[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
NEXUS ISSUES: LEGISLATIVE HEARING ON
H.R. 2315, THE ``MOBILE WORKFORCE
STATE INCOME TAX SIMPLIFICATION ACT
OF 2015;'' H.R. 1643, THE ``DIGITAL GOODS
AND SERVICES TAX FAIRNESS ACT OF 2015;''
AND H.R. 2584, THE ``BUSINESS ACTIVITY
TAX SIMPLIFICATION ACT OF 2015''
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
REGULATORY REFORM,
COMMERCIAL AND ANTITRUST LAW
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
__________
JUNE 2, 2015
__________
Serial No. 114-26
__________
Printed for the use of the Committee on the Judiciary
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Available via the World Wide Web: http://judiciary.house.gov
______
U.S. GOVERNMENT PUBLISHING OFFICE
00-000 PDF WASHINGTON : 2015
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Publishing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800;
DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC,
Washington, DC 20402-0001
COMMITTEE ON THE JUDICIARY
BOB GOODLATTE, Virginia, Chairman
F. JAMES SENSENBRENNER, Jr., JOHN CONYERS, Jr., Michigan
Wisconsin JERROLD NADLER, New York
LAMAR S. SMITH, Texas ZOE LOFGREN, California
STEVE CHABOT, Ohio SHEILA JACKSON LEE, Texas
DARRELL E. ISSA, California STEVE COHEN, Tennessee
J. RANDY FORBES, Virginia HENRY C. ``HANK'' JOHNSON, Jr.,
STEVE KING, Iowa Georgia
TRENT FRANKS, Arizona PEDRO R. PIERLUISI, Puerto Rico
LOUIE GOHMERT, Texas JUDY CHU, California
JIM JORDAN, Ohio TED DEUTCH, Florida
TED POE, Texas LUIS V. GUTIERREZ, Illinois
JASON CHAFFETZ, Utah KAREN BASS, California
TOM MARINO, Pennsylvania CEDRIC RICHMOND, Louisiana
TREY GOWDY, South Carolina SUZAN DelBENE, Washington
RAUL LABRADOR, Idaho HAKEEM JEFFRIES, New York
BLAKE FARENTHOLD, Texas DAVID N. CICILLINE, Rhode Island
DOUG COLLINS, Georgia SCOTT PETERS, California
RON DeSANTIS, Florida
MIMI WALTERS, California
KEN BUCK, Colorado
JOHN RATCLIFFE, Texas
DAVE TROTT, Michigan
MIKE BISHOP, Michigan
Shelley Husband, Chief of Staff & General Counsel
Perry Apelbaum, Minority Staff Director & Chief Counsel
------
Subcommittee on Regulatory Reform, Commercial and Antitrust Law
TOM MARINO, Pennsylvania, Chairman
BLAKE FARENTHOLD, Texas, Vice-Chairman
DARRELL E. ISSA, California HENRY C. ``HANK'' JOHNSON, Jr.,
DOUG COLLINS, Georgia Georgia
MIMI WALTERS, California SUZAN DelBENE, Washington
JOHN RATCLIFFE, Texas HAKEEM JEFFRIES, New York
DAVE TROTT, Michigan DAVID N. CICILLINE, Rhode Island
MIKE BISHOP, Michigan SCOTT PETERS, California
Daniel Flores, Chief Counsel
C O N T E N T S
----------
JUNE 2, 2015
Page
OPENING STATEMENTS
The Honorable Tom Marino, a Representative in Congress from the
State of Pennsylvania, and Chairman, Subcommittee on Regulatory
Reform, Commercial and Antitrust Law........................... 1
The Honorable Henry C. ``Hank'' Johnson, Jr., a Representative in
Congress from the State of Georgia, and Ranking Member,
Subcommittee on Regulatory Reform, Commercial and Antitrust Law 2
The Honorable Bob Goodlatte, a Representative in Congress from
the State of Virginia, and Chairman, Committee on the Judiciacy 3
The Honorable John Conyers, Jr., a Representative in Congress
from the State of Michigan, and Ranking Member, Committee on
the Judiciacy.................................................. 5
WITNESSES
Grover G. Norquist, President, Americans for Tax Reform
Oral Testimony................................................. 8
Prepared Statement............................................. 10
Arthur R. Rosen, Partner, McDermott Will & Emery LLP
Oral Testimony................................................. 16
Prepared Statement............................................. 18
Douglas L. Lindholm, President & Executive Director, Council On
State Taxation (COST)
Oral Testimony................................................. 27
Prepared Statement............................................. 29
Lawrence F. Leaman, Vice President of Taxes, MASCO Corporation
Oral Testimony................................................. 52
Prepared Statement............................................. 54
Jot Carpenter, Vice President, Government Affairs, CTIA--The
Wireless Association
Oral Testimony................................................. 59
Prepared Statement............................................. 61
Julie P. Magee, Chair, Multistate Tax Commission, Alabama
Department of Revenue
Oral Testimony................................................. 66
Prepared Statement............................................. 68
Dan L. Crippen, Executive Director, National Governors
Association
Oral Testimony................................................. 84
Prepared Statement............................................. 87
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Material submitted by the Honorable Henry C. ``Hank'' Johnson,
Jr., a Representative in Congress from the State of Georgia,
and Ranking Member, Subcommittee on Regulatory Reform,
Commercial and Antitrust Law................................... 97
Material submitted by the Honorable John Conyers, Jr., a
Representative in Congress from the State of Michigan, and
Ranking Member, Committee on the Judiciacy..................... 105
Material submitted by the Honorable Mike Bishop, a Representative
in Congress from the State of Michigan, and Member,
Subcommittee on Regulatory Reform, Commercial and Antitrust Law 120
Material submitted by the Honorable Hakeem Jeffries, a
Representative in Congress from the State of New York, and
Member, Subcommittee on Regulatory Reform, Commercial and
Antitrust Law.................................................. 127
APPENDIX
Material Submitted for the Hearing Record
H.R. 2315, the ``Mobile Workforce State Income Tax Simplification
Act of 2015''.................................................. 136
H.R. 1643, the ``Digital Goods and Services Tax Fairness Act of
2015''......................................................... 142
H.R. 2584, the ``Business Activity Tax Simplification Act of
2015''...................................................162
OFFICIAL HEARING RECORD
Unprinted Material Submitted for the Hearing Record
Material submitted by the Honorable Tom Marino, a Representative in
Congress from the State of Pennsylvania, and Chairman, Subcommittee
on Regulatory Reform, Commercial and Antitrust Law
http://docs.house.gov/Committee/Calendar/
ByEvent.aspx?EventID=103540
NEXUS ISSUES: LEGISLATIVE HEARING ON H.R. 2315, THE ``MOBILE WORKFORCE
STATE INCOME TAX SIMPLIFICATION ACT OF 2015;'' H.R. 1643, THE ``DIGITAL
GOODS AND SERVICES TAX FAIRNESS ACT OF 2015;'' AND H.R. 2584, THE
``BUSINESS ACTIVITY TAX SIMPLIFICATION ACT OF 2015''
----------
TUESDAY, JUNE 2, 2015
House of Representatives,
Subcommittee on Regulatory Reform,
Commercial and Antitrust Law
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:03 a.m., in
room 2141, Rayburn Office Building, the Honorable Tom Marino
(Chairman of the Subcommittee) presiding.
Present: Representatives Marino, Goodlatte, Johnson,
Conyers, Farenthold, Issa, Collins, Walters, Ratcliffe, Trott,
Bishop, DelBene, Jeffries, Cicilline, and Peters.
Staff present: (Majority) Dan Huff, Counsel; Andrea
Lindsey, Clerk; (Minority) Slade Bond, Counsel; Norberto
Salinas, Counsel; and Veronica Eligan, Professional Staff
Member.
Mr. Marino. The Subcommittee on Regulatory Reform,
Commercial and Antitrust Law will come to order.
Without objection, the Chair is authorized to declare
recesses of the Committee at any time. We welcome everyone to
today's hearing on Nexus Issues: Legislative Hearing on H.R.
2315, the ``Mobile Workforce State Income Tax Simplification
Act of 2015;'' H.R. 1643, the `Digital Goods and Services Tax
Fairness Act of 2015;'' and H.R. 2584, the ``Business Activity
Tax Simplification Act of 2015.''
I will now recognize myself for an opening statement.
I came to Congress with certain core principles that guide
my work in Washington. One is that we should aim for less
government regulation not more. That is why we are pleased to
hold this legislative hearing. With all the focus on
Washington, it is easy to forget the burdens that can flow from
state capitals. That is especially true when discussing
taxation of interstate commerce.
I am a staunch supporter of states' rights in the
principles of federalism, but I believe states should be
sovereign within their borders only. I have become concerned
when states trying to tax or regulate beyond their borders.
Unfortunately, this is happening with greater regularity and it
has necessitated the three bills we are examining at this
hearing.
Today, employees who travel across state lines for work
face a myriad of crushing income tax laws. This is true even if
they work in the state for just a single day. The complexity
and variation of different state laws places a significant
burden on the ability of businesses to deploy their workforces.
Small businesses, in particular, are especially effected.
It is also draining on the employees who must hire
accountants, at their own expense, to handle the paperwork for
multiple state tax jurisdictions. The Mobile Workforce State
Income Tax Simplification Act of 2015 addresses this problem.
It creates a bright line, 30-day threshold before a state can
impose income tax liability on a nonresident temporarily
working in the state. This minimizes compliance burdens on both
workers and employers so they can get back to work.
Just as states target nonresident workers for taxation,
they also target nonresident businesses. An increasing number
of states used the concept of economic presence to subject
nonresident companies to state income tax simply because those
companies have customers in the state. For example, New Jersey
has impounded trucks delivering boats to customers in New
Jersey, because the state demands that out-of-state
manufacturers pay income tax to New Jersey. Similarly,
Massachusetts demands income tax from out-of-state businesses
if they deliver trucks which carry through the state on their
own way to businesses from elsewhere.
The Business Activity Tax Simplification Act, known as
BATSA, requires an entity to be physically present in the state
for more than 14 days in a year because it can be subject to
state's business activity tax. It also sets a clear guideline
on what constitutes a physical presence in order to reduce
uncertainty.
The third bill before us is H.R. 1643, the ``Digital Goods
and Services Tax Fairness Act of 2015.'' This sets forth the
purchase of digital goods and services to prevent multiple
taxation of cross border sales.
Every one of these bills is bipartisan. It is a testament
to the soundness of their policies. I also commend the sponsors
of these bills, many of whom serve on the Judiciary Committee.
I note particularly Mr. Bishop, Ranking Member Johnson, and Mr.
Cicilline, who are original cosponsors of the Mobile Workforce
bill.
I look forward to hearing from our distinguished panel of
witnesses.
It is now my pleasure to recognize the Ranking Member of
the Subcommittee on Regulatory Reform, Commercial and Antitrust
Law, Mr. Johnson of Georgia, for his opening statement.
Mr. Johnson. Thank you, Mr. Chairman.
Today's legislative hearing is an opportunity to consider
three pieces of legislation that would address the divergent
patchwork of state laws enforcing various tax issues. The
Mobile Workforce State Income Tax Simplification Act is an
important bipartisan bill that will help workers across the
country and it will also help small and multistate businesses.
Having introduced this bill in both the 110th and 111th
Congresses, I am very familiar with this issue. I was pleased
to have introduced the bill in the last two Congresses with our
esteemed former colleague from North Carolina, Howard Coble,
and I welcome my colleague Congressman Bishop's leadership on
this bill. And I look forward to working together on this
legislation.
H.R. 2315 provides for a uniform and easily administrable
law that will simplify the patchwork of existing inconsistent
and confusing state rules. It would also reduce administrative
cost to states and lessen the compliance burdens on consumers.
I urge that the Committee move this bill promptly so that it
can come to the floor for a vote soon. This country's employees
and businesses deserve quick action.
Turning to H.R. 2584, the ``Business Activity Tax
Simplification Act of 2015.'' This legislation would establish
a physical presence standard which must be met before states
can impose a business activity tax. While proponents of this
legislation contend that businesses need more certainty in
determining what activities are taxable and that a uniform
standard would provide that, others have argued that states
should determine what activities are taxed within their borders
and that a physical presence standard created in this bill
would invite tax evasion.
Although I have supported similar legislation in the past,
I have grown concerned that this bill would prove too costly to
states. The Congressional Budget Office reported that a
substantively identical predecessor of this bill would cost
about $2 billion in the first full year after enactment and
that at least that amount in subsequent years. We should study
whether there are alternative methods which accomplish the same
goal of providing more certainty for businesses while
minimizing any impact on our state and local governments, or
perhaps revise the bill's language to dampen its affect on
state revenues.
Lastly, H.R. 1643, the ``Digital Goods and Services Tax
Fairness Act of 2015'' would prohibit state and local
governments from imposing discriminatory and multiple taxation
of digital goods and services and also establish a tax sourcing
framework for the sale or use of digital goods and services. I
have long supported this bill which will promote innovation in
sales through a national framework for digital purchases.
