[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
NO REGULATION WITHOUT REPRESENTATION: H.R. 2887 AND THE GROWING PROBLEM
OF STATES REGULATING BEYOND THEIR BORDERS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON
REGULATORY REFORM,
COMMERCIAL AND ANTITRUST LAW
of the
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
FIRST SESSION
__________
JULY 25, 2017
__________
Serial No. 115-20
__________
Printed for the use of the Committee on the Judiciary
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Available on the World Wide Web: http://judiciary.house.gov
______
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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 SMITH, Texas ZOE LOFGREN, California
STEVE CHABOT, Ohio SHEILA JACKSON LEE, Texas
DARRELL E. ISSA, California STEVE COHEN, Tennessee
STEVE KING, Iowa HENRY C. ``HANK'' JOHNSON, Jr.,
TRENT FRANKS, Arizona Georgia
LOUIE GOHMERT, Texas THEODORE E. DEUTCH, Florida
JIM JORDAN, Ohio LUIS V. GUTIERREZ, Illinois
TED POE, Texas KAREN BASS, California
JASON CHAFFETZ, Utah CEDRIC L. RICHMOND, Louisiana
TOM MARINO, Pennsylvania HAKEEM S. JEFFRIES, New York
TREY GOWDY, South Carolina DAVID CICILLINE, Rhode Island
RAUL LABRADOR, Idaho ERIC SWALWELL, California
BLAKE FARENTHOLD, Texas TED LIEU, California
DOUG COLLINS, Georgia JAMIE RASKIN, Maryland
RON DeSANTIS, Florida PRAMILA JAYAPAL, Washington
KEN BUCK, Colorado BRAD SCHNEIDER, Illinois
JOHN RATCLIFFE, Texas
MARTHA ROBY, Alabama
MATT GAETZ, Florida
MIKE JOHNSON, Louisiana
ANDY BIGGS, Arizona
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 DAVID CICILLINE, Rhode Island
DOUG COLLINS, Georgia HENRY C. ``HANK'' JOHNSON, Jr.,
KEN BUCK, Colorado Georgia
JOHN RATCLIFFE, Texas ERIC SWALWELL, California
MATT GAETZ, Florida PRAMILA JAYAPAL, Washington
BRAD SCHNEIDER, Illinois
C O N T E N T S
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JULY 25, 2017
BILL TEXT PAGE
Page
H.R. 2887, the ``No Regulation Without Representation Act of
2017''......................................................... V
OPENING STATEMENTS
The Honorable Bob Goodlatte, Virginia, Chairman, Committee on the
Judiciary...................................................... 4
The Honorable John Conyers, Jr., Michigan, Ranking Member,
Committee on the Judiciary..................................... 2
The Honorable Tom Marino, Pennsylvania, Chairman, Subcommittee on
Regulatory Reform, Commercial and Antitrust Law, Committee on
the Judiciary.................................................. 1
The Honorable David Cicilline, Rhode Island, Ranking Member,
Subcommittee on Regulatory Reform, Commercial and Antitrust
Law, Committee on the Judiciary................................ 20
WITNESSES
Mr. Neil Dierks, CEO, National Pork Producers Council
Oral Statement............................................... 7
Mr. Chad E. DeVeaux, Esq., Associate, Atkinson, Andelson, Loya,
Ruud & Romo
Oral Statement............................................... 9
Mr. Andrew Moylan, Director of the Interstate Commerce
Initiative, National Taxpayers Union
Oral Statement............................................... 10
Hon. Deb Peters, President-elect, National Conference of State
Legislatures, Senior Assistant Majority Leader, South Dakota
Legislature
Oral Statement............................................... 12
Additional Material Submitted for the Record
Testimony and letters of support for H.R. 2887 submitted by the
Honorable Bob Goodlatte, Virginia, Chairman, Committee on the
Judiciary. These materials are available at the Committee and
can be accessed on the Committee Repository at:
http://docs.house.gov/meetings/JU/JU05/20170725/106310/HMTG-
115-JU05-20170725-SD002.pdf.
Testimony, letters, and Harvard Journal on Legislation article
submitted by the Honorable John Conyers, Jr., Michigan, Ranking
Member, Committee on the Judiciary. These materials are
available at the Committee and can be accessed on the Committee
Repository at:
http://docs.house.gov/meetings/JU/JU05/20170725/106310/HMTG-
115-JU05-20170725-SD003.pdf.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
NO REGULATION WITHOUT REPRESENTATION: H.R. 2887 AND THE GROWING PROBLEM
OF STATES REGULATING BEYOND THEIR BORDERS
----------
TUESDAY, JULY 25, 2017
House of Representatives,
Subcommittee on Regulatory Reform,
Commercial and Antitrust Law,
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:00 a.m., in
Room 2141, Rayburn House Office Building, Hon. Tom Marino
[Chairman of the Subcommittee] presiding.
Present: Representatives Marino, Goodlatte, Farenthold,
Issa, Collins, Buck, Ratcliffe, Handel, Cicilline, Conyers,
Johnson of Georgia, Jayapal, and Schneider.
Staff Present: Dan Huff, Counsel; Andrea Woodard, Clerk;
and Joe Ehrenkrantz, Minority Counsel.
Mr. Marino. The Subcommittee on Regulatory Reform,
Commercial and Antitrust Law will come to order. Welcome,
everyone.
Without objection, the Chair is authorized to declare
recess of the Committee at any time. We welcome everyone to
today's hearing on ``No Regulation Without Representation: H.R.
2887 and the Growing Problem of States Regulating Beyond Their
Borders.'' And I now recognize myself for an opening statement
and welcome to the hearing.
Justice Jackson wrote that the ``vision of the Founders''
was ``that every farmer and every craftsman shall be encouraged
to produce by the certainty that he will have free access to
every market in the Nation . . . and no foreign State will by .
. . regulations exclude them.'' Extraterritorial regulations
let States export onerous regulations and even activist agendas
outside the normal checks of the Democratic process. States
shift regulatory burdens to out-of-staters or insulate their
own residents from the natural effects of job-killing
regulations by subjecting other States' workers and employers
to them.
There are numerous examples. Connecticut's e-waste law
requires manufacturers who supply electronics to ``any
distribution network'' that reaches Connecticut to pay for
recycling. The Consumer Electronics Association challenged a
similar 2009 New York City law that went further than any
``other take-back programs anywhere in the world.'' My State of
Pennsylvania is home to one of the largest natural gas deposits
in the country. I worry that extraterritorial regulation could
allow fringe environmentalists to kill those jobs from afar.
If that sounds farfetched, consider this. Colorado law
requires electricity generators, including those out-of-State,
to ensure that 20 percent of the electricity they sell to
Colorado consumers comes from renewable sources. The coal
industry challenged the law but lost. The tenth circuit read
the Commerce Clause's extraterritoriality jurisprudence
narrowly as applying to protectionist price control regulations
only.
In December of 2016, Portland, Oregon passed legislation
addressing what the city deemed excessive CEO pay. Beginning
January 1 of 2017, a 10 percent tax surcharge is applied to any
company whose CEO makes more than 100 times the median employee
pay. Pay ratios greater than 250 times the median trigger a 25
percent surcharge. By its terms, the law applies even to out-
of-State businesses if they are ``delivering goods or providing
services to customers within the city.'' Whether this is good
policy can be up for debate, but it should only apply to those
who had the ability to vote for the government that imposed the
tax.
The Constitution gives Congress the authority to ``regulate
commerce . . . among the several States.'' Courts do not view
this grant of authority as exclusive, so the question is how
much authority States retain in the arena. To answer this
question, the judiciary has developed a doctrine known as the
``Negative'' or ``Dormant'' Commerce Clause, under which courts
will invalidate State laws that either discriminate against or
unduly burden interstate commerce.
Courts will also block State laws exhibiting certain forms
of extraterritorial reach. However, the survival of Colorado's
anti-coal law illustrates the shortcomings of relying on this
malleable doctrine. Advocates of greater regulation always cite
public safety. In one of the early extraterritorial regulation
cases, New York raised its public safety concerns to defend its
demand that out-of-State milk producers adhere to New York's
minimum price. There are also numerous Federal laws protecting
consumer safety covering items in interstate commerce.
I look forward to hearing from the panel of witnesses on
the dangers of extraterritorial regulations and the need for
Congress to address this issue. The Chair now recognizes the
Ranking Member of the full Judiciary Committee on Regulatory
Reform, Commercial and Antitrust Law, Mr. Conyers.
Mr. Conyers. Thank you, Mr. Chairman.
Mr. Marino. Mr. Conyers, just give me one moment. The
Ranking Member, Congressman Cicilline from Rhode Island, of
this Subcommittee will be with us shortly. So, that is why I
ask the Ranking Member of the full Committee to read his
opening statement.
Mr. Conyers. Well, thank you very much, Chairman Marino. I
am delighted to be here to join in this serious conversation
that we will be having. But before I begin, I would like to
just take a moment, if I can, to recognize Joseph Ehrenkrantz
for his dedicated service over the past couple years, in which
he has diligently served the House Judiciary Committee as a
professional staff member.
Mr. Ehrenkrantz began his career with the House Judiciary
Committee shortly after his graduation and has worked
tirelessly on issues of civil rights, State and local taxation,
and voting rights ever since. He has served with energy and
enthusiasm and helped coordinate so many of the briefings,
markups, and hearings that we have had.
We thank you, sir, for your many outstanding contributions
and wish him well. I cannot give you the reason that he is
going to begin law school at Georgetown this fall, but I think
what he has seen, and heard, and learned on his work here has
had an important influence on him. So, we will say farewell but
not goodbye.
Now, turning to today's hearing which focuses on the no
regulation without representation, it appears that supporters
of this legislation intend to address the apparent problem of
States regulating beyond their borders. A quarter of a century
ago, the United States Supreme Court in the Quill case held
that a State may require a business to remit a sales tax only
if such business had a physical presence in the State where the
goods or services are provided. In an effort to respond to this
holding, various legislative responses have been introduced
over the years including two of which I was happy to support.
Namely, the Remote Transactions Parity Act and the Marketplace
Fairness Act.
Although one of these bipartisan measures overwhelmingly
passed the Senate in 2013, our Committee has, unfortunately,
failed to consider either of these bills. Instead we are
focusing today on H.R. 2887, which I think contains a number of
problems that we will be looking at more closely. Among its
flaws, the bill would eviscerate the 10th Amendment and
override the powers of all 50 States by expanding the physical
presence standard to all taxes and to all regulations.
H.R. 2887 represents an extreme rethinking of the
constitutional role of States in our Nation and would strip
essential consumer protection powers and taxing authority from
all 50 States, every one of them. To quote the bipartisan
National Governors Association and the National Conference of
State Legislatures, ``This legislation is a direct threat to
representative government. It is a direct threat to
representative self-government.'' Simply put, it would preempt
tens of thousands of State laws and saddle these States with
untenable budget constraints by reducing their ability to
collect tax revenues.
Also, this bill appears to ignore the real problems that
Main Street retailers face today. Local retailers that have to
collect sales taxes are desperately struggling to compete with
the reduced prices and convenience offered by remote internet
sellers whose online prices are generally lower because many
consumers do not pay any sales taxes and thereby can save
upwards of 10 percent or even more on the purchase price of
these items. Technological advancements have made it easier for
consumers to take advantage of this disparity, and the
consequences of this loophole are becoming increasingly more
apparent.
