tras and the operas kept in and it really is rather ironical that whereas dances are often part of concert programs-and if they are, of course they are exempt as part of the symphony and concerts-they are also very often a part of opera and of course then they are exempt as being part of the opera. But a company like ours which is purely ballet is taxed 20 percent. And that tax added to all the other increases in costs that came on in recent years finally forced us to suspend a year ago. The CHAIRMAN. May I ask you this question: if the tax were removed, do you feel that it would restore the ballet activity again? Mr. WASHBURN. Yes. In fact, we already have plans to resume next year even if the tax is not repealed. We will try to anyway, but of course we do hope that it will be repealed and that we will be given the same treatment as nonprofit operation and nonprofit concerts. We feel we are just as much an art as they are, in fact, I think we are an older art in the history of art than either operas or even our predecessors. We go back to early Greek times and the dance has always been recognized as a great art form. Of course another irony of the case is that whereas the motionpicture companies 2 years ago were protesting that they were being unfairly discriminated against, they have succeeded, temporarily at least, in securing a hope of an entire exemption while my unfortunate ballet company and others like it would be still subject to a 20-percent tax. Incidentally, another example of why the ballet is closely allied or practically the same as concerts and the opera is that the same union, AGMA, the American Guild of Musical Artists, represents all the employees in those three groups. I have annexed to my statement here a letter from that union which heartily supports our plea. They have about 500 members who work in ballet. The CHAIRMAN. Without objection, it may be included in the record. (The letter follows:) Mr. WATSON WASHBURN, Perkins, Malone & Washburn, AMERICAN GUILD OF MUSICAL ARTISTS, 36 West 44th Street, New York 36, N. Y. DEAR MR. WASHBURN: I have read the statement which you propose to submit in connection with your testimony before the House Ways and Means Committee on extension to ballet companies, of the present exemption of the admissions tax. On behalf of the American Guild of Musical Artists (AFL), which has jurisdiction over the field of ballet and dance and which numbers amongst its membership over 500 dancers employed in the ballet field, I would like to endorse the statements and position taken by you and to urge remedial legislation to eliminate this discriminatory aspect of the present tax laws. Sincerely, AMERICAN GUILD OF MUSICAL ARTISTS, National Executive Secretary. Mr. WASHBURN. This ballet company of ours gave employment to nearly a hundred people in the course of its 14 years of work and, besides occasionally making visits to South America and Europe, it annually toured the whole United States and appeared in all the big cities and a great many of the smaller ones as well as many colleges, 30 or 40 colleges and concert places in small communities and altogether we have nearly a million spectators every year who all seemed extremely enthusiastic and enjoyed the performances. I feel sure that most people will agree that our company added considerable to the artistic wealth of the United States. It was quite a good deal due to our efforts that the ballet and dances have become a more important part than ever of the theater. I think I may say that without contradiction. It does seem a little unusually inconsistent and I realize it, since the revenue act has grown like Topsy in the last few years. There are a lot of inconsistencies, but it seems a little inconsistent for the Government to exempt our organization from all other taxes and even to exempt gifts to us, to allow them as deductions for income-tax purposes for the original donors and still to impose this very heavy 20percent tax on gross receipts. It also seems inconsistent, to repeat, that having granted the exemption to symphonies and operas, it should be denied to us, and finally it seems a hardship on American ballet companies and American audiences that we should have to pay, that the spectators should have to pay, and of course the burden of the tax falls on us, this 20-percent tax, while our country is contributing so much to foreign countries which subsidize their own ballet companies as well as their operas. Incidentally, it might be worth, as I hope the Code is going to be rewritten from top to bottom next year The CHAIRMAN. A good many laws will be rewritten, too. Mr. WASHBURN. If it is, I respectfully suggest it might be worth