[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
MOBILE WORKFORCE STATE INCOME TAX SIMPLIFICATION ACT OF 2013
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
REGULATORY REFORM,
COMMERCIAL AND ANTITRUST LAW
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
ON
H.R. 1129
__________
APRIL 29, 2014
__________
Serial No. 113-91
__________
Printed for the use of the Committee on the Judiciary
Available via the World Wide Web: http://judiciary.house.gov
U.S. GOVERNMENT PRINTING OFFICE
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COMMITTEE ON THE JUDICIARY
BOB GOODLATTE, Virginia, Chairman
F. JAMES SENSENBRENNER, Jr., JOHN CONYERS, Jr., Michigan
Wisconsin JERROLD NADLER, New York
HOWARD COBLE, North Carolina ROBERT C. ``BOBBY'' SCOTT,
LAMAR SMITH, Texas Virginia
STEVE CHABOT, Ohio ZOE LOFGREN, California
SPENCER BACHUS, Alabama SHEILA JACKSON LEE, Texas
DARRELL E. ISSA, California STEVE COHEN, Tennessee
J. RANDY FORBES, Virginia HENRY C. ``HANK'' JOHNSON, Jr.,
STEVE KING, Iowa Georgia
TRENT FRANKS, Arizona PEDRO R. PIERLUISI, Puerto Rico
LOUIE GOHMERT, Texas JUDY CHU, California
JIM JORDAN, Ohio TED DEUTCH, Florida
TED POE, Texas LUIS V. GUTIERREZ, Illinois
JASON CHAFFETZ, Utah KAREN BASS, California
TOM MARINO, Pennsylvania CEDRIC RICHMOND, Louisiana
TREY GOWDY, South Carolina SUZAN DelBENE, Washington
RAUL LABRADOR, Idaho JOE GARCIA, Florida
BLAKE FARENTHOLD, Texas HAKEEM JEFFRIES, New York
GEORGE HOLDING, North Carolina DAVID N. CICILLINE, Rhode Island
DOUG COLLINS, Georgia
RON DeSANTIS, Florida
JASON T. SMITH, Missouri
[Vacant]
Shelley Husband, Chief of Staff & General Counsel
Perry Apelbaum, Minority Staff Director & Chief Counsel
------
Subcommittee on Regulatory Reform, Commercial and Antitrust Law
SPENCER BACHUS, Alabama, Chairman
BLAKE FARENTHOLD, Texas, Vice-Chairman
DARRELL E. ISSA, California HENRY C. ``HANK'' JOHNSON, Jr.,
TOM MARINO, Pennsylvania Georgia
GEORGE HOLDING, North Carolina SUZAN DelBENE, Washington
DOUG COLLINS, Georgia JOE GARCIA, Florida
JASON T. SMITH, Missouri HAKEEM JEFFRIES, New York
DAVID N. CICILLINE, Rhode Island
Daniel Flores, Chief Counsel
C O N T E N T S
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APRIL 29, 2014
Page
THE BILL
H.R. 1129, the ``Mobile Workforce State Income Tax Simplification
Act of 2013''.................................................. 3
OPENING STATEMENTS
The Honorable Spencer Bachus, a Representative in Congress from
the State of Alabama, and Chairman, Subcommittee on Regulatory
Reform, Commercial and Antitrust Law........................... 1
The Honorable David N. Cicilline, a Representative in Congress
from the State of Rhode Island, and Member, Subcommittee on
Regulatory Reform, Commercial and Antitrust Law................ 9
The Honorable Bob Goodlatte, a Representative in Congress from
the State of Virginia, and Member, Subcommittee on Regulatory
Reform, Commercial and Antitrust Law........................... 9
The Honorable Henry C. ``Hank'' Johnson, Jr., a Representative in
Congress from the State of Tennessee, and Ranking Member,
Subcommittee on Regulatory Reform, Commercial and Antitrust Law 10
WITNESSES
Maureen B. Riehl, Esq., Vice President, Government Affairs,
Council on State Taxation (COST), on behalf of COST and the
Mobile Workforce Coalition
Oral Testimony................................................. 12
Prepared Statement............................................. 14
Jeffrey A. Porter, CPA, Founder and Owner of Porter & Associates,
on behalf of the American Institute of Certified Public
Accountants
Oral Testimony................................................. 31
Prepared Statement............................................. 33
Lori Brown, CPP, Director of Disbursements, CACI International,
Inc., on behalf of the American Payroll Association
Oral Testimony................................................. 40
Prepared Statement............................................. 42
Patrick Carter, Director, Division of Revenue for the State of
Delaware, on behalf of the Federation of Tax Administrators
Oral Testimony................................................. 73
Prepared Statement............................................. 75
APPENDIX
Material Submitted for the Hearing Record
Prepared Statement of the Honorable John Conyers, Jr., a
Representative in Congress from the State of Michigan.......... 102
Prepared Statement of the Honorable Jim Himes, a U.S. Senator
from the State of Connecticut.................................. 107
Prepared Statement of the Federation of Tax Administrators....... 109
MOBILE WORKFORCE STATE INCOME TAX SIMPLIFICATION ACT OF 2013
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TUESDAY, APRIL 29, 2014
House of Representatives,
Subcommittee on Regulatory Reform,
Commercial and Antitrust Law
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to call, at 1:08 p.m., in
room 2141, Rayburn House Office Building, the Honorable Spencer
Bachus, (Chairman of the Subcommittee) presiding.
Present: Representatives Bachus, Goodlatte, Marino,
Collins, Johnson, DelBene, Garcia, Jeffries, and Cicilline.
Staff Present: (Majority) Anthony Grossi, Counsel; Jaclyn
Louis, Legislative Director for Rep. Marino; Ashley Lewis,
Clerk; and (Minority) Norberto Salinas, Counsel.
Mr. Bachus. Good afternoon. The Subcommittee on Regulatory
Reform, Commercial and Antitrust Law hearing will come to
order.
Without objection, the Chair is authorized to declare
recesses of the Committee at any time.
The focus of today's hearing is the Mobile Workforce State
Income Tax Simplification Act of 2013. The legislation
institutes straightforward, commonsense rules for when a state
may tax a non-resident employee.
As the American workforce becomes increasingly mobile,
there is a greater need to establish clear rules that define
when employees trigger income tax liability and when employers
should withhold these taxes. Without the uniform approach of a
model workforce act, employees face the administrative burden
of potentially filing an income tax return in every state they
visit, even if only for 1 day.
According to the Federation of Tax Administrators,
complying with the current system is difficult and probably
impractical. The Mobile Workforce Act provides for a fair and
easily administered system that ensures that states are paid
the correct amount of taxes without unduly burdening our
workforce. The Act's simple system revolves around establishing
a 30-day threshold before state income tax liability is
triggered. In other words, employees may work in a state for up
to 30 days without incurring an obligation to file an income
tax return in that state.
Additionally, employers are not required to withhold income
taxes until the 30-day threshold is reached. After an employee
works in a state beyond the threshold, the state's existing tax
laws apply.
The Mobile Workforce Act strikes a careful balance between
preserving states' ability to tax those who work within their
borders and use their resources while ensuring that our
nation's workforce is not impeded by burdensome administrative
obligations. This legislation has evolved since its original
introduction in 2006 to account for concerns raised by state
taxing authorities. Over this time period, the threshold was
shortened from 60 days to 30 days, definitions were revised,
and the effective date was delayed to allow for a smooth
implementation.
Furthermore, great care was taken to diminish the impact
the Act would have on state revenues. An Ernst & Young study
performed on substantially similar legislation last Congress
found that the bill would result in a very small rise in
revenue in some states and a tiny reduction in revenue in other
states. In most states, the impact on revenues will be less
than one-tenth of 1 percent, and in no state will it impact
revenues more than seven-tenths of a percent.
Of course, what these figures do not account for is the
potential increase in other tax revenue from employees
traveling to their states for conferences or meetings now that
the specter of incurring an income tax filing obligation no
longer exists.
The Mobile Workforce Act is a bipartisan measure. It
includes my predecessor, the Subcommittee Chair, Mr. Coble, and
our current Ranking Member, Mr. Johnson, as its lead sponsors
and advocates. The bill historically has enjoyed broad support,
and identical legislation was passed by the full House by
unanimous consent in 2012.
Today's witnesses undoubtedly will add to the record in
support of the bill, and I look forward to hearing their
testimony.
[The bill, H.R. 1129, follows:]
__________
Mr. Bachus. At this time, I will recognize Mr. Cicilline.
Mr. Cicilline. Thank you, Mr. Chairman. I look forward to
hearing from the witnesses. I know Mr. Johnson is en route.
Mr. Bachus. Thank you.
At this time, I will recognize the Chairman of the full
Committee, Mr. Goodlatte, for an opening statement.
Mr. Goodlatte. Thank you, Mr. Chairman. I appreciate your
holding this hearing.
As it stands today, an employee who performs work in a non-
resident state likely faces a myriad of disparate income tax
laws. The complexity and variation of these state income tax
laws places a significant burden on the American workforce.
These burdens are most heavily felt by small businesses, which
simply do not have the resources and can ill afford to focus
their time on complying with over 40 different state tax
regimes. Witnesses at two separate hearings before this
Committee have testified that existing state income tax laws
impose an undue burden on small businesses' ability to deploy
workforces across state lines. Small businesses do not shoulder
this burden alone. Cumbersome and complex state income tax laws
also put a strain on large companies.
