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RESOLUTION UNANIMOUSLY ADOPTED AT A MEETING OF THE WHOLESALE LIQUOR

DEALERS OF MISSOURI WHEN CONVENTION ASSEMBLED ON JUNE 5

Whereas the Federal Alcohol Control Administration has been declared invalid under the Constitution of the United States, the regulations promulgated by Federal Alcohol Control Administration will doubtless be continued under laws offered to the Congress for passage and likely to be incorporated in the internal-revenue laws of the country and fearing that there will be incorporated in such laws that will militate against the successful operation of the legitimate wholesale business be it.

Resolved, That the Wholesale Liquors Dealers of the State of Missouri request the Senators and Representatives in Congress to give them an opportunity for a hearing on proposed legislation of this character so that the interests of the wholesale liquor dealer may be properly safeguarded.

RESOLUTIONS UNANIMOUSLY PASSED BY THE MISSOURI WHOLESALE LIQUOR

DEALERS IN CONVENTION ASSEMBLED JUNE 5, 1935

Whereas the illicit distiller and bootlegger is still a factor in competing with the licensed distiller and dealer and must be reckoned with; and

Whereas it is our opinion that the indiscriminate issuance of tax stamps by the Federal Government is conducive to and in the nature of a protection from Federal prosecution when operating in dry States; and

Whereas believing that the authorities can exercise a more complete control of the illicit traffic in distilled spirits if the applicant for tax stamps is required to qualify as a legal holder of State and city license, exhibiting his right to secure such occupational stamps; be it

Resolved, That the honorable Secretary of the Treasury of the United States be requested to issue regulations effective prior to July 1, 1935, tending to correct the conditions above described. To the Honorable HENRY MORGENTHAU,

Secretary of the Treasury, Washington, D. C.

NEW YORK CITY, N. Y., June 10, 1935. SIR: There is before your committee now H. R. 8159, a bill to cover the proper handling of distilled spirits.

We are told that an amendment has been submitted which would permit the purchase and sale of spirits in bulk by wholesale-liquor dealers. It is necessary that this amendment be enacted into law.

The Federal Alcohol Control Administration set up a restriction against wholesale-liquor dealers buying or selling in bulk. The Federal Alcohol Control Administration and its restrictions are no longer effective.

The Treasury Department, without warrant of law, issued Treasury Decision 4557 and Treasury Decision 1558, restricting to distillers and rectifiers the handling of bulk spirits. This is unsound and unfair. Only the larger distillers can be benefited, while the very existence of the smaller units is threatened.

All of which would tend to create a monopolistic status in the whisky business, which was never intended by the voters, who voiced against the eighteenth amendment.

Very high taxes (Federal and State), pyramiding of profits on spirits and on bottling charges by distillers, multiplication of freight charges by doubling the weight and raising of classifications in shipments of whiskies in glass all make for high prices to the consumer and furnish the necessary incentive for expansive bootlegging activities, which, according to Secretary Morgenthau, are largely on the increase. That is the economic status.

As to the moral status: The distiller is no more honest nor dishonest than the rectifier; the rectifier is no more honest nor dishonest than the wholesaler ; the wholesaler is no more honest nor dishonest than the distiller.

Prior to the adoption of the eighteenth amendment the Treasury Department was strong enough to hold reins over all of these classes, and there was practically no bootlegging except in the mountains, where the natives believed that whisky-making was a God-given right.

We trust that you will give due consideration to the various facts set forth and that you will give your good consideration to voting for the amendment

permitting a proper handling of bulk spirits by wholesale-liquor dealers, as
well as by the rectifiers and distillers.
Respectfully,

THE SID KLEAN CORPORATION,
Sid KLEIN.

Whisky statistics, domestio production, issued by the Sid Klein Corporation,

New York, N. Y.-Revised May 25, 1935

Estimated annual capacity of distilled-spirits industry based on Proof gallon outstanding permits (20-hour day, 250-day year).

