[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]





                  NEXUS ISSUES: LEGISLATIVE HEARING ON
                   H.R. 2315, THE ``MOBILE WORKFORCE
                  STATE INCOME TAX SIMPLIFICATION ACT
               OF 2015;'' H.R. 1643, THE ``DIGITAL GOODS
                AND SERVICES TAX FAIRNESS ACT OF 2015;''
                 AND H.R. 2584, THE ``BUSINESS ACTIVITY
                    TAX SIMPLIFICATION ACT OF 2015''

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                           REGULATORY REFORM,
                      COMMERCIAL AND ANTITRUST LAW

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              JUNE 2, 2015

                               __________

                           Serial No. 114-26

                               __________

         Printed for the use of the Committee on the Judiciary

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


      Available via the World Wide Web: http://judiciary.house.gov
      
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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
LAMAR S. SMITH, Texas                ZOE LOFGREN, California
STEVE CHABOT, Ohio                   SHEILA JACKSON LEE, Texas
DARRELL E. ISSA, California          STEVE COHEN, Tennessee
J. RANDY FORBES, Virginia            HENRY C. ``HANK'' JOHNSON, Jr.,
STEVE KING, Iowa                       Georgia
TRENT FRANKS, Arizona                PEDRO R. PIERLUISI, Puerto Rico
LOUIE GOHMERT, Texas                 JUDY CHU, California
JIM JORDAN, Ohio                     TED DEUTCH, Florida
TED POE, Texas                       LUIS V. GUTIERREZ, Illinois
JASON CHAFFETZ, Utah                 KAREN BASS, California
TOM MARINO, Pennsylvania             CEDRIC RICHMOND, Louisiana
TREY GOWDY, South Carolina           SUZAN DelBENE, Washington
RAUL LABRADOR, Idaho                 HAKEEM JEFFRIES, New York
BLAKE FARENTHOLD, Texas              DAVID N. CICILLINE, Rhode Island
DOUG COLLINS, Georgia                SCOTT PETERS, California
RON DeSANTIS, Florida
MIMI WALTERS, California
KEN BUCK, Colorado
JOHN RATCLIFFE, Texas
DAVE TROTT, Michigan
MIKE BISHOP, Michigan

           Shelley Husband, Chief of Staff & General Counsel
        Perry Apelbaum, Minority Staff Director & Chief Counsel
                                 ------                                

    Subcommittee on Regulatory Reform, Commercial and Antitrust Law

                   TOM MARINO, Pennsylvania, Chairman

                 BLAKE FARENTHOLD, Texas, Vice-Chairman

DARRELL E. ISSA, California          HENRY C. ``HANK'' JOHNSON, Jr.,
DOUG COLLINS, Georgia                  Georgia
MIMI WALTERS, California             SUZAN DelBENE, Washington
JOHN RATCLIFFE, Texas                HAKEEM JEFFRIES, New York
DAVE TROTT, Michigan                 DAVID N. CICILLINE, Rhode Island
MIKE BISHOP, Michigan                SCOTT PETERS, California

                      Daniel Flores, Chief Counsel
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                            C O N T E N T S

                              ----------                              

                              JUNE 2, 2015

                                                                   Page

                           OPENING STATEMENTS

The Honorable Tom Marino, a Representative in Congress from the 
  State of Pennsylvania, and Chairman, Subcommittee on Regulatory 
  Reform, Commercial and Antitrust Law...........................     1
The Honorable Henry C. ``Hank'' Johnson, Jr., a Representative in 
  Congress from the State of Georgia, and Ranking Member, 
  Subcommittee on Regulatory Reform, Commercial and Antitrust Law     2
The Honorable Bob Goodlatte, a Representative in Congress from 
  the State of Virginia, and Chairman, Committee on the Judiciacy     3
The Honorable John Conyers, Jr., a Representative in Congress 
  from the State of Michigan, and Ranking Member, Committee on 
  the Judiciacy..................................................     5

                               WITNESSES

Grover G. Norquist, President, Americans for Tax Reform
  Oral Testimony.................................................     8
  Prepared Statement.............................................    10
Arthur R. Rosen, Partner, McDermott Will & Emery LLP
  Oral Testimony.................................................    16
  Prepared Statement.............................................    18
Douglas L. Lindholm, President & Executive Director, Council On 
  State Taxation (COST)
  Oral Testimony.................................................    27
  Prepared Statement.............................................    29
Lawrence F. Leaman, Vice President of Taxes, MASCO Corporation
  Oral Testimony.................................................    52
  Prepared Statement.............................................    54
Jot Carpenter, Vice President, Government Affairs, CTIA--The 
  Wireless Association
  Oral Testimony.................................................    59
  Prepared Statement.............................................    61
Julie P. Magee, Chair, Multistate Tax Commission, Alabama 
  Department of Revenue
  Oral Testimony.................................................    66
  Prepared Statement.............................................    68
Dan L. Crippen, Executive Director, National Governors 
  Association
  Oral Testimony.................................................    84
  Prepared Statement.............................................    87

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Material submitted by the Honorable Henry C. ``Hank'' Johnson, 
  Jr., a Representative in Congress from the State of Georgia, 
  and Ranking Member, Subcommittee on Regulatory Reform, 
  Commercial and Antitrust Law...................................    97
Material submitted by the Honorable John Conyers, Jr., a 
  Representative in Congress from the State of Michigan, and 
  Ranking Member, Committee on the Judiciacy.....................   105
Material submitted by the Honorable Mike Bishop, a Representative 
  in Congress from the State of Michigan, and Member, 
  Subcommittee on Regulatory Reform, Commercial and Antitrust Law   120
Material submitted by the Honorable Hakeem Jeffries, a 
  Representative in Congress from the State of New York, and 
  Member, Subcommittee on Regulatory Reform, Commercial and 
  Antitrust Law..................................................   127

                                APPENDIX
               Material Submitted for the Hearing Record

H.R. 2315, the ``Mobile Workforce State Income Tax Simplification 
  Act of 2015''..................................................   136
H.R. 1643, the ``Digital Goods and Services Tax Fairness Act of 
  2015''.........................................................   142
H.R. 2584, the ``Business Activity Tax Simplification Act of 
  2015''...................................................162
  
                          OFFICIAL HEARING RECORD
          Unprinted Material Submitted for the Hearing Record

Material submitted by the Honorable Tom Marino, a Representative in 
    Congress from the State of Pennsylvania, and Chairman, Subcommittee 
    on Regulatory Reform, Commercial and Antitrust Law

    http://docs.house.gov/Committee/Calendar/
ByEvent.aspx?EventID=103540

 
NEXUS ISSUES: LEGISLATIVE HEARING ON H.R. 2315, THE ``MOBILE WORKFORCE 
STATE INCOME TAX SIMPLIFICATION ACT OF 2015;'' H.R. 1643, THE ``DIGITAL 
   GOODS AND SERVICES TAX FAIRNESS ACT OF 2015;'' AND H.R. 2584, THE 
          ``BUSINESS ACTIVITY TAX SIMPLIFICATION ACT OF 2015''

                              ----------                              


                         TUESDAY, JUNE 2, 2015

                       House of Representatives,

                  Subcommittee on Regulatory Reform, 
                      Commercial and Antitrust Law

                      Committee on the Judiciary,

                            Washington, DC.