In closing, although I welcome today's hearing, I also look
forward to this Committee addressing the remote sales tax
issue. As a strong supporter of a level playing field, I have
long supported the Marketplace Fairness Act. Despite my
preference for a legislative hearing on that bill, I welcome
any movement toward addressing the remote sales tax issue.
And with that, Mr. Chairman, I yield back.
Mr. Marino. Thank you.
It is now my pleasure to recognize the Chairman of the full
Judiciary Committee, Mr. Bob Goodlatte of Virginia, for his
opening statement.
Mr. Goodlatte. Thank you, Mr. Chairman.
Good morning and welcome to all of our witnesses.
The unifying theme of this legislative hearing is ``No
Regulation Without Representation.''
For much of American history, state's cross-border reach
was strictly limited. Until about 1950, states could not tax
interstate commerce at all. Courts then began to relax the
rules. In 1977, the Supreme Court held that states may tax
interstate commerce if there is a ``substantial nexus'' to the
taxing state.
In the context of sales taxes, ``substantial nexus'' means
a seller is physically present in the jurisdiction. The Court,
however, has never clarified whether the physical presence rule
applies to certain other impositions, such as business activity
taxes.
Accordingly, states are increasingly exploiting the gray
area in the law to tax and regulate beyond their borders. For
example, California is now requiring that out-of-state farmers
who want to sell eggs in California comply with California
cage-size requirements which are twice the industry standard.
The Alabama Attorney General described the new law as
``California's attempt to protect its economy from its own job-
killing laws by extending those laws to everyone else in the
country.''
This is precisely the sort of protectionism that the
commerce clause is intended to prevent. It also highlights one
of the most pernicious aspects of states taxing and regulating
beyond their borders. It permits lawmakers to dodge
accountability for the burdens associated with their policy
choices by shifting them onto nonresidents who cannot hold them
accountable at the ballot box.
Indeed, this Subcommittee heard testimony in 2014 that, if
Congress lets ``economic presence'' rather than ``physical
presence'' becomes the standard, states will mostly exempt
resident companies from tax obligations while imposing them on
out-of-state companies. That is why I am so pleased that
Chairman Marino is holding this hearing.
The Business Activity Tax Simplification Act restores
physical presence, defined as presence for more than 14 days,
as a prerequisite to a state imposing business activity taxes.
Similarly, the Mobile Workforce Tax Simplification Act prevents
states from imposing income tax compliance burdens on
nonresidents who work in the state for less than 30 days a
year.
Critics raise concerns about state sovereignty and revenue
loss to the states. But a study of the Mobile Workforce bill
found it would have a de minimis impact on state revenues. In
addition, those objections proceed from the incorrect premise
that ``economic nexus,'' rather than ``physical presence,'' is
the appropriate touchtone for determining whether a state has
the authority to tax. In other words, these bills do not
deprive the states of anything to which they have a clear
claim.
Also, before the Committee is the Digital Goods and
Services Tax Fairness Act of 2015. It sets sourcing rules for
the purchase of digital goods and services. These rules will
help implement the Permanent Internet Tax Freedom Act's ban on
multiple taxes of Internet commerce. This ban expires October
1, of this year and the Committee will soon move to renew it.
The Committee is also eager to proceed with legislation
that levels the playing field between traditional and online
retailers without letting states tax and regulate beyond their
borders. Productive discussions continue.
These are important issues, and I look forward to the
witnesses' testimony.
Thank you, Mr. Chairman. I yield back.
Mr. Marino. Thank you, Chairman.
It is now my pleasure to recognize the Judiciary Committee
Ranking Member, Mr. Conyers of Michigan, for his opening
statement.
Mr. Conyers. Thank you, Chairman Marino and the Members of
the Committee, and the distinguished witnesses with us today;
as well as those that are interested enough to come to the
hearing itself.
Today's hearing focuses on three bills dealing with the
issue of state taxes. And as we consider them, there are
several points that I would like to present.
This Committee should first focus on establishing without
further delay a national framework that will empower the states
to enforce collection by remote sellers. Unfortunately, none of
the bills that are the subject of today's hearings address the
remote sales tax dilemma states are currently facing. More than
two decades ago, the Supreme Court recognized, in the 1992
Quill decision, that Congress is best suited to determine
whether a remote seller must collect taxes, sales taxes. Yet,
Congress has failed to make that critical determination.
Although Congress has considered various legislative
proposals, including during the last Congress when the Senate
overwhelmingly passed the Marketplace Fairness Act, the House
has not taken any meaningful action beyond holding hearings. We
owe it to our local communities, our local retailers, and state
and local governments to act this Congress. Otherwise, our
local retailers will continue to be at a competitive
disadvantage and our state and local governments will continue
to lose critical tax revenues as a result of remote sellers not
collecting and remitting sales taxes.
Lost tax revenues mean that state and local governments
will have fewer resources to provide their residents essential
services; such as education and police and fire protection.
Uncollected sales taxes mean fewer purchases at local retailers
which translate to fewer local jobs. The unfair advantage that
remote sellers have by not collecting sales taxes hurts us all.
Congress should not delay any further and it should work to
pass bipartisan legislation. I welcome the opportunity to work
with the Chair on moving legislation this Congress on remote
sales tax issues.
Now, as to H.R. 2315, the ``Mobile Workforce State Income
Tax Simplification Act of 2015,'' and H.R. 1643, the ``Digital
Goods and Services Tax Fairness Act of 2015,'' both of these
measures, although improved over several Congresses, still fail
to address the needs of all stakeholders. Even though H.R. 2315
incorporates much needed improvements reflecting important
input from the state governments and the business community,
the bill still requires further revisions to eliminate its
adverse impact on state revenues.
For example, if the bill were enacted as introduced New
York would lose upwards of $100 million in revenue. Chairman
Schumer will take note of that, I am sure. Similarly, the
sponsors of H.R. 1643 must work with the state and local
governments to draft language all parties can find agreeable.
Ms. Magee and Mr. Crippen likely will have suggestions to
address the state and local government's concerns with both of
the bills.
And finally, H.R. 2584, the ``Business Activity Tax
Simplification Act of 2015,'' is thoroughly flawed legislation
especially in light of the fact that it overrides the authority
of states to determine how and what they tax within their own
borders. The bill upends long-settled state tax practices by
implementing a standard falsely based on physical presence and
by including loopholes that make such a standard meaningless
for state governments.
The bill favors big multistate corporations at the expense
of small and local businesses. It encourages tax evasion by
creating opportunities for nationwide businesses to structure
corporate affiliates and transactions to avoid paying their
fair share of local taxes.
The bill prevents states from imposing business activity
taxes on businesses which have less than 15 days of physical
presence within the state. This will shift the state corporate
income tax burden onto local small businesses, manufacturers,
and service providers; in other words, the types of businesses
that pay local property and payroll taxes. And the measure will
eviscerate state revenues with respect to nearly identical
legislation considered several years ago.
The Congressional Budget Office estimated that it would
reduce state revenues by about $2 billion in the first full
year following enactment and at least that amount in subsequent
years and that it would generate even greater future state tax
revenue losses as corporations avail themselves of the bill's
virtually unenforceable standard and vast loopholes. We should
not be forcing upon the states a $2 billion decrease in their
tax revenues. Accordingly, I urge my colleagues to seriously
consider scrapping the Business Activity Tax Simplification Act
and let us start all over again.
Thank you, Mr. Chairman.
Mr. Marino. Thank you.
Without objection, all the Member's opening statement will
be made part of the record.
We have a very distinguished panel with us today, and I
will begin by swearing in our witnesses before introducing
them.
So would you please rise and raise your right hand please?
Do you swear that the testimony you are about to give is
the truth, the whole truth, and nothing but the truth so help
you God?
Let the record reflect that the witnesses have responded in
the affirmative.
Thank you. Please be seated.
I will introduce the witnesses for today. Grover Norquist
is President of Americans for Tax Reform, ATR; a taxpayer
advocacy group he founded in 1985. ATR works to limit the size
and cost of government and opposes higher taxes at the Federal,
state, and local levels. It supports tax reform that moves
toward taxing consumed income one time at one rate. Mr.
Norquist serves on the board of several organizations and has
served in many capacities and has served, also, in government
capacity as well; such as the Advisory Commission on Electronic
Commerce and as commissioner for the National Commission on
Restructuring the IRS. Mr. Norquist holds both an undergraduate
degree in economics as well as an MBA from Harvard University.
Welcome, Mr. Norquist.
Mr. Norquist. Thank you very much.
Mr. Marino. I am going to introduce everybody and then
we'll get back to you.
Mr. Rosen is a partner in global law firm of McDermott Will
& Emery LLP. His practice focuses on tax planning and
litigation related to state and local tax matters for
corporations, partnerships, and individuals. Mr. Rosen has held
executive tax management positions at Xerox Corporation, AT&T,
and he also advised the State of New York as a tax counsel. Mr.
Rosen is a fellow of the American College of Tax Counsel and is
listed in the Best Lawyers in America. Mr. Rosen has an
undergraduate degree from NYU, a master's degree from
Rensselaer Polytechnic Institute and a JD from St. John's
University School of Law.
Mr. Douglas L. Lindholm.
Am I pronouncing that correctly, sir?
Mr. Lindholm is president and executive director of the
Council on State Taxation, otherwise known as COST. Mr.
Lindholm's prior experience includes serving as State Tax
Policy Council for the General Electric Company. He also worked
in the Washington National Tax Service Office of Price
Waterhouse LLP. In 2006, Mr. Lindholm was named the Tax
Business 50 list of most influential tax professionals around
the globe. He is also the recipient of the 2009 New York
University Award for Outstanding Achievement in State and Local
Taxation. He holds a JD from American University's Washington
College of Law and a BA in accounting from Lynchburg College.
Mr. Leaman has served as Masco's vice president of tax
since September 2012. Mr. Leaman is responsibly for Masco's
multinational tax matters including all mergers and
acquisitions and represents Masco in the company's tax-related
government affairs matters at both the Federal and state level.
Due to his leadership role in tax, real estate, and government
affairs, he frequently provides strategic guidance to senior
Masco management including the CEO and the CFO. Mr. Leaman
received his undergraduate degree from the Michigan State
University and a master's degree in taxation from Walsh
College.
Mr. Leaman, welcome.
Jot Carpenter began working for CTIA in 2006 and is
responsible for strategic direction in day-to-day management of
the association's outreach efforts to Members of Congress and
other government agencies. Prior to joining CTIA, Mr. Carpenter
worked in the Washington Office of AT&T. Mr. Carpenter has also
worked for Telecommunications Industry Association and served
as a legislative assistant to Congressman Mike Oxley. Mr.
Carpenter has an undergraduate degree from Michigan--excuse me,
Miami University in Ohio. He holds one master's degree in
history from the Bowling Green State University and another in
telecommunications from George Washington University.
Welcome.
Commissioner Julie Magee--am I pronouncing that correctly?
Ms. Magee was appointed to the State Revenue Commissioner
for the State of Alabama by Governor Robert Bentley on January
18, 2011. Prior to her appointment, Ms. Magee was vice
president of the INS Trust Insurance group based in Mobile,
Alabama. During her tenure as State Revenue Commissioner, Ms.
Magee has served on the board of the Federation of Tax
Administrators, FTA, and as chair of the multistate commission,
NTC. She has also held other positions in several important
organizations. Commissioner Magee is a graduate of the
University of South Alabama.
Mr. Crippen serves as the executive director of the
National Governors Association or the NGA. Prior to his work at
NGA, Mr. Crippen served as the director of the Congressional
Budget Office from 1999 to 2002. Mr. Crippen has worked in the
private and non-profit sectors primarily on health care and is
now a board member of several health care related
organizations. He also served as the chief council and economic
advisor for then Senate Majority Leader, Howard Baker. Mr.
Crippen has an undergraduate degree from the University of
South Dakota; he also holds a master's degree and a Ph.D. from
the Ohio State University in public finance.
Welcome, sir.
Each of the witness written statements will be entered into
the record in its entirety. I ask that each witness summarize
his or her testimony in 5 minutes or less. To help you stay
within the time, there is a timing light in front of you. The
light will switch from green to yellow, indicating that you
have 1 minute to conclude your testimony. When the light turns
red, it indicates that the witness' 5 minutes have expired. And
I know that we are so, and you are so, intent on making your
statements and we really don't pay attention to the lights. We
don't pay attention to them up here. So, what I am going to do
is diplomatically just give a little tap to let you know that
your time has expired and could you please wrap it up quickly.
Thank you.
Okay. The Chair now recognizes Mr. Norquist for his 5-
minute statement.
TESTIMONY OF GROVER G. NORQUIST, PRESIDENT, AMERICANS FOR TAX
REFORM
Mr. Norquist. Okay? Thank you.
Grover Norquist from Americans for Tax Reform. Thank you,
Chairman, the Ranking Member.