The Sarbanes-Oxley Act requires the management of these
companies to sign off on internal controls that ensure they are
in compliance with state tax laws. Further, Sarbanes-Oxley
requires auditors to certify management's assessment of
companies' compliance with these tax laws. Because state income
tax laws are so diverse, large businesses and their auditors
are required to invest a significant amount of time and money
ensuring that companies have withheld correctly for each
employee.
Rather than expanding their payrolls or reducing the prices
of goods for consumers, companies are forced to devote their
resources to complying with complicated state income tax laws.
The Constitution grants Congress the authority to enact laws to
protect the free flow of commerce among the states. While
Congress should exercise its authority with care and caution,
the problem imposed by the complex array of existing state
income tax laws deserves a Federal solution.
The Mobile Workforce State Income Tax Simplification Act is
a carefully crafted bill that creates a simple and easy-to-
administer system for the imposition of state income tax laws.
By creating a bright-line 30-day threshold to determine non-
resident income tax liability, the bill ensures that employees
will have a clear understanding of when they are liable for
non-resident state income taxes, and employers will be able to
accurately withhold these taxes.
By reducing an obvious administrative burden, the Mobile
Workforce Act will allow small businesses to focus their
resources on growing their operations and allow larger
businesses to focus on increasing their payrolls and reducing
the prices of their goods.
The Mobile Workforce Act enjoys broad bipartisan support,
including from former Subcommittee Chairman Coble and current
Subcommittee Ranking Member Johnson. I applaud their leadership
on this issue during this and past Congresses.
I also want to thank Chairman Bachus for holding today's
hearing to further develop the record supporting the Mobile
Workforce Act, and I look forward to hearing from our witnesses
on this important measure.
Thank you, Mr. Chairman, and I yield back.
Mr. Bachus. I thank you, Chairman.
At this time, we have heard from Mr. Cicilline from Rhode
Island, so at this time I recognize the Ranking Member from
Georgia, Mr. Johnson, who is, as we referred to, one of the
lead sponsors on this bill, along with Mr. Coble.
Mr. Johnson. Thank you, Mr. Chairman. Let me apologize for
being a tad late. Duty called elsewhere. But I want to thank
you, Mr. Chairman, for bringing this bill before the
Subcommittee for markup, and I also want to thank the Chairman
of the full Committee for his support in this endeavor.
The Mobile Workforce State Income Tax Simplification Act is
an important bipartisan bill that will help workers across the
country, and it will also help small and multi-state
businesses. I am very familiar with this issue. I introduced
this bill when I was a freshman in the 110th Congress, and
again in the 111th Congress, and I am pleased to have
introduced the bill in the last two Congresses with my
colleague from North Carolina, Howard Coble.
H.R. 1129 provides for a uniform and easily administrable
law that will simplify the patchwork of existing inconsistent
and confusing state rules. It would also reduce administrative
costs to states and lessen compliance burdens on consumers.
Take my home state of Georgia for an example. If an
Atlanta-based employee of a New York company travels to
headquarters on a business trip once a year, that employee
would be subject to New York income tax even if the annual
visit only lasts a day. However, if that employee travels to
Maine, her trip would only be subject to income tax if her trip
lasts more than 10 days. If she travels to New Mexico on
business, she would only be subject to tax if she was in the
state for more than 15 days.
The bill that Chairman Coble and I have introduced would
address this inequity by establishing a uniform law that would
ensure the correct amount of tax is withheld and paid to the
states without the undue burden of the current system. H.R.
1129 would only subject employees who perform employment duties
in a non-resident state if they work in that state for more
than 30 calendar days.
At a time when more and more Americans find themselves
traveling for their job, this bill is a commonsense solution
that helps workers who have to travel for work by simplifying
their tax reporting requirements. Last Congress, this bill
passed by a voice vote on the House floor. It would likely do
so again today. So I urge that the Committee move this bill
promptly so that it can come to the floor for a vote soon. This
country's employees and businesses deserve quick action.
Thank you, Mr. Chairman, and I yield back the balance of my
time.
Mr. Bachus. I thank the Ranking Member.
We have a very distinguished panel today. I will start by
first introducing our witnesses.
Maureen Riehl is the Vice President of Government Affairs
for the Council of State Taxation, or COST. Ms. Riehl is COST's
primary link to both state and Federal election officials and
is responsible for managing the day-to-day legislative agenda
for COST, including working with her colleagues at state
Chambers across the country.
Prior to COST, Ms. Riehl was Vice President and Government
Industrial Relations Counsel at the National Retail Federation
for 12 years. She was responsible for NRF's national and multi-
state strategy development and policy implementation for issues
affecting retailers in the state.
Prior to joining the National Retail Federation in 1999,
she held various state government relations positions for the
International Franchise Association, the Grocery Manufacturers
Association, and a coalition of advertising associates. She was
also Legislative Policy and Constituency Affairs Director in
the state legislature for members of both the Michigan House of
Representatives and Michigan Senate.
She received her B.A. from Michigan State University and
her J.D. from Thomas Cooley Law School.
Our next witness is Mr. Jeffrey Porter, Founder of Porter &
Associates and Owner of Porter & Associates, a CPA firm in
Huntington, West Virginia which concentrates on providing tax
planning and business advisory services to small and medium-
sized businesses and individuals.
Mr. Porter is active in the American Institute of Certified
Public Accountants for over 20 years, currently serving as
Chair of the Tax Executive Committee. He also has served on the
Steering Committee for the American Institute of Certified
Public Accountant's National Tax Conference for 20 years, and
Chair of the Conference for over 10 years. He is also a member
of the West Virginia Society of Certified Public Accountants.
He is a frequent lecturer and has taught tax-related
continuing education classes for a number of state CPA
societies, national and local firms, and the American Institute
of Certified Public Accountants' National Tax Conference.
He received his B.A. from Marshall University and his
Master's of Taxation from the University of Tulsa.
I welcome you.
Ms. Lori Brown is Director of Payroll at CACI
International. She has over 18 years of experience in payroll
tax compliance and payroll system conversions. Lori is an
active member of the American Payroll Association and currently
serves on the FTC Certification Board Payroll Hotline Committee
National Speakers Bureau and the Certification Advisory Group.
She has received citations of merit from the American Payroll
Association each year since 2005.
Ms. Brown has taught certified payroll professional and
fundamental payroll certification exam preparation classes
since 2004 at Prince George's Community College and currently
at George Mason University.
We welcome you to the Committee.
And our final witness is Mr. Patrick Carter, who was
appointed Director of the Delaware Division of Revenue in May
2003. As the director, he oversees approximately 200 staff with
the responsibility for the Administration, enforcement, and
collection of personal and business income taxes for the State
of Delaware. Prior to becoming director, Mr. Carter served as
the Deputy Director of the Delaware Division of Revenue from
1994 to 2001.
Prior to joining the State of Delaware, Mr. Carter served
as the Finance Director for the City of Wilmington, Delaware
for 5 years, worked for J.P. Morgan Bank in Delaware, and
Cooper & Lybrand in Philadelphia.
He received his B.S. from the University of Delaware and
his MBA from Indiana University.
Did you come on Amtrak today?
Mr. Carter. I did, Mr. Chairman.
Mr. Bachus. All right, good.
Okay. Now we will go to our witnesses' statements. Each of
our witness' written statement will be entered into the record
in its entirety. I ask that each witness summarize his or her
testimony in 5 minutes or less. But if you are 30 seconds over,
we are not going to ring a bell on you.
To help you stay within the time--I never read that, so I
am not going to. But there will be a yellow and red light,
which is suggestive.
At this time, Ms. Riehl, we will start with you, and then
Mr. Porter, Ms. Brown, and Mr. Carter.
TESTIMONY OF MAUREEN B. RIEHL, ESQ., VICE PRESIDENT, GOVERNMENT
AFFAIRS, COUNCIL ON STATE TAXATION (COST), ON BEHALF OF COST
AND THE MOBILE WORKFORCE COALITION
Ms. Riehl. Thank you, Chairman Bachus, Ranking Member
Johnson, and Members of the Subcommittee. Again, I am Maureen
Riehl, Vice President of Government Affairs for the Council on
State Taxation. COST is a D.C.-based trade association which
represents about 600 of the nation's largest employers on state
and local tax issues.
In addition to COST, I am also here representing the 263-
member mobile workforce coalition of organizations and
companies in support of H.R. 1129.
Mr. Chairman, I am going to begin by thanking Ranking
Member Johnson and Mr. Howard Coble for introducing H.R. 1129,
the ``Mobile Workforce State Income Tax Simplification Act.'' I
also want to thank Members of this Subcommittee who are also
co-sponsors of the legislation and thank those that are
considering becoming co-sponsors.
I appreciate the opportunity to share with you COST and the
coalition's views on this important issue, and that is
addressing state personal income taxes imposed on employees who
travel away from their resident states for temporary work
periods and associated tax withholding obligations of their
employers.
We urge adoption of H.R. 1129 for three main reasons.
First, it is a widespread problem and one that Congress has
addressed and fixed before.
Secondly, H.R. 1129 is a simple and timely solution to this
problem.
And third, a Federal uniform standard is the appropriate
and only solution to fix this problem.
The problem is widespread and growing, and one that has
been fixed by Congress in the past. Thousands of employees
travel each day for work, and the majority of these are
temporary trips where they return to their resident state.