    The Subcommittee met, pursuant to call, at 10:03 a.m., in 
room 2141, Rayburn Office Building, the Honorable Tom Marino 
(Chairman of the Subcommittee) presiding.
    Present: Representatives Marino, Goodlatte, Johnson, 
Conyers, Farenthold, Issa, Collins, Walters, Ratcliffe, Trott, 
Bishop, DelBene, Jeffries, Cicilline, and Peters.
    Staff present: (Majority) Dan Huff, Counsel; Andrea 
Lindsey, Clerk; (Minority) Slade Bond, Counsel; Norberto 
Salinas, Counsel; and Veronica Eligan, Professional Staff 
Member.
    Mr. Marino. The Subcommittee on Regulatory Reform, 
Commercial and Antitrust Law will come to order.
    Without objection, the Chair is authorized to declare 
recesses of the Committee at any time. We welcome everyone to 
today's hearing on Nexus Issues: Legislative Hearing on H.R. 
2315, the ``Mobile Workforce State Income Tax Simplification 
Act of 2015;'' H.R. 1643, the `Digital Goods and Services Tax 
Fairness Act of 2015;'' and H.R. 2584, the ``Business Activity 
Tax Simplification Act of 2015.''
    I will now recognize myself for an opening statement.
    I came to Congress with certain core principles that guide 
my work in Washington. One is that we should aim for less 
government regulation not more. That is why we are pleased to 
hold this legislative hearing. With all the focus on 
Washington, it is easy to forget the burdens that can flow from 
state capitals. That is especially true when discussing 
taxation of interstate commerce.
    I am a staunch supporter of states' rights in the 
principles of federalism, but I believe states should be 
sovereign within their borders only. I have become concerned 
when states trying to tax or regulate beyond their borders. 
Unfortunately, this is happening with greater regularity and it 
has necessitated the three bills we are examining at this 
hearing.
    Today, employees who travel across state lines for work 
face a myriad of crushing income tax laws. This is true even if 
they work in the state for just a single day. The complexity 
and variation of different state laws places a significant 
burden on the ability of businesses to deploy their workforces. 
Small businesses, in particular, are especially effected.
    It is also draining on the employees who must hire 
accountants, at their own expense, to handle the paperwork for 
multiple state tax jurisdictions. The Mobile Workforce State 
Income Tax Simplification Act of 2015 addresses this problem. 
It creates a bright line, 30-day threshold before a state can 
impose income tax liability on a nonresident temporarily 
working in the state. This minimizes compliance burdens on both 
workers and employers so they can get back to work.
    Just as states target nonresident workers for taxation, 
they also target nonresident businesses. An increasing number 
of states used the concept of economic presence to subject 
nonresident companies to state income tax simply because those 
companies have customers in the state. For example, New Jersey 
has impounded trucks delivering boats to customers in New 
Jersey, because the state demands that out-of-state 
manufacturers pay income tax to New Jersey. Similarly, 
Massachusetts demands income tax from out-of-state businesses 
if they deliver trucks which carry through the state on their 
own way to businesses from elsewhere.
    The Business Activity Tax Simplification Act, known as 
BATSA, requires an entity to be physically present in the state 
for more than 14 days in a year because it can be subject to 
state's business activity tax. It also sets a clear guideline 
on what constitutes a physical presence in order to reduce 
uncertainty.
    The third bill before us is H.R. 1643, the ``Digital Goods 
and Services Tax Fairness Act of 2015.'' This sets forth the 
purchase of digital goods and services to prevent multiple 
taxation of cross border sales.
    Every one of these bills is bipartisan. It is a testament 
to the soundness of their policies. I also commend the sponsors 
of these bills, many of whom serve on the Judiciary Committee. 
I note particularly Mr. Bishop, Ranking Member Johnson, and Mr. 
Cicilline, who are original cosponsors of the Mobile Workforce 
bill.
    I look forward to hearing from our distinguished panel of 
witnesses.
    It is now my pleasure to recognize the Ranking Member of 
the Subcommittee on Regulatory Reform, Commercial and Antitrust 
Law, Mr. Johnson of Georgia, for his opening statement.
    Mr. Johnson. Thank you, Mr. Chairman.
    Today's legislative hearing is an opportunity to consider 
three pieces of legislation that would address the divergent 
patchwork of state laws enforcing various tax issues. The 
Mobile Workforce State Income Tax Simplification Act is an 
important bipartisan bill that will help workers across the 
country and it will also help small and multistate businesses.
    Having introduced this bill in both the 110th and 111th 
Congresses, I am very familiar with this issue. I was pleased 
to have introduced the bill in the last two Congresses with our 
esteemed former colleague from North Carolina, Howard Coble, 
and I welcome my colleague Congressman Bishop's leadership on 
this bill. And I look forward to working together on this 
legislation.
    H.R. 2315 provides for a uniform and easily administrable 
law that will simplify the patchwork of existing inconsistent 
and confusing state rules. It would also reduce administrative 
cost to states and lessen the compliance burdens on consumers. 
I urge that the Committee move this bill promptly so that it 
can come to the floor for a vote soon. This country's employees 
and businesses deserve quick action.
    Turning to H.R. 2584, the ``Business Activity Tax 
Simplification Act of 2015.'' This legislation would establish 
a physical presence standard which must be met before states 
can impose a business activity tax. While proponents of this 
legislation contend that businesses need more certainty in 
determining what activities are taxable and that a uniform 
standard would provide that, others have argued that states 
should determine what activities are taxed within their borders 
and that a physical presence standard created in this bill 
would invite tax evasion.
    Although I have supported similar legislation in the past, 
I have grown concerned that this bill would prove too costly to 
states. The Congressional Budget Office reported that a 
substantively identical predecessor of this bill would cost 
about $2 billion in the first full year after enactment and 
that at least that amount in subsequent years. We should study 
whether there are alternative methods which accomplish the same 
goal of providing more certainty for businesses while 
minimizing any impact on our state and local governments, or 
perhaps revise the bill's language to dampen its affect on 
state revenues.
    Lastly, H.R. 1643, the ``Digital Goods and Services Tax 
Fairness Act of 2015'' would prohibit state and local 
governments from imposing discriminatory and multiple taxation 
of digital goods and services and also establish a tax sourcing 
framework for the sale or use of digital goods and services. I 
have long supported this bill which will promote innovation in 
sales through a national framework for digital purchases.
    In closing, although I welcome today's hearing, I also look 
forward to this Committee addressing the remote sales tax 
issue. As a strong supporter of a level playing field, I have 
long supported the Marketplace Fairness Act. Despite my 
preference for a legislative hearing on that bill, I welcome 
any movement toward addressing the remote sales tax issue.
    And with that, Mr. Chairman, I yield back.
    Mr. Marino. Thank you.
    It is now my pleasure to recognize the Chairman of the full 
Judiciary Committee, Mr. Bob Goodlatte of Virginia, for his 
opening statement.
    Mr. Goodlatte. Thank you, Mr. Chairman.
    Good morning and welcome to all of our witnesses.
    The unifying theme of this legislative hearing is ``No 
Regulation Without Representation.''
    For much of American history, state's cross-border reach 
was strictly limited. Until about 1950, states could not tax 
interstate commerce at all. Courts then began to relax the 
rules. In 1977, the Supreme Court held that states may tax 
interstate commerce if there is a ``substantial nexus'' to the 
taxing state.
    In the context of sales taxes, ``substantial nexus'' means 
a seller is physically present in the jurisdiction. The Court, 
however, has never clarified whether the physical presence rule 
applies to certain other impositions, such as business activity 
taxes.
    Accordingly, states are increasingly exploiting the gray 
area in the law to tax and regulate beyond their borders. For 
example, California is now requiring that out-of-state farmers 
who want to sell eggs in California comply with California 
cage-size requirements which are twice the industry standard. 
The Alabama Attorney General described the new law as 
``California's attempt to protect its economy from its own job-
killing laws by extending those laws to everyone else in the 
country.''
    This is precisely the sort of protectionism that the 
commerce clause is intended to prevent. It also highlights one 
of the most pernicious aspects of states taxing and regulating 
beyond their borders. It permits lawmakers to dodge 
accountability for the burdens associated with their policy 
choices by shifting them onto nonresidents who cannot hold them 
accountable at the ballot box.
    Indeed, this Subcommittee heard testimony in 2014 that, if 
Congress lets ``economic presence'' rather than ``physical 
presence'' becomes the standard, states will mostly exempt 
resident companies from tax obligations while imposing them on 
out-of-state companies. That is why I am so pleased that 
Chairman Marino is holding this hearing.
    The Business Activity Tax Simplification Act restores 
physical presence, defined as presence for more than 14 days, 
as a prerequisite to a state imposing business activity taxes. 
Similarly, the Mobile Workforce Tax Simplification Act prevents 
states from imposing income tax compliance burdens on 
nonresidents who work in the state for less than 30 days a 
year.
    Critics raise concerns about state sovereignty and revenue 
loss to the states. But a study of the Mobile Workforce bill 
found it would have a de minimis impact on state revenues. In 
addition, those objections proceed from the incorrect premise 
that ``economic nexus,'' rather than ``physical presence,'' is 
the appropriate touchtone for determining whether a state has 
the authority to tax. In other words, these bills do not 
deprive the states of anything to which they have a clear 
claim.
    Also, before the Committee is the Digital Goods and 
Services Tax Fairness Act of 2015. It sets sourcing rules for 
the purchase of digital goods and services. These rules will 
help implement the Permanent Internet Tax Freedom Act's ban on 
multiple taxes of Internet commerce. This ban expires October 
1, of this year and the Committee will soon move to renew it.
    The Committee is also eager to proceed with legislation 
that levels the playing field between traditional and online 
retailers without letting states tax and regulate beyond their 
borders. Productive discussions continue.
    These are important issues, and I look forward to the 