One of the challenges we have in taxation is that
politicians love to tax people who can't vote against them. The
British did this and it caused them some trouble, but in the
states people like to try and tax people who live in other
states and can't vote against them or people who fly into their
town briefly and leave and don't vote and don't make campaign
contributions. And that's a challenge because, one, it violates
the whole concept of taxation without representation and it
doesn't allow any sort of tax; it undermines tax competition
between the states. It is what keeps state taxes more
reasonable than they'd otherwise be and efforts to allow people
to tax across state lines, such as taxing online sales,
businesses in a different state on the other side of the
country allows you to tax, audit, harass a business who cannot
vote against you and its employees cannot vote against you, and
it's safe to beat up on them.
I've heard some conversation about states' rights. States
don't have rights. States don't have rights. People have
rights. States exercise power. It's often abused against the
people in their state. That's not a good thing, but we ought to
limit that abuse to people in the state. They can raise the
taxes on the people who live and work in the state. But, to
export that tax to other people to reduce the opposition to tax
increases is problematic. The bills put forward today, a number
of them they make very good progress in that direction to make
sure that the taxpayers are not whacked repeatedly by different
taxing entities and by places that they can't vote on the
political leaders who impose those higher taxes.
I'm certainly here to endorse and support H.R. 1643, the
``Digital Goods and Services Tax Fairness Act of 2015;'' H.R.
2315, the ``Mobile Workforce State Income Tax Simplification
Act of 2015;'' and H.R. 2584, the ``Business Activity Tax
Simplification Act of 2015.'' All three begin the process of
making it more difficult for politicians to export taxes onto
people who do not have a voice in their elections.
The discussion that Chairman Goodlatte has put forward on
Hybrid Origin I think is a very good start. Origin sourcing
rather than allowing states, where states only talk to
taxpayers in their own state instead of going after taxpayers
and businesses and individuals in other states, is a very good
discipline on potential abuses by state and local governments.
Cities and states that have taxed their citizens and their
businesses so badly that they fled to other states are now
looking for a way to throw a harpoon into those that have
escaped and try and drag back tax dollars. That has to stop.
These are important steps in the right direction.
There have been efforts in the past by states and cities
that have so abused their citizens they've left that they want
to be able to figure out how to tax them anyway. Those efforts,
such as the Fairness Act, which is neither fair, to allow
people to tax across state lines and to empower states to do
that are moving in the wrong direction. The series of
suggestions here move in the right direction.
I would also add one that either you might be looking at in
the future or the transportation department, but H.R. 1528, the
End Discriminatory State Taxes for Automobile Renters,
introduced by Representative Sam Graves and Steve Cohen. That's
one that bans Discriminatory Taxes on car rentals. If you rent
a car from an airport, you know that the local politicians love
to lard it up with lots of taxes because you're just flying
into the city and leaving. You're not going to be voting on
them, but people do that and, depending on whichever city or
state you're going into, you get whacked with a whole bunch of
discriminatory taxes forbidding that interference with
interstate commerce as we do with other methods of
transportation falls into the category of what you're working
on here. And I think I would recommend as an important of
legislation.
Thank you.
[The prepared statement of Mr. Norquist follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
Mr. Marino. Thank you.
The Chair now recognizes Mr. Rosen.
TESTIMONY OF ARTHUR R. ROSEN, PARTNER,
McDERMOTT WILL & EMERY LLP
Mr. Rosen. Mr. Chairman, Members of the Committee, BATSA,
H.R. 2584, addresses a major problem facing American businesses
today, and that is states imposing tax on businesses that
aren't in the state. In effect, states are taxing activities
that occur outside their borders. States have taken two avenues
to achieve that goal. One is to assert the concept of economic
nexus and the other is to try to get around a Federal law
enacted in 1959 and that is Public Law 86-272. Economic nexus
is the assertion by a state that if an out-of-state business
has customers within its borders, then that state has a right
to impose tax on the out-of-state business.
P.L. 86-272, the 1959 law, was supposed to be a temporary
law. And the Willis Commission was impaneled by Congress to
look at this issue. And the Willis Commission came out with a
report that said states should have a physical presence
requirement and also states should have their apportionment in
a uniform manner around the country. While neither has
happened, states have gone in the opposite direction. So the
need for that law is even greater today than it was in 1959.
Now, BATSA addresses the economic nexus argument, as you've
heard, by establishing a physical presence test. A company must
have employees or property in the state for more than 14 days
during the year before the state may impose its direct tax on
that business. Also, 86-272 would be modernized to meet the new
economy.
Now, those who support BATSA do so for the following
reasons. Those people believe that tax should be paid to
jurisdictions that are furnishing benefits and protections to a
taxpayer, not to somebody outside. And states respond by
saying, ``Well, we're maintaining a marketplace for you, out-
of-state seller. We're maintaining a civilized society so you
can sell to our people. Therefore, you should pay us for
that.''
But I would hope, and I think everybody here would hope,
that elected officials do things for people within their
borders; their constituents. They're not maintaining a market
for outside businesses. People in the state get those benefits.
Another reason that physical presence is correct is because
income should be taxed where earned. We all know that income is
earned where labor and capital is employed. If you were to work
at home, suppose you telecommute or you have a consulting
business in your home in Virginia, and you work very hard, you
buy some equipment that you use for word processing and
research, and you find a customer in Utah or you're
telecommuting your employer is in Utah, you work every day in
Virginia. Where do you earn your income? Where your customer
is? In Utah? Of course not. You earn your income where you
expend your labor and your capital.
So when states say, ``Well, markets are important. There's
no sale, there's no profit.''
That sounds nice, a nice sound byte. But you really earn
your income where you expend your labor and your capital.
Next, BATSA would help American businesses compete against
foreign businesses. That's because, as a practical matter,
states have no way of enforcing economic nexus against
companies that have no presence in the United States. We've
seen a couple of states pull back from even attempting to tax
foreign businesses while they continue their attack on American
businesses.
Next, the United States and every other country that has
entered into a tax treaty in the world has this idea of a
permanent establishment in there. And that is similar to what
BATSA does, but BATSA is much more generous to the taxing
officials than even the treaty permanent establishment concept
is.
Now, those who are generally against this is executive
branch of state governments. The NCSL has not voiced any
opposition. As a matter of fact, the NCSL several years ago
passed a resolution supporting the principles in BATSA. So the
executive branch has a lot of complaints. They say, first of
all, current law allows us to tax out-of-state businesses.
Well, that's not exactly true.
The U.S. Supreme Court has never ruled on this case; has
never looked at the commerce clause issues. It denied my cert
petition in MBNA; the following year, it denied a cert petition
in Cap One. A court has probably been at Congress to decide how
to regulate this area. This is not Federal intrusion. This is
what interstate commerce is all about. That's why we have a
Constitution instead of the Articles of Confederation, to make
sure we have one economy, that states do not set up barriers.
And so this is Congress' role to regulate interstate commerce,
to make sure that tax is done correct.
People say this tool could be used for tax sheltering, tax
avoidance, tax shifting. The bill has a specific provision that
prevents companies from doing that, it gives states all the
rights they have to fight tax shams and close down loopholes.
Finally, a question was raised: Where is this cost going to
come from if, in fact, this is cost $2 billion to the states if
BATSA were enacted? Well, an independent study showed that this
was less than 5 percent of total business tax collections that
states get. Second, maybe the taxes should come from businesses
and people in the jurisdiction that are receiving the benefits
and protections of that government.
Thank you.
[The prepared statement of Mr. Rosen follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
Mr. Marino. Thank you, sir.
Mr. Lindholm?
TESTIMONY OF DOUGLAS L. LINDHOLM, PRESIDENT & EXECUTIVE
DIRECTOR, COUNCIL ON STATE TAXATION (COST)
Mr. Lindholm. Thank you, Chairman Marino, Ranking Member
Johnson, and Members of the Committee.
My name is Doug Lindholm. I'm the President, Executive
Director of the Council on State Taxation, also known as COST.
I am here today representing COST and the 275-member Mobile
Workforce Coalition in favor of H.R. 2315.
First, I'd like to thank Congressman Bishop and Ranking
Member Johnson for introducing that legislation this year. This
is the ninth year that we've been working on this issue, and
Congressman Johnson has been with us from the get-go. And I
thank you, sir, for your leadership on this issue.
The issue is how to simplify the patchwork of state
personal income tax laws that face any employee who travels for
work across state borders and, two, their employers who also
have an associated withholding requirement on that income.
Every day, hundreds of thousands of employees across the U.S.
are sent by their employers to work in states where they don't
reside. Most of these trips are temporary in nature. That is,
you leave your resident state, you go to a nonresident state,
and you're back to your resident state.
Currently, every state has that has a personal income tax
has different rules for when an employee, one, has to file a
personal income tax and, two, when their employers has to
withhold on that income for the state.
Exhibit B, in my testimony, has a very instructive map that
shows you the variation across the states. And this doesn't
just affect business either. It affects all employees and
employers, private sector and public sector alike. It affects
all businesses large and small, it affects non-profit
organizations, unions, teachers, state employees, the utility
crews that come from neighboring states to help get the lights
back on after a natural disaster. They can trigger this
personal income tax filing requirement. And let me tell you,
they have a lot more to think about than filing a nonresident
return. It even applies to Departments of Revenue and
Congressional staffers.
There is precedent for this legislation in this body.
Congress has already recognized and protected from this
patchwork of state laws. Industries that are highly mobile;
Merchant Mariners, railroad workers, airline workers, motor
carrier employers, members of the military, groups that are
highly mobile are protected from this patchwork by Congress.
Remember, this issue affects all employees who travel for work
and creates a huge administration and compliance burden that is
absolutely unnecessary.
The solution in H.R. 2315 is a pragmatic, effective
solution to this problem. It just provides a 30-day threshold
for temporary work assignments and until that 30 days is met,
the employee remains fully taxable in his or her resident
state.
Now, admittedly there is currently widespread non-
compliance in this area. But the truth is nobody could live
with full compliance. State Departments of Revenue would be
absolutely overwhelmed by this small dollar returns if
everybody was in full compliance here. And since the majority
of business trips in the country today are less than 30 days,
if this bill were enacted, instantly hundreds of thousands of
traveling employees would be brought into compliance and they
would not have to do a thing.
Now, what is untenable about the current situation is that
if a state does start looking around and find a noncompliance
in this area, it raises the specter or the perception of
selective enforcement. And when you have selective enforcement,
it tends to undermine the faith and credibility of our entire
tax system. It is entirely appropriate that Congress act here.
This is an administrative fix to a very different problem, one
that cannot be fixed by the states themselves because of the
out-of-state component here.
I want to commend the Multistate Tax Commission. They have
developed a model act of their own and we helped them. It was
adopted in 2011, but since then only one state, North Dakota,
has adopted it. And it's only effective unless other state win-
win and with other states adopted. And it is because this needs
concerted effort to resolve this problem that this body is the
only body that can take action.
One issue, you know, I am happy to take question on the
specifics of the bill. One part of the bill I'd like to
elaborate on, and that is the fact that the employer can rely
on the employee's determination of time spent in nonresident
state. For that purpose, that's only for purposes of levying
penalties. The amount of withholding is still based on the
actual time of the state. I think there has been some
misunderstanding of that in the past that has been changed and
corrected.
One other aspect, the bill does not cover professional
athletes, professional entertainers, and certain public figures
of national prominence who are paid on a per event basis. This
Committee passed this legislation nearly identical on voice
vote during the 112th Congress. We respectfully ask, on behalf
of COST and the coalition, to support the speedy adoption of
H.R. 2315.
Thank you.
[The prepared statement of Mr. Lindholm follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
Mr. Marino. Thank you.
The Chair now recognizes Mr. Leaman.
TESTIMONY OF LAWRENCE F. LEAMAN,
VICE PRESIDENT OF TAXES, MASCO CORPORATION
Mr. Leaman. Mr. Chairman, Ranking Member Johnson, and
Congressman Bishop, I'd like to thank you for the opportunity
to testify today on behalf of H.R. 2315. As the vice president
of Taxes for Masco Corporation, which is the member of the
coalition, we have been active members of the coalition
primarily to see enactment to this legislation through
enactment. And I'm here today to testify to be able participate
in a rare opportunity to move truly widespread bipartisan
legislation through the Congress.
Masco Corporation is headquartered in Taylor, Michigan.
It's one of the largest manufacturers of brand-name products
for the home construction industry and remodeling. We have
Delta Faucets, Behr Paint, KraftMaid and Merillat Cabinets,
Milgard Windows, Caldera Hot Spring and Spas; as well as we
install products for the home, as well as install insulation in
the new home construction market. Our workforce includes many
employees that travel across state lines that which include our
sales force; which includes installers for cabinets, installers
of insulation, as well as employees who provide support to the
big boxes, in particular Home Depot and Lowes.
We have a workforce of over 23,000 people in the United
States. I would say at least 40 percent of those employees
would qualify as mobile workers. Therefore, a large portion of
our workforce we had have to track.
We have a tremendous representation from the subcommittee
of our employee base. Chairman Marino's district in Sayre,
Pennsylvania has over 700 employees with Masco cabinetry. The
560 employees in Vista, California of Congressman Issa's
district. We have a BrassCraft headquartered in Novi, Michigan,
Representative Trott's district. And we have over a thousand
individuals employed in the State of Washington State, of
Congresswoman DelBene.