Since October, at least 10 major, nationwide, brick-and-
mortar retailers have filed for bankruptcy. And more than
90,000 workers have been laid off. Retail sector growth is at
its weakest since the Great Recession, and recent projections
estimate that a quarter of all shopping malls will close in the
next 5 years. Without question, I am a strong supporter of
competition, especially when it benefits consumers and
encourages innovation. Nevertheless, competitors should compete
on things other than sales tax policy. We should ensure parity
at the point of sale among retailers and level the playing
field.
And lastly, H.R. 2887 by codifying Quill would effectively
prevent States and local governments from accessing a
substantial part of their tax base. State governments rely on
sales and uses taxes for nearly one-third of their total tax
revenue. Yet, as more Americans purchase more of their goods on
the internet, the States receive less in sales tax revenue. So,
we owe it to our local communities and local retailers as well
as State and local governments to take up helpful legislation
rather than considering measures like the one that is before us
this morning. And, accordingly, I urge our Committee Chairman,
Goodlatte, and our Subcommittee Chairman, Marino, to instead
consider H.R. 2193, the Remote Transaction Parity Act,
bipartisan legislation introduced by Representative Kristi Noem
early this year.
In closing, I look forward to hearing the testimony for
each one of our distinguished witnesses. And I yield back any
time that may be remaining, and thank you, Mr. Chairman.
Mr. Marino. Thank you. The Chair now recognizes the
Chairman of the full Judiciary Committee, Congressman Goodlatte
of Virginia, for his opening statement.
Chairman Goodlatte. Thank you, Mr. Chairman. Mr. Chairman,
for most of American history it was axiomatic that States
cannot regulate beyond their borders. This fundamental premise
was woven into our founding documents. The principle was
reiterated by our courts.
In 1834, Justice Story wrote in his Commentaries on the
Conflict of Laws that, ``no State or Nation can, by its laws,
directly affect, or bind . . . persons not resident therein.''
Writing for a unanimous Supreme Court in 1881, Chief Justice
Waite observed that, ``[n]o State can legislate except with
reference to its own jurisdiction.'' In 1895, the New York
Court of Appeals stated, it is, ``a principle of universal
application, recognized in all civilized States, that the
statutes of one State have . . . no force or effect in
another.''
The chief constraint on State regulatory power is the
democratic process. Exporting regulations dodges
accountability. As the Supreme Court has explained, when ``the
burden of State regulation falls on the interests outside of
the State, it is unlikely to be alleviated by the operation of
those political restraints normally exerted when interests
within the State are affected.''
Indeed, States have become increasingly aggressive in
exporting regulatory burdens.
A 2016 Massachusetts law bans the sale of products from
livestock raised in certain types of cages. Since there is only
one in-state farm using the targeted cages, Massachusetts Farm
Bureau members say they, ``Feel like pawns in a national
campaign to drive policy in other States.'' Alameda County,
California forces pharmaceutical companies that sell into the
jurisdiction to pay for drug disposal. The chief sponsor of the
legislation admitted that the only thing ``wrong'' with a
preexisting, ``publicly-funded [disposal] program,'' was that
``The taxpayers pay for it.''
North Dakota has one of the country's largest deposits of
lignite coal. The industry employs 4,000 people and provides
substantial revenue to the State. In 2016, North Dakota won a
5-year legal battle against a Minnesota law that limited the
ability of out-of-State utilities selling power into the State
to use coal.
A response from Congress has become increasingly important,
because neither the Due Process nor the Commerce Clause of the
Constitution has proven a durable, adequate check on
extraterritorial State regulation. In both cases, beginning
with the New Deal, the original understanding of the
Constitution's protections was watered down or abandoned by
courts to make way for big government.
H.R. 2887 would provide a clear congressional response that
would, at the same time, protect States' rights: ``If equal
States are to retain autonomy over their own affairs, they must
refrain from regulating each other's affairs.'' H.R. 2887 would
establish just this kind of restraint, by barring States from
imposing tax or regulatory burdens on entities that are not
physically present.
At the same time, H.R. 2887 specifically permits States to
ban the instate sale of items that do not meet Federal health
and safety standards or the standards of the producing State.
Opponents of this legislation may warn of a ``race to the
bottom.'' That theory is a handy scare tactic, but scholar
Michael Greve writes that, ``Modern scholarship has severely
undermined [it]s theoretical and empirical foundations.''
Furthermore, since H.R. 2887 does not disturb State tort law,
producers still have to fear lawsuits from lax standards. There
are also a myriad of Federal laws protecting consumer safety.
The No Regulation Without Representation Act respects the
States' role as ``laboratories of democracy.'' The legislation
merely demands that States experiment on their own citizens,
not everyone else's. H.R. 2887 is a bipartisan bill that helps
curb State overregulation by restoring democratic
accountability between the regulators and the regulated. I am
proud to cosponsor it.
I thank Mr. Sensenbrenner for sponsoring the bill, and I
look forward to hearing from our witnesses. Thank you, Mr.
Chairman.
Mr. Marino. Thank you. With no objection, other members'
opening statements will be made part of the record.
I will begin by swearing in our witnesses before
introducing them. Would you please stand and raise your right
hand? Do you swear or affirm that the testimony you are about
to give before this Committee is the truth, the whole truth,
and nothing but the truth, so help you God?
You may be seated. Please let the record reflect that all
the witnesses have responded in the affirmative. I will go
through and read the intros on each of you, and then you will
be able to make your opening statements.
Neil Dierks is chief executive officer of the National Pork
Producers Council responsible for the implementation of all
NPPC programs. NPPC represents on Capitol Hill the interests of
America's 60,000 pork producers and other participants in the
U.S. pork industry. Mr. Dierks is a graduate of Iowa State
University. He grew up on a livestock farm in Eastern Iowa and
remains involved in the family farming operation. I live in the
middle of several farms, and one is a pork producer.
Mr. Chad DeVeaux. Did I pronounce that correctly?
Mr. DeVeaux. Yes.
Mr. Marino. Is a commercial litigation attorney at
Atkinson, Andelson, Loya, Ruud & Romo in Southern California.
He specializes in constitutional law, particularly the field of
horizontal federalism, the laws governing the delineation of
power between the States. He has litigated multiple cases
concerning the dormant commerce clause and written extensively
on the subject, particularly its application to nationwide
class actions, agricultural regulations, and marijuana laws. He
has also successfully litigated cases involving the First
Amendment, procedural and substantive due process,
administrative law, and Federal enclave law. He graduated
second in his class from the University of Notre Dame's law
school and earned a master's of law from Harvard Law School.
Welcome.
Andrew Moylan, is that correct, sir?
Mr. Moylan. Yes.
Mr. Marino. Andrew Moylan is executive vice president of
the National Taxpayers Union Foundation, a non-partisan
research and educational organization dedicated to showing
Americans how taxes, government spending, and regulations
affect them. He also leads NTU's Interstate Commerce
Initiative, a new project to explore the policy implications of
governments reaching outside their borders in ways that impede
the free flow of goods and information. He was previously
executive director of the R Street Institute, a pragmatic, free
market think tank, where he conducted policy analysis, oversaw
the organization's research, communications, and outreach
efforts. Welcome.
With almost 20 years of professional experience in the
business community as a certified public accountant, small
business owner, and dedicated public servant, Senator Deb
Peters is a champion of creating more accountability and
transparency in government. Senator Peters became State senator
in 2010 after 6 years in the State House of Representatives. In
November 2016, she was reelected to her fourth term in the
Senate.
Recognized as one of the Governing magazine's public
official of the year in 2016, as well as one of the top 40
political rising stars who are under 40 years old by the
Washington Post in 2014, she serves as Chair for the Government
Operations and Audit Committee as well as an Appropriations
Member in the South Dakota Senate. Welcome, Senator.
Each of the witnesses' written statements will be entered
into the record in its entirety. I ask that each of you
summarize your testimony in 5 minutes or less. And if you have
not been here before, there is a box in front of you that will
help you keep the timing. A light will show that green is the
go. When it turns to yellow, that gives you about 1 minute. And
when it turns to red, that indicates that your 5 minutes have
elapsed. And I know when I am sitting there testifying, I pay
no attention to the lights.
So, what I will do is diplomatically just sort of pick up
the gavel a little bit and ask you to conclude with your
statements at a reasonable spot. Mr. Dierks, the floor is
yours. Put your microphone on, please.
STATEMENTS OF NEIL DIERKS, CEO, NATIONAL PORK PRODUCERS
COUNCIL; CHAD DEVEAUX, ESQ., ASSOCIATE, ATKINSON, ANDELSON,
LOYA, RUUD & ROMO; ANDREW MOYLAN, DIRECTOR OF THE INTERSTATE
COMMERCE INITIATIVE, NATIONAL TAXPAYERS UNION; AND HONORABLE
DEB PETERS, PRESIDENT-ELECT, NATIONAL CONFERENCE OF STATE
LEGISLATURES, SENIOR ASSISTANT MAJORITY LEADER, SOUTH DAKOTA
LEGISLATURE
STATEMENT OF NEIL DIERKS
Mr. Dierks. Good morning, Chairman Marino, Ranking Member
Cicilline when he arrives, and also, I would say Ranking Member
Mr. Conyers and also Chairman Goodlatte from the full
Committee. I appreciate the opportunity as well as the thanks
to the Subcommittee for this opportunity. As the statement
said, I am the CEO of the National Pork Producers Council,
which represents interests of America's 60,000 hog farmers. And
I did grow up on a farm in Eastern Iowa, a diversified crop
livestock farm. And I am involved in that family operation
today.
First, today, I want to convey two important messages. The
first being that pork producers are not animal rights
activists. Lawmakers or regulators should make the decisions
about what production practices are best for their animals and
for producing safe food. Changes in production practices should
be driven by the marketplace, not government fiat or ballot
initiatives.
Second, today's pork industry offers American consumers
many nutritious choices at affordable prices. Laws and
regulations should not restrict the producer's right to choose
how to raise and care for their animals or eliminate choices
for consumers that have when it comes to producing safe,
affordable food for their families.
As you know, there has been a considerable debate over
certain animal housing. For our industry, it has been
individual pens for housing pregnant sows, often known as
gestation stalls. Several States, most with little pork
production, have banned gestation stalls, either through ballot
initiatives or legislation which was their prerogative, however
ill-advised and uninformed their motives.
What NPPC and pork producers object to is one State
adopting a law, or regulation, or initiative that dictates the
practices of producers in the other 49 States. That is what
California in 2010 and Massachusetts did last year in banning
the sale of out-of-State pork from pigs born to sows that were
housed in gestation stalls which those States have prohibited
for their own hog farmers.
I want to point out that California and Massachusetts have
very little pork production, and they are telling farmers and
States such as Iowa, Minnesota, and North Carolina, Ohio which
have a lot of pork production how to run their farms if they
want to sell pork in California, Massachusetts.
This has had and will have significant consequences for
consumers in the States, for pork producers throughout the
country, and ultimately, for all U.S. consumers of pork.
Several sow operations in California, for example, moved out of
the State after the voters there, in 2008, approved a ballot
initiative banning gestation stalls, as well as battery cages
for egg-laying hens, and crates for veal calves. A 2016 Cornell
University study found that California's ban on battery cages
and on selling eggs from out-of-State hens housed in such cages
resulted in a $0.49 per dozen increase in price. An increase
not that severe for the average California household, but the
same cannot be said for the poorest California households.