witnesses' testimony.
    Thank you, Mr. Chairman. I yield back.
    Mr. Marino. Thank you, Chairman.
    It is now my pleasure to recognize the Judiciary Committee 
Ranking Member, Mr. Conyers of Michigan, for his opening 
statement.
    Mr. Conyers. Thank you, Chairman Marino and the Members of 
the Committee, and the distinguished witnesses with us today; 
as well as those that are interested enough to come to the 
hearing itself.
    Today's hearing focuses on three bills dealing with the 
issue of state taxes. And as we consider them, there are 
several points that I would like to present.
    This Committee should first focus on establishing without 
further delay a national framework that will empower the states 
to enforce collection by remote sellers. Unfortunately, none of 
the bills that are the subject of today's hearings address the 
remote sales tax dilemma states are currently facing. More than 
two decades ago, the Supreme Court recognized, in the 1992 
Quill decision, that Congress is best suited to determine 
whether a remote seller must collect taxes, sales taxes. Yet, 
Congress has failed to make that critical determination.
    Although Congress has considered various legislative 
proposals, including during the last Congress when the Senate 
overwhelmingly passed the Marketplace Fairness Act, the House 
has not taken any meaningful action beyond holding hearings. We 
owe it to our local communities, our local retailers, and state 
and local governments to act this Congress. Otherwise, our 
local retailers will continue to be at a competitive 
disadvantage and our state and local governments will continue 
to lose critical tax revenues as a result of remote sellers not 
collecting and remitting sales taxes.
    Lost tax revenues mean that state and local governments 
will have fewer resources to provide their residents essential 
services; such as education and police and fire protection. 
Uncollected sales taxes mean fewer purchases at local retailers 
which translate to fewer local jobs. The unfair advantage that 
remote sellers have by not collecting sales taxes hurts us all. 
Congress should not delay any further and it should work to 
pass bipartisan legislation. I welcome the opportunity to work 
with the Chair on moving legislation this Congress on remote 
sales tax issues.
    Now, as to H.R. 2315, the ``Mobile Workforce State Income 
Tax Simplification Act of 2015,'' and H.R. 1643, the ``Digital 
Goods and Services Tax Fairness Act of 2015,'' both of these 
measures, although improved over several Congresses, still fail 
to address the needs of all stakeholders. Even though H.R. 2315 
incorporates much needed improvements reflecting important 
input from the state governments and the business community, 
the bill still requires further revisions to eliminate its 
adverse impact on state revenues.
    For example, if the bill were enacted as introduced New 
York would lose upwards of $100 million in revenue. Chairman 
Schumer will take note of that, I am sure. Similarly, the 
sponsors of H.R. 1643 must work with the state and local 
governments to draft language all parties can find agreeable.
    Ms. Magee and Mr. Crippen likely will have suggestions to 
address the state and local government's concerns with both of 
the bills.
    And finally, H.R. 2584, the ``Business Activity Tax 
Simplification Act of 2015,'' is thoroughly flawed legislation 
especially in light of the fact that it overrides the authority 
of states to determine how and what they tax within their own 
borders. The bill upends long-settled state tax practices by 
implementing a standard falsely based on physical presence and 
by including loopholes that make such a standard meaningless 
for state governments.
    The bill favors big multistate corporations at the expense 
of small and local businesses. It encourages tax evasion by 
creating opportunities for nationwide businesses to structure 
corporate affiliates and transactions to avoid paying their 
fair share of local taxes.
    The bill prevents states from imposing business activity 
taxes on businesses which have less than 15 days of physical 
presence within the state. This will shift the state corporate 
income tax burden onto local small businesses, manufacturers, 
and service providers; in other words, the types of businesses 
that pay local property and payroll taxes. And the measure will 
eviscerate state revenues with respect to nearly identical 
legislation considered several years ago.
    The Congressional Budget Office estimated that it would 
reduce state revenues by about $2 billion in the first full 
year following enactment and at least that amount in subsequent 
years and that it would generate even greater future state tax 
revenue losses as corporations avail themselves of the bill's 
virtually unenforceable standard and vast loopholes. We should 
not be forcing upon the states a $2 billion decrease in their 
tax revenues. Accordingly, I urge my colleagues to seriously 
consider scrapping the Business Activity Tax Simplification Act 
and let us start all over again.
    Thank you, Mr. Chairman.
    Mr. Marino. Thank you.
    Without objection, all the Member's opening statement will 
be made part of the record.
    We have a very distinguished panel with us today, and I 
will begin by swearing in our witnesses before introducing 
them.
    So would you please rise and raise your right hand please?
    Do you swear that the testimony you are about to give is 
the truth, the whole truth, and nothing but the truth so help 
you God?
    Let the record reflect that the witnesses have responded in 
the affirmative.
    Thank you. Please be seated.
    I will introduce the witnesses for today. Grover Norquist 
is President of Americans for Tax Reform, ATR; a taxpayer 
advocacy group he founded in 1985. ATR works to limit the size 
and cost of government and opposes higher taxes at the Federal, 
state, and local levels. It supports tax reform that moves 
toward taxing consumed income one time at one rate. Mr. 
Norquist serves on the board of several organizations and has 
served in many capacities and has served, also, in government 
capacity as well; such as the Advisory Commission on Electronic 
Commerce and as commissioner for the National Commission on 
Restructuring the IRS. Mr. Norquist holds both an undergraduate 
degree in economics as well as an MBA from Harvard University.
    Welcome, Mr. Norquist.
    Mr. Norquist. Thank you very much.
    Mr. Marino. I am going to introduce everybody and then 
we'll get back to you.
    Mr. Rosen is a partner in global law firm of McDermott Will 
& Emery LLP. His practice focuses on tax planning and 
litigation related to state and local tax matters for 
corporations, partnerships, and individuals. Mr. Rosen has held 
executive tax management positions at Xerox Corporation, AT&T, 
and he also advised the State of New York as a tax counsel. Mr. 
Rosen is a fellow of the American College of Tax Counsel and is 
listed in the Best Lawyers in America. Mr. Rosen has an 
undergraduate degree from NYU, a master's degree from 
Rensselaer Polytechnic Institute and a JD from St. John's 
University School of Law.
    Mr. Douglas L. Lindholm.
    Am I pronouncing that correctly, sir?
    Mr. Lindholm is president and executive director of the 
Council on State Taxation, otherwise known as COST. Mr. 
Lindholm's prior experience includes serving as State Tax 
Policy Council for the General Electric Company. He also worked 
in the Washington National Tax Service Office of Price 
Waterhouse LLP. In 2006, Mr. Lindholm was named the Tax 
Business 50 list of most influential tax professionals around 
the globe. He is also the recipient of the 2009 New York 
University Award for Outstanding Achievement in State and Local 
Taxation. He holds a JD from American University's Washington 
College of Law and a BA in accounting from Lynchburg College.
    Mr. Leaman has served as Masco's vice president of tax 
since September 2012. Mr. Leaman is responsibly for Masco's 
multinational tax matters including all mergers and 
acquisitions and represents Masco in the company's tax-related 
government affairs matters at both the Federal and state level. 
Due to his leadership role in tax, real estate, and government 
affairs, he frequently provides strategic guidance to senior 
Masco management including the CEO and the CFO. Mr. Leaman 
received his undergraduate degree from the Michigan State 
University and a master's degree in taxation from Walsh 
College.
    Mr. Leaman, welcome.
    Jot Carpenter began working for CTIA in 2006 and is 
responsible for strategic direction in day-to-day management of 
the association's outreach efforts to Members of Congress and 
other government agencies. Prior to joining CTIA, Mr. Carpenter 
worked in the Washington Office of AT&T. Mr. Carpenter has also 
worked for Telecommunications Industry Association and served 
as a legislative assistant to Congressman Mike Oxley. Mr. 
Carpenter has an undergraduate degree from Michigan--excuse me, 
Miami University in Ohio. He holds one master's degree in 
history from the Bowling Green State University and another in 
telecommunications from George Washington University.
    Welcome.
    Commissioner Julie Magee--am I pronouncing that correctly?
    Ms. Magee was appointed to the State Revenue Commissioner 
for the State of Alabama by Governor Robert Bentley on January 
18, 2011. Prior to her appointment, Ms. Magee was vice 
president of the INS Trust Insurance group based in Mobile, 
Alabama. During her tenure as State Revenue Commissioner, Ms. 
Magee has served on the board of the Federation of Tax 
Administrators, FTA, and as chair of the multistate commission, 
NTC. She has also held other positions in several important 
organizations. Commissioner Magee is a graduate of the 
University of South Alabama.
    Mr. Crippen serves as the executive director of the 
National Governors Association or the NGA. Prior to his work at 
NGA, Mr. Crippen served as the director of the Congressional 
Budget Office from 1999 to 2002. Mr. Crippen has worked in the 
private and non-profit sectors primarily on health care and is 
now a board member of several health care related 
organizations. He also served as the chief council and economic 
advisor for then Senate Majority Leader, Howard Baker. Mr. 
Crippen has an undergraduate degree from the University of 
South Dakota; he also holds a master's degree and a Ph.D. from 
the Ohio State University in public finance.
    Welcome, sir.
    Each of the witness written statements will be entered into 
the record in its entirety. I ask that each witness summarize 
his or her testimony in 5 minutes or less. To help you stay 
within the time, there is a timing light in front of you. The 
light will switch from green to yellow, indicating that you 
have 1 minute to conclude your testimony. When the light turns 
red, it indicates that the witness' 5 minutes have expired. And 
I know that we are so, and you are so, intent on making your 
statements and we really don't pay attention to the lights. We 
don't pay attention to them up here. So, what I am going to do 
is diplomatically just give a little tap to let you know that 
your time has expired and could you please wrap it up quickly.
    Thank you.
    Okay. The Chair now recognizes Mr. Norquist for his 5-
minute statement.