The problem. You know, Masco Corporation as most large
corporation make every effort to comply with tax laws and
regulations. And it's a tremendous burden and it takes
tremendous resources for us to accomplish that. Masco has a
long history of being transparent in working with taxing
authorities in a way to move forward the process.
The management of the workforce that we're referring to
today does not come under my responsibility. You know,
marketing, HR, sales, but oftentimes I'm consulted because of
the tax matters that they're faced with. People often ask me
what am I faced--what keep me up at night and Sarbanes-Oxley,
which is effectively referred to as Sox is one of my, you know,
biggest concerns. And when you look at the administration of a
workforce, 40 percent where they are traveling across state
lines, you know I'm never assured of the fact of when a problem
might arise that cause me Sarbanes-Oxley's issues.
Just to give you a couple of examples of what we're faced
with, you know, we have, as I indicated, a workforce that
travels across state lines. And when we take an example of our
installation service group, we have 7,000 employees that work
in that group and, yet, we file 10,500 W-2s on behalf of that
workforce primarily attributable to the fact that these
individuals cross state lines.
Another issue, albeit an extreme example, but we had one
individual who, because of crossing state lines and moving into
different municipalities in one given year, had 50 W-2s. So if
you can envision an individual who makes something less than
$50,000 a year and at the end of the year is faced with filing
his tax return, it's undaunting. And to highlight that issue,
he would be or others required to go out and hire tax
professionals at a cost that oftentimes they cannot afford. And
yet, it's not uncommon. It's quite frequent that we receive
calls from these CPA's, tax professionals, asking us, in terms
of how to administer these tax laws and what opportunities
might we be able to do to mitigate the costs to these
individuals.
So as we've talked about, this is a tremendous
administrative burden on both not just the employer but on the
employee as well.
And again, referring to the simplicity of, I think, the tax
legislation that we're putting forth, it's an administrative
fix where we are not doing anything to adjust or deflect the
proper tax reporting of income. It's merely administratively
expedient on behalf of all parties whether it is the
corporations, individuals, government taxing authorities, it's
a relief. So I'm here to encourage the Subcommittee to report
this out to the full Congress.
Thank you.
[The prepared statement of Mr. Leaman follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
Mr. Marino. Thank you.
Mr. Carpenter?
TESTIMONY OF JOT CARPENTER, VICE PRESIDENT, GOVERNMENT AFFAIRS,
CTIA--THE WIRELESS ASSOCIATION
Mr. Carpenter. Chairman Marino, Ranking Member Johnson, and
Members of the Subcommittee, thank you very much for the
opportunity to testify in support of the Digital Goods and
Services Tax Fairness Act. My name is Jot Carpenter and I serve
as vice president of Government Affairs for CTIA, the Wireless
Association, though I'm here today on behalf of the Download
Fairness Coalition. CTIA is a member of the DFC, a group of 29
companies and organizations whose unifying principle is the
belief that the Internet economy requires a consistent national
framework to guide the way that states and localities exercise
their right to tax digital products and services.
That consistent national framework is embodied in H.R.
1643, sponsored by your colleagues Lamar Smith and Steve Cohen,
whom we thank for their leadership and commitment to addressing
our concerns. The Smith-Cohen bill achieves the objective we
seek while embodying basic principles of fairness for consumers
and those like CTIA's members that effectively service the
agents of the states. All while avoiding the imposition of any
new taxes and respecting each state's determination on how or
if to tax digital products. It is framework that only Congress
can enact to provide the certainty, stability, and safeguards
needed to keep the digital economy a thriving part of our
overall economy.
At its core, the bill seeks to achieve two equally
important objectives. First, it seeks to preclude multiple
jurisdictions from claiming the right to tax the same
transaction by clearly assigning one jurisdiction, the
customer's home jurisdiction, the authority to impose taxes on
digital goods. Second, it seeks to preclude discriminatory
taxation of such commerce to ensure that digital goods are
taxes at the same rates and under the same rules that apply to
physical goods.
Now, with respect to the first of these objectives, H.R.
1643 draws upon the successful model that this Committee
created 15 years ago for wireless and voice services. The
Mobile Telecommunications Sourcing Act established a successful
national framework to guide how state and local jurisdictions
may tax wireless voice services eliminating the chance of
double taxation while simplifying carrier administration and
end user bills.
The MTSA has proven durable and effective, and it offers a
fine model for how digital products should be treated. But as
was the case with wireless voice 15 years ago, Congressional
action is needed because the states and localities have neither
the ability nor the Constitutional authority to create the
necessary framework on their own.
With respect to the second of our objectives, H.R. 1643
establishes the simple principle that digital goods should not
be subject to discriminatory taxation. The discriminatory
taxation of communication services and digital commerce has
been widely acknowledged as problematic since the Advisory
Commission on Electronic Commerce, on which Grover served,
delivered its report during the Clinton administration and
increasingly the digital nature of our economy demands a
solution to this inequity.
There is no reason why this summer's beach reading should
be taxed differently if it is downloaded to a Kindle or a
tablet that if it is purchased in paperback at the local drug
store. And H.R. 1643 will ensure that digital and physical
goods are subject to the same treatment. While it is proper to
leave to the states the decision about whether and at what
level to tax these goods, it is a completely reasonable
exercise of Congressional authority to prevent discrimination
among them.
The important nondiscrimination provisions of H.R. 1643
also complement other bills before the Committee; such as the
Goodlatte-Eshoo Permanent Internet Tax Freedom Act and the
forthcoming Lofgren-Franks Wireless Tax Fairness Act. H.R. 1643
and those bills will move us away from a tax system designed
for the long-passed days of Ma Bell and instead align our
telecom system with the age of the smartphone and mobile
broadband. Today's information economy deserves no less.
Mr. Chairman and Members of the Subcommittee, thank for
this opportunity to testify in support of H.R. 1643. I hope the
Committee and the House will approve the bill at the earliest
possible date.
Thank you.
[The prepared statement of Mr. Carpenter follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
Mr. Marino. Thank you, sir.
The Chair now recognizes Commissioner Magee.
TESTIMONY OF JULIE P. MAGEE, CHAIR, MULTISTATE TAX COMMISSION,
ALABAMA DEPARTMENT OF REVENUE
Ms. Magee. Good morning.
Thank you, Chairman Marino and Ranking Member Conyers and
Members of the Subcommittee. My name is Julie Magee and I am
the Alabama Commissioner of Revenue. I am also the chair of the
Multistate Tax Commission, as well as secretary of the Board of
Trustees for the Federation of Tax Administrators. And it is in
my capacity in these organizations today that I'm here. On
behalf of them and all of the states that participate, I would
like to say we greatly appreciate this opportunity and hope
that our testimony here, which is provided in more detail in
written form, is helpful.
The Subcommittee is considering legislation that would have
a substantial impact on state taxing systems, tax
administration, and enforcement. We realize there are always
going to be those who would like Congress to regulate state
taxation. That is why we appreciate the fact that this
Committee and Congress in general has been very cautious over
the years in responding to these calls for Federal involvement.
I just want to briefly point out the most critical problems
these bills present. That obviously means that I will be
focusing on the negatives, and I apologize. But we hope that it
helps this Committee understand why we oppose these bills.
First, let me address the Mobile Workforce State Income Tax
Fairness and Simplification Act. This bill restricts state
imposition of income state and tax withholding on wages for
nonresident employees working in the states. Just like every
major country that has an income tax including this one, states
impose income tax on nonresidents. Those nonresidents then get
to take a credit against taxes imposed by their home country or
state. This bill would prevent states from taxing any employee
that is in the state for less than 6 weeks regardless of how
much that employee makes. This bill also essentially makes
employer withholding and recordkeeping voluntary for many
nonresident workers.
For my role as a tax administrator and any other tax
commissioner will tell you, including the head of the IRS, that
having employers withhold taxes on wages and keep records is
the key mechanism to making our income tax system function. We
understand that it wouldn't be reasonable to require
withholding for nonresident employees who are only in a state
for a few days during the year. That's why revenue departments
rarely, if ever, make an issue out of it.
At the Multistate Tax Commission, we recognize that there
was a potential issue for some employers and we developed a
model law which we have recommended to the states. It would
impose a 20-day threshold, would not apply to high wage
employees, would require employer recordkeeping, but would not
require withholding for less than 20 days. And we've said this
publically many times before. We would be happy to join hands
with industry and go to our state legislatures and get this
model law enacted.
The second bill I want to address is the Digital Goods and
Services Tax Fairness Act. This bill is very complex and has
been studied by our organization and others. As for the special
protections in this bill, I would just note that states have
not taxed digital goods and services more than other products.
If anything, they've taxed them much less. But, more important
is the effect of the sourcing rules. Congress has imposed a
uniform sourcing rule on a state sales tax once before and the
area of mobile telecommunication services called the Mobile
Telecommunications Sourcing Act.
Both that act and this bill basically say that only one
state can tax the sale of something; generally the destination
state. But unlike the Mobile Telecom Act, this bill does not
grant the destination state the authority to require collection
of the tax from a seller that doesn't have physical presence in
the state. And as you know, that the states can't collect tax
from remote sellers like Internet sellers has become a huge
problem for the states.
If the bill prevents the origin state from taxing the sale
and doesn't grant the destination state the authority to do so,
then most sales of digital products will escape any tax.
Finally, and most importantly, I want to express our deep
concerns for the Business Activity Tax Simplification Act. This
bill has been around a long time. And as you know, the National
Governors Association has said that the CBO's office estimate
of the physical impact on the states which could be $2 to $3
billion for the first year is just the tip of the iceberg. No
state that imposes a business or corporate income tax doubts
that they will see substantial erosion of the tax base if this
bill were to be enacted.
This bill creates a tax-free zone for big, multistate,
multinational companies and allows them to use tax strategies
to shift income as to avoid state taxes all together. What this
means is that mostly smaller, domestic, local businesses that
can't lower their taxes by engaging in income shifting will
ultimately be at a disadvantage. And from an administrative
standpoint, it also means the states are at a disadvantage
because the main problems of enforcement in the business tax
area are coming up in the context of these big multinational
entities which have great resources to engage in tax planning
and are located at other parts of the country or the world.
As with the Mobile Workforce bill, the commission is also
recognized that there could be an issue here, especially for
the smaller businesses. So again, the commission has proposed a
solution in the form of a model act that creates a
responsibility file only when a business exceeds a certain
amount of sales into the state. A few states have enacted this
model already. Tennessee did so most recently.
Again, we'll be more than happy to go to the state
legislatures and promote this legislation.
Yes, sir.
[The prepared statement of Ms. Magee follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
Mr. Marino. Thank you.
Ms. Magee. Thank you.
Mr. Marino. Mr. Crippen?
TESTIMONY OF DAN L. CRIPPEN, EXECUTIVE DIRECTOR, NATIONAL
GOVERNORS ASSOCIATION
Mr. Crippen. Chairman Marino, Ranking Member, so I hear is
Mr. Johnson, Members of the Subcommittee; I am pleased to
appear on behalf of the National Governors Association.
Mr. Chairman, I want to begin with----
Mr. Marino. Sir, could you please pull your mike a little
closer if it is not on?
Mr. Crippen. Sure.
Does that work?
Mr. Marino. Much better.
Mr. Crippen. Okay.
I want to begin where I will end by saying that it's
unfortunate the Subcommittee was unable to formally discuss the
tax issue of greatest importance to the states: The need to
create parody between in-state and out-of-state retailers
regarding the collection of state and local sales taxes.
Governors maintain that before any Federal legislation
regarding state taxation is passed, Congress should first
address this disparity.
Let me start with the bills at hand. First, the Mobile
Workforce State Income Tax Simplification ACT. NGA has simply
not taken a position on H.R. 2315. Unfortunately the bill would
federally prevent the authority of states to tax the income of
certain residents who work in the state fewer than 30 working
days or up to 6 weeks. As such, the legislation has the effect
of prohibiting the source of state revenue, one of NGA's
principle objections to Federal action in this case.
NGA therefore urges the Committee to carefully consider the
potential negative effects and state revenues before moving the
bill forward. As my colleague, Commissioner Magee, just said,
the Multistate Tax Commission has a model bill which would
allow preemption for up to 20 days. States have come together
with a solution here. So we believe the states can continue to
work. New York, in fact, is considering the preemption of up to
14 days, and New York being the state that has the largest
single exposure here.
Turning to the Digital Goods and Services Tax Fairness Act,
as we all know, the digital economy is part of the most complex
state tax laws facing the states and facing you, quite frankly.
Balancing the desire to promote electronic commerce for the
sovereignty of states to determine their own tax system,
requires both state collaboration and Federal cooperation to
ensure government, business, and consumers all benefit from the
21st century marketplace.
NGA opposed earlier versions of this legislation and
subsequently joined with proponents of the measure to negotiate
a framework that was workable for states and provide a greater
certainty for businesses and consumers. Despite NGA's work on
crafting or helping to craft H.R. 1643, NGA cannot endorse the
bill primarily because the framework of taxation of digital
goods, without establishing the states have sufficient nexus to
collect taxes on digital transactions, is simply not
acceptable.