Employees who travel outside their home state for business
purposes are subjected to onerous administrative burdens both
at home and certainly if they have to file in a non-resident
state, and that may be true legally even if they are there for
only 1 day.
The current patchwork of state laws affects employees of
all kinds, those who travel for work. They could be small
business employees, big business employees, utility and
communications workers, retail employees, charity and non-
profit employees, state employees, union employees, Federal
agency and Congressional staff, and the list goes on, with very
few exceptions.
Congress recognized this burden and has acted in the past
to actually protect a mobile workforce, and has done so with
Federal laws that are protecting for a 360-day time period
officials or employees of airlines, motor carriers, railroads
and military personnel. This is, of course, to ease the flow of
interstate commerce and to reduce red tape for the employees of
those types of companies.
Clearly, a second reason we need H.R. 1129 is that it is a
simple and timely solution. It establishes a simple and
predictable 30-day threshold to protect workers who travel.
After 8 years of negotiation between state organizations and
the business community, we have a bill here that actually hits
on all of these major points. It maintains state sovereignty. A
state can still decide whether they even have a personal income
tax. It does not apply to professional athletes, entertainers,
or public figures. It has modified the threshold day from the
start when Mr. Johnson first introduced it from 60 days down to
30 days, and we have changed the definition of a non-resident
day.
And there is no tax avoidance under this bill. One hundred
percent of the tax that is owed is still owed to the resident
state. The only question is when a portion of that would go to
a non-resident state.
The third reason to pass H.R. 1129 is that a Federal
uniform solution is the appropriate and only solution. Attempts
by the states to self-regulate have fallen short. We worked
with the Multi-State Tax Commission over several years, and
they finally adopted a model statute back in 2011 that is
patterned after H.R. 1129, but it has only been adopted in one
state, North Dakota, and that does not even go into effect
unless another state passes an identical law.
There is just simply no example in history to suggest that
a voluntary state-by-state approach will work. Florida cannot
pass a law that will protect its residents when they travel to
the State of New York. Such legislation faces some political
challenges at the state level, and at least nine states that
don't have a personal income tax are particularly at risk.
Absent a uniform adoption, we would just simply have a new
patchwork of state laws.
Mr. Chairman, the only real question we confront here is
whether this problem should be fixed state by state or fixed at
the Congressional level. We believe the Congress is the right
place to fix this problem, and we think H.R. 1129 is the proper
solution.
I am happy to answer any questions. Thank you.
[The prepared statement of Ms. Riehl follows:]
__________
Mr. Bachus. Thank you very much.
Mr. Porter?
TESTIMONY OF JEFFREY A. PORTER, CPA, FOUNDER AND OWNER OF
PORTER & ASSOCIATES, ON BEHALF OF THE AMERICAN INSTITUTE OF
CERTIFIED PUBLIC ACCOUNTANTS
Mr. Porter. Chairman Bachus, Ranking Member Johnson, and
Members of the Subcommittee, thank you for the opportunity to
testify today in support of H.R. 1129, the ``Mobile Workforce
State Income Tax Simplification Act of 2013.'' My name is
Jeffrey Porter. I am a CPA in Huntington, West Virginia and
Chair of the Tax Executive Committee of the American Institute
of Certified Public Accountants.
The AICPA is the world's largest member association
representing the accounting profession, with more than 394,000
members in 128 countries.
H.R. 1129 is an important step in state tax simplification.
We believe the bill provides relief, which is long-overdue,
from the current web of inconsistent state income tax and
withholding rules on non-resident taxpayers that impact
employers and employees.
After taking into consideration the costs for processing
non-resident tax returns with only a small amount of tax
liability, we believe states receive a minimum benefit, if any,
from the tax revenue that results from an employee filing a
return for just a few days of work. We believe Congressmen
Coble and Johnson have reached a good balance between the
states' right to tax income from work performed within their
borders and the needs of individuals and businesses to operate
efficiently in this economic climate.
The state tax rules applicable to non-residents are
inconsistent and often bewildering to multi-state employers and
employees. Many states tax income earned within the state even
if the employee only works in the state for 1 day.
Some of the states have a de minimis number of days or de
minimis earnings amount before requiring employers to withhold
tax on non-residents, or subjecting employees to tax. However,
the minimum thresholds are not administered in a uniform
manner. For example, a non-resident is subject to tax after
working 59 days in Arizona, 15 days in New Mexico, and 14 days
in Connecticut.
Other states have a de minimis exemption based on the
amount of wages earned, either in dollars or as a percent of
total income. For example, employers are required to withhold
in a non-resident state after an employee earns $1,500 in
Wisconsin, $1,000 in Idaho, $800 in South Carolina, and $300 a
quarter in Oklahoma. Some states have thresholds which are set
at a state's personal exemption, or the standard deduction, or
their filing threshold, which sometimes changes year by year.
Some states exempt, and some do not exempt, from the
withholding requirement the income earned from certain
activities, including training, professional development, or
attending meetings. Sometimes the exemption only covers
withholding. They do not address the non-resident taxpayer's
filing requirement or other tax liability.
It is also important to note that approximately one-third
of the states have entered into reciprocity agreements under
which one border state agrees not to tax another state's
residents, and vice versa. However, not all states have
reciprocity agreements, and the agreements that exist are
primarily geared toward non-resident employees who ordinarily
commute a few miles a day to a particular adjoining state.
The reciprocity rules normally do not apply to individuals
who regularly travel greater distances. And because of this
gap, I prepare a significant number of non-resident tax returns
for individuals who must travel for work. For example, it is
not unusual for construction workers to travel to a plant
shutdown to work for only a few weeks. I also know electrical
linemen who go from one natural disaster area to the next to
restore power after hurricanes and floods. I have filed income
tax returns in as many as 10 different states a year for one of
these workers.
Other everyday examples include a real estate developer's
employee who travels to 20 states to visit prospective sites
and spends less than a day in each state, or a store manager
who attends a half-day regional meeting in an adjoining state,
with some of these meetings occurring only twice a year.
Another example is a car salesman who lives and primarily works
in Ocean City, Maryland and occasionally has to drive a car to
another dealer in Rehoboth Beach, Delaware.
Unfortunately, employers need to understand and comply with
all the variations from state to state, and some states have
extremely complicated rules. For example, Georgia requires
withholding when a non-resident employee works more than 23
days in a calendar quarter in Georgia, or if 5 percent of their
total income is earned in Georgia, or if the compensation for
services in Georgia is more than $5,000. The employer must
determine and calculate each of the three thresholds to
determine when to withhold for each employee working
occasionally in that state.
The current situation of having to withhold and file many
state non-resident tax returns for just a few days of work in
various states is too complicated for both employers and
employees. The AICPA urges this Committee to pass H.R. 1129 and
help all the taxpayers in the country ease their non-resident
state income tax withholding and compliance burdens. The bill
provides national uniformity and a reasonable 30-day de minimis
threshold. Therefore, the AICPA strongly supports H.R. 1129 and
respectfully commends the co-sponsors of this legislation for
the development of this reasonable and much needed bi-partisan
legislation.
Again, thank you for the opportunity to testify, and I
would be happy to answer any questions you may have.
[The prepared statement of Mr. Porter follows:]
__________
Mr. Bachus. Thank you, Mr. Porter.
Ms. Brown?
TESTIMONY OF LORI BROWN, CPP, DIRECTOR OF DISBURSEMENTS, CACI
INTERNATIONAL, INC., ON BEHALF OF THE AMERICAN PAYROLL
ASSOCIATION
Ms. Brown. Thank you. Good afternoon. My name is Lori
Brown, and I am speaking today on behalf of the American
Payroll Association in favor of H.R. 1129, the ``Mobile
Workforce State Income Tax Simplification Act.'' The APA is a
non-profit professional organization with more than 20,000
members. Most of our members are the payroll managers for their
employers, and some of our members work for payroll service
providers who in turn process the payrolls for another 1.5
million employers.
I have been a payroll professional for more than 20 years
and have worked for several multi-state employers. Having
worked in this environment, I have firsthand knowledge of the
many challenges that employees and employers face in trying to
manage their state and local income tax obligations.
Often when employees cross state borders for work, the
administrative burdens on employers and employees increase
exponentially. I would like to explain some of the difficulties
involved, which should help clarify why H.R. 1129 is so
important to both business and workers. You already have my
full written testimony, so I would like to focus on a couple of
real-life examples.
One day I was with a former employer. An employee came into
my payroll office. He said, ``Hey, Lori, why is my paycheck
short?'' Understand that we had 4,000 employees and I wasn't
intimately aware of each employee's situation, so I did spend
some time looking into it.
Eventually I was able to tell him, ``John, you were working
in New York last pay period, and so therefore we had to
withhold taxes.'' He looked puzzled and he said, ``Well, I live
in Virginia. Do you also withhold Virginia taxes?'' And I
replied, ``Yes, that is what we have to do.''
So now, not only was he puzzled but he was upset. John's
job required that he travel quite a bit for us to different
states, and we withheld non-resident taxes for each of those
trips. None of his previous employers had done that.
The following January, when we distributed Form W2s--those
are the employee wage and tax statements--John's was six pages
long. It is unusual for any worker's W2 to be more than a
single page, yet John's was six. He wasn't happy about that.
Like a lot of people, John was used to preparing his own tax
returns. I told him, ``John, you may want to hire a tax
professional.'' ``Lori, will the company pay for that?'' Well,
that made me a little uncomfortable. The company did actually
reimburse tax preparation services for our executives but not
for employees at John's level. For good or bad, I hear that is
somewhat common practice among employers.