 TESTIMONY OF GROVER G. NORQUIST, PRESIDENT, AMERICANS FOR TAX 
                             REFORM

    Mr. Norquist. Okay? Thank you.
    Grover Norquist from Americans for Tax Reform. Thank you, 
Chairman, the Ranking Member.
    One of the challenges we have in taxation is that 
politicians love to tax people who can't vote against them. The 
British did this and it caused them some trouble, but in the 
states people like to try and tax people who live in other 
states and can't vote against them or people who fly into their 
town briefly and leave and don't vote and don't make campaign 
contributions. And that's a challenge because, one, it violates 
the whole concept of taxation without representation and it 
doesn't allow any sort of tax; it undermines tax competition 
between the states. It is what keeps state taxes more 
reasonable than they'd otherwise be and efforts to allow people 
to tax across state lines, such as taxing online sales, 
businesses in a different state on the other side of the 
country allows you to tax, audit, harass a business who cannot 
vote against you and its employees cannot vote against you, and 
it's safe to beat up on them.
    I've heard some conversation about states' rights. States 
don't have rights. States don't have rights. People have 
rights. States exercise power. It's often abused against the 
people in their state. That's not a good thing, but we ought to 
limit that abuse to people in the state. They can raise the 
taxes on the people who live and work in the state. But, to 
export that tax to other people to reduce the opposition to tax 
increases is problematic. The bills put forward today, a number 
of them they make very good progress in that direction to make 
sure that the taxpayers are not whacked repeatedly by different 
taxing entities and by places that they can't vote on the 
political leaders who impose those higher taxes.
    I'm certainly here to endorse and support H.R. 1643, the 
``Digital Goods and Services Tax Fairness Act of 2015;'' H.R. 
2315, the ``Mobile Workforce State Income Tax Simplification 
Act of 2015;'' and H.R. 2584, the ``Business Activity Tax 
Simplification Act of 2015.'' All three begin the process of 
making it more difficult for politicians to export taxes onto 
people who do not have a voice in their elections.
    The discussion that Chairman Goodlatte has put forward on 
Hybrid Origin I think is a very good start. Origin sourcing 
rather than allowing states, where states only talk to 
taxpayers in their own state instead of going after taxpayers 
and businesses and individuals in other states, is a very good 
discipline on potential abuses by state and local governments. 
Cities and states that have taxed their citizens and their 
businesses so badly that they fled to other states are now 
looking for a way to throw a harpoon into those that have 
escaped and try and drag back tax dollars. That has to stop. 
These are important steps in the right direction.
    There have been efforts in the past by states and cities 
that have so abused their citizens they've left that they want 
to be able to figure out how to tax them anyway. Those efforts, 
such as the Fairness Act, which is neither fair, to allow 
people to tax across state lines and to empower states to do 
that are moving in the wrong direction. The series of 
suggestions here move in the right direction.
    I would also add one that either you might be looking at in 
the future or the transportation department, but H.R. 1528, the 
End Discriminatory State Taxes for Automobile Renters, 
introduced by Representative Sam Graves and Steve Cohen. That's 
one that bans Discriminatory Taxes on car rentals. If you rent 
a car from an airport, you know that the local politicians love 
to lard it up with lots of taxes because you're just flying 
into the city and leaving. You're not going to be voting on 
them, but people do that and, depending on whichever city or 
state you're going into, you get whacked with a whole bunch of 
discriminatory taxes forbidding that interference with 
interstate commerce as we do with other methods of 
transportation falls into the category of what you're working 
on here. And I think I would recommend as an important of 
legislation.
    Thank you.
    [The prepared statement of Mr. Norquist follows:]
    
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                               __________
    Mr. Marino. Thank you.
    The Chair now recognizes Mr. Rosen.

            TESTIMONY OF ARTHUR R. ROSEN, PARTNER, 
                   McDERMOTT WILL & EMERY LLP

    Mr. Rosen. Mr. Chairman, Members of the Committee, BATSA, 
H.R. 2584, addresses a major problem facing American businesses 
today, and that is states imposing tax on businesses that 
aren't in the state. In effect, states are taxing activities 
that occur outside their borders. States have taken two avenues 
to achieve that goal. One is to assert the concept of economic 
nexus and the other is to try to get around a Federal law 
enacted in 1959 and that is Public Law 86-272. Economic nexus 
is the assertion by a state that if an out-of-state business 
has customers within its borders, then that state has a right 
to impose tax on the out-of-state business.
    P.L. 86-272, the 1959 law, was supposed to be a temporary 
law. And the Willis Commission was impaneled by Congress to 
look at this issue. And the Willis Commission came out with a 
report that said states should have a physical presence 
requirement and also states should have their apportionment in 
a uniform manner around the country. While neither has 
happened, states have gone in the opposite direction. So the 
need for that law is even greater today than it was in 1959.
    Now, BATSA addresses the economic nexus argument, as you've 
heard, by establishing a physical presence test. A company must 
have employees or property in the state for more than 14 days 
during the year before the state may impose its direct tax on 
that business. Also, 86-272 would be modernized to meet the new 
economy.
    Now, those who support BATSA do so for the following 
reasons. Those people believe that tax should be paid to 
jurisdictions that are furnishing benefits and protections to a 
taxpayer, not to somebody outside. And states respond by 
saying, ``Well, we're maintaining a marketplace for you, out-
of-state seller. We're maintaining a civilized society so you 
can sell to our people. Therefore, you should pay us for 
that.''
    But I would hope, and I think everybody here would hope, 
that elected officials do things for people within their 
borders; their constituents. They're not maintaining a market 
for outside businesses. People in the state get those benefits.
    Another reason that physical presence is correct is because 
income should be taxed where earned. We all know that income is 
earned where labor and capital is employed. If you were to work 
at home, suppose you telecommute or you have a consulting 
business in your home in Virginia, and you work very hard, you 
buy some equipment that you use for word processing and 
research, and you find a customer in Utah or you're 
telecommuting your employer is in Utah, you work every day in 
Virginia. Where do you earn your income? Where your customer 
is? In Utah? Of course not. You earn your income where you 
expend your labor and your capital.
    So when states say, ``Well, markets are important. There's 
no sale, there's no profit.''
    That sounds nice, a nice sound byte. But you really earn 
your income where you expend your labor and your capital.
    Next, BATSA would help American businesses compete against 
foreign businesses. That's because, as a practical matter, 
states have no way of enforcing economic nexus against 
companies that have no presence in the United States. We've 
seen a couple of states pull back from even attempting to tax 
foreign businesses while they continue their attack on American 
businesses.
    Next, the United States and every other country that has 
entered into a tax treaty in the world has this idea of a 
permanent establishment in there. And that is similar to what 
BATSA does, but BATSA is much more generous to the taxing 
officials than even the treaty permanent establishment concept 
is.
    Now, those who are generally against this is executive 
branch of state governments. The NCSL has not voiced any 
opposition. As a matter of fact, the NCSL several years ago 
passed a resolution supporting the principles in BATSA. So the 
executive branch has a lot of complaints. They say, first of 
all, current law allows us to tax out-of-state businesses. 
Well, that's not exactly true.
    The U.S. Supreme Court has never ruled on this case; has 
never looked at the commerce clause issues. It denied my cert 
petition in MBNA; the following year, it denied a cert petition 
in Cap One. A court has probably been at Congress to decide how 
to regulate this area. This is not Federal intrusion. This is 
what interstate commerce is all about. That's why we have a 
Constitution instead of the Articles of Confederation, to make 
sure we have one economy, that states do not set up barriers. 
And so this is Congress' role to regulate interstate commerce, 
to make sure that tax is done correct.
    People say this tool could be used for tax sheltering, tax 
avoidance, tax shifting. The bill has a specific provision that 
prevents companies from doing that, it gives states all the 
rights they have to fight tax shams and close down loopholes.
    Finally, a question was raised: Where is this cost going to 
come from if, in fact, this is cost $2 billion to the states if 
BATSA were enacted? Well, an independent study showed that this 
was less than 5 percent of total business tax collections that 
states get. Second, maybe the taxes should come from businesses 
and people in the jurisdiction that are receiving the benefits 
and protections of that government.
    Thank you.
    [The prepared statement of Mr. Rosen follows:]
    