Finally, the Business Activities Tax Simplification Act.
Mr. Chairman, NGA has opposed virtually every version of the
BATSA introduced over the past several Congresses. Each bill is
represented none more than Federal intrusion into state matters
that would allow companies to avoid and evade state business
activity taxes, increase the tax burden on small businesses and
individuals, alter establish constitutional standards for state
taxation, and cost states billions of existing revenue.
U.S. courts have long recognized the authority of a state
to structure its own business tax system as a core element of
state sovereignty. BATSA would interfere with this basic
principle by altering the Constitutional standard that governed
the states may tax companies conducting businesses within their
borders.
Mr. Chairman, we believe BATSA is structured for the
economy of the last century and not this century.
All the bills before the Committee today, we believe have a
common goal: Balancing the sovereignty of states who set their
own tax and revenue systems versus the benefits of uniformity
for ever-growing digital and mobile economy. To really
accomplish this goal, however, Congress must first work with
states to establish a level playing field for all retailers
both in-state and out-of-state. Specifically, NGA calls on
Congress to authorize states to require remote vendors to
collect state sales taxes.
Mr. Chairman, before I describe how such authority might
work, first let me tell what it is not. What we are advocating
is not a tax increase but rather the collection of taxes
already owed. Further and most importantly, it's not a tax on
business but the collection of taxes on consumers within a
state. Some of my panel members and members have mentioned the
``taxation without representation.'' As a point-of-view of the
economist, Mr. Chairman, I can tell you what we're advocating
is quite the opposite.
We're asking for a collection of taxes already owed by
residents within the states. They actually have the ability to
vote within the state from which their taxes would be imposed,
as well establish the principle for economists that sales taxes
are indeed consumption taxes. They fall on the folks who are
buying the goods and services. So this is not a tax on
businesses out-of-state but rather a collection of taxes
already owed on residents within the state.
Currently, disparity exists on the taxation of goods and
services subject to state and local taxes as you know. If a
consumer buys at a local store, the approximate sales tax is
collected from the consumer by the merchant and remitted to the
taxing authority. If this same, identical transaction occurs
over the Internet, the taxes are not collected by the merchant
and the consumer rarely pays the equivalent use tax to state
and local government. The Internet retailer is effectively
subsidized by the inequity in the current tax system. This
problem is compounded by the explosive growth of the Internet
as more retailers are harmed and sales tax bases further
eroded.
State and business communities have worked together for
more than a decade to address this issue. In fact, have come up
with something called the Streamline Sales and Use Tax
Agreement with 44 states and the District of Columbia, local
governments, and business community coming together. This is a
destination-based taxing regime and to-date over 1,700 local
businesses, mostly small retailers, are voluntarily collecting
sales taxes in these streamline states and have remitted more
than $1 billion in sales tax revenues. Obviously, it can be
done without the adverse consequences or trade by the
opponents. It is working today for 1,700 retailers in a number
of states.
Last Congress, the Senate overwhelmingly passed the
Marketplace Fairness Act legislation to federally authorize
states to require the collection of state taxes in return for
simplifications of their tax codes. The House delayed
legislative action and failed to take up the bill. In our
opinion, this was a missed opportunity. NGA calls on this
Committee to work with states this Congress to take up and pass
meaningful and workable legislation that will once and for all
address this core issue.
[The prepared statement of Mr. Crippen follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
Mr. Marino. Thank you, sir.
We will now move into the period of the Congress men and
women asking questions and I will recognize myself for 5
minutes.
Mr. Carpenter, I am going to ask you to put your
Constitutional hat on here. Does Congress have the clear
Constitutional authority to enact Digital Goods and Services
legislation? Why or why not?
Mr. Carpenter. Mr. Chairman, I believe you do. I think it
is a very reasonable exercise of the commerce clause. There is
a fairly high standard for suggesting to states that they can't
tax, but it has been long upheld by the courts that it is a
reasonable exercise of Congressional authority to tell them how
they may tax. And that is what this bill does. It says we are
going to have a national framework and some basic rules to
address the sourcing issue, and we are going to have some rules
around nondiscrimination.
That is all the bill does. I think it is a completely
reasonable exercise of the Committee's authority.
Mr. Marino. Does anyone on the panel disagree with that
interpretation that the legislators have Constitutional
authority?
This is a first. This is good. This is a first.
Mr. Carpenter. Are we done? [Laughter.]
Mr. Marino. Shortly, thank you.
Mr. Leaman, you described what not only a business has to
go through because of the way the law is now, and you describe
also what an employee has to go through. I think you said one
individual had 50 W-2s. Could you expand upon that a little
bit? Explain to us and to the public what the corporation has
to go through step-by-step and what the, more importantly, the
individual has 50 W-2s has to go through even if he or she is
preparing them himself or herself.
Mr. Leaman. That is correct.
From a corporate standpoint, it really does come down to a
tracking mechanism. So, how do you take the ability to track
23,000 employees? I used to think that tracking physical assets
in a plant was a difficult task until I started having to track
employees covering the country.
So, it is a mechanism. We have put in place procedures, and
what complicates it is oftentimes the employee or the manager
will just, on a spur of the moment, need to satisfy a customer
needs or demand and say you need to go to state A today or
tomorrow to accomplish that customer needs. So that is never
reported back to payroll or the tax department in terms of
being able to track that person. So once we are able to obtain
that information by year-end, we then have to process the W-2s
and oftentimes the employee themselves don't even realize they
are going to be subject to multiple state taxation because they
are not finding out until January of the close of the calendar
year.
So once they receive that, they contact a tax advisor
because they have no idea how to handle that. And oftentimes
the tax advisors, because they are in a situation just as we
are, they want to comply with their ethical standards and
professional standards and do what is appropriate according to
statute. So it is not easy as it might be suggested to say it
won't be enforced.
And so, consequently, you know, we are in bind because we
know we need to comply with statutes and regulations. And Turbo
Tax doesn't handle 50 W-2s, by the way.
Mr. Marino. So, in essence, if an employee worked in each
of the 50 states of the United States, would he or she have to
be cutting, if they owe taxes, checks to each of those 50
states?
Mr. Leaman. That is correct.
Mr. Marino. Thank you.
Mr. Leaman. Minus those that aren't subject to the state
income tax.
Mr. Marino. Yes.
Mr. Norquist, obviously I support this legislation but I am
going to play devil's advocate here and use my state as an
example in my minute and a half. My district goes all the way
to the Eastern New York. Say there is a trucking company right
on the other side of the New York border and they are going to
deliver something to Ohio. And they drive through the State of
Pennsylvania. They don't fuel-up in Pennsylvania, they cross
the line right into Ohio, and deliver their merchandise. Why
should Pennsylvania not be able to tax that entity, that
company, that person, for the use of the road?
Mr. Norquist. Well, if Pennsylvania had reasonable gasoline
taxes, he would fuel-up in Pennsylvania and that would solve
the problem. A lot of what the advocates and defenders of
incompetent governors and incompetent mayors have been doing is
saying we can't reform our government to cost less; we can't
have reasonable tax laws. So because our taxes are too high, we
really object to the fact that other states and cities who are
competently governed, they have lower taxes, and people prefer
to work, save, invest, and purchase things there.
It is a distraction when politicians lust after pennies in
the cushions of the sofa instead of looking at how to reform
government so it costs less in the first place and politicians
have been chasing after, trying to nickel and dime the new
economy whether it is taxing Uber or Airbnb or the Internet.
And at some point, they should govern and figure out how to do
things more effectively and have taxes that are competitive
with competently-run entities.
Mr. Marino. Thank you. My time has expired.
The Chair now recognizes the Ranking Member from Georgia,
Mr. Johnson.
Mr. Johnson. Thank you, Mr. Norquist. I am glad that we
agree on marketplace fairness. It shows that people with
different philosophies, in terms of the role of government in
our society, do have common ground on a number of issues and
marketplace fairness is one of them. I would be remiss if I
were not to ask you about marketplace fairness.
Mr. Norquist. The Marketplace Fairness Act?
Mr. Johnson. Yes.
Sales taxes are due on brick and mortar purchases. They are
collected at the time of sale or the point-of-sale. Why is it
that online purchases should be treated differently?
Mr. Norquist. Well, online purchases can be taxed by the
state where the business exists. Most states have chosen not to
do that because then they would have to, if you are in Maine,
you would have to tax L.L. Bean's sales, which you could do.
Every sale in Maine, L.L. Bean could be taxed by Maine. They
choose not to.
So politicians don't want to mug the guy in their state
because they vote.
Mr. Johnson. Well now, many states and local governments
want to be able to collect use taxes from Internet sales. And
they cannot do so----
Mr. Norquist. From citizens in their state or in their
town?
Mr. Johnson. That is correct.
They want to be able to tax purchases.
Mr. Norquist. They can legally do that to the citizens in
their state. What they are not allowed to do is go across the
state lines and tax somebody in another state.
Mr. Johnson. Well, no. I mean marketplace fairness would
just simply enable states and local governments to collect at
the point-of-sale sales taxes on purchases made online. But
you----
Mr. Norquist. From the business in another state.
Mr. Johnson. Yes, correct.
Mr. Norquist. Right.
Mr. Johnson. You oppose that?
Mr. Norquist. Yes.
Look, states, local governments, have the power to tax
their own citizens and they can abuse them as much as they can
get away with and still get elected in the next election. But
you can't have----
Mr. Johnson. Why do you oppose a state's desire to be able
to collect those taxes though?
Mr. Norquist. Because they are exporting their state power
into another state and it leads to tremendous opportunities for
auditing harassment.
Hi, here's a memo from the State of Alabama to the business
in New York. We think you owe us $100,000 in sales tax. Here's
another letter, which is a financial contribution request from
the Attorney General of the state. If you fill this form out,
you can disregard the other one.
Mr. Johnson. Well, I hate to interrupt you but I really
would like to have further dialogue with you on this particular
issue, as well as a range of issues. And I am going to make an
effort to reach out to you so that we can sit down and talk
offline.
Mr. Norquist. Sure.
Mr. Johnson. Because I realize how important you are to
what is going on in America today. And I would love to have the
opportunity to sit down and talk to you.
Mr. Norquist. I would be delighted.
Mr. Johnson. Thank you.
Acuity Brands is a leading lighting manufacturer based in
Georgia with facilities across the country. Acuity employees,
over 1,000 associates in my home state of Georgia and over
3,200 associates nationwide, who travel extensively across the
country for training, conferences, and other businesses. In a
letter in support of H.R. 2315 that I will insert into the
record, Richard Reese, Acuities Executive Vice President,
writes that current state laws are numerous varied and often
changing requiring that the company expend significant
resources merely interpreting and satisfying states
requirements. Reese concludes that unified clear rules and
definitions for nonresidents reporting and withholding
obligations would undoubtedly improve compliance rates and it
would strike the correct balance between state sovereignty and
ensuring that America's modern mobile workforce is not unduly
encumbered.
Mr. Lindholm, what is your response to that statement?
Mr. Lindholm. Thank you, Mr. Johnson.
I think he hits the message spot-on. You know, the key word
there is balance. The mobility of our workforce is one of our
economy's greatest assets. This bill is not an effort to
regulate our state tax system or to nationalize our state tax
system. It is a recognition that we have 50 different rules and
we could very easily have one rule.
We are a Nation of 50 states but only one economy.
Companies that are operating within that economy have to
compete globally with companies operating in the Pacific Rim,
in the E.U., and South America that don't have to deal with the
cumbersome nature of a subnational tax system such as ours.
This is just a, you know, the problem is not that a specific
state has the wrong statute. The problem is in the disparity of
the rules.
Mr. Johnson. Thank you.
And with that, Mr. Chairman, I would ask unanimous consent
to insert the following materials into the record. One is a
letter from Acuity Brand's lighting, one of the leading
manufacturers of lighting and controls equipment in the world,
in support of H.R. 2315. And also, a letter from the Council on
State Taxation, the premiere state tax organization
representing taxpayers, in support of H.R. 2315.
And with that I yield back.
Mr. Marino. Without objection.
[The information referred to follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
Mr. Marino. The Chair now recognizes the Chairman of the
full Judiciary Committee, Congressman Goodlatte.
Mr. Goodlatte. Thank you, Mr. Chairman.
I want to thank all of our witnesses for their testimony
and I will start with Mr. Norquist.
You support the Business Activity Tax Simplification Act,
BATSA, which would codify physical presence as the standard for
business activity taxes. What do you say about the Marketplace
Fairness Act, the Senate bill on sales taxes, remote sales
taxes, and similar proposals that would move in the opposite
direction and repeal the physical presence standard as it
currently applies to sales taxes?
Mr. Norquist. Yes.
The target of politicians who want to be able to raise
taxes on people who can't vote against them was never really
online sales or sales taxes. I served on the commission that
you guys set up to think through back in the 90's how do we tax
the Internet or Internet sales. And one discussion was, well,
what if we taxed Internet sales but we passed BATSA and the
advocates of higher taxes said, ``Oh, no. Are you kidding?
