Mr. KNUTSON. Where the price should be $35, including tax?
Mr. ALPRIN. That is correct.

Mr. KNUTSON. Of course, they are going to be seized and turn around and buy them.

Mr. ALPRIN. That is right, and they make an extra amount of money, $10 per case. Mr. McCORMACK. I am sorry

I was not here when you said something about confiscated liquor. Do I understand you to say that it should not be sold in competition?

Mr. ALPRIN. That is correct. We feel that it deprives the United States of revenue.

Mr. McCORMACK. You do not have to argue that with me. I agree with you. Mr. ALPRIN. Fine.

Mr. McCORMACK. I just wanted to get your opinion because we are hopeful that something along that line will come out very quickly; if not in this bill, then in some other bill.

Mr. ALPRIN. I think the Government could increase its revenue tremendously. They have sales of 20,000 cases at times, which deprives the Government of a tremendous amount of revenue which otherwise they would have received, because the merchandise is consumed, and legal merchandise could have been consumed in its place which would have returned the United States Government a larger amount than it realizes under the sale.

Mr. McCORMACK. You talked about Ohio buying on consignment and paying for the liquor when the State sells it.

Mr. ALPRIN. That is correct.

Mr. McCORMACK. If you have any evidence, I wish you would put it into the record. It is very interesting to learn that a State is doing something which a private individual cannot do. I would like to have some evidence on it because I am not going to reach the conclusion that a State would do that in the absence of some evidence.

Mr. ALPIN. If any of the distillers are here, and you will allow that, they will tell you more in detail that the Ohio commission does that and that those are the rules of the Commission.

Mr. McCORMACK. I think it is very important to put some evidence in.

Mr. Vinson. I asked the gentleman last night representing the liquor board of Ohio to put in not only the statutory law under which they do business but all the rules and regulations. You say that is a part of the rule of the Commission?

Mr. ALPRIN. I believe it is.

Mr. McCORMACK. You said something about Pennsylvania that they make payment with returned goods.

Mr. ALPRIN. That is correct. Using this just as an illustration: If Schenley were to sell 1,000 cases of its Cream of Kentucky whisky, for example, and the State of Pennsylvania did not pay them, they might possibly return 1,000 cases of Sherwood whisky, manufactured by another distillery. I understand that one of the distilleries has a lot of cognac or brandy which was given to it in part payment of its bill.

Mr. Vinson. Does my memory serve me right, that the gentleman from Ohio, who was on the local board, did not want any control of that agency at all?


Mr. ALPRIN. He did not like any control.

Mr. McCORMACK. Of course, if a State was doing what that State does, along the lines of Government business, I could recognize the argument that a sovereign State should not be subject to a permit.

Mr. ALPRIN. That is quite true, Congressman, and I will tell you why the courts have already ruled that the States in their monopoly liquor business are in a private business, liable to a tax to the internal revenue of $1,000. If that be the case, there is no reason they should not come under the administration and be subject to its rules and regulations.

Mr. McCORMACK. I agree with that, that they are in a private business, the same as Government furnishing water to its people is in a private business, and it is not an essential governmental function. If you have this evidence, it is evidence which shows that they are going to obtain advantages over private enterprise, and they should not have it.

Mr. ALPRIN. I think, gentlemen, if you will pardon me, Mr. Choate has had a good deal of experience along those lines. He has tried to work with the State commissions for the benefit of the industry to ameliorate these conditions. If Mr. Choate would describe to you those records, I think it would help the case.

The CHAIRMAN. Do you want to say something, Mr. Choate.

Mr. CHOATE. I want to say there is no question but that Mr. Alprin's statement is correct. The State of Pennsylvania has universally and uniformly, for some time, made a practice of saying to distillers and other purveyors who offered goods to the State, “We cannot buy your goods unless you will take these goods and other goods as part payment”, which may or may not be goods previously furnished to them by the purveyor in question.

Many of the other States have included in their order blank which they sign and send to the distiller or supplier provisions amounting to making the sales consignment sales. There is no question about it, and it is not denied.

Mr. KNUTSON. Mr. Choate, what is the object in sending back the liquor?