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                               __________
    Mr. Marino. Thank you, sir.
    Mr. Lindholm?

    TESTIMONY OF DOUGLAS L. LINDHOLM, PRESIDENT & EXECUTIVE 
           DIRECTOR, COUNCIL ON STATE TAXATION (COST)

    Mr. Lindholm. Thank you, Chairman Marino, Ranking Member 
Johnson, and Members of the Committee.
    My name is Doug Lindholm. I'm the President, Executive 
Director of the Council on State Taxation, also known as COST. 
I am here today representing COST and the 275-member Mobile 
Workforce Coalition in favor of H.R. 2315.
    First, I'd like to thank Congressman Bishop and Ranking 
Member Johnson for introducing that legislation this year. This 
is the ninth year that we've been working on this issue, and 
Congressman Johnson has been with us from the get-go. And I 
thank you, sir, for your leadership on this issue.
    The issue is how to simplify the patchwork of state 
personal income tax laws that face any employee who travels for 
work across state borders and, two, their employers who also 
have an associated withholding requirement on that income. 
Every day, hundreds of thousands of employees across the U.S. 
are sent by their employers to work in states where they don't 
reside. Most of these trips are temporary in nature. That is, 
you leave your resident state, you go to a nonresident state, 
and you're back to your resident state.
    Currently, every state has that has a personal income tax 
has different rules for when an employee, one, has to file a 
personal income tax and, two, when their employers has to 
withhold on that income for the state.
    Exhibit B, in my testimony, has a very instructive map that 
shows you the variation across the states. And this doesn't 
just affect business either. It affects all employees and 
employers, private sector and public sector alike. It affects 
all businesses large and small, it affects non-profit 
organizations, unions, teachers, state employees, the utility 
crews that come from neighboring states to help get the lights 
back on after a natural disaster. They can trigger this 
personal income tax filing requirement. And let me tell you, 
they have a lot more to think about than filing a nonresident 
return. It even applies to Departments of Revenue and 
Congressional staffers.
    There is precedent for this legislation in this body. 
Congress has already recognized and protected from this 
patchwork of state laws. Industries that are highly mobile; 
Merchant Mariners, railroad workers, airline workers, motor 
carrier employers, members of the military, groups that are 
highly mobile are protected from this patchwork by Congress. 
Remember, this issue affects all employees who travel for work 
and creates a huge administration and compliance burden that is 
absolutely unnecessary.
    The solution in H.R. 2315 is a pragmatic, effective 
solution to this problem. It just provides a 30-day threshold 
for temporary work assignments and until that 30 days is met, 
the employee remains fully taxable in his or her resident 
state.
    Now, admittedly there is currently widespread non-
compliance in this area. But the truth is nobody could live 
with full compliance. State Departments of Revenue would be 
absolutely overwhelmed by this small dollar returns if 
everybody was in full compliance here. And since the majority 
of business trips in the country today are less than 30 days, 
if this bill were enacted, instantly hundreds of thousands of 
traveling employees would be brought into compliance and they 
would not have to do a thing.
    Now, what is untenable about the current situation is that 
if a state does start looking around and find a noncompliance 
in this area, it raises the specter or the perception of 
selective enforcement. And when you have selective enforcement, 
it tends to undermine the faith and credibility of our entire 
tax system. It is entirely appropriate that Congress act here. 
This is an administrative fix to a very different problem, one 
that cannot be fixed by the states themselves because of the 
out-of-state component here.
    I want to commend the Multistate Tax Commission. They have 
developed a model act of their own and we helped them. It was 
adopted in 2011, but since then only one state, North Dakota, 
has adopted it. And it's only effective unless other state win-
win and with other states adopted. And it is because this needs 
concerted effort to resolve this problem that this body is the 
only body that can take action.
    One issue, you know, I am happy to take question on the 
specifics of the bill. One part of the bill I'd like to 
elaborate on, and that is the fact that the employer can rely 
on the employee's determination of time spent in nonresident 
state. For that purpose, that's only for purposes of levying 
penalties. The amount of withholding is still based on the 
actual time of the state. I think there has been some 
misunderstanding of that in the past that has been changed and 
corrected.
    One other aspect, the bill does not cover professional 
athletes, professional entertainers, and certain public figures 
of national prominence who are paid on a per event basis. This 
Committee passed this legislation nearly identical on voice 
vote during the 112th Congress. We respectfully ask, on behalf 
of COST and the coalition, to support the speedy adoption of 
H.R. 2315.
    Thank you.
    [The prepared statement of Mr. Lindholm follows:]
   
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                               __________
    Mr. Marino. Thank you.
    The Chair now recognizes Mr. Leaman.

               TESTIMONY OF LAWRENCE F. LEAMAN, 
           VICE PRESIDENT OF TAXES, MASCO CORPORATION

    Mr. Leaman. Mr. Chairman, Ranking Member Johnson, and 
Congressman Bishop, I'd like to thank you for the opportunity 
to testify today on behalf of H.R. 2315. As the vice president 
of Taxes for Masco Corporation, which is the member of the 
coalition, we have been active members of the coalition 
primarily to see enactment to this legislation through 
enactment. And I'm here today to testify to be able participate 
in a rare opportunity to move truly widespread bipartisan 
legislation through the Congress.
    Masco Corporation is headquartered in Taylor, Michigan. 
It's one of the largest manufacturers of brand-name products 
for the home construction industry and remodeling. We have 
Delta Faucets, Behr Paint, KraftMaid and Merillat Cabinets, 
Milgard Windows, Caldera Hot Spring and Spas; as well as we 
install products for the home, as well as install insulation in 
the new home construction market. Our workforce includes many 
employees that travel across state lines that which include our 
sales force; which includes installers for cabinets, installers 
of insulation, as well as employees who provide support to the 
big boxes, in particular Home Depot and Lowes.
    We have a workforce of over 23,000 people in the United 
States. I would say at least 40 percent of those employees 
would qualify as mobile workers. Therefore, a large portion of 
our workforce we had have to track.
    We have a tremendous representation from the subcommittee 
of our employee base. Chairman Marino's district in Sayre, 
Pennsylvania has over 700 employees with Masco cabinetry. The 
560 employees in Vista, California of Congressman Issa's 
district. We have a BrassCraft headquartered in Novi, Michigan, 
Representative Trott's district. And we have over a thousand 
individuals employed in the State of Washington State, of 
Congresswoman DelBene.
    The problem. You know, Masco Corporation as most large 
corporation make every effort to comply with tax laws and 
regulations. And it's a tremendous burden and it takes 
tremendous resources for us to accomplish that. Masco has a 
long history of being transparent in working with taxing 
authorities in a way to move forward the process.
    The management of the workforce that we're referring to 
today does not come under my responsibility. You know, 
marketing, HR, sales, but oftentimes I'm consulted because of 
the tax matters that they're faced with. People often ask me 
what am I faced--what keep me up at night and Sarbanes-Oxley, 
which is effectively referred to as Sox is one of my, you know, 
biggest concerns. And when you look at the administration of a 
workforce, 40 percent where they are traveling across state 
lines, you know I'm never assured of the fact of when a problem 
might arise that cause me Sarbanes-Oxley's issues.
    Just to give you a couple of examples of what we're faced 
with, you know, we have, as I indicated, a workforce that 
travels across state lines. And when we take an example of our 
installation service group, we have 7,000 employees that work 
in that group and, yet, we file 10,500 W-2s on behalf of that 
workforce primarily attributable to the fact that these 
individuals cross state lines.
    Another issue, albeit an extreme example, but we had one 
individual who, because of crossing state lines and moving into 
different municipalities in one given year, had 50 W-2s. So if 
you can envision an individual who makes something less than 
$50,000 a year and at the end of the year is faced with filing 
his tax return, it's undaunting. And to highlight that issue, 
he would be or others required to go out and hire tax 
professionals at a cost that oftentimes they cannot afford. And 
yet, it's not uncommon. It's quite frequent that we receive 
calls from these CPA's, tax professionals, asking us, in terms 
of how to administer these tax laws and what opportunities 
might we be able to do to mitigate the costs to these 
individuals.
    So as we've talked about, this is a tremendous 
administrative burden on both not just the employer but on the 
employee as well.
    And again, referring to the simplicity of, I think, the tax 
legislation that we're putting forth, it's an administrative 
fix where we are not doing anything to adjust or deflect the 
proper tax reporting of income. It's merely administratively 
expedient on behalf of all parties whether it is the 
corporations, individuals, government taxing authorities, it's 
a relief. So I'm here to encourage the Subcommittee to report 
this out to the full Congress.
    Thank you.
    [The prepared statement of Mr. Leaman follows:]
    