this committee's while to consider making this exemption if it is granted only cover those foreign countries which give us a similar exemption abroad because I have found that the British Government, for example, taxes the ballet foundation on some musical royalties which it derives from England, though we would under our present law exempt a similar tax for an English charity. Of course there are several ways of handling the actual mechanics of dealing with this admissions tax. If the general tax on profit organizations is reduced, could be reduced to a figure something like 5 percent in common with the general excise tax on practically everything throughout the country, then the commercial theaters and the commercial motion-picture companies probably could not or would not object too much to being in that general class. But on the other hand I think it would still be logical to exempt the tax-exempt organizations altogether from the admissions tax and that could be done in the presently complicated form by merely adding ballets to operas and symphonies in that long category of curious exemptions. I would again respectfully suggest if you want to simplify the code, it could be made so that any educational trust exempt under the general section 101 (6) would also be exempt from admissions on any performances which were part of its regular function, which would seem a logical and rational way of handling it and would not open the door to any fake promoters who might get hold of some charity and then put on some performances quite different, ostensibly for its benefit but to benefit themselves. I would be happy to answer any questions. I am awfully appreciative of your listening to me at such length. The CHAIRMAN. You have been most interesting, sir. We are glad to have you here. Are there any questions? The Chair hears none. Thank you very much. Mr. WASHBURN. Thank you, sir. The CHAIRMAN. The next witness is Mr. Francis V. Kessing, Jr., Esq., San Francisco. He does not seem to be here. The next witness is Mr. Benjamin M. Becker on behalf of United Manufacturing Co., of Chicago, Ill., accompanied by Martin M. Nelson on behalf of Bally Manufacturing Co., Chicago, Ill., and Bailey Walsh, Washington counsel for both companies. STATEMENT OF BENJAMIN M. BECKER, ON BEHALF OF UNITED MANUFACTURING CO., CHICAGO, ILL., ACCOMPANIED BY MARTIN M. NELSON, ON BEHALF OF BALLY MANUFACTURING CO., CHICAGO, ILL., AND BAILEY WALSH, WASHINGTON COUNSEL FOR BOTH COMPANIES Mr. BECKER. I appreciate the opportunity of being here. My name is Benjamin M. Becker, attorney at law, practicing in Chicago, Ill. Mr. Chairman and gentlemen of the committee, this statement is being made also on behalf of Martin M. Nelson, a Chicago attorney representing Bally Manufacturing Co., Chicago, Ill., and Mr. Bailey Walsh, Washington counsel for both companies, United and Bally. At the outset, Mr. Chairman, I might say that though we represent a segment of the amusement industry, we are not here asking for a reduction of taxes, however needed it is in a great segment of the American economy. We are here, Mr. Chairman and gentlemen of the committee, simply to ask your help in getting the Treasury Department to do what is in our judgment the clear intent of the Congress as expressed by laws that have been adopted. I have here a written statement which has been presented to the reporter and rather than prolong the proceedings this evening, with your permission, Mr. Chairman, I simply would like to review it very briefly and emphasize 2 or 3 points. The CHAIRMAN. Without objection, it may be included in the record. (The statement follows:) STATEMENT BY BENJAMIN M. BECKER, ON BEHALF OF UNITED MANUFACTURING CO., CHICAGO, ILL., JOINED IN BY MARTIN M. NELSON, ON BEHALF OF BALLY MANUFACTURING CO., CHICAGO, ILL., AND BAILEY WALSH, WASHINGTON COUNSEL FOR BOTH COMPANIES, IN RE EXCISE TAXES ON COIN-OPERATED AMUSEMENT DEVICES, CODE SECTION 3267 The problem to which these remarks are addressed seriously affects a segment of the amusement industry; in fact, the problem, if unsolved, could destroy it. It is proposed that code section 3267 of the Internal Revenue Code be amended so as to eliminate a confusing and burdensome situation that has developed in the collectors' assessment of the excise tax against coin-operated amusement devices. My name is Benjamin M. Becker. I appear here on behalf of United Manufacturing Co., 3401 North California Avenue, Chicago, Ill. I have been authorized by Mr. Martin M. Nelson, a Chicago attorney representing the Bally Manufacturing Co., 2640 West Belmont Avenue, Chicago, Ill., to state that this statement may be deemed to be presented on behalf of his client, too. Attorney Bailey Walsh, Washington counsel for both companies, collaborated in the preparation of this statement. 