Other research has found that applied to the entire
economy, such an increase in egg prices would
disproportionately harm lower income households, primarily
minorities. And, remember, poor people spend a much larger
share of their incomes on food. There is also an economic
impact on the producers of those products. For hog farmers,
there could be a significant cost for converting their
operations from one housing system to another as well as a
higher cost of producing pork in some alternative housing
systems.
Again, any changes in systems or practices should be based
on signals from the marketplace. If all producers were forced
to abandon gestation stalls, it would cost the pork industry
between $1.9 billion and more than $3.2 billion to transition
to an alternative housing system. Some of those costs would
have to be passed onto consumers.
It seems clear that a prohibition on the instate sale of
out-of-State pork from pigs born to sows housed in gestation
stalls or any other housing system that might be outlawed is a
restraint of trade of interstate commerce, and therefore a
violation of the U.S. Constitution's Commerce Clause. NPPC is
supporting Congressman Sensenbrenner's H.R. 2887, the No
Regulation without Representation Act, to stop such State
intrusions on the sovereignty of other States. This legislation
will help reign instates restrained of interstate commerce and
prevent a patchwork of State laws and regulations affecting the
scientifically accepted production practices of producers.
In conclusion, I want to make clear that for the pork
industry, States regulating beyond their borders transcends the
stall issue. That is just the tip of the iceberg. No doubt,
activists will go and have gone after other production
practices. And the pork industry will face the prospect of a
death by 1,000 cuts resulting in much higher retail pork prices
if these non-science-based actions by States are permitted to
continue. Of course, this is what the anti-meat activities
want. Thank you for the opportunity to testify. Mr. Chairman, I
would be happy to answer any questions the Subcommittee has.
Mr. Dierks' written statement is available at the Committee
or on the Committee Repository at: http://docs.house.gov/
meetings/JU/JU05/20170725/106310/HMTG-115-JU05-Wstate-DierksN-
20170725.pdf.
Mr. Marino. Thank you, sir.
Mr. DeVeaux.
STATEMENT OF CHAD DEVEAUX
Mr. DeVeaux. Mr. Chairman, Ranking Member Conyers, and
distinguished members of the Committee, it is a great honor to
speak to you this morning.
The power of the States to regulate activities beyond their
borders is an issue that is literally older than the
Constitution itself. Under the Articles of Confederation,
States possessed the full scope of power over trade possessed
by independent nations. And like too many foreign adversaries
of the modern world, they frequently engaged in protectionist
economic warfare against their neighbors.
James Madison condemned such trespasses of the States on
the rights of each other, particularly, the practice of many
States in restricting the commercial intercourse with other
States. This spurred mutual jealousies and aggressions,
triggering an ever-escalating series of rivalries and
reprisals, a series of events which came to a head during the
so-called critical period of 1781 to 1787, which led to the
Constitutional Convention.
As Justice Stevens observed, the Commerce Clause was the
Framers' response to the central problem that gave rise to the
Constitution itself. The principal objective of the
Constitutional Convention of 1787 was the establishment of a
nationwide free-trade zone. As Judge Richard Posner has
observed in recent years, the door to rivalries and reprisals
can be opened by extraterritorial legislation projecting one
State's legislation into neighboring States, even when the law
presents no outright discrimination or protectionism in favor
of local businesses. Such laws are undemocratic because
compliance costs fall on citizens in other States who have no
voice in the politics of the enacting State.
For this reason, until recently, our courts have recognized
that in the absence of congressional action, the Commerce
Clause of its own force, the so-called dormant commerce clause,
prohibits States from directly regulating extraterritorial
conduct by, precluding the application of State statutes to
commerce that takes place wholly outside the State's borders,
whether or not the commerce has effects within the State.
Such regulation, exceeds the inherent limit of States'
power. This so-called extraterritorial doctrine protects the,
autonomy of individual States within their respective spheres
by dictating that no State shall have the authority to tell
other polities what laws they must enact or how their affairs
must be conducted. I have referred to this as the Commerce
Clause's sovereign capacity function.
From its inception, the extraterritorial doctrine has
weathered unrelenting attack. Critics charged that the
doctrine, is a relic of the old world with no useful role to
play in the new. And in 2015, the tenth circuit pronounced the
doctrine effectively dead. Many hailed this development as a
leap forward, arguing that prohibitions against
extraterritorial regulation inhibit Brandeisian
experimentation: State experimentation with laws that attempt
to solve their social and economic problems. But a vibrant
extraterritorial doctrine protects regional variation. As the
second circuit has noted, consumer protection matters are
typically left to control of the States precisely so that
different States can apply different regulatory standards based
on what is locally appropriate.
Allowing a State to reach into another State's affairs
inhibits such variation. How is a State to apply standards that
it deems locally appropriate if legislatures in a distant State
or even a distant municipality can intercede in its affairs?
Worse, as the great Benjamin Cardozo warned long ago,
permitting a State to impose its will on other polities
invites- a speedy end to our national solidarity. Such measure
invite rivalries and reprisals. The Constitution, as Justice
Cardozo reminded us, was framed under the dominion of a
political philosophy less parochial in range.
Mr. DeVeaux's written statement is available at the
Committee or on the Committee Repository at: http://
docs.house.gov/
meetings/JU/JU05/20170725/106310/HMTG-115-JU05-Wstate-DeVeauxC-
20170725.pdf.
Mr. Marino. Thank you.
Mr. Moylan.
STATEMENT OF ANDREW MOYLAN
Mr. Moylan. Thank you, Mr. Chairman, for the invitation to
testify. My name is Andrew Moylan. I am the executive vice
president of the National Taxpayers Union Foundation. And as
mentioned, I am also the director of a newly-created Interstate
Commerce Initiative at NTU, which is a policy project that
focuses on these very issues, the pernicious effects of States
attempting to exercise power outside their borders. After
spending more than a decade devoting myself to analyzing this
growing problem, I came to believe that they required a deeper
study which I hope the initiative can give.
Now, much of this is driven by the rise of the internet.
The internet has disrupted business models across the economy,
but it has also disrupted the business model of governments.
Before the internet revolution, individuals and businesses were
much more stationary in the conduct of their affairs. It used
to be the case that global necessarily meant big. That is no
longer the case. Now, the internet allows anyone to act
globally. It is vast. It is powerful. It is borderless. But we
must not allow the internet to become the vehicle for
governments to become similarly vast, powerful, and borderless.
Now, in response to the disruption, we see innumerable
examples of States pushing beyond their borders in search of
revenue and control. Some have construed this hearing as just
being about the issue of internet sales taxes, and I have a
great deal to say on that as a manifestation of State
overreach. But I want to stress that this is about so much more
than that one issue alone. It is about the very nature of State
power and the minimum connection that we deem acceptable as the
basis for a State to exercise power over an individual or a
business.
Some States have proven that they think the answer to that
question is basically zero. If you are a Midwestern farmer with
the temerity to sell into other States across the country,
well, as mentioned Massachusetts and California think that you
are subject to their regulatory authority. If you are an
individual who does not live in the State but telecommutes for
a business that is, New York thinks you are subject to their
tax authority. If you are a trucking business with no property,
no employees, and no customers in the State, Nebraska has shown
that it thinks you are subject to its tax authority. If I had
stronger tendencies toward masochism, I could devote the
entirety of my testimony to these examples. But I will spare
you along with myself.
So, you will hear from opponents of this bill that it is a
dramatic infringement on States' rights, that it would,
``Destroy the fundamental principles of federalism that have
guided our Nation since its founding.'' I am a big proponent of
the notion that States are better equipped than the Federal
Government to address many policy issues. I believe strongly
that the Federal Government is too large and too powerful. It
has, in fact, usurped a great deal of authority from the States
with considerable negative consequences. I have testified to
this view multiple times before this very Committee.
But let us make something clear: States do not have rights.
States exercise power. People have rights. And States exercise
power that they are granted by people. And what is happening
across the country is a dramatic infringement on the rights of
the people from which States derive their power in the first
place, their right to be subject to taxation and regulation
only by governments with which they or their businesses have
significant connection to laws they can understand and comply
with to ensure the free flow of goods and information in
interstate commerce.
And if our friends in the States seek a world in which they
are not only sovereign within their own borders but also free
to exercise power outside them as well, we have just the trick
for them. They need simply go back to the 1780s and warn the
Founders that we should not draft a new Constitution at all,
that this Articles of Confederation thing is working out
brilliantly for us. And under that system, we had States
exercising power outside their borders with impunity. And
Congress had no Commerce Clause power to restrain their abuses.
So, tell the Founders that they were wrong, that the careful
balance of power between States and the Federal Government that
they crafted with the Constitution and that has sustained this
Nation for more than two centuries is in fact inferior to a
system that collapsed of its own weight in less than a decade.
So, I will close by saying this. Any reasonable conception
of limited government must recognize that there are limits on
State power just as it recognizes that there are limits on
Federal power. States are sovereign within their own territory,
but their power must stop at border's edge. Absent reasonable
guidelines like those laid out in H.R. 2887, the alternative is
an unthinkable morass of cross-border taxes and regulations
that undermines interstate commerce and subjects taxpayers to
the authorities of governments with which they have no
connection.
H.R. 2887 would prevent that in very plain language
consistent with Congress' proper constitutional role while
preserving States' legitimate prerogatives to conduct their own
affairs. It is a simple bill. It is a smart bill, and I think
it deserves your support. And I look forward to the committee's
questions. Thank you.
Mr. Moylan's written statement is available at the
Committee or on the Committee Repository at: http://
docs.house.gov/meetings/JU/JU05/20170725/106310/HMTG-115-JU05-
Wstate-MoylanA-20170725.pdf.
Mr. Marino. Thank you.
Senator Peters.
STATEMENT OF DEB PETERS
Ms. Peters. Good morning.
Mr. Marino. Good morning.
Ms. Peters. I am Deb Peters. I am a Republican elected
official from the State of South Dakota, and I want to thank
Chairman Marino, Ranking Member Cicilline, and Chairman
Goodlatte, and Ranking Member Conyers, and distinguished
members of the Subcommittee. I am pleased to submit my written
statements on behalf of the National Conference of State
Legislatures and respectfully request that they be added to the
record.
In drafting the United States Constitution, the Framers
envisioned a union of sovereign States that granted limited
power to the Federal Government. This was reinforced by the
ratification of the 10th Amendment which protects against
centralized power and reserves powers to the States that were
not delegated to the Federal Government.
The 10th Amendment has defined American federalism: the
relationship between Federal and State governments by
preserving broad powers to the States and to the people. States
have used this sovereignty to enact laws to protect the health,
safety, and welfare of their citizens. State lawmakers
understand that Federal Government has the power over important
policy arenas such as national defense and interstate commerce.
However, we also understand the role of State governance. Each
State is unique and is confronted with different problems and
policy choices from their constituents. There are rare
instances where a national one-size-fits-all approach is the
best policy for citizens in every State.
Unfortunately, Congress and the Federal Government often
ignore States' concerns and enact rules and laws that one,
preempt States, put undue burden on State finances, and are
extremely difficult to implement. And as Congress and State
legislatures represent the same constituencies, the people who
often suffer from failed national one-size-fits-all policies
are the same people we all represent. Since the beginning of
the 20th century, Congress has increasingly eroded the
regulatory powers of States, primarily through the Commerce
Clause. This erosion of State sovereignty has only been
accelerated in recent years as Congressional thirst to dictate
State governance apparently cannot be quenched. The Framers of
our Constitution should be alarmed.