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                               __________
    Mr. Marino. Thank you.
    Mr. Carpenter?

TESTIMONY OF JOT CARPENTER, VICE PRESIDENT, GOVERNMENT AFFAIRS, 
                 CTIA--THE WIRELESS ASSOCIATION

    Mr. Carpenter. Chairman Marino, Ranking Member Johnson, and 
Members of the Subcommittee, thank you very much for the 
opportunity to testify in support of the Digital Goods and 
Services Tax Fairness Act. My name is Jot Carpenter and I serve 
as vice president of Government Affairs for CTIA, the Wireless 
Association, though I'm here today on behalf of the Download 
Fairness Coalition. CTIA is a member of the DFC, a group of 29 
companies and organizations whose unifying principle is the 
belief that the Internet economy requires a consistent national 
framework to guide the way that states and localities exercise 
their right to tax digital products and services.
    That consistent national framework is embodied in H.R. 
1643, sponsored by your colleagues Lamar Smith and Steve Cohen, 
whom we thank for their leadership and commitment to addressing 
our concerns. The Smith-Cohen bill achieves the objective we 
seek while embodying basic principles of fairness for consumers 
and those like CTIA's members that effectively service the 
agents of the states. All while avoiding the imposition of any 
new taxes and respecting each state's determination on how or 
if to tax digital products. It is framework that only Congress 
can enact to provide the certainty, stability, and safeguards 
needed to keep the digital economy a thriving part of our 
overall economy.
    At its core, the bill seeks to achieve two equally 
important objectives. First, it seeks to preclude multiple 
jurisdictions from claiming the right to tax the same 
transaction by clearly assigning one jurisdiction, the 
customer's home jurisdiction, the authority to impose taxes on 
digital goods. Second, it seeks to preclude discriminatory 
taxation of such commerce to ensure that digital goods are 
taxes at the same rates and under the same rules that apply to 
physical goods.
    Now, with respect to the first of these objectives, H.R. 
1643 draws upon the successful model that this Committee 
created 15 years ago for wireless and voice services. The 
Mobile Telecommunications Sourcing Act established a successful 
national framework to guide how state and local jurisdictions 
may tax wireless voice services eliminating the chance of 
double taxation while simplifying carrier administration and 
end user bills.
    The MTSA has proven durable and effective, and it offers a 
fine model for how digital products should be treated. But as 
was the case with wireless voice 15 years ago, Congressional 
action is needed because the states and localities have neither 
the ability nor the Constitutional authority to create the 
necessary framework on their own.
    With respect to the second of our objectives, H.R. 1643 
establishes the simple principle that digital goods should not 
be subject to discriminatory taxation. The discriminatory 
taxation of communication services and digital commerce has 
been widely acknowledged as problematic since the Advisory 
Commission on Electronic Commerce, on which Grover served, 
delivered its report during the Clinton administration and 
increasingly the digital nature of our economy demands a 
solution to this inequity.
    There is no reason why this summer's beach reading should 
be taxed differently if it is downloaded to a Kindle or a 
tablet that if it is purchased in paperback at the local drug 
store. And H.R. 1643 will ensure that digital and physical 
goods are subject to the same treatment. While it is proper to 
leave to the states the decision about whether and at what 
level to tax these goods, it is a completely reasonable 
exercise of Congressional authority to prevent discrimination 
among them.
    The important nondiscrimination provisions of H.R. 1643 
also complement other bills before the Committee; such as the 
Goodlatte-Eshoo Permanent Internet Tax Freedom Act and the 
forthcoming Lofgren-Franks Wireless Tax Fairness Act. H.R. 1643 
and those bills will move us away from a tax system designed 
for the long-passed days of Ma Bell and instead align our 
telecom system with the age of the smartphone and mobile 
broadband. Today's information economy deserves no less.
    Mr. Chairman and Members of the Subcommittee, thank for 
this opportunity to testify in support of H.R. 1643. I hope the 
Committee and the House will approve the bill at the earliest 
possible date.
    Thank you.
    [The prepared statement of Mr. Carpenter follows:]
    
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                               __________
    Mr. Marino. Thank you, sir.
    The Chair now recognizes Commissioner Magee.