So we had an employee who had an interesting job and who
was really good at it. He came to work for us and thought that
he understood what he was getting into. The tax situation was a
really rude surprise. In the end, he was frustrated and there
was tension in the payroll office.
I have a friend in the APA, Margaret, who I had told about
John's situation, and Margaret said, ``Lori, not only would my
company have paid for the tax service, but we would have
actually paid for the extra taxes to pay to the other states
just to keep him happy.'' Not every company is so generous, nor
can they be, and some, especially small employers, don't feel
they can afford that type of benefit.
There are plenty of other costs that the employer also
bears that employees like John don't realize. Through the years
my employers have had to hire legal and tax counsel to guide us
through some incredibly complicated situations. While I was
with one company, we were sending consultants to meet with
clients in Colorado. We didn't have offices there, but state
rules required that we register as an employer. Because we
didn't have a physical presence there, we had to hire a
registered agent to act on our behalf. That was another
unexpected expense for us.
While we had Arizona residents on assignment in California,
we also had to dedicate personnel to track the time that was
worked and the wages that were earned there. We needed that
data so that we could determine whether we needed to pay
employment taxes weekly, quarterly, annually in California, as
well as to know how much to withhold for each of those states.
When the work was over, we also had to be sure to close the
accounts, turn off the withholding for the additional state,
and track the employee's next work assignment.
H.R. 1129 would have eliminated a lot of trouble for the
companies that I have worked for and the employees that I have
paid. The 30-day safe harbor provided in the bill would have
eased John's tax issues considerably since we wouldn't have had
to withhold taxes for every one of his business trips, and he
wouldn't have had to file tax returns for every state that he
visited. He would have still had a complex return because he
was in a few states longer than 30 days, but he would have been
spared the extra work of filing a few extra tax returns just to
get all those tax dollars returned to him.
All too often, obeying the current laws create
administrative burden on both employers and employees, but also
for states, for no good reason. Often, these employees do not
incur actual tax debts during their short stays. The safe
harbor will also provide a framework within which more
employers will be able to comply. The law will provide clarity
through a uniform rule that will eliminate much of the
confusion created by the current patchwork of laws.
Thank you for allowing me the time to speak to you. Along
with my colleagues at the American Payroll Association, my
fellow panelists, I look forward to watching this important
legislation pass.
[The prepared statement of Ms. Brown follows:]
__________
Mr. Bachus. Thank you, Ms. Brown.
Mr. Carter?
TESTIMONY OF PATRICK CARTER, DIRECTOR, DIVISION OF REVENUE FOR
THE STATE OF DELAWARE, ON BEHALF OF THE FEDERATION OF TAx
ADMINISTRATORS
Mr. Carter. Chairman Bachus, Ranking Member Johnson, and
Committee Members, the Federation of Tax Administrators
appreciates this opportunity to appear before you on H.R. 1129,
the ``Mobile Workforce State Income Tax Simplification Act of
2013.'' The Federation of Tax Administrators is an association
of the principal tax and revenue collection agencies in each of
the 50 states, the District of Columbia, and the cities of New
York and Philadelphia.
The FTA has long opposed the Mobile Workforce Act as
currently drafted because we believe that it will interfere
with the states' ability to impose and enforce state income
taxes and will lead to additional tax evasion and a loss of
revenue to those states.
Forty-one states and the District of Columbia, the cities
of New York and Philadelphia, and a number of other local
governments impose income tax on the individuals who perform
services as employees in their states whether or not those
individuals are residents. In this way, the states and the
Federal Government impose income tax in the same way. This
method of taxing income at the source where it is earned is
common internationally as well. If this was not the case,
individuals could avail themselves of a country or a state's
economic marketplace without paying for that tax benefit, and
could do so in competition with the state's residents and in-
state businesses.
The 30-day threshold, while less than proposed in the
original legislation, still amounts to a full 6 weeks of work,
which is greater than most states with statutory thresholds as
currently allowed and described in much of this testimony. This
is a significant departure from taxing income at the source.
Most importantly, this bill as currently drafted may have a
significant negative impact on the states. The State of New
York alone estimates that it would experience a revenue loss in
excess of $100 million annually as a result of H.R. 1129. While
supporters claim that for states other than New York H.R. 1129
is neutral, the states do not believe this will be the case for
a number of reasons.
First, states already experience concerted tax avoidance by
taxpayers seeking to source income to one of the nine states
that do not impose a broad-based individual income tax.
Secondly, while states, like the Federal Government,
require employer recordkeeping, reporting and withholding of
tax from employee wages as the primary mechanism to ensure tax
compliance, H.R. 1129 limits states' ability to require
employer recordkeeping, reporting and withholding. Studies done
over the years by the IRS and the states show that where there
is no information reporting or withholding, taxes can be under-
reported by over 50 percent.
H.R. 1129 undercuts those important recordkeeping,
reporting and withholding mechanisms that the states need and
depend upon to enforce their income taxes by allowing employers
to rely not on their own records but on the estimates made by
an employee a year in advance as to where the employee expects
to be working for the coming year. While employers may not know
where their employees are every day of the year, I find it
incredulous that the employee is better informed of where the
employer will be sending them during an entire year in the
future than the employer is themselves.
Thirdly, while H.R. 1129 excludes from its provisions
certain individuals--professional athletes, professional
entertainers and public figures--it does not exclude highly-
compensated individuals. In effect, it does not matter how much
an individual might be compensated for services performed in a
state. This is important because many highly-compensated
individuals travel to a location for a short period of time due
to the nature of their work and earn significant revenue for
their employer and themselves.
Examples in Delaware of very highly-compensated non-
resident attorneys representing large corporations before
Delaware's Chancery Court on business matters.
Lastly, H.R. 1129 contains provisions and terms that are
ambiguous and poorly defined, and as a result will ultimately
lead to differences in the ways the states interpret and apply
these provisions. In my experience, unless provisions are more
properly defined, it will lead to more dispute and litigation
and not less.
Despite the fact that the FTA believes that the states
currently impose by statute or regulatory policy appropriate de
minimis rules and do not seek to enforce withholding or tax on
limited activities of employees in a state, still we have
worked with the Committee staff and industry representatives
for almost a decade on this legislation. Seeking a balanced
solution to tax enforcement concerns and business compliance
requirements, the states have proposed a solution to be enacted
by state lawmakers which we believe will be preferable because
it would allow states to ensure and retain the ability to audit
and verify the withholding as correct using employer records,
while a threshold would limit the imposition of withholding on
tax for employees traveling into the state for less than 20
days. This solution may not have had the support needed to make
it a reality because, in part, industry groups have focused
their efforts instead on this Federal legislation.
Therefore, we continue to ask the Members of this Committee
to consider the needs of tax administrators to be able to make
sure that taxes due are paid and balance the interests of the
citizens of your state with those of the business community.
Thank you, Mr. Chairman, Ranking Member Johnson, Committee
Members.
[The prepared statement of Mr. Carter follows:]
__________
Mr. Bachus. Thank you, Mr. Carter.
At this time I recognize the gentleman from Pennsylvania,
Mr. Marino, for 5 minutes of questions.
Mr. Marino. Thank you, Chairman.
I have three Committee hearings going on simultaneously, so
I am going to try and get to each one, but thank you.
Mr. Bachus. Many Members of the Judiciary do indeed have
two hearings going on simultaneously.
Mr. Marino. Three.
Mr. Bachus. Three.
Mr. Marino. All right, let's get right to the meat of this.
Does anyone on the panel working in different states get
paid by a company in one state? Anyone on the panel make any of
these moves to other states and work? Okay. So that means that
you are not paying multiple taxes to multiple states; correct?
Ms. Brown. Correct.
Mr. Marino. No one is paying a state tax in several states.
You are all paying in one state.
Mr. Porter. Correct.
Mr. Marino. Okay. I guess let's start with Mr. Carter. Can
you give me any reason why it is fair to an employee who lives
and primarily works in one state but travels to another state
for whatever period of time and pay a tax on that? And let me
preface that--let me follow up with that question by my
position.
I am sick and tired of hearing the Federal Government
primarily and the states say we have to increase revenues, and
it is always on the backs of hard-working, tax-paying
Americans, okay? It is about time that the Federal Government,
especially the Federal Government, and states start cleaning
their act up.
I worked in industry. I worked in a factory until I was 30
years old, started sweeping floors, and I know how hard it is
to work in a factory. I know that there are no wealthy people
working in a factory, even people who have to travel to another
state, and let me give you an example.
I was in the baking industry, and when we would build
factories, employees from the companies that built the
machinery from other states would come into our state and put
that machinery together. They weren't millionaires by any
stretch of the imagination, and they certainly were not well
off. They were making ends meet, just like I did. But
unfortunately for them, they had to leave their families and go
to another state.
Now, can anyone--but we will start with Mr. Carter--tell me
why it is fair for a person to pay multiple states?
The Federal Government and the states better get their acts
together. They had better start decreasing the size of
government. They had better start becoming more effective and
more efficient in running governments, because if that were the
way my business was run when I was in industry, it would have
been shut down, and those elected, those appointed would have
been fired a long time ago.
Fewer people, more responsibility, and I am tired of
hearing more revenue on the backs of hard-working, tax-paying
Americans.
Mr. Carter?