Ultimately, States have the constitutional right and
obligation to enact laws that are not only in the best interest
of their citizens and businesses but that reflect the popular
approval of their citizens. State sovereignty, or states'
rights, is not a doctrine of convenience. Rather it is an idea
that States and their citizens know best how to govern
themselves. The No Regulation without Representation Act
embodies the Federal encroachment of State sovereignty the
Framers feared. This legislation violates the Tenth Amendment
guarantee that sovereign rights of the States cannot be
abridged by Congress and aims to eliminate states' powers
within their borders.
While the full scope of thousands of State laws and
regulations would be preempted by this bill would be almost
impossible to quantify, I did include a couple of examples in
my written testimony. And I do not want to talk about them
today. But with respect to remote sales tax collection, this
bill unjustifiably preempts States' authority as it goes beyond
physical presence standard established in the Supreme Court
Quill decision in 1992. And for the record, this bill today
does not codify the Quill decision.
Since 2002, broadly supported legislation has been
introduced into Congress to fix remote sales tax collection
problems which has included the Marketplace Fairness Act, MFA,
and the Remote Transaction Parity Act, RTPAs. Just for the
record, it has been 1,541 days since MFA overwhelmingly passed
the United States Senate with a 69 to 27 vote in 2013. It has
been 1,502 since that legislation was referred to this
Subcommittee. It has been 750 days since RTPA was first
referred to this Subcommittee in 2015. RTPA was just
reintroduced into this Congress 89 days ago, and it was
referred to this Committee 81 days ago.
However, today's hearing is not on MFA or on RTPA. Instead,
it is on a bill referred to this Committee just 6 days ago.
This bill does not fix remote sales tax collection problems. It
exacerbates it. This bill is one of the most preemptive
legislative measures ever introduced into Congress. NCL
adamantly opposes it, and I urge Congress to do so as well.
I appreciate the opportunity to testify today. I am also
proud to sit here as an elected official from South Dakota
supporting Representative Kristi Noem's commonsense
legislation, the Remote Transaction Parity Act. RTPA should
have been a part of today's hearing and is widely supported by
businesses, governors, and State legislatures. As sovereign
States, we look forward to constructively working with Congress
and the administration to usher in a new era of federalism in
the United States which will return decision making back to the
States. States are the laboratories of democracy, and we need
the power and the flexibility to innovate, create, and adapt
policies and procedures that best meet the needs of our
citizens. As your counterparts in the States, we look forward
to continuing the partnership that will advance State
legislatures' role in innovative policy making that our
forefathers have envisioned.
And with that, I will stand by for questions. Thank you.
Hon. Peters' written statement is available at the
Committee or on the Committee Repository at: http://
docs.house.gov/meetings/JU/JU05/20170725/106310/HMTG-115-JU05-
Wstate-PetersD-20170725.pdf.
Mr. Marino. Thank you. The Chair now recognizes the
Chairman of the full Judiciary Committee, Chairman Goodlatte,
for his 5 minutes of questioning.
Chairman Goodlatte. Thank you, Mr. Chairman. Senator
Peters, welcome. I want to thank all the witnesses for their
testimony. I am particularly interested in yours because you
did not address the problem that this legislation is attempting
to address. Let me give you an example.
California's controversial low-carbon fuel standard
purports to regulate the out-of-State production of ethanol
sold into California in order to reduce carbon emissions. I
want to read you a lengthy quote from an appellate brief
challenging the law. ``The LCFS is an attempt to impose the
views of one large State, California, on the other 49 States.
As sovereign States, Amici recognize California's ability to
regulate conduct that occurs wholly within its borders such as
imposition of stricter emission limits on ethanol-producing
facilities and other activities within California.
But here, the LCFS reaches out across the Rockies and into
the Plains to regulate Amici States' ethanol industry, corn
farming, and a host of activities that are far removed from
California. The only difference is how ethanol is produced in
other States which is not California's right to decide. Here,
the whole premise of California's approach is to use
California's economic power to control out-of-State activities.
California wants to discourage such activity because it
believes it contributes to global warming. But Amici States may
want to encourage cultivation and other economic activity. That
is our decision to make.
The penalty is also affected by California's views about
various farming practices. California is thus seeking to change
out-of-State farming practices based on its views of what is
more sustainable. It is none of California's business how
farmers in other States choose to grow their corn. The United
States is a common market. California may not blockade out-of-
State products in an attempt to force changes in out-of-State
farming policies.'' This is the case of Rocky Mountain Farmers
v. Goldstein. Do you know what State signed the appellate brief
that I just read from?
Ms. Peters. I do not know as I am not an attorney.
Chairman Goodlatte. Well, the answer is that one of the
States that signed it was the State of South Dakota. Do you
think South Dakota has a strong point in arguing against
California's attempt to regulate corn farmers in South Dakota?
Ms. Peters. Mr. Chairman, I do not disagree with you, Mr.
Chairman.
Chairman Goodlatte. Good. That is all I am asking. Do you--
--
Ms. Peters. However, I would like the opportunity to answer
your question.
Chairman Goodlatte. Okay.
Ms. Peters. You are right. This bill attempts to create
solutions for ethanol, pork, taxes, you name it, ethanol, corn,
eggs, you name it.
Chairman Goodlatte. It does not attempt to create any
solutions. What it attempts to do is stop States from
regulating businesses and people outside their jurisdiction.
Ms. Peters. Mr. Chairman, if I can continue? I do not
disagree with you, but specific issues with specific problems
should be regulated on a case-by-case basis. You cannot just
drop a one-size-fits-all thing that is going to help our pork
producers, or our cattle industry, or our egg industry. And for
that matter, now you are trying to throw in legal discussions
about tax policy on digital goods, and mobile workforce, and
employees in workforce.
Chairman Goodlatte. This does not----
Ms. Peters. It should all be one----
Chairman Goodlatte [continuing]. Does not help.
Ms. Peters [continuing]. Case-by-case----
Chairman Goodlatte. Mr. Chairman, the time is mine. This
does not solve any of those problems. What it does is prevent
States from attempting to regulate businesses outside of their
jurisdiction. That is all that it attempts to do, and that is
why it is important. The Ninth Circuit rejected South Dakota's
challenge. H.R. 2887, the bill that Mr. Sensenbrenner
introduced, would shield South Dakota farmers from precisely
such regulatory overreach. Does that not suggest the need for
congressional action?
Ms. Peters. Mr. Chairman, again as I would say, it is not
this body's responsibility to talk about my constituents. The
people, if they vote to institute a law----
Chairman Goodlatte. I am talking about----
Ms. Peters [continuing]. That regulates eggs, then it is up
to them.
Chairman Goodlatte. Reclaiming my time, I am talking about
my constituents. My constituents in the State of Virginia, and
I very much respect your respect for the 10th Amendment to the
United States Constitution. But that amendment preserves the
powers of the States within their borders, not to regulate
commerce outside their jurisdiction. And that is what the
Constitution reserves for the Congress through the Commerce
Clause. And this legislation is simply attempting to respond to
what the courts have ignored for a number of years now.
Ms. Peters. Mr. Chairman, if I can respond as well?
Chairman Goodlatte. You can.
Ms. Peters. My constituency should be able to do what they
wish. And if my businesses in my community cannot sell in
California because they do not follow California law, that is
open and free market. And that is their decision. Now, do I
think that that is an issue that we need to address?
Absolutely. However, I do not believe that this particular
piece of legislation is the right answer to fix the ag
community. I think the ag community should come up with a
solution separately from a tax solution, separately from a
legal solution, or separately from a regulatory solution.
Chairman Goodlatte. Mr. Moylan, would you care to respond
to that?
Mr. Moylan. I would make one point that the epitome of a
one-size-fits-all solution is quite literally in the State of
California a one-hen-cage-size fits all solution that I talked
about in my written testimony where California has attempted to
regulate the size of cages of hens grown for egg production.
And they are attempting to force that standard on businesses in
Missouri and other kinds of places that have much more dairy
production. That is a one-size-fits-all solution, and that is a
bad application of a one-size-fits-all solution.
I would say one other thing, though, that there are some
situations where a one-size-fits-all solution actually is
appropriate. And it is when we are talking about basic
constitutional principles. The First Amendment is a one-size-
fits-all solution. Now specific application of regulations
consistent with the First Amendment after that, of course,
States have different approaches in how they regulate any
number of different things. But when we are talking about
basic, baseline constitutional principles like that, that is
what I think this bill does, is it establishes a basic,
baseline constitutional principle that you have to have a
physical presence in a State before you can be expected to
comply with their laws. So, I think that that phrasing provides
an interesting bit of analysis.
Chairman Goodlatte. Thank you. Thank you, Mr. Chairman.
Mr. Marino. The Chair now recognizes the Ranking Member of
the full Judiciary Committee, Congressman Conyers.
Mr. Conyers. Thank you, Mr. Chairman. Senator Peters, you
really put this thing into a perspective that I think is very
important. Now, Chairman Goodlatte is a very experienced
national legislator, and I wanted to give you a chance if you
wanted to get your idea to him across to take 1 minute or 2 on
that if you would, please.
Ms. Peters. Thank you, Mr. Conyers. To put it into a
perspective as far as states' rights and constituencies, we all
represent the same people. Our citizens and our communities
bring things to us.
For example, in my written statement, Salvia. Salvia is a
dangerous hallucinogenic drug that has not been addressed by
Congress or put as illegal across the country. But it has been
an issue that was brought to us in the legislature because it
is a dangerous hallucinogenic drug that causes psychotropic
experiences similar to LSD. Because that was a constituency
issue, it was brought to us, we made it illegal to consume it,
to sell it. We found out that that particular drug was being
sold in t-shirt shops as an herb. But it was not dealt with at
the Federal Government. So, the States took it upon themselves
to ban it and regulate it.
This bill today will not allow my State, because it is
shipped in from somewhere else. It cannot be grown in my State,
but it is shipped in. And this will not allow me as my State to
take a dangerous drug that my constituencies have said is a
dangerous drug and to ban it.
Another example is pine beetles in South Dakota. We have
just finally beat the pine beetle epidemic in the State of
South Dakota, and we had to change a lot of regulations on
regulating transportation and a lot of things. We have a lot of
Federal land in the State of South Dakota, and we had to work
with the Federal Government. But because of the differences in
how we manage land, the Federal Government versus State
government versus the localities, whether you are a private
landowner or not, we had to make a variety of different
changes. But this law, if it passed, would not allow us to make
those proper changes to protect our trees, and our mountains,
and our environment.
So, with that, those are just two really quick examples of
things that are not tax-related that would really force States
to not be able to deal with the constituencies and the issues
that are local. And that is where the power should be left.
Mr. Conyers. Senator Peters, what do you think would be the
effect of this bill on jobs and economic growth in the States?
Ms. Peters. I think that is a really unique question, and I
appreciate the opportunity to address it. You know, the States
are laboratories of democracy. With the flexibility granted to
us from this esteemed body, we are able to be creative and
innovative in how things work. California has a unique set of
jobs and circumstances in Silicon Valley. They have been able
to adapt the rules and laws to generate jobs within Silicon
Valley based on technology changes. South Dakota has been able
to do the same.
I think this particular piece of legislation will actually
inhibit jobs, inhibit economic growth because it will not allow
States to foster, and develop, and help create policies and
procedures to ensure economic development across our States.
Mr. Conyers. Let me ask you about the Quill decision which
was decided 25 years ago. Have we not improved our technology
to the point where the burden on collecting sales tax is
practically nonexistent?