TESTIMONY OF JULIE P. MAGEE, CHAIR, MULTISTATE TAX COMMISSION, 
                 ALABAMA DEPARTMENT OF REVENUE

    Ms. Magee. Good morning.
    Thank you, Chairman Marino and Ranking Member Conyers and 
Members of the Subcommittee. My name is Julie Magee and I am 
the Alabama Commissioner of Revenue. I am also the chair of the 
Multistate Tax Commission, as well as secretary of the Board of 
Trustees for the Federation of Tax Administrators. And it is in 
my capacity in these organizations today that I'm here. On 
behalf of them and all of the states that participate, I would 
like to say we greatly appreciate this opportunity and hope 
that our testimony here, which is provided in more detail in 
written form, is helpful.
    The Subcommittee is considering legislation that would have 
a substantial impact on state taxing systems, tax 
administration, and enforcement. We realize there are always 
going to be those who would like Congress to regulate state 
taxation. That is why we appreciate the fact that this 
Committee and Congress in general has been very cautious over 
the years in responding to these calls for Federal involvement.
    I just want to briefly point out the most critical problems 
these bills present. That obviously means that I will be 
focusing on the negatives, and I apologize. But we hope that it 
helps this Committee understand why we oppose these bills.
    First, let me address the Mobile Workforce State Income Tax 
Fairness and Simplification Act. This bill restricts state 
imposition of income state and tax withholding on wages for 
nonresident employees working in the states. Just like every 
major country that has an income tax including this one, states 
impose income tax on nonresidents. Those nonresidents then get 
to take a credit against taxes imposed by their home country or 
state. This bill would prevent states from taxing any employee 
that is in the state for less than 6 weeks regardless of how 
much that employee makes. This bill also essentially makes 
employer withholding and recordkeeping voluntary for many 
nonresident workers.
    For my role as a tax administrator and any other tax 
commissioner will tell you, including the head of the IRS, that 
having employers withhold taxes on wages and keep records is 
the key mechanism to making our income tax system function. We 
understand that it wouldn't be reasonable to require 
withholding for nonresident employees who are only in a state 
for a few days during the year. That's why revenue departments 
rarely, if ever, make an issue out of it.
    At the Multistate Tax Commission, we recognize that there 
was a potential issue for some employers and we developed a 
model law which we have recommended to the states. It would 
impose a 20-day threshold, would not apply to high wage 
employees, would require employer recordkeeping, but would not 
require withholding for less than 20 days. And we've said this 
publically many times before. We would be happy to join hands 
with industry and go to our state legislatures and get this 
model law enacted.
    The second bill I want to address is the Digital Goods and 
Services Tax Fairness Act. This bill is very complex and has 
been studied by our organization and others. As for the special 
protections in this bill, I would just note that states have 
not taxed digital goods and services more than other products. 
If anything, they've taxed them much less. But, more important 
is the effect of the sourcing rules. Congress has imposed a 
uniform sourcing rule on a state sales tax once before and the 
area of mobile telecommunication services called the Mobile 
Telecommunications Sourcing Act.
    Both that act and this bill basically say that only one 
state can tax the sale of something; generally the destination 
state. But unlike the Mobile Telecom Act, this bill does not 
grant the destination state the authority to require collection 
of the tax from a seller that doesn't have physical presence in 
the state. And as you know, that the states can't collect tax 
from remote sellers like Internet sellers has become a huge 
problem for the states.
    If the bill prevents the origin state from taxing the sale 
and doesn't grant the destination state the authority to do so, 
then most sales of digital products will escape any tax.
    Finally, and most importantly, I want to express our deep 
concerns for the Business Activity Tax Simplification Act. This 
bill has been around a long time. And as you know, the National 
Governors Association has said that the CBO's office estimate 
of the physical impact on the states which could be $2 to $3 
billion for the first year is just the tip of the iceberg. No 
state that imposes a business or corporate income tax doubts 
that they will see substantial erosion of the tax base if this 
bill were to be enacted.
    This bill creates a tax-free zone for big, multistate, 
multinational companies and allows them to use tax strategies 
to shift income as to avoid state taxes all together. What this 
means is that mostly smaller, domestic, local businesses that 
can't lower their taxes by engaging in income shifting will 
ultimately be at a disadvantage. And from an administrative 
standpoint, it also means the states are at a disadvantage 
because the main problems of enforcement in the business tax 
area are coming up in the context of these big multinational 
entities which have great resources to engage in tax planning 
and are located at other parts of the country or the world.
    As with the Mobile Workforce bill, the commission is also 
recognized that there could be an issue here, especially for 
the smaller businesses. So again, the commission has proposed a 
solution in the form of a model act that creates a 
responsibility file only when a business exceeds a certain 
amount of sales into the state. A few states have enacted this 
model already. Tennessee did so most recently.
    Again, we'll be more than happy to go to the state 
legislatures and promote this legislation.
    Yes, sir.
    [The prepared statement of Ms. Magee follows:]
    
    
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                               __________
    Mr. Marino. Thank you.
    Ms. Magee. Thank you.
    Mr. Marino. Mr. Crippen?

   TESTIMONY OF DAN L. CRIPPEN, EXECUTIVE DIRECTOR, NATIONAL 
                     GOVERNORS ASSOCIATION

    Mr. Crippen. Chairman Marino, Ranking Member, so I hear is 
Mr. Johnson, Members of the Subcommittee; I am pleased to 
appear on behalf of the National Governors Association.
    Mr. Chairman, I want to begin with----
    Mr. Marino. Sir, could you please pull your mike a little 
closer if it is not on?
    Mr. Crippen. Sure.
    Does that work?
    Mr. Marino. Much better.
    Mr. Crippen. Okay.
    I want to begin where I will end by saying that it's 
unfortunate the Subcommittee was unable to formally discuss the 
tax issue of greatest importance to the states: The need to 
create parody between in-state and out-of-state retailers 
regarding the collection of state and local sales taxes. 
Governors maintain that before any Federal legislation 
regarding state taxation is passed, Congress should first 
address this disparity.
    Let me start with the bills at hand. First, the Mobile 
Workforce State Income Tax Simplification ACT. NGA has simply 
not taken a position on H.R. 2315. Unfortunately the bill would 
federally prevent the authority of states to tax the income of 
certain residents who work in the state fewer than 30 working 
days or up to 6 weeks. As such, the legislation has the effect 
of prohibiting the source of state revenue, one of NGA's 
principle objections to Federal action in this case.
    NGA therefore urges the Committee to carefully consider the 
potential negative effects and state revenues before moving the 
bill forward. As my colleague, Commissioner Magee, just said, 
the Multistate Tax Commission has a model bill which would 
allow preemption for up to 20 days. States have come together 
with a solution here. So we believe the states can continue to 
work. New York, in fact, is considering the preemption of up to 
14 days, and New York being the state that has the largest 
single exposure here.
    Turning to the Digital Goods and Services Tax Fairness Act, 
as we all know, the digital economy is part of the most complex 
state tax laws facing the states and facing you, quite frankly. 
Balancing the desire to promote electronic commerce for the 
sovereignty of states to determine their own tax system, 
requires both state collaboration and Federal cooperation to 
ensure government, business, and consumers all benefit from the 
21st century marketplace.
    NGA opposed earlier versions of this legislation and 
subsequently joined with proponents of the measure to negotiate 
a framework that was workable for states and provide a greater 
certainty for businesses and consumers. Despite NGA's work on 
crafting or helping to craft H.R. 1643, NGA cannot endorse the 
bill primarily because the framework of taxation of digital 
goods, without establishing the states have sufficient nexus to 
collect taxes on digital transactions, is simply not 
acceptable.
    Finally, the Business Activities Tax Simplification Act. 
Mr. Chairman, NGA has opposed virtually every version of the 
BATSA introduced over the past several Congresses. Each bill is 
represented none more than Federal intrusion into state matters 
that would allow companies to avoid and evade state business 
activity taxes, increase the tax burden on small businesses and 
individuals, alter establish constitutional standards for state 
taxation, and cost states billions of existing revenue.
    U.S. courts have long recognized the authority of a state 
to structure its own business tax system as a core element of 
state sovereignty. BATSA would interfere with this basic 
principle by altering the Constitutional standard that governed 
the states may tax companies conducting businesses within their 
borders.
    Mr. Chairman, we believe BATSA is structured for the 
economy of the last century and not this century.
    All the bills before the Committee today, we believe have a 
common goal: Balancing the sovereignty of states who set their 
own tax and revenue systems versus the benefits of uniformity 
for ever-growing digital and mobile economy. To really 
accomplish this goal, however, Congress must first work with 
states to establish a level playing field for all retailers 
both in-state and out-of-state. Specifically, NGA calls on 
Congress to authorize states to require remote vendors to 
collect state sales taxes.
    Mr. Chairman, before I describe how such authority might 
work, first let me tell what it is not. What we are advocating 
is not a tax increase but rather the collection of taxes 
already owed. Further and most importantly, it's not a tax on 
business but the collection of taxes on consumers within a 
state. Some of my panel members and members have mentioned the 
``taxation without representation.'' As a point-of-view of the 
economist, Mr. Chairman, I can tell you what we're advocating 
is quite the opposite.
    We're asking for a collection of taxes already owed by 
residents within the states. They actually have the ability to 
vote within the state from which their taxes would be imposed, 
as well establish the principle for economists that sales taxes 
are indeed consumption taxes. They fall on the folks who are 
buying the goods and services. So this is not a tax on 
businesses out-of-state but rather a collection of taxes 
already owed on residents within the state.
    Currently, disparity exists on the taxation of goods and 
services subject to state and local taxes as you know. If a 
consumer buys at a local store, the approximate sales tax is 
collected from the consumer by the merchant and remitted to the 
taxing authority. If this same, identical transaction occurs 
over the Internet, the taxes are not collected by the merchant 
and the consumer rarely pays the equivalent use tax to state 
and local government. The Internet retailer is effectively 
subsidized by the inequity in the current tax system. This 
problem is compounded by the explosive growth of the Internet 
as more retailers are harmed and sales tax bases further 
eroded.
    State and business communities have worked together for 
more than a decade to address this issue. In fact, have come up 
with something called the Streamline Sales and Use Tax 
Agreement with 44 states and the District of Columbia, local 
governments, and business community coming together. This is a 
destination-based taxing regime and to-date over 1,700 local 
businesses, mostly small retailers, are voluntarily collecting 
sales taxes in these streamline states and have remitted more 
than $1 billion in sales tax revenues. Obviously, it can be 
done without the adverse consequences or trade by the 
opponents. It is working today for 1,700 retailers in a number 
of states.
    Last Congress, the Senate overwhelmingly passed the 
Marketplace Fairness Act legislation to federally authorize 
states to require the collection of state taxes in return for 
simplifications of their tax codes. The House delayed 
legislative action and failed to take up the bill. In our 
opinion, this was a missed opportunity. NGA calls on this 
Committee to work with states this Congress to take up and pass 
meaningful and workable legislation that will once and for all 
address this core issue.
    [The prepared statement of Mr. Crippen follows:]
    