340,000,000 Factual data (the following statistics cover United States made

whisky only, gin, rum, brandy, neutral spirits, and alcohol not
included):
1. Preprohibition :
Average annual production, 1910–17-

79, 000, 000 Average amount stored in bond, 1910-17

245, 000, 000 2. Post-repeal : Tax paid January-December 1934, inclusive_

$38, 300,000 Aggregate production January-December 1934_

108,000,000 Stocks on hand Dec. 31, 1934, in bond--

91, 600,000 Stocks on hand Apr, 30, 1935, in bond--

131, 700,000 Projections: 3. Estimated tax payments, 1935.

$50,000,000 4. Present rate of annual accumulation of stock deduced from above facts

75, 000, 000 5. Stock which should be accumulated in bond for proper maturing and aging and for bottling in bond.

265, 000, 000 6. Date when such accumulations should reach required

stocks, July 1, 1937.
Collateral information:
7. Estimated cash investment involved in grain, fuel, cooper-

age, and labor, and direct manufacturing expense, inter-
est, and insurance (not including investments in distil-
leries and warehouse buildings)

$200,000,000 8. Approximated fixed investment in distilleries, refining plants, warehouses, cooperage, and bottling plants------- 500,000,000

MAY 27, 1935. DEAR SIR: We enclose herewith a statistical sheet which we put out month by month as we get figures from Washington.

Distributed by States for April 1935, as follows:

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We enclose a revised statement of our projections covering whisky stocks.

More than 50 percent of the accumulation is remaining with such concerns as National, Schenley, and Frankfort who are offering no bulk goods on the market. This attitude on the part of these major factors will serve to hold the prices on goods of appreciable age at a comparatively high level, as there is very little in float.

The price on the goods used currently, that is 1, 2, 3 months old goods, will be governed by two factors. First, grain market; second, the disposition of the producers to hold for reasonably good profits or to start a cut-throat price war.

It is our judgment that such distillers would prefer the good profit rather than to mark up volume sales at minimum rates. Grain prices will naturally respond to various factors-—Governmental activities (agricultural control and currency control) as well as weather conditions.

It does seem as if the people are being educated to a lighter bodied whisky than before the prohibition period.

This is particularly encouraged by the 30-cent rectifiers' tax which largely reduces the volume of blends.

With all of the above, we are convinced that whiskies already made will continue to bring good prices as against original contracts because of the age mark.

What the future may bring forth as to goods to be manufactured, of course, is any man's guess. Very truly yours,

THE SID KLEIN CORPORATION,
SID KLEIN.

THE ATLAS DISTRIBUTING Co.,

Cincinnati, Ohio, June 14, 1935. NATIONAL WHOLESALE WINE & LIQUOR DEALERS' ASSOCIATION,

Washington, D. C. (Attention : Mr. Hugh J. McMackin, secretary.) DEAR MR. McMACKIN: We highly appreciate your letter of June 10, which we note with interest and which we shall pass on to our mutual friend, Bill Libman.

Permit us to wish you every success in your efforts to permit the sorely needed shipment of whisky in bulk to wholesalers. We are doing everything possible in this direction.

We should be glad to communicate with Mr. Arthur J. Lamneck, as well as with all of the Members of both Houses. But before doing so, may be ask you, for obvious reasons, to send a draft of a letter to be forwarded to them?

No doubt you have received a copy of Mida's Services, Inc. “Important flash", dated June 8, 1935. We believe its reference to "the trade” does not entirely fit the situation as it has developed since the creation of the F. A. C. A.

The writer and his associate, Mr. Reicher, spent this entire week in Chicago and found that the wholesalers, with the exception of a very few who may lack the capital, are very eager to handle bulk whiskies.

For your information, our records show there are now over 4,000 wholesale liquor dealers in the United States. Sincerely yours,

THE ATLAS DISTRIBUTING Co.,

A. WITTEKIND, President. Mr. McCORMACK. As I understand it, your organization supports this bill?

Mr. McMackin. Yes, sir; with the suggested amendments.
Mr. McCORMACK. But you support the bill anyway?

Mr. McMackin. Yes, sir. We are very heartily in favor of the bulk-sales situation.