There is no money to be had taxing sales tax as we want. We
want to be able to tax business activity across state lines.''
So while they are nice to have this small amount of money
that they can garner from people in other states and businesses
in other states from online sales, so-called ``Marketplace
Fairness Act,'' which we strongly oppose, they also don't want
BATSA because they want to reach across state lines on
corporate and income taxes as well.
Mr. Goodlatte. Thank you. And you have pretty much answered
with that answer my second question. So I will go down the line
starting with Mr. Rosen.
It strikes me that all of these bills are addressing areas
where states waste a lot of resources and businesses waste a
lot of resources complying with regulatory tax procedures that
cost a lot of money and don't yield, often, a lot of revenue.
And I am wondering if you would just comment on that
observation?
Mr. Rosen. Yes, that is absolutely true.
There is a study conducted by a University in Michigan that
found that complying with income taxes, state income taxes, was
much more burdensome than even sales taxes. And in preparation
for today, I was thinking of bringing a 600-page printout of
just how to source certain services among the various states. I
decided that would be too dramatic so I didn't bring it. But
the complexities involved in dealing on an interstate basis are
just huge.
And that is in addition to the principle that, if I am not
getting the benefits protections from the government, why
should I have to learn all the laws and rules that the
government promulgates?
Mr. Goodlatte. Do you think the states, themselves, would
be better served by having clear, bright lined tests in all
these areas? They can tax their own constituents and those who
clearly have sufficient physical nexus in a state or locality
to impose that tax, but then, also, encourage their own
businesses in their area to not worry about all of these tax
complications and go out and expand their businesses. That
really seems to me what the whole purpose of interstate
commerce is and why we wrote a new Constitution to promote, in
1787, to promote interstate commerce and have the Federal
Government regulate it to the extent it needs to be regulated
and not have, at that time 13, and today 50 different states
imposing complicated different regulations?
Mr. Rosen. I think you are absolutely right. I think the
inefficiency is generated by this murky area of nexus. When
does a company have enough connection with a jurisdiction
before that jurisdiction can assert its jurisdiction over that
business has been a debate for many, many decades.
Mr. Goodlatte. Okay. I am running out of time so I am going
to give Mr. Lindholm an opportunity to weigh-in on this.
Mr. Lindholm. You know, on the BATSA bill specifically, you
know, we have the world's strongest economy and we still don't
know, companies still don't know when they have a filing
obligation when they enter into a state. That is
unconscionable. That should be fixed.
Mr. Goodlatte. Mr. Leaman?
Mr. Leaman. With respect to H.R. 2315, we have a real
example within the State of Michigan where we pattern the audit
process after the IRS Federal Cap program; where they are
auditing us in real-time. And they have taken 40 percent of
their time out of the audit process.
And so, to address your question about the efficiencies of
government, government is looking for the opportunities to
reduce the administrative burdens internally. And I think these
laws go a long way to reduce that burden.
Mr. Goodlatte. Mr. Carpenter?
Mr. Carpenter. With respect to the Digital Goods bill, I
think clarity and simplicity absolutely would benefit not only
consumers and the businesses that are trying to serve as agents
of the states, but clarity in the form of this legislation
would benefit the states. I think it is a very open question
today whether they have clear authority to tax in the digital
goods space. I think it is very analogous to when this
Committee acted 15 years ago to bring some clarity to how
mobile voice was dealt with. And I think for that reason the
legislation would benefit all sides of the equation; consumers'
businesses and states alike.
Mr. Goodlatte. My time has expired but if you allow the
people with a somewhat contrary point-of-view to weigh-in----
Mr. Magee. Without objection, of course.
Mr. Goodlatte. I would like to hear Ms. Magee.
Why wouldn't having clear bright line tests save the states
a lot of resources that they devote to trying to collect what
are sometimes small amounts of taxes and the growth of your in-
state businesses in their ease with which they can do more
business outside of the state, and you will derive more revenue
from that, replace whatever your concerns are for losing
revenue now?
Ms. Magee. Well, with regards to income tax, the State of
Alabama almost, as totally coupled with IRS regulations. So
there is a lot of consistency already on the books and that is
pretty common nationwide.
So most states do adhere and couple to the IRS regs. So if
a corporation is following IRS rules regarding its certain
taxing issue than they are also following the states.
Mr. Goodlatte. Good. So that consistency helps you.
Ms. Magee. The state percentage is very, very small, bear
in mind, compared to the Federal income tax amount. Our
effective rate in Alabama for corporations is about 3 percent.
Mr. Goodlatte. Got it.
Mr. Crippen?
Mr. Crippen. I would say clarity is always good, but as an
economist I would say those lines need to be drawn to meet the
economic reality. These days, physical presence is much less
important as a means or end of business than it ever was.
Manufacturing is not in states, it's off-shore. Electronic
commerce can exist anywhere. Incentives to move income around
are paramount. So, yes, lines are nice, but they have to be
drawn in a sense to reflect economic reality.
Mr. Goodlatte. But duplicative taxation and regulation that
a business might face in a multitude of states that it is
attempting to do business in can have a detrimental effect, can
it not, on the economic growth of that business and job
creation?
Mr. Crippen. It could have but it depends on, again, where
we have talked about some solutions here today on mobile
workforce, for example. States are working on exemptions not
unlike the bill would entail, but it is not, I think, I think
it is a false promise to say that a number of day's exemption
relieves a lot of burden. You are still going to have to track
those employees.
And so, the question is what relief do you want to give
these larger businesses as opposed to what revenue impacts do
you want to have on states and----
Mr. Goodlatte. Well, on many of these issues we are talking
about smaller businesses too, are we not? I mean particularly
with regard to Internet sales tax issues. A business going into
a state to attend a meeting or attend a conference or an
exposition of some kind and then being subject to filing tax on
that would seem to yield very little to the state relative to
what it is effort has got to be to try to collect that.
Thank you, Mr. Chairman.
Mr. Marino. The Chair recognizes the Ranking Member of the
full Judiciary Committee, Congressman Conyers.
Mr. Conyers. Thank you very much.
Back to Director Crippen, you have indicated that Congress
should address the remote sales tax issue before any other
Federal legislation regarding state tax issue is passed. And I
think you are pretty firm on that and I would like you to
elaborate if you think you need to anymore.
Mr. Crippen. Sure.
Well, I think the one point we may not have made as much as
we ought to is that it is a very large and growing problem as
Internet sales increase. We are now approaching $300 billion a
year. Estimates are that within a few years that will double.
And so, it means that the inefficiencies in our tax system and
the imposition on small businesses and governments will double
as well. It is a very large problem and growing rapidly.
Mr. Conyers. Now you have had something to say, I think,
about Mr. Norquist's suggestion that we pass a permanent
Internet tax moratorium. As you know, we have historically
extended the moratorium on a temporary basis. Are there
circumstances in which we could pass a permanent moratorium
that would meet your approval?
Mr. Crippen. I don't think so, Mr. Chairman. Certainly,
none that we have seen. It is obviously in a position on state
taxing authority and there are a number of states, as you know,
who already have this, have exercised this power, and are
grandfathered in these extensions.
Mr. Conyers. Ms. Magee, there are several legislative
proposals introduced or are floating around to address the
remote sales tax issue. There is the Marketplace Fairness Act
in the Senate, Chairman Goodlatte's discussion draft focusing
on hybrid origin sourcing approach, Mr. Chaffetz's discussion
draft of a rewrite of marketplace fairness. Are any of these
proposals meet the perspective that you have on this subject?
Ms. Magee. I have not seen Chaffetz bill yet. So I am told
it looks pretty similar to Marketplace Fairness Act and we
strongly support Marketplace Fairness Act.
We have had consumer's use tax on the books in Alabama
since 1936. The tax is owed. It is a field on the individual
income tax return for every taxpayer in our state to complete,
to fill out, how many dollars they spent on remote sales in
order to calculate the tax. It is a mandate that has been on
the books since 1936.
What we are asking now is that you pass a law that requires
the retailers to collect and remit the tax to the states in a
simple way. They are already doing it now. We have hundreds of
thousands of accounts in Alabama that are already remitting use
accounts. And what we have, of course stores that have nexus,
but we also have voluntary remittance because some of the
retailers don't want to program their shopping cart twice. They
want to program it once.
So we are already receiving, from voluntary remitters, this
use tax that is legally owed. We are just asking the retailer
environment be directed by Congress to remit it to the states
in a simple way.
Mr. Conyers. What about the hybrid origin sourcing
approach, does that meet your high standards?
Ms. Magee. No, sir, it does not. [Laughter.]
Mr. Conyers. Okay.
Mr. Lindholm, what is your view on some of these different
approaches?
Mr. Lindholm. On the sales tax collection issue?
Mr. Conyers. Yes.
Mr. Lindholm. The Supreme Court has indicated that the
reason that they are low to allow collection is because of the
burdens imposed by our 50 state system. We have been very
supportive of the streamline sales tax project in an effort to
get standardization in the area, standard definitions, adequate
notice to make things simpler for businesses trying to comply
with 50 states and thousands of localities, different rules.
We, therefore, are supportive of efforts to allow a
collection responsibility as long as significant steps are
taken to make it a simpler system for businesses to operate
within.
Mr. Conyers. Thank you so much.
Mr. Chairman, I would like unanimous consent to enter these
three documents into the record: The National Council of State
Legislatures letter; a joint letter from local government
organizations; and a joint letter from several labor groups
including AFSCME, AFL-CIO, AFT, NEA--has he done it already?
Okay. And UAW.
Mr. Marino. Without objection, so ordered.
[The information referred to follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
Mr. Conyers. Thank you, sir.
Mr. Marino. Yes.
The Chair now recognizes the gentleman from California,
Congressman Issa.
Mr. Issa. Thank you, Mr. Chairman.
Every once in a while, we get an opportunity here to quote
something and, in this case, I guess I will paraphrase. It does
seem like it is Groundhog Day again. And although, those who
remember that movie realize that, you know, we keep coming
back, we keep having the same discussion, the panel does
change, some of you age, others do not. [Laughter.]
Grover, you can take it any way you want on that one.
[Laughter.]
So, since we are here again, I am going to try and take a
different tack than I did perhaps the last seven or eight times
we had a similar hearing on fairness and Constitutionality, and
so on. And ask my question briefly and really intended for the
public to make sure that the American people get more
comfortably with the approaches that Congress is taking.
And Mr. Carpenter, I will probably use you as the
Constitutional Strawman. That will make Chris Cox happy.
But, Mr. Crippen, I think you did a good job of it too.
Sales tax is owed by whom?
Mr. Carpenter. Sales tax on a digital good would be owed by
the purchaser of the digital good.
Mr. Issa. But an analogue good?
I buy a washing machine, it leaves Pennsylvania, it arrives
in Ohio, I live in Ohio, it is delivered to my home; who is the
tax authority that determines that and who is to pay it?
Mr. Carpenter. Ohio would be the tax authority. And the
consumer, to the extent they----
Mr. Issa. Right.
So, going to the commissioner for just a second, any good
arrives in Alabama pursuant to whatever the tax is, where it is
delivered, where the person resides depending upon how you
configure your law, that tax owed by the individual. We, the
people, voting public, all the rights in privileges and
obligations that come with taxation and representation. We are
taxing ourselves at six and a half, seven and a half, 8
percent, whatever, on that washing machine delivered to our
home in Alabama. Correct?
Ms. Magee. That is correct, sir. That is the law.
Mr. Issa. Okay.
So here today, we are really only dealing with whether or
not we participate in assisting the states in the collection by
their citizens of the tax. And, would you all agree, for
everyone out there, that the taxes on the citizen or the person
who buys it and that in fact that tax is lawful and determined
by the states. Right? The states have a right to tax their
residents and they do it. And I am not dealing with some of the
other bills here today. I am just sort of dealing with digital
or non-digital products delivered to someone.
So the perplexing problem we have been dealing with for
five or six Congresses is how do we in fact or do we assist the
states in doing it recognizing that we have a long tradition
that if you do not have nexus--Commissioner, if you do not have
nexus over a company, the mere shipping of goods or even the
incidental participation of a salesman going in and out, does
not create nexus. From your background, that is true right?
Ms. Magee. Well, because of the Quill decision, yes, sir.
Mr. Issa. Right.
And we want to keep that. We don't want to have 50 states
putting an auditor into a cubicle at every small business that
happens to sell over state lines, do we?
Mr. Magee. No, sir.
And I think you will find great support for a uniform
auditing methodology as marketplace fairness had in it. I think
that the states----
Mr. Issa. Okay. Well, before we get into the uniform
auditing because you would agree--and Mr. Crippen, I guess I
will go to you because I cited some of your good words earlier.
We, in Congress, do not easily have the ability to say that a
nonresident of a state shall in fact fall under any mandate of
another state, do we?
Mr. Crippen. That is right.
Mr. Issa. We do, though, have the ability to support a
state in collection of taxes by its own residents. Correct?
Mr. Crippen. Correct.