Ms. Peters. Again, thank you very much for that question. I
am a CPA in real life. I am a part-time legislator, part-time
CPA, and full-time mother of two teenage boys. So, the whole
idea and the whole concept of a court case in 1992 which
reaffirmed a court case from 1967, putting this into
perspective, 1967; I was not born yet. In 1992, I was a junior
in high school, and I am sitting before Congress talking about
an issue that happened before I was born.
So, talking about technology and----
Mr. Conyers. You are pretty good at that.
Ms. Peters. Thank you. But talking about the way technology
has changed since 1967, let's put it into perspective. John
McCain was shot down over North Vietnam in 1967. A lot has
changed since 1967. The world has changed. The way we do
business has changed. Technology has changed the way we do
business. So, it is an interesting discussion to have about
sales tax and talk about technology.
If you look at RTPA and some of the safeguards in RTPA to
protect business, and States' overreach, and over auditing,
they include in RTPA the ability for States to provide the
software for free to the businesses to use. The technology is
there. Over 24 to 26 States are currently using it today. If
you want to talk about Californian egg laws, if California
supplied all of the cages to the farmers, then I have no
problem with California changing the law to protect the
citizens because that is what they voted for.
Mr. Conyers. Sure. Thank you----
Ms. Peters. But that is part of the problem. So, thank you,
Mr. Conyers.
Mr. Conyers. Thanks so much. I want, Mr. Chairman, to
submit for the record letters, especially--one, two, three,
four, five, six, seven--seven different organizations, but
especially the first one, Marketplace Fairness Coalition,
signed by over 120 companies and associations and 12 unions,
all of the biggies. And the Governors Association and the
Conference of State Legislators, as well as for our Ranking
Member, Mr. Cicilline and a letter from Representative Noem.
Mr. Marino. Without objection.
These materials are available at the Committee or on the
Committee Repository at: http://docs.house.gov/meetings/JU/
JU05/20170725/106310/HMTG-115-JU05-20170725-SD003.pdf.
Mr. Conyers. Thank you, sir. And I want to thank our
witness, as a CPA and an expert on the considerations to this
bill, we value your presence here today. And I thank you very
much. Yield back, Mr. Chairman.
Mr. Marino. Thank you.
Chairman Goodlatte. Mr. Chairman.
Mr. Marino. Yes, sir.
Chairman Goodlatte. Mr. Chairman, I ask unanimous consent
just going to send to enter in the record the following
testimony and letters of support for H.R. 2887: a letter of
support from the National Cattlemen's Beef Association, North
American Meat Association, the National Pork Producers Council;
letter of support from the Virginia Cattlemen's Association; a
letter of support from 18 conservative organizations, including
Americans for Tax Reform, National Taxpayers Union, ALEC
Action, Americans for Prosperity, Center for Peace, Freedom,
and Prosperity, Competitive Enterprise Institute, Conservative
HQ.com, Council for Citizens Against Government Waste, Digital
Liberty, DownsizeDC.org, Incorporated, Freedom Works, Free the
People, Independent Women's Voice, Institute for Liberty,
National Center for Policy Analysis, R Street Institute,
Taxpayers Protection Alliance, Tea Party Nation; a letter of
support from the American Catalog Mailers Association; a letter
of support and testimony from Net Choice; a letter of support
and testimony from Overstock, testimony from George Isaacson; a
Supreme Court litigator and expert on federalism and nexus.
Mr. Marino. Without objection.
These materials are available at the Committee or on the
Committee Repository at: http://docs.house.gov/meetings/JU/
JU05/20170725/106310/HMTG-115-JU05-20170725-SD002.pdf.
Chairman Goodlatte. Thank you, Mr. Chairman.
Mr. Marino. The Chair now recognizes the Vice Chairman of
the Subcommittee Farenthold from Texas.
Mr. Farenthold. Thank you, Mr. Chairman. Mr. DeVeaux, I
would like to start with you. One of my concerns is how we
define regulation in this bill. Currently the draft restrains
regulation on production, manufacture, or post-sale disposal of
a product. In your opinion, are these categories broad enough
to cover the across State border regulatory overreach that is
happening? And if not, what else would you include?
Mr. DeVeaux. Well, yeah, I do think it is broad enough. It
encompasses about everything in terms of the issue, but----
Mr. Farenthold. Great. I just want to make sure we were not
leaving something out and have to come back and revisit this
issue. Senator Peters, you talk about the Marketplace Fairness
Act and Remote Transaction Parity Act. What effect do you
believe this legislation would have on the internet sales tax
debate?
Ms. Peters. I think it puts us back to when sales tax was
enacted in 1939 in the State of South Dakota, and the world has
changed since then.
Mr. Farenthold. All right. So, Mr. Moylan, do you have some
thoughts on that?
Mr. Moylan. I do, you will be surprised to hear. My
thoughts are that this legislation, I think is a very important
first step. It is not the only step, but it is a very important
first step in helping to sort of reset what has been a very
difficult and, frankly, a very poisonous debate over many years
in Washington. And the reason I think it is an important first
step is because it underscores that incredibly important basic
constitutional principle that a business or an individual
should not have to comply with the laws of a State unless they
are physically present in that State, that that ensures that
connection.
And then, I think it is the perfectly reasonable purview of
this Congress or, you know, other entities to consider are
there things consistent with those principles that might help
to address the issues? I have testified before this Committee
about what my own thoughts are about that approach. But I think
this is an important first step, and what it does is it helps
us to clear up this morass of State level litigation where
States are passing knowingly unconstitutional bills in order to
draw litigation. This is the kind of thing that throws
businesses into turmoil and a tremendous amount of----
Mr. Farenthold. Can we talk a little more about the sales
tax issue? One of my most unpleasant memories of operating a
small business before I came to Congress was the sales tax
audit. They sent two folks who we had to provide an office for.
It stuck around my office for about two weeks, and poked around
on our computers, and every file we had. We had an employee
dedicated to finding documents for them and helping them out.
That was one State. That was Texas auditing a Texas company. If
I were subject to having to pay sales tax in all 50 States,
what is stopping each one of those 50 States from sending
somebody in to audit me every year? I mean, I could not afford
that.
Mr. Moylan. Well, my condolences for your experience, and I
would say----
Mr. Farenthold. We did come out only owing about $200. I
consider that a win.
Mr. Moylan. Well, it could have been worse then. What I
would say are two things. We heard about, well has technology
not advanced? And I think that, you know, maybe you are a good
example of this. I often say about the complexity issue and
technology, if you think that technology can solve sales tax
complexity, you must think that TurboTax has solved income tax
complexity. And anyone who has filed income taxes through
TurboTax knows that the challenge in filing your taxes with
TurboTax is not in doing the math. We really have had the
technology to do the math for decades at this point.
The challenge is in deciding what credits you might
actually qualify for, do you meet a multiple part test, did you
spend enough to meet this threshold? These are the decisions
that software cannot answer for you. And as a business, you
cannot answer just by software whether something is included in
a tax base or not. And so, even getting free software which I
will steal a line from a friend of mine that it is free like a
puppy, you know, because then you have to pay to integrate it.
You have to pay to maintain it and operate it inside your
systems. Even if you pay for free software for people, it does
not solve that fundamental problem. And so, I think while the
world has changed a great deal, there are some things that we
have not yet figured out how to solve with----
Mr. Farenthold. All right. And just before I let go of the
sales tax issue, I have got one more question for you. Some
States are now forcing online retailers to report to the State
on private and often sensitive online purchase information by
State residents, I guess in an effort to come after those
individual residents to collect the use tax. Does that not
strike you as a serious privacy violation?
Mr. Moylan. It does indeed. I think it provides some very
serious concerns about privacy. We have seen the way that,
unfortunately, the way that government agencies handle
sensitive information for individuals. And we are talking about
the most sensitive personal information and financial
information as it relates to sales tax. And so, I think that
that is a major concern. And that is why, you know, we have
this ongoing litigation in all of these different States. That
is why I think this bill is important, is to help clarify that
debate, help, you know, get us past some of these arguments
that we are going over and over in all of these States now.
Establish that baseline principle, and then allow us to have
what I think is a more intelligent conversation after that.
Mr. Farenthold. Thank you very much for your answer. Mr.
Chairman, I see my time has expired.
Mr. Marino. Thank you. The Chair now recognizes the Ranking
Member of the Subcommittee. The time goes to Mr. Cicilline for
his opening statement.
Mr. Cicilline. Thank you, Mr. Chairman, and thank you to
our witnesses for being here today. Small, locally-owned
businesses are the lifeblood of our communities. Whether it is
the local bookstore, coffee shop, hardware store, restaurant,
or grocer, these small-scale businesses form the backbone of
communities that are more prosperous, entrepreneurial, and
connected as the Institute for Local Self Reliance reports.
Leading studies have also found that more than half of
every dollar invested in locally-owned business stays in the
community. That is because locally-owned businesses invest in
labor, goods, and services located within our communities.
Profits are paid to local owners who live in the community and
local workers who receive higher wages at locally owned
businesses. And in times of economic downturn or recession,
locally-owned businesses create and retain jobs at a higher
rate than larger corporations as leading economists at Yale
University and the University of Bristol found in 2012.
But for decades, the value of goods sold by locally owned
business has diminished due to tax loopholes for online
purchases. Even though taxes are owed on these purchases in
nearly every State, few consumers are aware of this requirement
or can reasonably be expected to track and report their own
taxes from online purchases, also known as use taxes. The
result of this tax loophole has been catastrophic. Over 3,000
stores are expected to close this year, double the number of
closings during this period last year, while the number of
monthly job losses in the retail sector far exceeds the losses
in every other sector of the economy combined.
And every week, as businesses and retailers are forced to
close their doors, hardworking Americans want to know why has
Congress failed to act? I am a proud cosponsor of H.R. 2193,
the Remote Transaction Parity Act, which would end these unfair
tax breaks that stack the deck against locally owned
businesses. This bill is a job and economic opportunity
creator.
Conservative economic experts report that this commonsense
measure would create more than 1.5 million jobs over a decade
and reduce or eliminate State budget shortfalls by providing
equal treatment for all businesses. This State revenue is
critical to helping our communities invest in infrastructure
projects like bridges, roads, and broadband internet access,
not to mention important public services like education,
healthcare, and law enforcement.
These are projects and services that our communities need
to flourish in the 21st century economy. And to those who argue
that this is a new tax, several States including Wisconsin,
have already signed laws into place to ensure that revenue
collected through this bill will result in tax reductions. And
yet rather than act on this legislation which has broad,
bipartisan support, we are now considering H.R. 2887, which
might more accurately be called the Destroying Locally-Owned
Business and State Sovereignty Act.
H.R. 2887 prohibits States from collecting taxes on
purchases from out-of-State sellers unless they are physically
present in the State for at least 15 days in a taxable year.
This legislation in my view is a dangerous and transparent
attempt to bait our local stores to negotiate against the
interests of local communities. It should come as no surprise
that this bill was drafted without input from locally-owned
businesses, brick and mortar stores, or State and local
governments. At a time when online commerce is a large and
rapidly growing portion of all sales, H.R. 2887 has carve-outs
for online commerce and would prevent States from collecting
taxes on goods from out-of-State sellers.
And according to the Congressional Budget Office, requiring
physical presence requirement for corporate income taxes alone,
as this bill would do, would steal billions from State budgets
every year. Worse still, this legislation is an existential
threat to the sovereignty of State governments. And this is no
exaggeration. H.R. 2887 prohibits States from imposing
standards on commerce made by out-of-State manufacturers and
sellers unless they have a physical presence within the State
for 15 days in a taxable year.