37746-53-pt. 4- 23 The petitioners are manufacturers of coin-operated pinball and other amusement machines.1 The petitioners sell the pinball and other amusement machines to distributors who, in turn, sell the machines to operators. These machines are placed on premises of small shopkeepers, taverns, and places of amusement. The proceeds of operation are divided between the proprietor of the establishment and the operator. The occupants of some of the premises award prizes if the player attains a designated score on each play of the machine or the highest score over a specified period, or, in some instances, they may redeem unused free games for 5 cents each, THE TAX IN QUESTION Section 3267 of the code imposes a tax on "coin-operated amusement and gaming devices." The occupant of the premises where a machine is located is liable for the tax. Under the statutory scheme "amusement and music machines" and "so-called slot machines" are separately classified and taxed. If the machine is an amusement machine, the tax is $10 per year on each machine. If the device is a slot machine, the tax is $250 per year on each machine. Pinball and other amusement machines should fall within the $10 classification. However, an attempt is now being made in some districts to include pinball and other amusement machines under the $250 tax because a prize may possibly be awarded for skillful play. We respectfully submit that the presence of a prize element does not warrant the imposition of the higher tax. As a matter of fact, since the first enactment, the collectors' offices throughout the country have uniformly assessed a $10 tax against pinball and other amusement machines. For some reason the Treasury has reversed its position. THE PROBLEM The problem arises now by virtue of the attempt on the part of the collectors in various districts to include some amusement machines under the $250 tax because a prize may possibly be awarded for skillful play. Such action has been taken by the collectors in New Orleans, La.; South Chicago and Fort Wayne, Ind.; Little Rock, Ark.; Decatur, Ill.; San Bernardino, Calif., and other places. Though the petitioners do not pay the tax directly, the ultimate consumers of the petitioners' products, the location owners, bear the burden of the tax. RATIONALE OF PETITIONERS' AND TAXPAYERS' POSITION-LEGISLATIVE HISTORY It is respectfully submitted that the presence of a prize element does not warrant the imposition of the higher tax. The rationale of petitioners' and taxpayers' position is found in the legislative history of section 3267, which clearly indicates that pinball and other amusement machines are not classified and are not taxable as slot machines. Section 3267 was first proposed by the House of Representatives as part of the revenue revision of 1941. As passed by the House, H. R. 5417 assessed a tax of $25 on each "coin-operated amusement and gaming device." "Coin-operated amusement and gaming devices" were defined as "(1) so-called pinball and other similar amusement machines, operated by means of the insertion of a coin, token, or similar object, and (2) so-called slot machines which operate by means of insertion of a coin, token, or similar object and which, by application of the element of chance, may deliver or entitle the person playing or operiting the machine to receive cash, premiums, merchandise, or tokens." The House obviously understood that pinball machines and slot machines were not the same, although it imposed a uniform $25 tax on each. If pinball machines were included in the general classification of slot machines, it was wholly unnecessary to mention them separately in clause (1). The report of the Ways and Means Committee also treated slot machines and pinball machines as separate categories (H. Rept. 1040, 77th Cong., 1st sess. 60 (1941)). The report stated: "Coin-operated amusement or gaming devices" are, briefly, machines which fall within the general classification colloquially referred to as pinball machines and slot machines." After the House passed its version of the bill, there were hearings before the Senate Finance Committee. At these hearings serious objections were raised against taxing pinball machines at the same rate as slot machines. Representa 1 Neither of the petitioners manufactures what are commonly known as slot machines. tives of the coin-machine industry requested that pinball machines be placed in a separate category and taxed at $10 per annum instead of at $25. They emphasized that the higher tax was not economically feasible and that its imposition