Mr. Carter. Committee Member, the primary reason why states
believe or I believe--let me say I believe--that a non-resident
individual should be subject to taxation in that state where
they are engaged in business activities is they are availing
themselves of the assets of that state, the roadways. If they
get injured, the court system. If they are accosted by someone,
they use the police force. All that is funded by that state
while they are working.
Mr. Marino. Okay. Now I am going to bring out my
prosecutorial experience. I was a prosecutor for 18 years.
I am driving through State x, driving through it, and I am
using the road, and there are no tolls. Should I be paying some
type of tax for using it? Don't I do that with the Federal
Government? And aren't many roads in states funded by the
Federal Government? Number one.
Number two, we have a Constitutional right to be protected
in this country by law enforcement no matter where we go.
So you are not going to sell me on why a state should be
able to tax someone. Maybe the state has to get its act
together and start running efficiently like my business ran.
Anyone else?
Mr. Porter. Well, I will just concur. I see typically this
in my practice. I represent contractors and construction
companies, and also construction workers, and I can tell you
that it creates a great deal of complexity within the company
systems, it creates a great deal of complexity for the
individuals as they have to file their tax returns. At the end
of the day, they usually get credits back to offset, and the
net effect for them is many times minimal, but it does create
additional complexity.
Mr. Marino. Well, let's step aside of the complexity and
the ridiculous paperwork that government is known for. It is
simply not fair to hit someone two times, three times, four
times because they happen to work in that state.
That individual, Mr. Carter, with all due respect--I am not
aiming this at you, sir; please don't take it personally. But I
am just as passionate on this side of it as you are on your
side of it. But that individual is providing a great service
for that state also.
Ms. Brown?
Ms. Brown. Agree, agree. And I would just like to add on to
that, that generally speaking we are not talking about the
executives. Those aren't the ones that are walking into our
offices with the questions and with the confusion. Most of our
workforce do not understand these laws. So I am forced to
explain this to them and explain to them why New York is
different from California, and California is different from the
next to the next, and all they want to do is they just want to
do a good job and get the paycheck that they expect to receive.
Mr. Marino. And it is not the person walking into your
office who is a top executive where that tax may be being paid
for by the company. It is an individual that primarily is
living from paycheck to paycheck, trying to raise a family and
send kids to college. Believe me, I have been there, I know
what it is like. I do not agree with this whatsoever of being
taxed by multiple states. One state, where you live, that is
it. Thank you.
Ms. Brown. Agree.
Mr. Collins [presiding]. The Chair now recognizes the
gentleman from Georgia, Mr. Johnson.
Mr. Johnson. Thank you, Mr. Chairman.
Mr. Carter, do you agree that there is a problem that this
bill addresses?
Mr. Carter. Ranking Member, personally I do think it is
very difficult for employers to keep track of some employees,
especially when there are states such as Delaware where the de
minimis number of days is 1 day. An example I use and that was
mentioned is utilities. There may be, especially here on the
East Coast as utility companies tend to be regional, where one
of the employees of the utility may be working in a state which
is their primary area of responsibility, and they are sent into
Delaware for a day or a week to do work there. The manager of
the operation isn't a tax expert, probably not talking to the
payroll department all the time, and they are totally unaware
of the different laws in the different states. So I do
recognize that there is an issue here.
I do think that 20 days, a 20-day period, which is a full
month of work, as a bright-line test that you can send to all
of your employees and tell them if they are working somewhere
for more than 20 days, check with the payroll department to see
if you are subject to tax, is a very bright-line test that can
be used nationally.
Mr. Johnson. So is 30 days.
Mr. Carter. So is 365. I do think 20 days is a lot of time
to be working in your state, and I mentioned to Representative
Marino that they are availing themselves of the state
resources, and they should be, in my belief, subject to
taxation in that state.
Mr. Johnson. All right.
Ms. Brown?
Ms. Brown. Thirty days is all-inclusive. So it is not
business days. It doesn't exclude certain days. So it is really
important to home in on the fact that the 30 days is 30 days
from when that person steps into the state for 30 days forward.
Mr. Johnson. Mr. Carter, if that is what the legislation
says, do you still have a problem with that?
Mr. Carter. As I stated in my testimony, I have issues with
some of the definitions of how it would work. I think what you
would see happening, because I don't think this is as clearly
defined as Ms. Brown, at least in our mind, that you would see
regulations issued by individuals such as myself, tax
commissioners, trying to find that 30-day period.
What happens if someone comes in on January 1st and then
they don't come back until August 1st? That is a 30-day period
from start to finish, and they have only been in our state for
2 days.
Ms. Riehl. Congressman Johnson?
Mr. Johnson. Ms. Riehl?
Ms. Riehl. I just want to make clear that that has been a
long-established change to the legislation from when you
originally introduced it. The definition of a non-resident day
is any fraction of any day. So that has been long established.
There was actually a discussion that occurred with Committee
staff between the hearing in the last Congress and the move to
the full floor, one of the clarifications that was made. When
we say a day, it is any fraction of a non-resident day.
Mr. Johnson. All right.
Anything else, Mr. Carter?
Mr. Carter. No, Ranking Member.
Mr. Johnson. All right. Thank you.
Anyone else have anything to add?
[No response.]
Mr. Johnson. I think you all have been quite explicit in
your reasons for supporting the bill, and also for opposing it.
So I would have no further questions, and I would yield back
the remainder of my time.
Mr. Collins. Ms. DelBene?
Ms. DelBene. Thank you, Mr. Chair.
I come from a state, Washington State, where we don't have
a state income tax. Many of our state's residents travel
frequently for business and currently face the confusing
patchwork that many of you described of non-resident state
income tax filing rules. Despite living in a state with no
income tax, residents of my state may be legally required to
file an income tax return in every other state in which they
travel for business, in some cases even if they were there for
only 1 day, as many of you have talked about.
I do think Congress can play a role in alleviating the
difficulties facing these individuals and families in our
current system, and I believe that we should, and that is why I
am a co-sponsor of this legislation.
That said, I am very mindful of the concerns being raised
regarding state sovereignty and potential impacts to state
revenue, and I am pleased that supporters of the bill have been
open to changing the bill over the years to address these
concerns.
I wanted to ask in particular Mr. Porter, your testimony
discussed the variety of businesses, large and small, who are
impacted by the current state of affairs. Particularly for
small businesses, and we have talked about this a little bit,
can you talk about the compliance burden on these businesses?
For example, in what number of states are non-resident
employees subject to tax withholding on the first day of
travel, or a small business that doesn't have much employee
travel? How much are their expenses in terms of preparing the
paperwork necessary to comply with these rules, versus the
actual taxes that are paid?
Mr. Porter. Sure. I mean, when you are thinking about small
business, you are, first off, looking at businesses that
traditionally don't have a large staff, they don't have a large
payroll department. So many times, at least what I see in my
clients' practices, you have one person that does the payroll.
So they are doing payroll, and they are probably doing
payables, and they are doing a lot of other types of things.
So it does become overwhelming to track. In particular, I
think in my practice I had a construction client that many
times would take a job in a power plant that did a shutdown for
two or 3 weeks, and they may have 500 or 600 employees that
would suddenly go up and that would be working through the
union hall at that one particular site, and they are going to
have to gear up and do that and get all the multi-state issues
going, and it becomes very problematic.
So the alternative is to out-source it, which is one
alternative to do. But many out-sourcing payroll entities, they
don't necessarily track things by days. They are more inclined
to track by pay periods. So it is very confusing. It is very
challenging, and it is also very challenging for those
employees who are in those environments and then go to people
like me to fill out their tax returns at the end of the year.
I think I used in my testimony the example of an electrical
lineman. It is not unusual as you hear thunderstorms, like we
are having today, and they move through the area and they knock
out power, then these gentlemen and ladies will come in and do
that work and find that they have to file a tax return in this
area. Then they have to file a tax return in this area for the
next storm.
So it is very challenging, and it is very confusing for
them.
Ms. DelBene. How many states start withholding after the
first day? Do any of you know the answer?
Ms. Riehl. The majority.
Ms. DelBene. And I assume for a lot of small businesses
where they might only have a couple of employees who might be
impacted by this, the cost of administration in terms of filing
is much more than any taxes that are paid to states.
Ms. Brown, you are shaking your head?
Ms. Brown. Yes, I agree.
Ms. DelBene. Do you have an idea of what those costs might
be relative to----
Ms. Brown. So, for instance, part of my testimony is that I
have worked with an employer who had about 1,400 employees.
They were in about nine states. We had to hire outside legal
counsel, outside tax counsel. We had to hire registered agents
in the states. We had to pay for tax preparation services for
the number of employees that were affected.
And on top of all of that, I think that a priceless piece
of it is the employee morale and the employer-employee
relationship. We are being compliant. Maybe companies that they
worked for previously had not been or didn't have the resources
available in order to withhold properly. So then we are looked
at as the bad guy almost. So I think that is a real priceless
cost that the employer takes.
Ms. DelBene. Ms. Riehl, you talked about voluntary efforts
for voluntary compliance in the states and that those haven't
taken hold. I wonder, Mr. Carter, if you think that there is a
potential to move that forward since it looks like those
efforts haven't really gained any traction so far.
Mr. Carter. Representative DelBene, I think it is a
challenge personally. It was mentioned that North Dakota has
adopted model legislation, but only with the caveat that other
states will adopt model legislation. If I use my state,
Delaware, as an example, we do not have any reciprocal
agreements with the surrounding states of Pennsylvania, New
Jersey and Maryland. If we were to adopt this type of
legislation for our state and the other states did not adopt it
simultaneously, we definitely would see a loss of revenue to
those non-resident employees who are working in Delaware, and
that is the challenge, to try to at the same time get the
surrounding states to adopt the legislation at the state level.