The CHAIRMAN. We thank you, Mr. McMackin, for your appearance and the information you have given the committee.

This concludes the hearings so far as the Chair is aware. The members of the committee will be notified and will meet in executive session to give further consideration to the bill.

(Whereupon, at 10:15 p. m., the committee adjourned sine die.)

BRIEF FILED BY CHARLES L. LIPSETT, PUBLISHER, BREWERS NEWS, NEW YORK

The liquor control bill (H. R. 8539) now under consideration by the Ways and Means Committee makes no distinction between the liquor industry and the brewing industry. All the provisions of your bill apply with equal force to the brewing as well as the liquor industry, and yet the two fall into decidedly different categories.

By act of Congress, 3.2 beer is not considered as, and in reality is not intoxicating. It is a malt beverage that falls into the same category as food. Hence beer should not be subjected to the same rules and regulations that are to govern intoxicating liquors.

The very nature of the liquor business is such that members within the industry are in favor of a permit system and they are also in favor of a centralized Federal agency to regulate the industry. The brewing industry needs no permit system and the members of the industry are categorically opposed to any such system of licensing.

As publisher of Brewers News, a trade periodical catering to the brewing industry, I am thoroughly familiar with the industry's operations, its history and the problems that confront it at the present time. The industry as it is conducted today is as far removed from the old saloon system of preprohibition days as are the two magnetic poles. The industry at the present time is subjected to heavy and exorbitant Federal and State taxes that virtually make it impossible for the brewers to sell a good glass of beer for the much hopedfor 5 cents, and these taxes have also made it impossible for the brewers throughout the country to make a legitimate profit on their investment.

To place the industry under new forms of Federal restrictions such as: Occupational tax, permit system, unfair competition and unlawful practices, advertising control, would constitute new and unwarranted burdens upon the industry.

Joseph H. Choate, chairman of the now defunct Federal Alcohol Control Administration, has gone on record on more than one occasion that there was no need of a permit system for the brewing industry. You will recall that under the National Recovery Administration the brewing industry was among the first to file a voluntary code of fair trade practices, whereas the Government imposed codes on the liquor industry. As soon as the National Recovery Administration was declared unconstitutional, the brewing industry held a national conference at which the industry unanimously decided to continue to operate under a voluntary code of fair-trade practices that do not contain any provisions that are in violation of the Sherman Antitrust Laws.

The brewing industry has given an excellent account of itself ever since beer was legalized. Not even the bitterest prohibitionists have been able to find fault with the manner in which the industry has conducted its affairs. The brewing industry has proved beyond any shadow of doubt that it can keep its own house in order without the intervention of the Federal Government. It is therefore entitled to the same liberty and freedom of action that is accorded the food and other major industries in this country.

It is also important to bear in mind that the various States have their own agencies that control the brewing industry, so that even though there is no Federal permit system, the brewers would be under State supervision and control.

In view of all the foregoing, and on behalf of the brewing industry, I respectfully suggest that the words “malt beverages" and "brewers " be deleted from the bill H. R. 8539, wherever these terms appear.

STATEMENT OF C. M. HESTER ON THE AUTHORITY OF THE SECRETARY OF THE

TREASURY TO PROHIBIT THE SALE OF LIQUORS IN BULK

Two separate provisions of law authorize the Commissioner of Internal Revenue to prescribe “needful ” and necessary regulations in connection with the operation of the internal revenue laws.

By section 1309 of the Revenue Act of 1918, the Commissioner, with the approval of the Secretary of the Treasury, is "authorized to make all needful rules and regulations for the enforcement of the provisions of this act.” The act in question included a title imposing the taxes on liquors. Furthermore, that this authorization was intended by Congress to be general and not to be limited to the specific provision of the Revenue Act of 1918, appears presumptively from the fact that the codifiers have included it in the general authorization given to the Commissioner by framing United States Code, title 26, section 1245 as follows: The Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, is authorized to prescribe all needful rules and regulations for the enforcement of the provisions of this title

In addition to this section, a much older enactment (Rev. Stat. 3347, July 20, 1868) provides in part: “ The Commissioner of Internal Revenue may make all such regulations not otherwise provided for as may have become necessary by reason of any alteration of law in relation to internal revenue” (U. S. C., title 26, sec. 1246).