Mr. Issa. So I am just going to close with one question and
it is not in any of these bills. Every state in the union
today, as I understand it, would have the ability to mandate
that UPS, not the post office, we would have to assist in that,
UPS, FedEx, and any other common carrier collect taxes at the
time of delivery or ensure that they are collected the same as
customs does when something comes from outside the country into
the U.S. That authority exists. Isn't that true?
So ultimately, it is a question if this economy, this
digital economy, continues to grow, of whether states in order
to defend, if you will, the destruction of their own brick and
mortar businesses find it necessary to find ways to collect if
we don't act. Would that be correct? Would you all agree that
some acting will in fact prevent arbitrary actions by the
states?
Mr. Carpenter?
Mr. Carpenter. We certainly think clarity in this space
would be helpful and should come from Congress.
Mr. Issa. And Mr. Chairman, if we could just let Mr.
Norquist chime in and I----
Mr. Norquist. I think that Congress certainly could make
things a lot worse. They have a track record that suggests this
happens from time to time and the Marketplace Fairness Act
would empower states against citizens and businesses in other
states. So that would be moving in the wrong direction, but a
number of these bills all move in the right direction in
simplifying what is going on and making sure that states only
tax citizens that actually live and work in their states.
Mr. Issa. Thank you, Mr. Chairman.
Mr. Norquist. And vote.
Mr. Marino. The Chair now recognizes the Congressman from
the State of Washington, Ms. DelBene.
Ms. DelBene. Thank you, Mr. Chair. And thanks to all of you
for being with us today. I am very happy that we, as a
Committee, are taking up state tax issues. In many areas of the
law, the digital age has created new complexities and
definitely at times illogical results where the law hasn't kept
up with the pace of technology or the ways we purchase or live
and do business. However, as someone who has a career in
business, in technology, and a former revenue director for the
State of Washington, I can tell you that from both perspectives
some of the bills we are discussing today seem to be misguided.
The physical presence standard in BATSA, for example, would
favor large businesses that have a limited physical presence,
but a huge volume of economic activity within an individual
state. Meanwhile, shifting the state corporate tax burden to
main street small businesses along with manufacturing, national
resources, and service industries, businesses that create local
jobs and pay local property taxes. It is easy to envision an
environment under BATSA where the big guys are planning around
and avoiding local taxes all the while reaping the benefits of
doing businesses in states across the country.
Meanwhile, small businesses that are paying for the
benefits for doing business in any given state are put at a
competitive disadvantage. And this critical point goes to
marketplace fairness, which we have been talking about or the
online sales tax issue, which really boils down to ensuring
brick and mortar stores that make up the fiber of our
communities aren't penalized or put on an unequal playing field
without a state online retailers.
I know we've talked about this a bit and, Commissioner
Magee, I wondered if you could tell us the economic impacts
this not passing legislation like marketplace fairness has on
your state? And I also would like you to highlight what that
means to local jurisdictions because we talked about state
revenues but this is primary revenue source for local
jurisdictions that I think is important we highlight the impact
there.
Ms. Magee. Oh, absolutely. Thank you.
You know, I have never been a big fan of passing a tax
because the state needs the revenue. I am more of a fairness
person. And I think the issue here is an unequal playing field
for the brick and mortar versus the Internet retailer, or the
online remote seller. So I would not want to say, Alabama, it
needs this law because we need a $100 million for the general
fund. That is true and it would probably bring anywhere from
$100 and $175 million per year into our state, city, and county
coffers. But that is not my point here today.
My point for all state administrators is that we don't like
to pass taxes or incur new regulations just to plug a funding
gap. We think it is a fairness issue. We want to treat all
business owners with an equal manner. And right now, there is
not an equality issue when it comes to having a brick and
mortar store in Alabama or any other state that has a sales
tax.
Ms. DelBene. Now, to be clear, this is not a new tax. This
would not be passing new taxes. You indicated earlier, these
are use taxes that are already owed.
Ms. Magee. Since 1936.
Ms. DelBene. You know, I went to a renting store in my
district, good example, brick and mortar in a local community.
People come in, try on running shoes, find the exact pair they
need and many times might leave that store and buy it online
just because of the difference between the amount they would
pay with sales tax versus without sales tax. They are still a
resident of a state. They are still buying it, but that shows
you that we have an unequal playing field where there is a
disadvantage from our local retailers. I assume you have
scenarios like that that you hear about all the time.
Ms. Magee. We definitely do. It is called showrooming.
And so, it is incredibly unfair because they are paying,
the local business paying property tax, they are paying payroll
tax, they are employing our citizens. And yet, the profit
margin is being increased for the online retailer than the
brick and mortar retailer. So it is definitely a huge problem.
We are seeing a great erosion of our sales tax base and it
is only because of the way the product is distributed. The
product is exactly that same pair of tennis shoes. But the way
it is distributed means the state, cities, and counties lose
out on that sales tax we would have otherwise received. Except
for the consumer who technically owes a tax and we will still
ask them for that tax, but can you imagine tracking down that
kind of volume in order to get the same tax revenue had the
retailer just collected it at point-of-sale.
Ms. DelBene. And in a state like mine, Washington State,
where we do not have a state income tax, collection is even
more complicated because there is not that place on the form to
fill out. It would be a totally separate process, which makes
it even more challenging and highlights how important
legislation like marketplace fairness would be.
Thank you very much. I am running out of time.
And I yield back, Mr. Chair.
Mr. Marino. Thank you.
The Chair now recognizes the Congressman from Michigan, Mr.
Bishop.
Mr. Bishop. Thank you, Mr. Chair.
Thank you to the panel. I greatly appreciate your time and
testimony today.
I am very interested in this area of public policy, having
come from small business myself, having seen the stifling
effects of regulation on small business in particular. This
particular bill, H.R. 2315, the Mobile Workforce bill,
addresses the concern that I think is consistent with what we
are seeing today with the global workforce and in a way in
which we deploy our employees across this country. In many
cases, we do it without a real understanding of just how well-
traveled our employees are and we have to do whatever we can to
ensure that we follow and track our employees, which is an
added burden.
I am very interested to hear, and I guess I would like to
direct this to Mr. Leaman, we have heard today a discussion
that suggests that business is almost the enemy of government.
We have heard words like ``evade'' and ``avoid'' tax liability.
To me, as a business owner, I am aghast at such a thought, that
somehow I have to defend myself from this suggestion that I am
liable in some way, shape, or form and my business is in a
position to have to respond to that.
A business like Masco, to what extent do you dedicate
resources to address these issues when a taxing entity comes in
on an audit or some kind of inquiry? What resources do you put
forward to have to deal with that to ensure that you can avoid
and evade compliant with whatever law there is? Is there
uniformity to the way in which they approach this process? I
know you have the CAP program in your company, can you explain
to us the resources dedicated to what you do?
Mr. Leaman. Yes, Congressman. Likewise, I take it
personally when you hear comments about business because
historically Masco has always put forth the effort to cooperate
with the taxing authorities and comply with the tax laws. To
give a perspective at the Federal level with the IRS Cap audit
out of a department of, let's say, 25 people, we probably have
about six or seven people that work with the IRS, literally, on
a regular, daily basis. They reside in our department.
With the Michigan Cap program, we have been able to
simplify that process where they are able to come in and, over
a 3-month period, start and complete the audit with about two
or three of our resources advocated. But, again, streamlining
and simplifying the compliance and the audit process by the
cooperation with these programs. Albeit, other states don't
have similar programs, we make similar efforts to assist them
in completing their task and their job because we know and we
recognize they have a job to do to collect and to assess proper
revenues by each company.
So, you know, our efforts are primarily focused in terms of
how we run our tax department around how we cooperate with
taxing authorities.
Mr. Bishop. So who defends the employee in situations like
this?
Mr. Leaman. And that is problematic. Because, again, as the
chief tax officer of the company and my staff, we are unable to
provide any kind of tax guidance or service and they are left
on their own. And as I alluded to in my comments, you know we
can't even assist their tax advisors who contact us looking for
assistance and guidance as well, too. And I think, really, when
you boil this matter down, you know, I think all parties are
properly assisted with H.R. 2315. I think the employees will be
the ones who will be the single biggest beneficiaries from this
enactment.
Mr. Bishop. Thank you, sir.
Quick question for Mr. Rosen. A constituent asked me the
other day about the CAT tax in Ohio. Their company has no
presence, no physical presence in Ohio, yet their components,
Ohio's commercial activity tax taxes their component down the
line in its end sales position. Can you tell me about this and
tell me whether or not BATSA trust is the issue?
Mr. Rosen. Yes.
Ohio was the first state to statutorily enact economic
nexus with a quantitative threshold. And so, the people--the
businesses in Ohio, and the residents of Ohio--loved it when it
first happened; they said, ``This is great. We are going to get
the revenue from outside our state. We don't have to pay
anything. This is wonderful.''
But then, we found businesses over time, when no other
state were following Ohio's lead, now those in-state businesses
have to pay tax to other states. So they didn't get very far.
And so, the CAT, the Commercial Activity Tax, in Ohio would be
covered by BATSA. The 1959 law, 86-272, refers just to net
income taxes. But a number of states have done inappropriate
tax planning by looking at the Federal law saying, ``Ah, if we
change from a net income tax to another tax, we don't have to
obey this Federal law. We have that in legislative history in
several states.''
And, Ohio is one of those. Yes.
Mr. Bishop. Thank you, sir.
Now, Mr. Chair, may I ask for unanimous consent that a
document that I am holding be entered into the record entitled
Employer-Employee Experiences with Nonresident Withholding? It
is a testimonial of several different employers and employees.
It is compiled by members of the Mobile Workforce Coalition,
the American Payroll Association, and the Council of State
Taxation.
Mr. Marino. Without objection, so ordered.
[The information referred to follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
Mr. Marino. The Chair now recognizes the Congressman from
New York, Mr. Jeffries.
Mr. Jeffries. Thank you, Mr. Chair.
And I also want to thank the panelists for your presence
here today and for the information that you have communicated.
If I could just start with Mr. Norquist, and I thank you
for you presence and for the work that you have done in the
area of tax equity. We may not always agree on your particular
positions but your contribution to the public square has been
notable and significant. So I thank you for that.
I wanted to ask about this concept that I think exists
among some in the tax equity space, which is that there is this
notion that there are donors and there are takers in the tax
context. Is that a framework that some people use in the tax
equity space?
Mr. Norquist. Well, do you mean cities and states raise
taxes and take money from people who earned it?
Mr. Jeffries. Talking about individuals, for instance. As I
understand it, there is the view among some, and I don't know
if you subscribe to this position, but there is a view amongst
some that you have got donors in the tax system and then you
have got takers. And the donors, as I understand it, are
individuals who give more to the Federal Government in income
tax than they get back in return in terms of Federal benefits.
Is that a framework that----
Mr. Norquist. You are looking at states and cities or
individuals?
Mr. Jeffries. Individuals.
Mr. Norquist. I guess you could look at it that way, but
everybody and the Army would be a taker then.
Mr. Jeffries. Okay.
I am just wondering because there are some----
Mr. Norquist. I am not sure it is a useful concept but,
yes.
Mr. Jeffries. I am not sure I agree with the concept either
but there certainly have been some conservative thinkers within
this institution in my other service on the Budget Committee
who have put forth this context that there are donors and there
takers and the donors give more to the Federal Government in
income tax, pay this high burden, 39.6 percent, and don't get
reciprocal benefits in return in terms of whatever the case may
be; Social Security, Medicare, Federal benefits.
Mr. Norquist. We are going to have to come up with a
different word than donor because, as I understand it, tax
collection is not a voluntary activity.
Mr. Jeffries. Okay. I think we can agree with that.
Now, in terms of the Mobile Workforce State Income Tax
Simplification Act of 2015, I think I got that right. Seems
like we need a simpler title. But the Mobile Workforce State
Income Tax Act, it would cost New York State, I represent a
district within New York State, approximately $110 to $130
million per year which is more than all other states combined;
as I understand it. And I am trying to figure out the rationale
for putting this forward.
From an equity standpoint as it relates to--what federalism
allows is the individual states to have an opportunity to tax
activity that occurs within its jurisdiction. So, if you could
help me out, Mr. Norquist or Mr. Lindholm, with the rationale,
I would be grateful.
Mr. Norquist. Well, I think you want the workforce to be as
mobile as possible. You want it to be, for people to travel
across state lines and across city lines, as easily as
possible. You want to reduce the total regulatory paperwork on
how people handle this stuff. And there are very real abuses
where, you know, the government says we think you thought of
something in California and you moved to Nevada and you
invented it there, and they chase after people for years and
years to tax--they were doing their thinking in California.
I think that it is very dangerous if governments can,
again, reach out into people who largely live in other states
and easily raise taxes on them because there isn't the capacity
to vote against those elected officials. A lot of people in New
York who do some of their work outside of the state, I think
bright lines that make it easier for people to travel and work
and not feel they are going to end up getting, you know, gone
after by the government is probably a good idea.
Mr. Jeffries. Well, thank you and I understand your
electoral accountability point.
In the time I have remaining, Mr. Chair, I would just ask
unanimous consent to introduce a document prepared by the Tax
Foundation Special Report, Number 158, ``Federal Tax Burdens
and Spending by State.''
