crude petroleum imposed by section 604 of the Revenue Act of 1934, as amended, at the rate of 1/25 of 1 cent per barrel of 42 gallons. This tax is paid by the producer.

(d) The tax on the sale or use of lubricating oil by the manufacturer or producer thereof, under section 601(c)(1) of the Revenue Act of 1932, as amended, at the rate of 4 cents per gallon. This tax is paid by the manufacturer or producer.

(e) The tax on the sale or use of gasoline by a producer or the importer thereof under section 617 of the Revenue Act of 1932, as amended, at the rate of 1 cent a gallon. This tax is paid by the producer or importer.

It is believed that the statistical and economic surveys of crude petroleum and petroleum products made each month by the Petroleum Economics Division of the United States Bureau of Mines will show that there has been no curtailment of consumption of crude petroleum due to the imposition of this tax. No evidence is available in this Bureau to show that the use of substitutes has been resorted to since the effective date of this tax.

To date there is no record of Federal tax avoidance or evasion with respect to this tax. Refineries must for their own purposes keep records of the amount of crude petroleum purchased, and of the products resulting from refining or processing. The only apparent method of tax avoidance or evasion is maintaining false records of the purchases of crude petroleum, production of the resulting products, and sales or disposition of such resulting products. The refining of crude petroleum is policed by the oil and gasoline industry to stamp out tax evasion, to prevent price cutting, and unfair competition. The industry itself and State and local authorities charged with the administration of similar taxes have cooperated fully with the Bureau in preventing tax evasions.

Administrative Difficulties. -- In view of the purpose of the statute, that is, to make available a complete record of the refining or processing of crude petroleum in the United States, and in view of the specific statutory provisions requiring, (in addition to records otherwise required by law or regulations) the keeping of records showing daily receipts, stocks, and disposals of crude petroleum and the names and addresses of the persons from whom received, the regulations must impose upon this branch of the industry the burden of keeping records containing all of the necessary information relative thereto. However, the records required by the regulations conform, insofar as possible, to the records usually maintained for business purposes by the branches of the industry affected.

The audit of the returns of this tax requires a detailed examination of the opening and closing inventories, stocks on hand, receipts, disposition of the crude petroleum and the resulting products thereof, and the evidence relied upon in support of claims for exemption, refund, or credit.

No statistics are available from which the actual cost of collecting this tax may be determined, but the administration indicates that the cost of collection is negligible.

In view of the purpose for which this statute was enacted, the Bureau makes no recommendation with respect to this tax as a source of revenue.

Tax On Gasoline Produced Or Recovered In The United States From Natural Gas. Section 605(a)(2) Of The Revenue Act Of 1934.


     Yield for the fiscal year    -- 1936 --  $38,751.80
     Yield for the fiscal year    -- 1937 --   40,000.00  Estimated
     Number of taxpayers                       406
     Rate of tax -- 1/25 of 1 cent per barrel of 42 gallons.

Statutory Background. -- Section 605(a)(2) of the Revenue Act of 1934, effective June 9, 1934, imposes a tax on gasoline produced or recovered in the United States from natural gas. The tax was levied originally at the rate of 1/10 of 1 cent per barrel of 42 gallons. Section 407 of the Revenue Act of 1935 reduced the rate to 1/25 of 1 cent per barrel of 42 gallons, effective as of September 1, 1935.

In subdivision (b), section 605 provides in part as follows:

"Every refiner or processor shall (in addition to records otherwise required by law or regulation) keep such records as shall be prescribed by regulations under this section showing daily receipts, stocks, and disposals of crude petroleum and the names and addresses of the persons from whom received. Every person handling, transporting, storing, or dealing in any manner in crude petroleum shall keep such records and make such returns with respect to transactions in crude petroleum as shall be required by regulations under this section. Returns and records required under this section shall be open to inspection at all reasonable hours by any duly authorized representative of the Commissioner or any agency of the United States or any State having supervisory or regulatory powers over the production of crude petroleum".

This tax was enacted as an adjunct to section 9(c) of the National Industrial Recovery Act which prohibited the shipment in interstate and foreign commerce of petroleum or its products produced in excess of the amount permitted by a State law. Such section was later declared unconstitutional by the United States Supreme Court. The tax now operates as an adjunct to the Act of February 22, 1935 (Public No. 14 -- 74th Congress), and to Executive Order No. 1, issued under the authority of such Act. The latter Act ceases to be in effect on June 16, 1937, but the tax will remain in full force and effect until specifically repealed by Congress.

Economic Basis. -- This tax is a regulatory measure in the form of a processing tax and is payable by the person producing or recovering gasoline from natural gas. A check of the returns for one month shows the number of taxpayers filing returns on gasoline produced or recovered in the United States from natural gas is approximately 406.

The value of natural gasoline varies according to supply and demand, its grade, and the area in which it is produced. Examination of statistical records, trade journals, etc., shows that the producer's present prices range from 4 cents to 8 cents a gallon.