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But two questions arise in connection with the application of these sections:

1. Who is to determine whether the regulations are “needful ", and whether they “have become necessary"; and

2. Are the regulations under consideration “reasonable and appropriate for the enforcement of the provisions of the taxing act", because if they are they

binding" and have “the effect of law” (Tyson v. Commissioner of Internal Revenue, 68 Fed. (21) 584, 587).

As to the first question, it seems evident that it must be the Commissioner of Internal Revenue, under the supervision and direction of the Secretary of the Treasury, who is charged with making the decision as to the necessity of regulations. By Revised Statute 32 it is provided “ The Commissioner of Internal Revenue, under the direction of the Secretary of the Treasury, shall have general superintendency of the assessment and collection of all duties and taxes imposed by any law providing internal revenue; and shall prepare and distribute all the instructions, regulations, directions

and other matters pertaining to the assessment and collection of internal revenue;

(U. S. C., title 26, sec. 2). The Attorney General has had occasion to rule upon this question and said : “ By this law, the Commissioner of Internal Revenue, under the direction of the Secretary of the Treasury, has the general management, supervision, and control of the assessment and collection of internal revenue taxes. He has authority to give instructions and to make regulations such as may be necessary to carry out the general purpose of the law (22 Opinion Attorney General 570).

As to the second question, it is appropriate to examine briefly the general plan expressed by Congress relating to the control of distribution of liquor on the basis of the quantities involved.

When Congress passed Public Resolution No. 370, Seventy-third Congress (the Bottle” resolution), it expressed the legislative intention that sales of distilled spirits at retail should be made in or from containers of a capacity of less than 5 wine gallong. This was in harmony with the Congressional purpose already embodiedl in legislation, that all sales of distilled spirits in quantities of less than 5 wine gallons be made by persons who have paid the special tax as retail liquor dealers (R. S. 3244).

In passing Public Resolution No. 370, the Congress might have included a complete statement of its whole rounded-out plan for the control of the liquor traffic. This it could have done by the further provision that dealing in liquor in containers of a capacity of 5 gallons or more be restricted to distillers and rectifiers, that is, to persons authorized at that time to bottle distilled spirits in the smaller containers for sale at retail. This action, however, was obviously unnecessary. When Public Resolution No. 370 was passed, the Federal Alcohol Control Administration codes were then in operation, and generally assumed to be valid. They had the effect, with exceptiony not here material, of limiting sales of liquor in containers of 5 wine gallons or more to rectifiers and distillers.

Since the passage of Public Resolution No. 370, however, two changes in the law have taken place: First, by the decision in the Schechter case, the legislative basis for the codes was destroyed by judicial decision; and second, due presumably to this decision, the National Industrial Recovery Act under which the codes had been erected, and which lapsed by the operation of its own terms on June 16, 1935, was not extended.

This development opened a wide gap in the comprehensive legislative framework for the control of the liquor traffic, because it meant sales could be made to the retail purchaser in containers as small as 5 gallons, entirely free from the regulation set up by the resolution. The situation thus created must have been precisely what was intended to be covered by the provisions of Revised statute 3447 already quoted, placing upon the Commissioner the duty to make regulations which had become necessary by reason of changes in the law.

If the general Congressional purpose thus disclosed was to be continued in effect, sales of liquor in containers of a capacity of 5 gallons or more had to be confined to those who, at the time of the passage of the resolution, were authorized to bottle. Any other construction of the applicable legislation would have had the effect of nullifying Public Resolution No. 370, a result which, under recognized canons of statutory construction, is to be avoided if at all reasonably possible; and which, under the provisions of Revised Statute 3447, Revised Statute 321, and section 1309 of the Revenue Act of 1918, it is the specific duty of the Commissioner to prevent.

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