Mr. CHOATE. The object is to correct the effect of unsuccessful purchases.

Mr. KNUTSON. They are getting rid of dead stock?
Mr. CHOATE. Yes; they are getting rid of dead stock.

Mr. VINSON. With those practices admitted, do you not think that this agency of the State, which certainly is not an essential governmental function, should be treated as any other person or agency?

Mr. CHATE. There is no question in my mind that the same rules ought to apply to the States as to the individuals, except that I have some doubt as to whether in case of the State the permit system adds any such power of enforcement as it does in the case of the individual.

Mr. VINSON. It cannot hurt anything, can it?
Mr. CHOATE. I doubt if it can hurt anything much.

Mr. Vinson. As I understand it, we want control, if I read the papers correctly, we want control of the liquor business to some degree, within bounds.

Mr. CHOATE. Within the bounds suggested in this bill.

Mr. Vinson. You would not have any objection to causing the State monopoly or State stores to put in the permit system?

Mr. CHOATE. No; but at the same time I think it is a debatable question as to whether it is worth while to injure the State feelings, if they have such feelings, when as a matter of fact, if we revoke the permit, we could not do anything to a State who chose to defy us.

Mr. McCORMACK. Could you not control that situation by a permit to the distiller, so that they can take that back?

Mr. ChoATE. Yes; but the difficulty is that it enables the State to coerce the distiller. All these transactions were in violation of the distillers' code, but the distillers, with an enormous customer like the State of Pennsylvania facing them, could not as a practical matter refuse to violate the code, when the State of Pennsylvania told them to.

Mr. McCORMACK. It was not fair to put them in the position of fighting a sovereign State.

Mr. CHOATE. We thought so.
Mr. MoCORMACK. I can see their position.

Mr. WOODRUFF. Mr. Choate, what can you tell the committee regarding this alleged sale of seized liquor?

Mr. CHOATE. I can only tell you that it has undoubtedly brought about a great many of the evils that Mr. Alprin has suggested. There have been large sales of somewhat doubtful merchandise, at very low prices, which have not netted the Government as much as the taxes would have, but the Government has always tried to arrive at the best solution to the problems arising from facts in its possession, and that is a problem which has undoubtedly bothered the Customs and Treasury and other seizing authorities very seriously.

Mr. WOODRUFF. May I ask this further question? Is it the custom of the authorities to sell at a low price liquors known to be good ?

Mr. CHOATE. No; as I understand it, they analyze and sell something which does not pass the analysis as reasonably wholesome. That does not speak for its quality, or does not speak for its being what appears on the label.

We in the Federal Alcohol Control Administration got out a separate set of labels for property sold at Government sales, applying as much of our regular labeling regulations as could conceivably be applied, stuff more or less of unknown origin, and that, to a certain extent, protected the customer to as great an extent as we could.

Mr. WOODRUFF. Is there any justification for the statement of Mr. Alprin to the effect that liquors were brought in here and, as I gathered his statement, encouragement was given to seizing those liquors?

Mr. CHOATE. I have no knowledge as to any particular case, but it is perfectly obvious that if the price is up and the sales that take place and are low enough, that could be done. I do not happen to know what the recent prices have been, whether any of them have gone low enough for that purpose or whether any enterprising bootlegger has taken advantage of that curious system.

Mr. WOODRUFF. What agency of the Government has the selling of these liquors?

Mr. ALPRIN. The Department of Justice.

Mr. CHOATE. The Department of Justice primarily, and the customs sells some of them under certain circumstances.

Mr. WOODRUFF. Your organization has had no knowledge of these transactions and, of course, has had no part in them?


Mr. FULLER. How long have you been associated with the liquor business?

Mr. ALPRIN. I was employed by what was then the Kentucky Distillers and Warehouse, before I studied law.

Mr. FULLER. Do you know how much it costs per gallon for making good liquor?

Mr. ALPRIN. I do not know the exact cost today, but they are reported to be anywhere from 30 to 50 cents per gallon, depending on the territory you can purchase, the amount of small grain used, and so forth.

Mr. FULLER. That is for the best grade?
Mr. ALPRIN. Yes, sir.