Mr. Marino. Without objection, so ordered.
[The information referred to follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
Mr. Jeffries. And what this document demonstrates is that a
state like New York, for instance, in the data that was used
with this particular study regularly, or at least in this
particular tax year, sent an access of $23 billion more to the
Federal Government than we get back in return. And I don't
necessarily subscribe this donor and taker philosophy that some
have articulated, but I think, if we are going to apply this
framework where we are concerned about tax equity and fairness,
that the fact that New York State regularly sends tens of
billions of dollars more to the Federal Government to be spread
across the entire Nation, including states like Georgia which
received billions of dollars more from the Federal Government
than they send, then, you know, we have got to think carefully
about how we are going to deal with impacting a state like New
York; where we know people come in and use the infrastructure,
use the police services, use the fire services, use the
sanitation services, use the court system in order to make
money.
I know my time has expired, but thank you for your answers
and I yield back.
Mr. Marino. Thank you.
The Chair now recognizes the Congressman from Texas, Mr.
Ratcliffe.
Mr. Ratcliffe. Thank you, Mr. Chairman. Thanks for holding
this hearing today. I appreciate all the witnesses being here.
I think it has been a very good hearing and discussion about
many of the inequities that our current tax system has that is
frankly resulting in taxation without representation.
Mr. Lindholm, I would like to start with you. In your
written testimony, you discussed the disproportionate costs of
the current system on folks who live in states with no personal
income tax like the 700,000 Texans that I represent. And I
agree with you.
Many of my constituents are severely impacted under the
current structure. They have to deal with enormous compliance
costs and can't file for refunds or credits in other states.
But, some of my colleagues here are still arguing that the
Mobile Workforce Act isn't necessary because states offer these
offsetting credits for income taxes paid in other
jurisdictions.
So my question is: Can you talk about whether or not these
offsetting credits do anything to solve the problem of a filing
burden for employees and employers?
Mr. Lindholm. Thank you, Mr. Ratcliffe. It does not.
And let me clarify, or go back to your initial comment
about states that have no personal income tax because those
states have chosen to fund their essential resources without a
personal income tax. So, when those states send their, or
employers in those states send employees across state lines,
they should pay personal income taxes and taxes where they work
and, as you say, do not have a personal income tax they pay in
Texas for which to offset those. That is one of the reasons why
there is a very slight revenue dislocation, is because of
those. But, again, the person who is hurt there is the employee
that lives in the state with no personal income tax who was
paying higher property taxes or higher sales taxes because the
state has no personal income tax.
The filing burden is enormous. And the rate of
noncompliance because of the filing burden is enormous. The
AICPA is one of the strongest supporters of this bill. They are
put in a terrible position of having somebody come to them and
say, ``I have worked in ten states, do I have to file in those
states?''
And legally, the answer is, yes, you have to file in those
states. And by the way, we are going to have to charge an extra
$200 per state return. It really puts the CPAs in a very
difficult box because of the complexity, because of the added
cost.
Mr. Ratcliffe. Thank you, Mr. Lindholm.
Mr. Leaman, like Mr. Lindholm, in your testimony you talk
about this confusing patchwork of state income tax rules that
your employees are forced to grapple with every year. And I
appreciated your testimony. I want to make sure that I heard it
clearly with respect to nonresident filings often involving
minimal taxes. Did I hear that correctly?
Mr. Leaman. Correct.
Mr. Ratcliffe. So is that another way of saying that in
some circumstances you have mobile employees that have to hire
a tax professional at hundreds of dollars per hour to pay for
taxes that might be just a few dollars?
Mr. Leaman. That is correct.
And again, because of the corporate policy and philosophy,
which is to put a system in place that doesn't necessarily
track de minimis amounts because it is a policy and/or
procedure we have in place, both a corporation and the employee
is put in that position of having to go ahead and file.
Mr. Ratcliffe. Okay.
Well, I would hope that everyone here could agree that in
addition to being unfair, that is just absurd. And also
observed was the fact that you discussed with Chairman Marino,
and I want to make sure that I heard that clearly. Are there
mobile employees that are sometimes receiving 50 W-2s per year?
Mr. Leaman. We have a couple extreme cases because of that,
yes. That is correct.
Mr. Ratcliffe. Well, I know how difficult it is to deal
with the IRS with one W-2. I can't imagine having to deal with
50, but let me ask you this question. Are these the types of
employees that are making hundreds of thousands of dollars so
that they can easily absorb the compliance costs?
Mr. Leaman. And again, our typical workforce that falls
into this category are usually making $50,000 or less.
Mr. Ratcliffe. Okay.
So would it be fair to say, then, in some cases this huge
compliance burden is falling on some of the people that can
afford it the least?
Mr. Leaman. That is correct.
Mr. Ratcliffe. Mr. Leaman, H.R. 2315 uses the word
``simplification'' in its title. Does this proposed bill, does
it actually simplify as advertised? In other words, would it
bring uniformity?
Mr. Leaman. I think it does, Congressman. I think, you know
again, as my opening remarks, it is a rare opportunity to have
a bipartisan legislation that really addresses all constituents
in this are individuals in this process, and I think it goes a
long way to simplifying.
Mr. Ratcliffe. Thank you.
I see my time has expired. I yield back.
Mr. Marino. Thank you.
The Chair now recognizes the Congressman from Michigan, Mr.
Trott.
Mr. Trott. Thank you, Mr. Chairman.
I want to thank all the witnesses today for being here.
And Commissioner Magee, a couple questions. So you opposed
H.R. 2315, correct?
Ms. Magee. We don't oppose it, but we would prefer the
model MTC comm that each state adopted.
Mr. Trott. The model would be, in your mind, a national
solution, though. Correct?
Ms. Magee. Yes, it would be.
Mr. Trott. What happens if a state doesn't adopt the model?
You are looking to Congress to adopt the model in lieu of state
solutions. Correct?
Ms. Magee. On this issue we believe is that the state
should adopt it not Congress.
Mr. Trott. So states have been known to tweak the models.
So what happens then in terms of the simplification?
Ms. Magee. Well, I mean, there is no doubt in anyone's mind
that simplification is the best way to go. We don't want to
have to deal with so W-2s, for example, which is an extremely
rare, rare case. But we do need to keep up with the income
being our in our state and this is one way to do that.
It is not a burning issue in the State Department of
Revenue across the Nation. This is rarely ever anything that
comes up.
Mr. Trott. But you would agree, though, if we are going to
do a model that is going to be adopted by 50 states, we are not
going to end up with a simplification. I mean isn't that a
fairly logical assumption given how states tend to enact
legislation?
Ms. Magee. Well, I can't argue with you there, sir.
States certainly tweak and model to the point you don't
recognize anymore. But we really do--our effort and our goal is
not to over complicate things. We don't choose to do that.
Mr. Trott. So you know you say 50 W-2s is extraordinary. I
had businesses where we routinely had 20 or 30. So 50 may be
extreme but I mean 20 or 30 is still a burden for folks,
wouldn't you agree?
Ms. Magee. Well, it is. But we have, like Alabama has, a
free online filing system for any employee to file a
nonresident return, free of charge. It is a very simple process
they can use.
So the states have gone to measures to make it simpler.
Mr. Trott. Still, 50 different states.
Next question, though. One of the concerns you have with
H.R. 2315 is the voluntary recordkeeping. I wonder if you could
speak to that and I wonder if you could explain how the
recordkeeping would differ under the model that you advocate?
Ms. Magee. Well, historically the recordkeeping is done by
the employer and the employer remits those records annually to
each Department of Revenue and to the IRS. That is a very
valuable source of information. Number one, we use it more
often than not to prevent fraud. It is our key purpose over the
next couple of years to use this information sooner and faster
both from IRS level and the state level to prevent refund
fraud. So the getting the W-2s is very, very important for the
income tax return.
And then, secondly, I mean it is a burden on the employee
if they have to do this themselves. In corporations have
departments that specialize in handling this sort of
processing. This act makes it voluntary to the employee to do
this. And so, that is why the model is something we prefer
because it doesn't make it--the employer would still be the
person, entity, in charge of that.
Mr. Trott. But because of that, the employer is still going
to have some of the same problems they have today under the
model. Is that a fair statement?
Ms. Magee. Yes, sir. But their compliance has not been
something they have created an issue over, in my opinion, over
the 4 years of being commissioner. I have not had employers
complain to us about keeping up with W-2s. It is part of the
IRS process, part of the state process.
Mr. Trott. We had several people here today complaining
about it. I mean maybe they haven't gotten your address in
Alabama but we have people here today complaining about it.
Ms. Magee. The electronic world has changed so much. It has
really simplified things so much to be able to file these
things electronically.
Mr. Trott. Yes and unfortunately the electronic world
hasn't eased the regulatory burden on businesses. But thank you
for your comments.
I yield back.
Mr. Marino. Thank you. Mr. Collins is next, but I
understand he does not have any questions for Mr. Norquist. Mr.
Norquist has another engagement that he has to attend.
You are fine?
Mr. Norquist. At some point I do. Does somebody want to - -
Mr. Marino. Okay.
Now, we have one more questioner and I didn't know if you
had to get to where you are going instantly.
Mr. Norquist. I do, but I will wait.
Mr. Marino. All right. Thank you, sir.
Now, the gentleman from Georgia, Congressman Collins, is
next.
Mr. Collins. Thank you, Mr. Chairman. I appreciate that and
Mr. Norquist, you know. As an old Baptist pastor, I am used to
people getting up and walking out whenever they feel like it.
So, you know, if you need to, God bless you. Have a great day.
You know?
I want echo what my friend from California just said a few
minutes ago. How many times are we going keep doing this? You
all look great. God bless you. It is good to see you again. We
have had these discussions over and over. I am one and I
appreciate the Chairman bringing this up because it is now time
to mark up, move on, and get something to a new topic. Okay?
But I think at the end of this thing I support the bills
that are being discussed today. But I really do want to talk
about, for just a moment, one, again I had this conversation at
this hearing last Congress about the just, what I believe is
just ludicrous 50 W-2s that we can't simplify. This is that and
we got into a long conversation and I am not going down that
hole again. I just want to say that.
But I appreciate you being here but I do want to talk about
one that is not on our list today, and hopefully it will be
pretty soon. And that is H.R. 235, the Permanent Internet Tax
Freedom Act. It is not before the Committee today and I can't
talk about states regulatory and tax authority without first
mentioning that bill and encouraging the Subcommittee and the
Committee as a whole to quick action on it.
I am a strong supporter and a proud cosponsor of the
Permanent Internet Tax Freedom Act introduced by Chairman
Goodlatte. The Internet Tax Freedom Act has been extended
multiple times and passed the House by voice vote only last
Congress. Again, that is what we do a lot of times. Let us kick
it down--it is almost like we got to find a can to kick. So let
us just find this can and we will kick it again next year.
It will expire on October first of this year. Simply put,
we can't let this happen. This would actually permanently
prohibit Federal, state, and local governments from imposing
taxes on Internet access. I don't think anyone would argue
about the enormous impact of the Internet and the access to
information and the opportunity that it provides. We need to
keep it affordable so that Americans of all backgrounds can
access the Internet rather than adding to the already huge
burden faced by taxpayers.
It is critical that we make permanent the Internet Tax
Freedom Act once and for all to protect consumers and maintain
growth and grow access to the Internet to prevent multiple
discriminatory taxation, to encourage innovation, and to
promote job creation and economic growth.
And before I yield back, I want to say something that was
said, and I think Mr. Norquist, I think you said it. I think it
has been actually possibly previously implied by several
others. Until we get to a position in the Federal Government--I
am from the state government level. I worked for 6 years in
Georgia on the issues of taxes, the issues of spending.
I am asked all the time by folks: Why can't you just, you
know, do a budget. And I think it goes back to the inherent
problem that we have. Government does it sort of the backwards
way of most businesses. Most businesses will look at a business
plan and they say, ``Okay, this is what it is going to cost me
if I open this business. It is going to cost me X dollars to
break even and then to make a profit.''
Government starts the opposite way around. They say, ``Let
us tax and figure out how to spend it.'' And until we get that
problem right, states are going to be looking for money, local
municipalities are going to be looking for money. We have had a
lot of discussion about a bill that is not on the agenda today,
marketplace fairness. But I think we have got to get back to--
that is what the people of the ninth district expect, and if we
need to have an adjustment and we need to talk about the whole
aspect of budget, let us do so. But let us remember at the end
of the day what is government's purpose, why are we here, and
then we can see how the funding fits the purpose instead of our
growing purpose in finding a funded for it.
With that, Mr. Chairman, I yield back.
Mr. Marino. Thank you.
Seeing all the Members on the dais, this concludes today's
hearing. I want to thank all the witnesses for attending. I
want to thank the people in the gallery for attending.
And, without objection, all Members will have 5 legislative
days to submit additional written questions for the witnesses
or additional material for the record.
This hearing is adjourned. Thank you.
[Whereupon, at 12:09 p.m., the Subcommittee was adjourned.]
A P P E N D I X
----------
Material Submitted for the Hearing Record
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[all]