Ms. DelBene. So it sounds like you are not feeling
confident that there is going to be a voluntary solution.
Mr. Carter. I am not.
Ms. DelBene. Okay.
Thanks to all of you for being here. I appreciate it, and I
yield back.
Mr. Collins. I thank the gentle lady.
I tell you what. In light of votes that are going on, I am
going to begin my question series, and I have just a few
questions, and we are going to take a short recess for that. So
anybody else who wants to go ahead and do their vote, we will
pick back up--either myself or the Chairman will pick back up
when we get back.
So, with that public service announcement, then I have a
couple of questions.
Ms. Riehl and Mr. Porter, I have a hypothetical, and this
is something that if things come along and they are just--
frankly, something about this whole situation just strikes me
wrong. Mr. Carter, we have a gentleman's disagreement on this,
but I understand. I come from a southern state, worked on the
state legislature. I get the fact that states and cities are
becoming tax starved. I get that.
But this is just a hypothetical, and it goes a little bit
to your employment duties, wording classification, which I did
read your written testimony. I work for the University of
Georgia, or I worked for, as I used to in a previous time, I
worked for a church. I take a leave of absence, which is not a
leave of absence but a sabbatical, which happens in higher
education but also in churches or other organizations as well.
I go to a state that begins supposedly on Day 1 collection.
I go there to research a book that I am going to write, to
pray, to meditate, to just get away for 4 months.
Under this bill, would what I am doing classify as a
vacation or employment? It is a hypothetical. I am a lawyer,
too, so this is----
Ms. Riehl. I think in that scenario, Congressman, that
sabbatical which is paid for would be treated just like it
would if you were on paid vacation. But if you do work on a
vacation day and that somehow is tracked or traced by yourself
in recordkeeping, a lot of that has to do with how you would
account for that time. If it is counted against your time off
of work, or if it is not counted against your time off of work,
you are still being paid.
Mr. Collins. Most sabbaticals would not be counted against
my time off of work. It would just be counted as a time to go
take time off, to read, to do stuff that doesn't apply to my
job.
Ms. Riehl. Exactly.
Mr. Collins. Mr. Porter, do you have anything to add?
Because I have a follow-up as well.
Well, the follow-up I have here is what is to keep--Mr.
Carter or Ms. Brown, jump in here whenever you want. What is to
keep states, then, from saying that any time I go into a state
for a vacation in which I take a call from work, that is a
taxable day?
Ms. Riehl. Technically, it is.
Ms. Brown. Technically, it is.
Mr. Collins. That is a bunch of bull. [Laughter.]
We have another term for it in Northeast Georgia, but I am
among mixed company and I am a southern gentleman. My mother
would shoot me.
But I think the issue here is that we are really beginning
to see an issue here that is very disturbing. I appreciate the
authors' intent here, and I think it is something that needs to
move forward in looking at how we deal with this. But there are
some issues on when this applies and how this applies.
Frankly, the Federal Government is a little bit
hypocritical about this because I am in the military as well.
Georgia is my state of residence. I can PCS anywhere in the
world or any other place in the country and I am going to be
taxed in Georgia. And now the Federal Government is coming in
to say basically states who want to tax you to death, you are
going to get your taxes no matter where you are claiming
residency, and I think the 30 days to me is a little, frankly,
arbitrary in a sense, and I think we are working on it. I know
my good friend from Georgia has worked on this very hard.
Is there a better way to look at this? Two questions. Does
the Federal Government have to jump in on this? Number one. And
number two, is there a better way to sort of define some of the
problems and issues that I brought up?
Ms. Riehl. I would say that the Federal Government has to
act here, and Congress has the authority to do it, because of
the nine states that do not have a personal income tax. They
cannot pass a law in the State of Washington that would protect
their employees when they travel to Georgia. Only Congress can
do that. And by setting a new standard of 30 days when you
cross state lines in any one given state, we just think that is
a new starting point. It doesn't bar the state from expecting
to have a portion of your earned income paid there, but only
after 30 days in a calendar year.
In this instance, when personal income tax laws were
passed, people didn't travel beyond their home city or county,
but that is just not common these days. This workforce that we
all are in right now is much more mobile, and as Lori described
in her testimony, it is middle management, it is folks at entry
level that are moving around for work, and they are being
subjected to this.
Mr. Collins. Again, the concern here is that if we go ahead
with this step--I am looking down the road, and my hypothetical
sort of highlighted this--we have now condoned this and we have
set up a standard, and then maybe through vague terms or
different states deciding we need more money, that phone call
back from the office on a vacation now becomes a taxable day,
and I don't think that is a good move.
Ms. Riehl. We could certainly move to no non-resident
implications for tax where all you do is pay that to your home
state 100 percent of the time. And certainly residents of
states that don't have a personal income tax would not owe a
penny to a state regardless of how much time they spent there.
Mr. Collins. And I know, Mr. Carter, you brought that up,
saying that is not fair. Well, frankly, every state has to
determine how they want to collect income, and if they choose
not to have an income tax, then that is more the reason they
can--that is a state choice that they have made, and if another
state doesn't like it, then they can go to a state non-income
tax as well.
Mr. Carter. That is a potential option, but in reality the
states are structured to raise their income for the way they
are. As you just said, your State of Georgia is a personal
income tax and a sales tax. Delaware has no sales tax but a
little bit higher personal income tax.
Mr. Collins. I think what we have raised here is just a lot
of questions that could go on.
We have to go vote. So, at this point the Committee will
stand in recess, subject to the call of the Chair.
[Recess.]
Mr. Bachus [presiding]. The Subcommittee will come to
order.
I yield myself 5 minutes for questions.
Before we left, I was listening to an exchange between Mr.
Collins and Mr. Carter in which you were talking about how
unfair it was if someone was in a state utilizing their
services that they should pay taxes to that jurisdiction
because that jurisdiction was providing services, and you were
including all taxes, income taxes.
I was thinking about, just hypothetically, if I went to New
York City, which I did Sunday, and spoke, but let's just say I
went there for a month or 2 weeks to work. When I got to the
airport, I would pay an airport tax. When I got in a cab, there
is a tax there. When I got to the hotel, I would pay a pretty
steep lodging tax. So my shelter would be as much as--and I
don't know what the tax is on hotel and motel rooms. But if I
am not from there, I am going to be staying at a hotel or a
motel, so I am going to be paying a pretty steep tax there.
Anything I buy, I am going to pay a sales tax.
I did ask my staff to print out--I would pay a 4.5 percent
New York State sales tax and a 4 percent New York sales tax.
The only exemption would be if I bought a pair of shoes.
Now, the whole time I am there, my five children would be
in school in Alabama. I would have a home in Alabama. My
garbage would be picked up in Alabama. If there was a fire at
the hotel, I don't own the hotel or motel in New York. So if
there were fire-fighting services, that is provided. That
benefits--I mean, a hotel owner pays that, but I am also paying
because I am paying a lodging tax. But back home, they are
getting none of that. They are providing free police
protection, fire protection, sanitation, garbage pickup.
But more importantly, they are paying for the education of
my children, which is a major expense. But if my income tax is
going to New York and my children are being paid for teachers
in Alabama, that just doesn't seem fair. I hadn't really
thought about it, but if anybody had a claim, even when I am in
New York, I am paying a lot of taxes in New York.
If you take the income tax and pay that, too, I am paying
almost nothing to Alabama, but it is 80 percent of what I am
benefitting from.
We talk about emergency workers. One of my questions I
think kind of fits right in. Natural disasters such as flood,
fire, earthquake, tornado, wind storms affect thousands of
people every year. According to FEMA, since 2010 we have
averaged 87 major emergency declared disasters every year. At
times, disaster impact states rely on a workforce, plus
volunteers too, from all over the country to help restore
critical infrastructure such as telecommunication networks and
electrical grids. It doesn't say it here, but they also come in
and provide claims processing to reimburse people for their
lost houses, lost cars, other insurable loss. We want to
encourage that. I don't really want to deal with somebody over
the Internet, and I am afraid that if this workforce is in any
way discouraged from coming in because, all of a sudden, all
their taxes go to the state, and they are there, even as
volunteers--you know, I thought about this. When they come in
as volunteers, the state is getting lodging tax, they are
getting when they buy food. They are getting paid for that.
Their gasoline. They are paying.
You mentioned roads specifically. Let me tell you, if they
buy gas or they go into an airport, believe you me, they are
paying. So I am not sure that, the more you think about that,
the more--you know, police come in from other states, fire
responders, fire trucks. They loan equipment to them. They gas
up. But they are there for the sole benefit of those people who
are hit by whether it is Katrina or whatever, 9/11.
But I guess the question that the Committee prepared I
think is a good one. How do state and local taxes impact the
efforts, and how will this act help Good Samaritans who come
into a state to help in case of a disaster, which is probably
the biggest influx by far of people?
Mr. Carter?
Mr. Carter. Mr. Chairman, the Delaware General Assembly
actually recently adopted legislation that exempted emergency
workers in the State of Delaware for a short period of time. I
believe the period is for 60 days if either a state or national
disaster is declared.
Mr. Bachus. Would that include utility workers?
Mr. Carter. That includes utility workers. Yes, it does.
Mr. Bachus. How about in New York?