Mr. FULLER. How much does it cost a year per gallon, considering the evaporation and insurance and the carrying cost, to put it into storage, bonded warehouse?

Mr. ALPRIN. I would say approximately 10 cents per gallon per year.

Mr. FULLER. If it was there 4 years, there would be 40 cents to be added for everything, for 4 years, considering the evaporation ?

Mr. ALPRIN. That is correct, except where there is the case where the Government allows a certain amount of evaporation, and if there is more than that, the distiller pays a tax, and in some cases there is a little more than the 40 cents added for that purpose.

Mr. FULLER. That is in the general run?
Mr. ALPRIN. That is correct.

Mr. DINGELL. Mr. Alprin, Mr. McCormack brought out a question in connection with the seizure and sale. You have discussed the sale price of seized liquors, where it appears that there might have been a definite understanding to bring about a seizure.

Mr. ALPRIN. That is correct.

Mr. DINGELL. If the liquor is sold from 10 to 12 or 15 dollars a case less than the legitimate dealer can buy it for

Mr. ALPRIN. That is correct.

Mr. DINGELL (continuing). That is, adding a certain amount, that is added profit on the repurchase of seized liquor?

Mr. ALPRIN. Yes; and that money should go to the Treasury.

Mr. DINGELL. That is not the point which I want to bring out. Under the customs laws, when liquor or any other product or commodity is seized, an informer is paid 25 percent of the sales price. Is not that correct?

Mr. ALPRIN. I think that is correct. The Treasury regulations so provide.

Mr. DINGELL. I am quite certain of that. Is it not possible that in this respect there may be collusion between the informer and the original smuggler, who becomes the repurchaser of the liquor, and that he is adding another 25 percent of the sale price to his advantage ?

Mr. ALPRIN. That is possible.

Mr. DINGELL. And in all probability it is quite frequently done?

Mr. ALPRIN. Of course, I have not got evidence of that kind of dealing. That kind of dealing is not open and above board, and we never could get evidence, but it is very possible.

Mr. McCORMACK. We found that to be so on watches. Mr. ALPRIN. Of course, as I say, we cannot get the evidence. These men will not come out and say, “ This is my deal”, or “ These are the terms of my deal."

Mr. McCORMACK. Of course not.

Mr. ALPRIN. But you can readily understand from the circumstances that it is possible.

The CHAIRMAN. We thank you for your appearance.

Two of our colleagues, both of whom have stated that their districts are very deeply interested in this legislation, are present tonight. In courtesy to them, the Chair will call upon them for 10 minutes each.



Mr. CELLER. Mr. Chairman and gentlemen, I direct your attention to a very curious provision you have in your bill. Why it was put in is rather doubtful and somewhat dubious. I refer to page 1 and page 2, concerning what you call in your bill the “ Occupational Tax.”

We have occupational taxes in other statutes. For example, you provide for a $10 occupational annual tax. You probably know that you already have an occupational tax of $100 for a wholesaler, $100 for a rectifier, $100 for a distiller, $100 for a brewery, and I believe $50 for what is called a "small brewery", and the retailer $25.

Do you mean to repeal all those other occupational taxes by this $10 occupational tax? I leave that for your future consideration. I am quite sure you are going to withdraw that provision before you are through. In any event, it would be rather anomalous and somewhat ridiculous because you would have a situation where a rectifier would have to be a wholesaler and he would have to have two occupational taxes.

Mr. Vinson. Do you suggest withdrawing that?
Mr. CELLER. I certainly do.

Mr. CULLEN. You talk about these other occupational taxes. I note on page 2 this language:

Such tax shall be at the rate of $10 per annum and shall be in addition to any other occupational tax imposed on such person.

Mr. CELLER. I cannot see the efficacy of it nor the reason for it, sir. Mr. C'ULLEN. I am asking you a question.

Mr. CELLER. That is my answer. Mr. Cullen. I cannot see the reason for it if we have these other occupational taxes.

Mr. CULLEN. I just want it for the record.

Mr. CELLER. I do believe also, as was stated by the previous speaker, that these rules and regulations which go to the very meat of the situation, and really would involve a code, because they cover matters of exclusive outlets, tied houses, commercial bribery, consign

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