Inequities. -- Since gasoline produced from natural gas is used almost exclusively for blending purposes in the production of commercial gasoline and motor fuels, the subject of this tax indirectly falls within the scope of the taxes imposed by the States and their subdivisions upon gasoline. No information is available, however, to show in what manner and to what extent the State taxes might be regarded as conflicting with the instant tax.

In addition to the instant tax, gasoline produced from natural gas is also subject to the tax imposed under section 617 of the Revenue Act of 1932, as amended, on the sale or use of gasoline by the producer. The Bureau has taken the position that natural or casinghead gasoline is a liquid product of crude petroleum. From that standpoint, the subject of the instant tax may also be considered as indirectly affected by the following Federal taxes:

(a) The tax imposed on the transportation of crude petroleum and liquid products thereof by pipe line under section 731 of the Revenue Act of 1932 at the rate of 4 per cent of the amount paid for such transportation, or a fair charge therefor if transported by the owner of the product. This tax is paid by the transporter.

(b) The tax on importation of crude petroleum levied under section 601(c)(4) of the Revenue Act of 1932 at the rate of 1/2 cent per gallon. This tax is administered by the Bureau of Customs and is paid by the importer.

(c) The regulatory tax on the sale of crude petroleum imposed by section 604 of the Revenue Act of 1934, as amended, at the rate of 1/25 of 1 cent per barrel of 42 gallons. This tax is paid by the producer.

(d) The regulatory tax on the refining or processing of crude petroleum in the United States, imposed by section 605(a)(1) of the Revenue Act of 1934, as amended, at the rate of 1/25 of 1 cent per barrel of 42 gallons. This tax is paid by the refiner or processor.

It is believed that the statistical and economic surveys of crude petroleum and petroleum products made each month by the Petroleum Economics Division of the United States Bureau of Mines will show that the instant tax has not resulted in any curtailment of consumption or use of substitutes for the subject taxed.

To date there is no record of tax avoidance or evasion with respect to this tax. Producers of gasoline from natural gas must for their own purposes keep records of the gasoline produced or recovered from natural gas, and the sales or other disposition thereof. Since the tax is based on the number of barrels of gasoline actually recovered, the only method of tax evasion is by maintaining false records of production, sales, or other dispositions of the product. The oil and gasoline industry is effectively policed by member associations to stamp out price cutting and unfair competition with respect to sale of gasoline. The industry itself and State and local authorities who administer similar taxes have cooperated fully with the Bureau in preventing evasions of this tax.

Administrative Difficulties. -- In view of the purpose of the statute, that is, to make available a complete record of all gasoline produced or recovered in the United States from natural gas, and in view of the specific statutory provisions requiring, (in addition to records otherwise required by law and regulations) the keeping of records showing daily records of receipts, production, stocks, and disposals of this product, the regulations must impose on this branch of the industry the burden of keeping records containing all of the necessary information relative thereto. However, the records required by the regulations conform, insofar as possible, to the records usually kept by the branches of the industry affected.

The audit of the returns of this tax requires a detailed examination of the opening and closing inventories, stocks on hand, production of gasoline from natural gas, the disposition thereof, and the evidence relied upon in support of any claims for exemption, refund, or credit.

No statistics are available from which the actual cost of collecting this tax may be determined, but the administration indicates that the cost of collection is quite low.

In view of the purpose for which this statute was enacted, the Bureau makes no recommendation with respect to this tax as a source of revenue.

Tax On Sale Or Use Of Lubricating Oil Section 601(c)(1) Of The Revenue Act Of 1932.


     Yield for fiscal year   -- 1936 -- 27,102,831.57
     Yield for fiscal year   -- 1937 -- 27,500,000.00  Estimated
     Number of taxpayers                 455
     Rate of tax -- 4 cents per gallon.

Statutory Background. -- The Federal tax at the rate of 4 cents a gallon on the sale or use of lubricating oil was first imposed by section 601 (c)(1) of the Revenue Act of 1932. As originally enacted by Congress, the tax was to be effective during the period from June 21, 1932 to July 1, 1934, inclusive. Section 212 of the National Industrial Recovery Act extended the expiration date to July 1, 1935. Public Resolution No. 36 -- 74th Congress further extended the date to July 1, 1937. Unless further extended, the tax will be automatically repealed as of July 1, 1937.

Section 4(b) of the Act approved June 16, 1933, (Public No. 73 -- 73d Congress), effective July 1, 1933, amended section 601(c)(1) of the Revenue Act of 1932, to exempt all sales of lubricating oil by the manufacturer or producer thereof, to another manufacturer or producer of lubricating oil for resale, and provided that for the purpose of the tax, such vendee shall be considered the manufacturer or producer of such lubricating oil.

Section 601(c)(1) of the Revenue Act of 1932, as amended, was further amended by section 603 of the Revenue Act of 1934, to require, under a specific penalty, taxpayers liable for this tax to give bond, register with the collector of internal revenue for the district in which they file their returns, and to keep certain records.