Mr. Carter. There are eight states that have adopted this
legislation. I was just speaking to----
Mr. Bachus. And those emergency workers still pay their
lodging tax.
Mr. Carter. They would still be, or the company would pay,
the utility company. Whether the local utility company
reimburses them----
Mr. Bachus. Somebody would----
Mr. Carter. Somebody would, yes.
Mr. Bachus. Those are pretty steep.
Mr. Carter. It can be in some states, yes.
Mr. Bachus. I don't know what the New York one is, but all
sorts of taxes.
My time has expired.
Mr. Carter. On the speaking occasions----
Mr. Bachus. But do you see my point?
Mr. Carter. I do see your points. But I will say to the
speaking engagement, if you were speaking in New York----
Mr. Bachus. Oh, I am not talking about speaking. That was a
poor example.
Mr. Carter. Okay.
Mr. Bachus. What I am thinking about, somebody comes in to
work for 2 weeks or 3 weeks. I mean, they are going to pay a
lot of taxes, but their home state is still providing every
service that they benefit. I mean, everything is still--the
fire service isn't suspended, and most of them have family at
home. But even if they are alone, somebody is protecting that
house. Their children, the schools are still being paid for.
And if their income tax goes to New York, while I am out of
state, my home state is going to lose revenue.
I think that is where you have a lodging tax. I think that
is maybe why you have a sales tax. That is why, when you come
to an airport--there is even a tourist tax now. If you look at
a hotel bill now, there are all kinds of taxes on there.
But I am just telling you that I think there are two sides
to that story. I understand your concern. Your concern was
fairness. But I am actually saying I think to collect that
income tax when they are collecting a 10 percent lodging tax
and all your gasoline, all your food, anything you buy, I think
they are getting a pretty good deal. And you are providing jobs
when you are coming in.
But I just wanted you to think about that. And education is
still 50 percent of expenses, I think. It is by far the biggest
expense. And income tax in some states, that is their major
source. In some states it is not.
Mr. Johnson?
Mr. Johnson. If I may----
Mr. Bachus. Mr. Jeffries. I am sorry. But, go ahead.
Mr. Johnson. Yes, I just want to clear the air. This is not
a revenue raising bill. This is a bill to bring some uniformity
to the 50 states insofar as when income taxes can be levied,
and the legislation calls for a 30-day period that must be
worked, 30 days, and a day is an increment of activity on a
particular day. So if more than 30 days, then the ability of a
state to collect an income tax from that traveler who is
working in the state becomes effective, but not until we reach
that 30-day threshold.
So the reason for this legislation is to create some
uniformity and to enable businesses and individuals who
actually owe the taxes to have some certainty, as opposed to a
hodge-podge of 50 possibilities that they have to pay money to
research as a consumer to find out where they are liable for
income taxes, or for a business, a small business having to
track all 50 states insofar as when income taxes have to be
collected in accordance with that particular state's laws. That
is very burdensome, and it puts us at a competitive
disadvantage as a nation with respect to our businesses.
So this is to not create any kind of double taxation or
deprive any particular state of the ability to collect income
tax.
So I just wanted to make those points, Mr. Chairman, and I
thank you.
Mr. Bachus. Mr. Jeffries is recognized for 5 minutes for
questions.
Mr. Jeffries. I appreciate the return to regular order as I
did have some issues that I wanted to be able to address.
I don't doubt that this legislation has been introduced in
good faith by individuals who are supporting it, both sides of
the aisle, although it does seem to be Beat Up On New York Day.
So I thought it would be very important to clear up some of the
factual inaccuracies that I think were presented, not in bad
faith, of course.
Now, Mr. Porter, would you agree that Federalism is an
important part of the constitutional construct that we have in
this great republic of ours?
Mr. Porter. Certainly.
Mr. Jeffries. And is part of the premise of Federalism that
each individual state has the capacity to determine for itself
the best form of taxation for that particular jurisdiction?
Correct?
Mr. Porter. Certainly, within limits, yes.
Mr. Jeffries. So isn't it reasonable to conclude that the
legislation that is before us is inconsistent with the notions
of Federalism often put forth by people here in the country and
certainly the Congress who talk a lot about individual states'
rights?
Mr. Porter. Well, I think in this particular case, as we
talked about a little bit earlier, there have been movements to
try to get the states as individual states to enact some type
of legislation that would help in this particular issue, but
that, I think as we said earlier, that hasn't happened. So the
only way to get some type of uniformity would be for the
Federal Government to provide that uniformity.
Mr. Jeffries. Now, do you think what New York City and New
York State have done is fundamentally unfair in terms of the
taxation system that they have put forth?
Mr. Porter. I can't speak that much about the State of New
York or the City of New York because I am not there. Sorry.
Mr. Jeffries. Okay. Well, I think it is clear, and I
believe it was Mr. Carter who testified that New York State
would lose about $100 million to $120 million. Is that correct?
Mr. Carter. That is correct, with the legislation that is
currently drafted.
Mr. Jeffries. Okay. Now let me go back to Mr. Porter.
Picking up on a theme that was raised earlier, tax revenue pays
in part for police protection; correct?
Mr. Porter. Yes.
Mr. Jeffries. And when non-residents are temporarily in New
York, they benefit from that police protection; true?
Mr. Porter. Correct.
Mr. Jeffries. And isn't it the case that New York City as a
center of commerce for the country, if not the world, is
uniquely positioned in that it draws people from all over the
country, from different regions--in fact, from different parts
of the world--to work in New York City at a disproportionately
higher rate than may exist in other parts of the country? Is
that a fair characterization?
Mr. Porter. Are you stating that wages in New York City are
going to be higher than wages in other parts of the country?
Mr. Jeffries. People temporarily find themselves deployed
for work reasons in New York City in numbers greater than in
probably any other part of the country because New York City is
a center of commerce. Is that a fair characterization?
Mr. Porter. I would agree with that, yes.
Mr. Jeffries. So there is a higher burden that is placed on
New York City in terms of police protection than in any other
part of the country because of the high number of workers
temporarily residing there. Is that fair to say?
Mr. Porter. I think that is true and I would agree with
that. But I think also, as was mentioned earlier, when I am in
New York City I am paying taxes when I fly in, I am paying
airport taxes, I am paying hotel taxes, I am paying food taxes
that, as a guy from West Virginia would think, are higher than
what I would be paying in West Virginia. So I understand that I
am paying----
Mr. Jeffries. Let me reclaim my time. I do appreciate that,
but my time is limited. And the same would apply for fire
safety protection; correct? That it would benefit non-residents
temporarily working there; true?
Mr. Porter. True.
Mr. Jeffries. The same would apply to sanitation services;
correct?
Mr. Porter. Correct.
Mr. Jeffries. The same would apply to the extensive New
York City mass transportation system; correct?
Mr. Porter. Correct.
Mr. Jeffries. Now, in terms of this general, overall point,
and this has really bothered me since my time here in Congress,
and I only have a little bit of a moment to express it, you
have states like New York, California, Illinois, Connecticut
that regularly send, in some instances, tens of billions of
dollars more to the Federal Government than we get back in
return. And in the most recent study that I have seen, New York
State sent $23 billion more to the Federal Government than we
get back in return.
Is that fair, sir?
Mr. Porter. I guess that would depend upon your
characterization of--again, I think you are talking about
Federal revenues as opposed to the state issues, which is----
Mr. Jeffries. And I am talking about Federal revenues that
then get disbursed to other states. And let me just note for
the record that two of those states that actually receive more
money from the Federal Government than they get back in return
are Georgia, which receives almost $4 billion more in revenue
than they send to Washington, D.C., and Alabama, which is 47th
on the list in terms of a negative disparity, positive for the
great State of Alabama, which receives----
Mr. Bachus. You are beginning to run over your time.
[Laughter.]
Mr. Jeffries [continuing]. Which receives $17 billion
more--and I appreciate the Chair's indulgence--$17 billion more
than they get back in return. So all I am saying is that if we
want to confront unfairness, let's deal with unfairness broadly
defined.
We are happy in New York State to support states like
Georgia and Alabama, and these are two very good men, two very
good representatives. But to make the situation worse for a
donor state like New York in my view is fundamentally unfair,
and I yield back.
Mr. Bachus. Thank you, Mr. Jeffries.
We are going to have a second round now, and we will
alternate.
Let me ask the accountants on the panel. I also heard the
same testimony that Mr. Jeffries did about the $100 million,
and I was sitting there thinking about what Ms. Brown's company
had to go through and all these extra income tax returns.
I am wondering what is the cost of filing all these
additional income taxes. I mean, I would think that probably--
and I would have thought it was a whole lot more than $100
million. But I would think that just the accountants, which the
customers pay--the accountants may do the taxes, but the
customers pay.
For instance, one thing they are doing that Ms. Brown said,
they are paying taxes in two different places. But then they
are having to file an income tax return--I wouldn't be
surprised if it was $200 million worth for New York or any
state. We talked about New York. Mr. Jeffries talked about
people traveling to New York all the time. Believe you me, they
travel to Dallas, they travel to Las Vegas, they travel to all
these places that don't collect this income tax. So, I mean,
they travel.
But I am wondering, Mr. Porter, any one of you, how much do
you estimate just the cost of compliance is with, say, New
York? I mean, that is where most of the resistance is coming
from.