As the coalition of leading administrative and
constitutional law scholars note, this bill unconstitutionally
ejects States from their role in the Federal system and is
anathema to long-settled constitutional law, bedrock principles
of federalism, and State innovation. Yes, I am. Okay. I am
going to yield back and return later for my questions.
Mr. Marino. The Chair now recognizes Congressman Buck for
his questioning.
Mr. Buck. Thank you, Mr. Chairman. Mr. Dierks, quick
question since you seem lonely over there. I just want to know
your thoughts on some of the comments by Senator Peters. Is it
in your opinion that a State like California may regulate
commerce in a State like South Dakota?
Mr. Dierks. No, we understand California's ability to
regulate their own citizens. It is by making requirements of
what gets sold in a given State that producers in South Dakota,
Iowa, Missouri, or whatever respond to. And part of the problem
is it puts a wedge in between the marketplace and what the
customer wants. We are all for the marketplace, and if the
marketplace demands it, our industry is plastic. We will
respond to it.
What we get is a false signal of a requirement, and
generally what we see in our industry with these housing
changes is that there has been some adoption. It has been slow.
And one of the common things we hear is that there is no
economic incentive to do it, and for a lot of producers, there
is quite a burden to retrofit operations that have a long life
to them in order to fill a desire in a State that I would
argue, if there was a market for, the marketplace would have
demanded.
Mr. Buck. Okay. Mr. DeVeaux.
Mr. Dierks. Rather than----
Mr. Buck. I am going to move on. Mr. DeVeaux, any comments
on that?
Mr. DeVeaux. Well, I mean I would say the key thing to
think about, and I am, with respect to all witnesses here, my
bigger concern in terms of the sovereignty issue is not so much
just the parties that are being regulated themselves but the
consumers in the various States. Because these kind of effects
will raise the cost of agricultural products in other States
for consumers. You know, the folks here have lobbies to help
protect them, but the consumers that go to the grocery stores
in Ohio do not.
So, my own personal stake in it would be it is above my
paygrade to make a judgment about whether Massachusetts is
right and Nebraska is wrong or Nebraska is right and
Massachusetts is wrong. It is more a function of----
Mr. Buck. I did not ask that. I asked whether a State like
California can regulate commerce from South Dakota, regulate
what a farmer in South Dakota does.
Mr. DeVeaux. Well, I mean, under the current constitutional
tests that are being applied by the courts, they effectively
can because basically the rule is that if the State is imposing
a law that burdens interstate commerce, it is subjected to what
is called the Pike test. And under the Pike test, the question
is: is the burden on interstate commerce clearly excessive in
relation to the putative local benefit? And that test is
extremely deferential to the regulating States. And virtually
the only time that something does not pass the Pike test are
cases where the regulation serves no local benefit.
Mr. Buck. Mr. Moylan, let me ask you a question, maybe make
it a little more specific. Can the State of California place a
tax on products that are exported from the State of South
Dakota to the State of California?
Mr. Moylan. Well, you have cut right to the heart of what
this bill is about. And the answer is that there is some gray
area today, and that this bill would eliminate that gray area,
I think, in an important fashion. But rather than sort of
restating what some of my colleagues have said, I would make a
different point which is that often the response to, well if
you do not like California's laws then do not sell into
California. That is something that we hear an awful lot in
these instances. And I think that it is interesting because it
reveals the very interstate commerce burden that this bill is
intent on trying to address. That folks say, well----
Mr. Buck. And would not we end up----
Mr. Moylan [continuing]. Do not sell, that is the commerce
burden we are talking about----
Mr. Buck. Would we not end up in that situation with 50
different statutory schemes that would face 50 different
burdens on a producer in any given State? Whether it is a tax,
whether it is an environmental regulation, whatever the
regulation is, practically no farmer in my district in Colorado
which is close to South Dakota--only Wyoming separates the two
of us--and Wyoming is fairly big. But no farmer could possibly
comply with 50 different regulatory burdens. And the whole
point of promoting interstate commerce, the whole point of
moving from the Articles of Confederation to the Constitution
was to promote a marketplace that would be fair to especially
small business in America. Comments?
Mr. Moylan. I think that is right, and I think that,
unfortunately, what we are seeing is that this gray area is
pushing us farther down this slippery slope and faster toward
that scenario that you describe of having to comply with all of
these different jurisdictions, faster than many folks thought.
And that is why this bill is necessary.
Mr. Buck. I yield back, Mr. Chairman.
Mr. Marino. The Chair now again recognizes Ranking Member
Congressman Cicilline for his questions.
Mr. Cicilline. Thank you, Mr. Chairman, and thank you again
to the witnesses. A group of leading administrative and
constitutional law scholars have noted that H.R. 2887 will
undermine ``a vast scope of State regulation that would fall
under H.R. 2887's prohibitions, licensing for service
professions, consumer protections, tort reforms, oil and gas
extraction laws, environmental health and safety protections,
agricultural standards, and even State quarantine laws.''
Well, let me first ask Mr. Moylan, how do you justify a 15-
day physical presence requirement for essential protections for
State citizens? It is a State's, of course, interest and
obligation to protect its citizens. Why should it be dependent
in fulfilling that responsibility on a 15-day physical presence
requirement?
Mr. Moylan. Well, I would answer first by saying that it is
not at all clear to me that each one of those laws would be
invalidated by H.R. 2887. We have----
Mr. Cicilline. Why not?
Mr. Moylan. Well, one example that was prior to your
arriving was Senator Peters talked about the issue of Salvia, a
drug that they have banned in the State of South Dakota. It is
not at all clear to me that this bill would prevent South
Dakota from regulating the production or consumption of that
drug. And to the extent that there are genuine interstate
commerce issues, which there likely are if it is being
transported into the State, then that is an area where we would
expect the States and the Federal Government to work together
to come up with a solution that is consistent with the Commerce
Clause.
And that is where I think a 15-day physical presence
standard is certainly reasonable for any sort of business that
might be engaged, is in that sort of limited slice. But I think
this broad swath that folks posit is a little bit overblown in
my opinion.
Mr. Cicilline. Senator Peters, I apologize for promoting
you to the House. Would you speak to that, what you think the
implication would be on States' responsibilities to protect its
citizens in those areas that I described or that these leading
administrative and constitutional law scholars referenced of
consumer protection, health and safety standards, quarantines,
et cetera?
Ms. Peters. Thank you very much for your question. You
know, I do not even know where to begin with some of the issues
that you have raised simply because this is such a broad piece
of legislation. It encompasses everything from energy to
agriculture to tax policy; it is almost like we have decided
that we cannot fix it all in one fell swoop. So, let's just
bring the bunker buster bomb and drop it instead of taking the
surgical knife and saying, hey, I got a problem with the way
California is legislating eggs and pork.
Well, let's take the surgical knife then and the scalpel,
and let's legislate that smart. Let's be smart. Let's do our
homework. Let's do the hard work and make the tough decision.
When you want to talk about 15 days, just think about every
State and all of the little special events that you have in
your State. South Dakota, we have the Sturgis Bike Rally. That
is a 14- to 15-day event. We have retailers from all over the
country and the world that fly into the State of South Dakota
for a 2-week event. And guess what? It does not matter what
they are. They could be selling Salvia. We do not have
legalized marijuana in South Dakota. So, they could be selling
marijuana because they would not meet the 15-day test.
If you are going to start a bill with saying, wait a
minute. That is not our intent, and you have to create a
laundry list of exceptions like drugs. Then we have a problem.
It is too broad. It is not specific enough to address the
specific problems that we are here to talk about.
Mr. Cicilline. Thank you. I mean, I think that is further
supported by another letter that was submitted for the record
from one of our colleagues, Kristi Noem, who sought to testify
before this Committee. A member of the Republican Caucus, and I
think it shows that even within their own Caucus, there are
some concerns about this.
Finally, the Congressional Budget Office has previously
estimated that requiring physical presence for business
activity would lead to losses of more than $2 billion in the
first full year after enactment and at least that amount in
subsequent years. The National Conference of State Legislatures
estimates that the loss would be $26 billion. If you use the
figure, the low figure of the $2 billion, that would be, just
to give you some perspective, $1 billion a year would pay for
the salary of 17,000 public school teachers, and over 16,000
police officers, or 31,000 paramedics.
So, I mean, I wonder what the expectation is of the
witnesses of what States would do with this crushing loss of
revenue as a result of enactment of this. Maybe Senator Peters,
you could talk about what you think the implications would be
for a State such as yours?
Ms. Peters. Just to give an example for the State of South
Dakota, 80 percent of our budget is a consumption tax. If you
want to talk about tying the hands of these devices that have
changed the way economies have worked, and how businesses do
business, and how people buy and sell things, and you are going
to tie our hands, now remember I am a Republican from a
conservative State that relies on their budget, 80 percent
consumption tax. That has been the goal is to tax and keep
taxes at the local level to keep it so they support the local
governments. If this bill goes into effect today, you are going
to throw us into a whole another taxing regime like an income
tax or a personal income tax. We do not have those today, but
if you tie my hands that funds 80 percent of my budget, I have
to figure out something.
And then, how do you pay for the police, the fire, the
schools, the education, and all of the Federal mandates that
the Federal Government puts on us for Medicaid and et cetera?
Mr. Cicilline. Thank you very much. I yield back, Mr.
Chairman.
Mr. Marino. The Chair recognizes Mr. Ratcliffe I see is
back. Sorry about that. Mr. Ratcliffe is from Texas.
Mr. Ratcliffe. Thank you, Mr. Chairman. I appreciate all
the witnesses being here today. Mr. Dierks, let me start with
you. Your written testimony describes the pork production
process as being very complex. Now, the district that I
represent has broader but similar agricultural processes and
concerns, if you will. As you know, there are some activist
groups have sought to use ballot initiatives and legislation in
other States to essentially impose regulatory burdens on
agricultural businesses in Texas.
Democratic accountability is supposed to provide an
important check and balance, if you will, on overregulation.
But if that regulation is extraterritorial, that check and
balance is essentially circumvented. Would you agree?
Mr. Dierks. With the extraterritorial side it is. I mean,
from the people in Texas taking mandates from Massachusetts,
for instance.
Mr. Ratcliffe. Mr.----
Mr. Dierks. I mean, it would. And our industry tends to be
as close to the marketplace as possible. So, if the consumer
demands it, it will be responded to. If there is something that
comes in as you said, activist groups that target States that
do not have, in our case, pork production, which is where we
have seen these things happen. And ballot initiatives that are
worded in such a way that everybody would agree with them
because it talks about soft, fluffy things like a Hallmark gift
card. But then, it is the devil is in the detail. And that
devil suddenly brings issues at hand.
And what is interesting about it is some see this as oh,
these sophisticated pork producers' operations. Well, unlike
the reference that Mr. Goodlatte gave to Massachusetts, we did
not have any operations producers from Massachusetts using
individual maternity pens gestation housing. And, actually,
what they are doing to their citizens to the State of
Massachusetts is that they are creating an atmosphere where
those people that have created a niche market will be swamped
by commodity product that meets the different requirement from
out of State.
Mr. Ratcliffe. Thank you. Mr. DeVeaux, I want to give you a
chance to comment on that because I know you talked a little
bit about the extraterritorial legislation. So do you agree
with that, and are those concerns limited to potential for
protectionism? Or are there other concerns?