Economic Basis. -- The tax on lubricating oil is an excise tax payable by the manufacturer or producer thereof. The lubricating oil industry ranks among the largest industries in the country, and tax is being paid in almost every one of the 64 collection districts. A check of the returns filed for one month shows that the number of taxpayers filing lubricating oil sales tax returns is approximately 455. Examination of statistical papers, trade journals, etc., discloses that the manufacturer's sale price of lubricating oil depends upon supply and demand, the type of oil produced, the grade of crude oil from which produced, the production area from which such crude oil is obtained, and the locality in which the lubricating oil is sold. The refinery sales prices range from 5 cents to $1.00 a gallon.

Inequities. -- With respect to any conflict in the excise tax on the certain types of oils. No information is available showing to what extent the State taxes conflict with the Federal tax.

The following Federal taxes although not imposed upon the sale or use of lubricating oil, nevertheless, have a sufficient bearing upon that commodity to be considered in connection with the tax imposed under section 601(c)(1) of the Revenue Act of 1932:

(a) The tax imposed on the transportation of crude petroleum and liquid products thereof by pipe line under section 731 of the Revenue Act of 1932, effective June 21, 1932, at the rate of 4 per cent of the amount paid for such transportation, or of the fair charge therefor if transported by the owner of the product. This tax is paid by the transporter.

(b) The tax on importation of crude petroleum by section 601(c)(4) of the Revenue Act of 1932, effective June 21, 1932, at the rate of 1/2 cent per gallon. This tax is administered by the Bureau of Customs, and is paid by the importer.

(c) The tax on the sale of crude petroleum imposed by section 604 of the Revenue Act of 1934, effective June 9, 1934, at the rate of 1/10 of 1 cent per barrel of 42 gallons. Section 407 of the Revenue Act of 1935, amended section 604 of the Revenue Act of 1934, effective September 1, 1935, to reduce the rate to 1/25 of 1 cent per barrel of 42 gallons. This tax is to be paid by the producer. This is merely a regulatory tax.

(d) The tax imposed on the refining or processing of crude petroleum in the United States by section 605(1) of the Revenue Act of 1934, effective June 9, 1934, at the rate of 1/10 of 1 cent per barrel of 42 gallons. Section 407 of the Revenue Act of 1935, amended section 605 of the Revenue Act of 1934, effective September 1, 1935, to reduce the rate of tax to 1/25 of 1 cent per barrel of 42 gallons. This tax is paid by the refiner or processor. This is merely a regulatory tax.

It is believed that the statistical and economic surveys of crude petroleum and petroleum products made each month by the Petroleum Economics Division of the United States Bureau of Mines will show that there has been no curtailment of consumption of the products enumerated in section 601(c)(1), due to the imposition of this tax. No evidence is available in this Bureau to show that the use of substitutes has been resorted to since the effective date of this tax.

While the measure of the tax in relation to the value of certain grades of lubricating oil, when sold by the producer, appears large the quantity basis used in the statute is the same as that adopted by most of the State taxing authorities which have imposed taxes on this commodity since the enactment of the Revenue Act of 1932. In view of the almost daily fluctuation in lubricating oil prices, due to unfair competition by so-called bootleggers disposing of contraband products, price wars, etc., the quantity basis for tax measurement on such commodity is preferable for the reasons that it is definite and certain in amount, equitable to all branches of the industry, creates a constant source of revenue, and is easy of administration both by the industry and the Government.

Various tax evasion methods have been resorted to by certain branches of the industry, particularly among small operators and dealers, by purchasing lubricating oil tax free under exemption certificates for nonlubricating uses or purposes, and then using or reselling it for lubrication. In other cases lubricating oil has been sold or shipped as nontaxable greases. The major companies of the petroleum industry are thoroughly organized into associations known as the American Petroleum Institute, National Petroleum Association, and the Western Petroleum Association, and such organizations are policing the industry for tax evasion, in order to stamp out price cutting and unfair competition. Any irregularities relating to tax avoidance or evasion are promptly reported to the Federal and State taxing authorities. Federal lubricating oil tax evasion has been found to be a minor administrative problem.

Administrative Difficulties. -- No involved Bureau procedure is required with respect to the administration of this tax. The greatest difficulty encountered so far has been the determination of the products included in the term "lubricating oil" as used in the statute.

For a time considerable difficulty was encountered by reason of the misuse of exemption certificates to transfer lubricating oil through a number of hands tax free to the last producer-purchaser in the chain. This abuse of exemption certificates is considered to have been due to the fact that the language originally used in the Revenue Act of 1932 was so strict as to exemptions that it did not wholly accomplish its purpose of "preventing the pyramiding of tax" and it did not place all producers on an equitable marketing basis. For instance, as originally enacted, if a producer sold to a dealer who in turn sold to a second producer of lubricating oil, the second producer was forced to purchase the product on a tax-paid basis, thus requiring the investment of a larger capital to carry his tax-paid inventory than required for an equal volume in tax-free inventory. However, the administrative amendments covered by the Act of June 16, 1933 (Public No. 73 - 73d Congress) and by section 401(b) of the Revenue Act of 1935, have removed most of the discriminations and irritations which tempt taxpayers to try shortcuts and stratagems, so that under the present amendments the tax certificates follow the normal course of business practice.

 
[Next]