Mr. Porter. I have no idea how much it would be on a state-
by-state basis. I can just speak to what I see typically in my
practice and when I am preparing tax returns. Again, the type
of returns--I am from West Virginia, a predominantly rural
community. The individuals that I am preparing taxes for are
average Americans that are making $100,000, $50,000, whatever
the number may be. And I can tell you that when I start doing
multiple tax returns for multiple states, each additional state
is probably going to increase their fees by 30, 40 percent per
state from what they are going to pay.
So there is a fair amount of cost involved to the
individuals. There is also a fair amount of cost involved to
the employers that are having to keep up with all of the
recordkeeping and keep up with all of the tax systems across
the country that they have employees working in.
Ms. Riehl. Mr. Chairman, one of the reasons this bill, the
legislation first passed in the Congress, we have doubled the
number of coalition supporters. We are now at 263
organizations, and that is because of the exorbitant cost to
those companies, and those are fairly large. But we did hear
testimony about how this disproportionately affects small
businesses as well, who do this on their own or they have to
pay for an expert outside. But the disproportionate cost, the
exorbitant cost, and certainly the compliance burden.
So when you put those together, it depends on how
sophisticated your systems are now and what you have to do to
be in compliance later. We are really trying to avoid much of
that.
I will say on the $100 million in New York, we have a
difference of opinion. We have actually calculated that
differently in the Ernest & Young study that is part of the
record, and I would say this. If, in fact, New York claims that
it is as high as $100 to $120 million, that doubles the impact
to the states it is pulling it away from. So the biggest impact
state right now is the State of New Jersey. We think it is
about $26 million. If it is, in fact, as New York says, closer
to double that number, it is more like $50 million.
So it is not money that is coming from New York from
invisible places. It is actually coming from the coffers of
other states.
Mr. Bachus. Right. And, I mean, Mr. Jeffries mentioned
Federalism, and that is our system in this country. But he was
talking about the Constitution, and Section 8 of the
Constitution specifically gives the Congress the power to
regulate commerce among the several states, interstate
commerce, and we are not supposed to burden or restrain it.
And, boy, this comes pretty close to a burden on interstate
commerce.
Let me close. I have 34 seconds.
I just found out that--and I am not picking on New York.
You used that as an example, Mr. Carter. But they have been
most resistant to this legislation. If I take my car in--I
didn't realize this, but if I park in Manhattan, I pay 18.3
percent tax on parking my car. I will tell you, $30 or $40, and
then I am paying $6.00 or $8.00 tax every day. That is a pretty
good deal for New York, on top of everything else. I guess I
will just pay that airport tax next time. But I can't get
around the lodging tax.
Mr. Johnson?
Mr. Johnson. Thank you, Mr. Chairman.
Does anyone know how much money or how much revenue, let's
say, New York--by the way, I am not beating up on New York. I
love New York.
I love New York. That sounds so good.
Mr. Bachus. You have to, because of all the taxes you pay
when you go there.
Mr. Johnson. But does anyone know how much New York
collects in non-resident income taxes per year?
Ms. Riehl. If this law was to change from their 1-day rule
for an employee and a 14-day rule for withholding for the
employer, at this point if it changed to the 30-day standard
found in 1129, we think it would impact the state to the tune
of about $45 million. I don't know what they get in actual
revenue under the current system.
Mr. Johnson. Do you have any idea, Mr. Carter?
Mr. Carter. I do not, Ranking Member.
Mr. Johnson. I wonder if they have any idea.
Well, let's look at it from the other side. How many
employees, non-resident employees, actually fill out a New York
State income tax return? Do we know that?
Mr. Carter. I do not. I do know in Delaware that we receive
total tax returns that come in, approximately 20 percent of the
returns are from non-residents and 80 percent are from
residents. I would speculate that New York State, especially
when you get down around the southern part of the state, has a
very high percentage. But the state as a whole, I don't know if
it is the same 80/20 percent or----
Mr. Johnson. So, in other words, you are saying Delaware,
of the 100 percent of tax returns you receive, 20 percent of
those are from----
Mr. Carter. Non-residents.
Mr. Johnson [continuing]. Non-residents.
Mr. Carter. Yes. We receive approximately half-a-million
returns a year, of which 400,000 are resident returns and
100,000 non-resident returns.
Mr. Johnson. Now, all of those non-resident income tax
returns were generated as a result of employers having to
withhold. Is that correct?
Mr. Carter. For the most part, yes.
Mr. Johnson. We do have employers who are charged with the
duty of abiding by state law, each and every state law, 50, and
so this is a cost that businesses bear who actually keep up
with all of that.
Mr. Carter. Correct.
Mr. Johnson. And if they fail to keep up with it, then they
are liable under Federal law.
Mr. Carter. Not Federal law. Well, they are liable for the
state tax liability.
Mr. Johnson. Yes.
Mr. Carter. Under state tax law.
Mr. Johnson. Under Federal law, Sarbanes-Oxley, the chief
executive would have to sign documentation----
Mr. Carter. Under Sarbanes-Oxley.
Mr. Johnson [continuing]. Swearing that they are in
compliance with each and every state law within which they are
operating.
Mr. Carter. Correct from that aspect.
Mr. Johnson. Any idea how much that actually costs the
businesses, both large and small? Anyone?
Ms. Riehl. Mr. Johnson, again, I think that we have asked
for that kind of data from our coalition members, and they
don't know how to assess it themselves. But you are correct in
that Sarbanes-Oxley and some of the other changes that have
happened recently at the Federal level to financial reporting
documents put personal liability on corporate officers and
their tax preparers; that they, in fact, are attesting legally
to be in compliance with all Federal, state, and local laws.
And that is precisely why there is a growing number of
supporters of this legislation, because they are at risk of
being out of compliance. They sign these forms--they have to--
and there is not necessarily knowledge that they are in full
compliance, and that is what we are trying to rectify.
Mr. Johnson. In each of these states, the legislators meet
maybe once a year or one session per year. These sessions take
place at different times during the year, and sometimes there
can even be special sessions. And in any particular session in
any particular state, there could be a change in the income tax
laws. So these businesses, both large and small, are charged
with the responsibility of keeping up, monitoring these 50
state legislatures. Is that correct?
Ms. Riehl. Yes.
Ms. Brown. Absolutely, and sometimes some of those laws are
retroactive. So not only does the employer have to know about
it and comply with it, but sometimes it is even retroactive.
Mr. Johnson. I really hate that one or two states may
suffer a decline in income tax revenue because of this
legislation, should it pass. However, looking at the greater
good, I think that is something that we have to consider. It is
really not meant to hurt any particular state.
But I am comforted in knowing that New York does have quite
vigorous taxing rates for various activities, so I don't
believe they are going to go broke. Plus, they just did some
tax--I think, watching TV, I see where if you locate your
business in New York in a certain location, certain locations
throughout the State of New York, you may not have to pay any
taxes as a corporation.
Ms. Riehl. That is for new businesses and definitely part
of a very comprehensive tax reform effort that the state just
finished within the last 30 days. One of the items that was
suggested that they look at in their budget reform was actually
changing these rules, but they neglected to do so.
Mr. Johnson. Changing the income tax rules.
Ms. Riehl. The non-resident withholding rules, yes.
Mr. Johnson. Yes, because one day----
Ms. Riehl. Is too lucrative.
Mr. Johnson. Yes. And so companies don't want to locate
there because of that factor.
Ms. Riehl. And that is why the change was made to invite
new businesses in. I should say that we have had ongoing, good
dialogues with representatives of the Governor's Office and
others in Albany over the last several years on this, and it is
a sensitive issue for them in that they have just done a very
good job when it comes to enforcing the law as it is on the
books.
However, after a transition period, after H.R. 1129 is
actually passed and there is a new starting date of 30 days,
New York can certainly start at Day 31 doing exactly what it
does right now. The only advantage that really a state like New
York with aggressive auditing has is that other states aren't
being just as aggressive against them, plus the fact that there
are disparate rates. So when you visit New York, the best you
can hope for when you are credited against your Georgia
resident income tax obligation is the Georgia rate. New York's
rate is mostly high compared to other states, and so there is
still going to be a fraction that will never be recouped even
under a credit system.
So I think in measuring, New York still can be a little bit
ahead of the curve just simply because their rates are higher
and they have been more productive with that. We just want a
new starting date.
Mr. Johnson. Thank you. And, with that, I would yield back.
But I would confess my embarrassment at my own great State
of Georgia, being the Republican citadel that it is, is
actually mooching on the Federal Government. I just never knew
that, and I am horrified. I am horrified. I am embarrassed.
Thank you.
Mr. Bachus. Obviously, the Alabama and Georgia delegations
have been doing a fine job for their citizens. [Laughter.]
I do want to correct the record. I said in Manhattan you
pay--the city charges 10.3 percent, and then there is a
Manhattan tax of 8-something. But that only applies--I mean
does not apply to Manhattan residents. They are exempted from
that 8.3 percent tax. So only if you are visiting do you get
hit by that. But I bet even if you are not visiting, you get
the same protection. They exempt their own residents from that
tax.
This concludes today's hearing. Our thanks to all of our
witnesses for attending.
Without objection, all Members will have 5 legislative days
to submit additional written questions for the witnesses or
additional materials for the record.
I really appreciate your all's testimony, all four of you.
I think you were ecellent witnesses.
This hearing is adjourned.
Mr. Carter. Thank you, Mr. Chairman, Ranking Member.
[Whereupon, at 3:12 p.m., the Subcommittee was adjourned.]
A P P E N D I X
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Material Submitted for the Hearing Record