Mr. DeVeaux. Well, there is always protectionism lurking
potentially because it is often easy to disguise what might
otherwise be, you know, a well-intentioned safety measure.
For example, there is the famous case where North Carolina
enacted a law that required that all the apples sold in the
State had to be labeled pursuant to USDA labeling, apple-rating
regulations. And it was not too much of a secret that, you
know, North Carolina had its own apple industry. And the
premier apple producing State was Washington, and Washington
had its own labeling system. And this was litigated to the
Supreme Court on the argument that, you know, that it was all
about safety because we can have our confidence in the USDA
rating system. And the court in a somewhat muddled opinion came
to the conclusion that the law was unconstitutional. But they
did not really address the, you know, I think the elephant in
the room that it was protectionism.
Mr. Ratcliffe. Thank you. My remaining time, Mr. Moylan, I
want to turn to you on this remote sales tax issue. And I
certainly appreciate there are stakeholders on either side of
the issue. I know that because they are in my office all the
time and a lot of the other members up here experience that as
well. And that is why we ultimately want to get to the right
place on this. So, when stakeholders come into my office and
argue that the physical nexus requirement effectively creates a
class of sellers that are above the law. Above the law in the
sense that they benefit from States to which they are selling
but are not required to pay taxes that other sellers have to
pay; what should I be telling them to address those concerns?
Mr. Moylan. Well, what I would say is that the law applies
equally to all sellers today regardless if their business model
is purely brick and mortar, a mixture sort of brick and click,
or remote retail only. And the law as it stands today, because
of the Quill decision, is if that business has a physical
presence in the State that they are required to comply with its
tax laws. And if they do not, they are not required.
And that is not a loophole that was intended to advantage
internet retail. The internet was but a glimmer in the broader
economy's eye, rather, in 1992. And so, I understand that there
are concerns. But sometimes there are differences in business
models that are not appropriate for, you know, undermining
basic principles, I think, to address. And so, that is what I
see happening is that in sort of a competitive sense, a lot of
folks are coming and saying, we expect a more difficult, more
burdensome collection standard for the business that we are
competing with than the one that we use.
And the reason I say that is that still today 93 percent of
sales happen in brick and mortar businesses. It is growing, but
it is only 7 percent in online retail. For those 93 percent of
sales, they effectively operate on a simple rule where they
collect tax based on where that business is located. And what
they are asking for that other 7 percent is that they have to
jump through a bunch of hoops to figure out where every one of
their customers is coming from. And that is not the standard
that those 93 percent of sales operate on. And so, I think that
that is what my response to that would be.
Mr. Ratcliffe. Thank you all for being here. My time is
expired. Chairman, I yield back.
Mr. Marino. Thank you. The Chair now recognizes the
Congressman from Georgia, Mr. Collins.
Mr. Collins. Thank you, Mr. Chairman. I appreciate you
yielding the time. And, Mr. Chairman, I appreciate the
important issues that this legislation is intended to address.
I have and will continue to be a firm supporter of this
Subcommittee's work to enact meaningful regulatory reform. This
is a Committee in which I take great pride of being a part of
and have been since my time in Congress just a few short years
ago.
While I have nothing but the utmost respect for the work of
the bill's sponsor, Mr. Sensenbrenner, I cannot support the
approach that we are taking in this Subcommittee today in
considering this legislation alone. My concern is that the
breadth of this legislation goes well beyond the State
regulatory overreach. There is no one that I would put my
record up against who has fought harder against predatory, and
at times abusive, State regulatory practices from poultry to
pork to others.
The bill that we are currently considering, for all intents
and purposes, although talked about in the regulatory issue,
codifies a Supreme Court decision in Quill Corporation v. North
Dakota by prohibiting States from requiring remote retailers to
collect taxes on goods sold into their jurisdiction. In doing
so, it would simultaneously ignore the unambiguous invitation
from the Quill Court and impliedly close the door on any
opportunities to address this issue in a way that weighs the
needs of States, their citizens, online retailers, local
businesses, and the economy as a whole.
To be clear, I believe that it is critical that Congress
act to address the remote taxation issue and that we do so in a
way that is clear and fair. However, defaulting to a physical
presence standard similar to the one adopted by the Quill Court
ignores the reality of a modern economy. Justice Kennedy
pointed out these realities last year when he wrote in a
concurring opinion in the Direct Marketing v. Brohl case
stating, ``a business may be present in a State in a meaningful
way without that presence being physical in the traditional
sense of the term.'' But one does not have to look to modern
day to suggest that Congress should play meaningful examination
of a departure from the physical presence standard.
Justice Stevens in writing for the opinion for the Quill
majority stated, ``Congress is now free to decide whether,
when, and to what extent the States may burden interstate, mail
order concerns with the duty to collect sales and use tax.'' I
believe that the members of this Committee should dedicate
ourselves to doing just that. I believe that it is the
responsibility of this Committee to consider and pass
legislation to address the complex array of issues presented by
our increasingly digital economy. I believe that it is our
responsibility to do so in a way that is considerate of states'
authority and the need to collect taxes without burdening
businesses and the inherent complexities of compliance with the
laws of thousands of jurisdictions throughout this country.
But only when we consider the full range of options such as
the Remote Transaction Parity Act and the Marketplace Fairness
Act can we find solutions that work for all stakeholders. I am
confident this Committee can strike the careful balance between
the authority of States to collect taxes and the need to
minimize the burden on remote sellers.
In light of this conversation, I have been in Congress for
4 and a half years. I have taken more meetings on this one
issue than anything combined. I have had people from one side
of the town square in my little town of Gainesville and the
other side of the town square in Gainesville come to me with
very similar business models. The first one comes in
passionately against the proposition of online or remote sales
tax. The other one coming in saying, you have got to do this.
Friends, we go to church together, ball games together,
everything else.
When we understand this issue, and believe me, I am not
endorsing the other bills that I spoke of. I believe they have
problems, and I believe those are problems that we have been
addressing and talking about behind the scenes here for many
years in this Committee. I believe as we move forward here that
a discussion of regulatory burden and the discussion of remote
sales tax are unfairly bonded in this bill.
It is one thing to say watch what we are doing here while
at the same time saying do not pay attention to this part over
here. And the actual reality is as much as I respect the
purpose here, it is simply a codification of Quill. And in that
sense, I think we can do better. I think we can do more to
address this issue. Do I believe that there is a new economy
coming? Yes. Do I believe that it is going to be difficult for
States and localities who have depended on a traditional form
of income to do that? You also do not get any more conservative
on my side on the collection of taxes and the spending. As I
have said on other occasions, we do not have a collection
problem. We got a spending problem, and that includes the State
level on which I served in the Georgia State House.
At this point in time, I welcome this discussion. But I
welcome a full and open discussion with all players at the
table discussing where this Congress does its best work. And
that is when we take the accounts of all and look at the issues
from a straight up format, and go so at that. With no
dispersion on anyone, this is the first step. I am glad to have
this hearing, but those are my thoughts as we move forward. And
my hope is we will find a solution that will end the plethora
of meetings that I have endured. With that, Mr. Chairman, I
yield back.
Mr. Marino. Thank you. The Chair now recognizes the
Congresswoman from Washington, Ms. Jayapal.
Ms. Jayapal. Thank you, Mr. Chair. The No Regulation
without Representation Act is one of the most coercive and
intrusive pieces of measures that I have seen. And it would,
unfortunately, fundamentally upend the role of States and the
American government. The consequences specifically to my home
State of Washington are severe. The bill would preempt a
State's ability to collect taxes unless the business is
physically present in a State.
In Washington State, nearly 30 percent of our revenue comes
from retail sales and use taxes. We do not actually have an
income tax in our State. This bill could result in billions of
lost revenue for our State which would hurt our ability to pay
for critical goods and services including education,
construction, and emergency responders, among other things. And
I am particularly concerned about the impact on education
because, in our State, we have had an ongoing Supreme Court
ruling stating that our State is out of compliance with our
Constitution around education funding. And it is, in fact, a
paramount duty. This bill would significantly undermine our
ability to find solutions for that education problem in our
State and to make sure all our kids receive a high-quality
education.
But it would also undermine the constitutional right of
States to protect the health, safety, and welfare of their
citizens. It would eliminate State regulatory authority over
any company or its products unless that company has a very
tightly defined physical presence in that State. Again, in the
State of Washington, we have environmental protections and
regulations that exceed some of the Federal protections. So,
our CEPA laws are much stronger than our NEPA laws. And it
would be extremely disturbing to States' rights if we were to
actually supersede that through this bill.
The provisions are also disturbing because of the current
administration's failure to take environmental protections or
concerns seriously. And as a result, States like mine,
California, New York have launched a climate alliance to
continue to advance environmental justice. So, I have a couple
of questions for Ms. Peters. And if you can speak specifically
to constitutionality, what are your constitutional concerns
with H.R. 2887? And what effect would it have on States'
constitutional authority to establish general safety standards?
Ms. Peters. Thank you very much for the question. I,
actually, am an accountant not a constitutional attorney. So,
my perspective is a little bit different. Being an elected
official in the State of South Dakota, we view State regulation
a little bit different than what the State of Washington does.
But we do come together when it comes to a lot of things when
it deals with sales tax.
So, as far as what this bill does, I think it obliterates
our States' abilities to do what our citizenry have elected us
to do within our own States. So, if the State of Washington
wants to exceed the Federal regulations, then I think that is
the State of Washington's right. Now, if this bill wanted to
just deal with environmental issues, then we need a bill to
deal with environmental issues and regulations. If we wanted to
talk about ag and the issues within exporting ag products
across State lines, let's have a bill that talks about that.
I think this bill, as I said before, talks too globally
about too many different issues. And it literally just
obliterates the whole process instead of just doing the
surgical fixes that I think we need to have throughout all of
the discusses whether we are talking tax policy, environmental
issues, ag issues, and the like. So, I hope that answers your
question.
Ms. Jayapal. Well, let me follow up since you are an
accountant and ask you about State tax collection. There are
leading experts that have suggested that requiring physical
presence as you said would trample on State tax policy
decisions. What specific effects might you see on State revenue
for States like yours or ours?
Ms. Peters. The 15 days within this particular piece of
legislation will be catastrophic, especially if you look at a
lot of the special events that are going on. Every State has a
variety of different special events. In South Dakota, we are a
very small State, 850,000 people total. The Sturgis Bike Rally
brings in 2 million people. So, if you take that 15 days and
those retailers that come into our State, they come in. They
set up a shop. They sell and buy goods within our State for a
variety of different things, whether it is tattoos or t-shirts
or a variety of different things.
And this would take away that entire sales tax collection
and remit for that county because we are local control county
sales tax, not just a little bit at the State. It would
decimate those counties for that revenue, and they rely on that
revenue for that one special event for the rest of the year to
pay for roads, bridges, and a variety of different things at
the local level. This bill is just too broad to narrow it down
to a lot of different things.
Ms. Jayapal. Thank you. I appreciate that, and I know that
we have other bills that have been introduced by members
including our Ranking Member, Mr. Conyers, and I think would do
a better job of trying to address some of these critical
issues. They are critical. They do need to be addressed. With
that, I yield back.
Mr. Marino. Thank you. The Chair now recognizes the
congressman from California, Mr. Issa.