would result in a loss of possible revenue by removing thousands of pinball machines from circulation.2 The Senate was impressed by this argument. Section 3267, as passed by the Senate, classified pinball machines separate and apart from slot machines, and reduced the tax on the former to $10 per machine while increasing the tax on the latter to $50 per machine. The report of the Senate Finance emphasized the basic intention to distinguish pinball machines from slot machines. S. Rept. No. 673, 77th Cong., 1st sess., p. 21 (1941). In the words of the report: "The House bill places a special tax of $25 per year upon each coin-operated amusement or gaming device maintained for use on any premises. "Your committee divides these devices into two categories. Upon so-caned pinball or other amusement devices operated by the insertion of a coin or token, the tax is reduced to $10 per year. Upon so-called slot machines, however, the tax is placed at $200 per year." * 3 The conference report was in accord in its understanding of the Senate amendment. The report stated that "the amendment establishes two different rates of tax: $10 per annum in the case of a pinball game, or similar game or amusement machine, and $50 with respect to so-called slot machines, the operation of which involves an element of chance." * The House accepted the Senate amendment and section 3267 was enacted as part of the Revenue Act of 1941. There is nothing in the congressional hearings or reports or in the various versions of section 3267 in the 1941 act which substantiates the inclusion of pinball machines in a broader classification as one of a number of different slot machines. Surely it would have been meaningless to refer to pinball machines by name and to classify them separately for tax purposes if they were also includible within the slot-machine category. Instead, it is clear that "slot machine" is a term of art conforming to its generally accepted meaning as a mechanical device, an essential part of which is a drum or reel containing insignia such as oranges, cherries, lemons, and bells. The Revenue Act of 1942 added many new excise taxes to the code. Among the amendments was one designed to bring all coin-operated amusement and music machines under the $10 tax formerly imposed only on pinball and similar machines. But enlarging the category of machines subject to the $10 tax did not remove pinball machines from that classification. On the contrary, the congressional reports on the amendment reaffirmed the continued inclusion of pinball machines under the $10 tax. In H. Rept. No. 2333, 77th Cong., 2d sess., p. 180 (1942), it was stated: "This section amends section 3267 of the code by defining 'coin-operated amusement devices' to include all amusement machines and music machines operated by means of the insertion of coins, tokens, or similar objects. Under this amendment there will be included in addition to pinball machines, a great variety of other machines, such as baseball and football games, machinegun games, music machines (so-called juke boxes), and many other types of coin-operated games."" The separate taxes imposed by section 3267 are placed on the coin-operated machines themselves, not on the use to which the machines may be put. We do not understand how a pinball machine can be transformed into something else merely by the award of nominal prizes for the attainment of high scores instead of additional free plays. The machine remains the same. It is still a device whereby one or more balls are propelled through a chute by the operation of a plunger in the hands of the player, with the ball then registering a score by hitting various bumpers or other objects or by dropping into holes and actuating electrically controlled circuits. The award of a prize does not mysteriously transform the machine into one containing insignia on reels or drums. See hearings before Senate Finance Committee on H. R. 5417, 77th Cong., 1st sess., pp. 1210-1215 (1941). 3 See also the additional statement on p. 55 of S. Rept. No. 673. H. Rept. No. 1203, 77th Cong., 1st sess., p. 18 (1941). In order to placate the fears of some manufacturers who were worried that their machines might be subject to the higher tax, the 1942 act also specifically stated that certain gum-vending machines which contained some of the characteristics of slot machines would not be taxed as slot machines. See hearings before Senate Finance Committee on H. R. 7378, 77th Cong., 2d sess., pp. 1135-1141 (1942). Emphasis added. See also S. Rept. No. 1631, 77th Cong., 2d sess., p. 266 (1942), which again refers to the "tax of $10 per year with respect to so-called pinball and other similar machines." |