Mr. Issa. Thank you, Mr. Chairman. Ms. Peters, since you do
not like the bill, I am going to concentrate on you because I
do not necessarily love this bill. I do not see it as perfect
in its current form. But let me go through some questions for
you because draft bills around here often get improved not by
the proponents but by the dissidents. So, in my home State of
California, we have a different standard for made in USA such
that if under current law, if you put made in USA on a North
Dakota product, including a soybean, bag of soybeans,
California may sue your companies because they are not made in
USA based on our definition. Is that okay?
Ms. Peters. Mr. Chairman, I think and I do not want to not
answer your question----
Mr. Issa. Start with a yes or no, and then you can
explain----
Ms. Peters. Sure.
Mr. Issa [continuing]. Your yes or no.
Ms. Peters. And I do not really because this bill, I would
be a yes and a no because I do not like regulation period----
Mr. Issa. Okay. Explain your yes and no, please.
Ms. Peters. Sure. Well, you know, it is up to California to
make the rules that apply to California.
Mr. Issa. Okay. So----
Ms. Peters. If you have citizens that want that, that is
fine.
Mr. Issa. South Dakota's commodities, your number one
commodity you export is soybean, oil cake, and other solid
residue. Go figure, whatever that is. Your number two is
brewing distillation.
Ms. Peters. Yep.
Mr. Issa. You are big on booze. Your number three is meat,
swine, ham shoulders, bone-in. And then, we get to other swine
which I would have probably said should have been combined. So,
you are big in pork. You are big in soybean, and you are big in
booze.
Ms. Peters. Yes.
Mr. Issa. Okay. The question is if you produce a bottle of
whiskey, can California choose not to accept it as whiskey even
though you have complied with all the Federal laws?
Ms. Peters. I think that is what this hearing is here to
address. I just would like to go back to the California egg
discussion a little bit. The citizens of California voted for a
law that I do not necessarily agree with.
Mr. Issa. So, you are----
Ms. Peters. However, the citizens of California----
Mr. Issa. But you do not export eggs.
Ms. Peters [continuing]. Wanted it.
Mr. Issa. We do not export eggs so let's talk South Dakota.
Your booze is banned in California. Is that okay?
Ms. Peters. At this point, yeah.
Mr. Issa. So----
Ms. Peters. It is the law.
Mr. Issa. The fact that the Supreme Court ruled that it
cannot be is not a problem to you? When Michigan tried to have
two different standards, the Court clearly slapped it down even
though the 21st Amendment specifically, unlike other products,
gave an exception to the interstate commerce clause. It is okay
with you?
Ms. Peters. Well, no, but that is why we are talking to you
today.
Mr. Issa. Okay. So, there is a problem that needs to be
fixed. I will go to the other folks for a moment. The Supreme
Court took on Michigan when they tried to have two sets of
standards, they specifically made it clear that my California
wine was not, since it was legal in the State, had to be
allowed into Michigan and no secondary license was required. My
question is have we not already made a decision at least as to
interstate commerce, even with the 21st Amendment which gave
special powers to the States, has the Supreme Court not already
spoken that interstate commerce is to be protected? And are not
we just dealing with the regulations to prohibit it? A do-good
policy to be parochial down to the State, the county, and the
city.
And who is my pork producer here? Since I swined twice in
South Dakota, would you mind going first?
Mr. Dierks. Well the second swine I believe was breeding
stock, live animals, going to other parts of the country.
Mr. Issa. But I tell you, the two of them together is an
awful lot of pork that would never leave South Dakota if other
States decided to simply protect a domestic industry in each of
their States. Is not that true?
Mr. Dierks. That is true, and that is true for the Upper
Midwest, North Carolina. I am not a constitutional attorney
even though we have one here that can address your specific
question on it. But I think, I mean, that is the root issue
that we have. We are having mandates made in States that
citizens of other States are left to deal with even though they
had no say in it. And unfortunately, that is our concern, and
that is why we are supportive of the bill.
Mr. Issa. Okay. I am going to broaden the question because
Ms. Peters had a point. Products and services are different are
they not? With a product, in other words, you are exporting
booze, pigs, live or not live. You are exporting a product
which clearly our Founders thought of. Ms. Peters' example
which I do share her concern, services including the physical
presence of coming in for an event. We could have a bill that
dealt with physical presence by individuals. Whether they are
employees of somebody or not becomes a question.
And by the way, having overseen the District of Columbia
for years, I am well aware that professional teams that come
into every State in the Union pretty much pay apportioned taxes
while they are there on that professional football, basketball.
The District of Columbia does not have that authority which is
why the Washington Redskins do not play in Washington. So,
would you give us sort of all the answers you want but
specifically as to how we could look at goods versus services
differently?
Mr. DeVeaux. Well, I mean, the constitutional rules that
pertain to regulation of commerce are different from, you know,
the rules that pertain to taxation. Although the Quill decision
is rooted in the same body of law. I mean, one of the things
that Quill does, I think, is it really draws a line and
explains the difference between what the Commerce Clause or the
dormant commerce doctrine says about State sovereignty versus
the interests of due process. Due process is about protecting
the rights of individuals.
So, if an individual has contact with a State, does
business with a citizen of that State, for due process
purposes, he is sort of on notice that that State has an
interest in the transaction. And that is satisfied. For
Commerce Clause purposes, presence says something about what,
you know, the regulatory authority of States, what power they
are intended to have within a system where they need to respect
their neighbors, right? So they are two different questions.
Mr. Issa. But I think for Ms. Peters, the difference
between an event in which people come in and sales tax is
collected as a result of a presence and a sale, a retail sale,
in which you tax instate and out-of-State products the same
versus simply saying that we do not like the way you use GMOs
as your source stock for whiskey. Therefore, we, in California,
are going to prohibit your whiskey. That is what I wanted to
understand.
Mr. DeVeaux. Yeah.
Mr. Issa. Because I think not all regulations are created
equal versus taxation.
Mr. DeVeaux. And those are two very different things. I
mean, with the GMO issue, I mean, there could be a lurking
protectionism there much like Michigan was trying to protect
its wine industry. I mean, their statute was a little more
clear because it basically identified states qua States not
saying too many sulfides or something. You know, there is
always a way you could come up with that, and I am kind of
surprised that some of the other wine producing States have not
thought of that, you know, in terms of trying to craft a bill
to----
Mr. Issa. Thank you, Mr. Chairman. You have been very
generous. I yield back.
Mr. Marino. Thank you. I have a couple of questions now.
Mr. DeVeaux, you are an expert in federalism.
Mr. DeVeaux. Yes.
Mr. Marino. I think we are missing, for most of the
conversation, here the actual point. And that is the
constitutionality and the 10th Amendment. What, in your
opinion, is H.R. 2887, the legislation that we are debating
here today, consistent with the 10th Amendment?
Mr. DeVeaux. Well it is, and I do not mean that to
disparage the views of any other panelists here. What I would
say is that the 10th Amendment just confirms what ought to have
been obvious from the framework the Framers set up for us, that
going into the convention, we effectively had 13 independent
countries that possessed the full range of sovereign authority.
And when each State ratified the Constitution, they only gave
away powers to the Federal Government that were expressly
conveyed in that document.
So, they retained all the sovereignty that they had that
they did not give up. But one of the things they gave up was
authority to regulate interstate commerce. Well, there are
three categories. The Supreme Court has identified three
categories of regulatory authority the commerce power
supposedly gives. In the most recent cases, the cases that walk
it back like Lopez and Morrison, the first category is
regulation of channels of interstate commerce or
instrumentalities of interstate commerce. So, channels are
roads, navigable waterways, fiber optic cables.
Instrumentalities are things, goods, people traveling between
States in those channels, right? And then, there is this third
category that was recognized in Wickard v. Filburn, you know,
about there is also the necessary and proper clause augments
this power to allow Congress also in some limited circumstances
to regulate intrastate activities that have a substantial
effect on interstate commerce.
That is where the 10th Amendment comes in because in that
situation we are not talking about just regulating interstate
commerce. We are regulating beyond interstate commerce in order
to achieve the necessary and proper effect, right? So, when you
are talking about regulating goods and goods traveling in
interstate commerce, Congress' power is plenary. There is no
restraint on it.
Whether, you know, so the power to enact this bill is
there. Reasonable minds can differ about whether it is a good
idea, that is your job. But I do not think there is a 10th
Amendment component to it because we are talking about
instrumentalities.
Mr. Marino. Mr. Dierks, let's talk about the States
imposing regulatory burdens on out-of-State producers. You see
an increase: how much of an increase? Give me an example of the
burdens that it is placing on the agricultural industry.
Mr. Dierks. There are burdens. Some of those burdens, for
instance, the California situation and the Massachusetts
situation are just being perfected now. And it is difficult to
clearly identify all the burdens. Harry Kaiser at Cornell
University, as I said in my testimony and it is in my written
testimony, did a study on the impact of California's cage
laying situation and came up that it increased the price of
eggs in California $0.49 a dozen. The issue with that though is
that, and for most of us it is not a big deal.
But for the, you know, as Americans we spend 10 percent of
our disposable income on food. But if you are the bottom
quartile of our society, you are spending 30 to 40 percent of
your income on food. We are just starting to see those play in.
Massachusetts is yet to be perfected, as it were, on the exact
language. So, it is a burden in that what happens is you go
back, you take a look at return investment. There are some
producers that are making decisions to reinvest, but there is
no incentive in the marketplace. And the reality of it is there
is no clear way. In my written testimony, it really gets down
to what the AVMA, the American Society of Swine Veterinarians,
say. It is not about steel or design. It is about care and
management, so we are trying to figure that out right now.
Mr. Marino. Thank you. Mr. Moylan, absent this legislation
that we are discussing today, 2887, could States expand
renewable portfolio standards to ban energy produced out-of-
State by fracking?
Mr. Moylan. Yes. You are identifying a big risk absent
passage of this legislation. And it is a point that I was sort
of looking for an opportunity to bring up earlier, but this
gives me a good one which is that----
Mr. Marino. Well, I have to give the credit to my legal
counsel here.
Mr. Moylan. Well, great minds think alike perhaps, but I
think there is a risk of activism, sort of projection of
activist legislation I guess you could say. And I mean that on
both sides ideologically. There is a risk of more Liberal
States saying to, you know, producers in Conservative States,
you cannot ship something here unless it complies with our, you
know, thoughts on hen cage sizes, or GMOs, or what have you.
But there is also a risk in the reverse of more Conservative
States attempting to say, you know, you could imagine any
number of different scenarios that products imported from
States that do not have right to work laws are for some reason
prohibited. Or that do not comply with, you know, their
thoughts on minimum wage, what have you.
You brought up the issue of energy production which I know
is a big issue in your State. And so, yes, there is a real risk
that, sort of, through projecting their own power across
borders that States that are intent on engaging in that kind of
activism can use some of that gray area that exists today to
make real mischief. And not just, you know, mischief that is,
you know, of interest for funny examples here or there, but
things that are real genuine burdens on interstate commerce.
And if you will forgive me the brief diversion into
libertarian theory, but I cannot help myself. It is a classic
case of what is seen and what is unseen. You know, we do not
see the employee that was not sent to that trade show because a
business was worried about incurring nexus there. We do not see
the diversions around State lines because they are concerned
about their trucks getting pulled over at weigh stations and
being essentially held up for resources. Those are things that
are hard for us to see when people do not engage in that
activity. But that is exactly the interstate commerce burden
that we are talking about here and that this bill is intended
to address.
Mr. Marino. Okay. This concludes our hearing today. I want
to thank all of you for being here. It was a rather good
discussion. 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.
[Whereupon, at 12:06 p.m., the Subcommittee was adjourned.]
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