    
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    Mr. Marino. Thank you, sir.
    We will now move into the period of the Congress men and 
women asking questions and I will recognize myself for 5 
minutes.
    Mr. Carpenter, I am going to ask you to put your 
Constitutional hat on here. Does Congress have the clear 
Constitutional authority to enact Digital Goods and Services 
legislation? Why or why not?
    Mr. Carpenter. Mr. Chairman, I believe you do. I think it 
is a very reasonable exercise of the commerce clause. There is 
a fairly high standard for suggesting to states that they can't 
tax, but it has been long upheld by the courts that it is a 
reasonable exercise of Congressional authority to tell them how 
they may tax. And that is what this bill does. It says we are 
going to have a national framework and some basic rules to 
address the sourcing issue, and we are going to have some rules 
around nondiscrimination.
    That is all the bill does. I think it is a completely 
reasonable exercise of the Committee's authority.
    Mr. Marino. Does anyone on the panel disagree with that 
interpretation that the legislators have Constitutional 
authority?
    This is a first. This is good. This is a first.
    Mr. Carpenter. Are we done? [Laughter.]
    Mr. Marino. Shortly, thank you.
    Mr. Leaman, you described what not only a business has to 
go through because of the way the law is now, and you describe 
also what an employee has to go through. I think you said one 
individual had 50 W-2s. Could you expand upon that a little 
bit? Explain to us and to the public what the corporation has 
to go through step-by-step and what the, more importantly, the 
individual has 50 W-2s has to go through even if he or she is 
preparing them himself or herself.
    Mr. Leaman. That is correct.
    From a corporate standpoint, it really does come down to a 
tracking mechanism. So, how do you take the ability to track 
23,000 employees? I used to think that tracking physical assets 
in a plant was a difficult task until I started having to track 
employees covering the country.
    So, it is a mechanism. We have put in place procedures, and 
what complicates it is oftentimes the employee or the manager 
will just, on a spur of the moment, need to satisfy a customer 
needs or demand and say you need to go to state A today or 
tomorrow to accomplish that customer needs. So that is never 
reported back to payroll or the tax department in terms of 
being able to track that person. So once we are able to obtain 
that information by year-end, we then have to process the W-2s 
and oftentimes the employee themselves don't even realize they 
are going to be subject to multiple state taxation because they 
are not finding out until January of the close of the calendar 
year.
    So once they receive that, they contact a tax advisor 
because they have no idea how to handle that. And oftentimes 
the tax advisors, because they are in a situation just as we 
are, they want to comply with their ethical standards and 
professional standards and do what is appropriate according to 
statute. So it is not easy as it might be suggested to say it 
won't be enforced.
    And so, consequently, you know, we are in bind because we 
know we need to comply with statutes and regulations. And Turbo 
Tax doesn't handle 50 W-2s, by the way.
    Mr. Marino. So, in essence, if an employee worked in each 
of the 50 states of the United States, would he or she have to 
be cutting, if they owe taxes, checks to each of those 50 
states?
    Mr. Leaman. That is correct.
    Mr. Marino. Thank you.
    Mr. Leaman. Minus those that aren't subject to the state 
income tax.
    Mr. Marino. Yes.
    Mr. Norquist, obviously I support this legislation but I am 
going to play devil's advocate here and use my state as an 
example in my minute and a half. My district goes all the way 
to the Eastern New York. Say there is a trucking company right 
on the other side of the New York border and they are going to 
deliver something to Ohio. And they drive through the State of 
Pennsylvania. They don't fuel-up in Pennsylvania, they cross 
the line right into Ohio, and deliver their merchandise. Why 
should Pennsylvania not be able to tax that entity, that 
company, that person, for the use of the road?
    Mr. Norquist. Well, if Pennsylvania had reasonable gasoline 
taxes, he would fuel-up in Pennsylvania and that would solve 
the problem. A lot of what the advocates and defenders of 
incompetent governors and incompetent mayors have been doing is 
saying we can't reform our government to cost less; we can't 
have reasonable tax laws. So because our taxes are too high, we 
really object to the fact that other states and cities who are 
competently governed, they have lower taxes, and people prefer 
to work, save, invest, and purchase things there.
    It is a distraction when politicians lust after pennies in 
the cushions of the sofa instead of looking at how to reform 
government so it costs less in the first place and politicians 
have been chasing after, trying to nickel and dime the new 
economy whether it is taxing Uber or Airbnb or the Internet. 
And at some point, they should govern and figure out how to do 
things more effectively and have taxes that are competitive 
with competently-run entities.
    Mr. Marino. Thank you. My time has expired.
    The Chair now recognizes the Ranking Member from Georgia, 
Mr. Johnson.
    Mr. Johnson. Thank you, Mr. Norquist. I am glad that we 
agree on marketplace fairness. It shows that people with 
different philosophies, in terms of the role of government in 
our society, do have common ground on a number of issues and 
marketplace fairness is one of them. I would be remiss if I 
were not to ask you about marketplace fairness.
    Mr. Norquist. The Marketplace Fairness Act?
    Mr. Johnson. Yes.
    Sales taxes are due on brick and mortar purchases. They are 
collected at the time of sale or the point-of-sale. Why is it 
that online purchases should be treated differently?
    Mr. Norquist. Well, online purchases can be taxed by the 
state where the business exists. Most states have chosen not to 
do that because then they would have to, if you are in Maine, 
you would have to tax L.L. Bean's sales, which you could do. 
Every sale in Maine, L.L. Bean could be taxed by Maine. They 
choose not to.
    So politicians don't want to mug the guy in their state 
because they vote.
    Mr. Johnson. Well now, many states and local governments 
want to be able to collect use taxes from Internet sales. And 
they cannot do so----
    Mr. Norquist. From citizens in their state or in their 
town?
    Mr. Johnson. That is correct.
    They want to be able to tax purchases.
    Mr. Norquist. They can legally do that to the citizens in 
their state. What they are not allowed to do is go across the 
state lines and tax somebody in another state.
    Mr. Johnson. Well, no. I mean marketplace fairness would 
just simply enable states and local governments to collect at 
the point-of-sale sales taxes on purchases made online. But 
you----
    Mr. Norquist. From the business in another state.
    Mr. Johnson. Yes, correct.
    Mr. Norquist. Right.
    Mr. Johnson. You oppose that?
    Mr. Norquist. Yes.
    Look, states, local governments, have the power to tax 
their own citizens and they can abuse them as much as they can 
get away with and still get elected in the next election. But 
you can't have----
    Mr. Johnson. Why do you oppose a state's desire to be able 
to collect those taxes though?
    Mr. Norquist. Because they are exporting their state power 
into another state and it leads to tremendous opportunities for 
auditing harassment.
    Hi, here's a memo from the State of Alabama to the business 
in New York. We think you owe us $100,000 in sales tax. Here's 
another letter, which is a financial contribution request from 
the Attorney General of the state. If you fill this form out, 
you can disregard the other one.
    Mr. Johnson. Well, I hate to interrupt you but I really 
would like to have further dialogue with you on this particular 
issue, as well as a range of issues. And I am going to make an 
effort to reach out to you so that we can sit down and talk 
offline.
    Mr. Norquist. Sure.
    Mr. Johnson. Because I realize how important you are to 
what is going on in America today. And I would love to have the 
opportunity to sit down and talk to you.
    Mr. Norquist. I would be delighted.
    Mr. Johnson. Thank you.
    Acuity Brands is a leading lighting manufacturer based in 
Georgia with facilities across the country. Acuity employees, 
over 1,000 associates in my home state of Georgia and over 
3,200 associates nationwide, who travel extensively across the 
country for training, conferences, and other businesses. In a 
letter in support of H.R. 2315 that I will insert into the 
record, Richard Reese, Acuities Executive Vice President, 
writes that current state laws are numerous varied and often 
changing requiring that the company expend significant 
resources merely interpreting and satisfying states 
requirements. Reese concludes that unified clear rules and 
definitions for nonresidents reporting and withholding 
obligations would undoubtedly improve compliance rates and it 
would strike the correct balance between state sovereignty and 
ensuring that America's modern mobile workforce is not unduly 
encumbered.
    Mr. Lindholm, what is your response to that statement?
    Mr. Lindholm. Thank you, Mr. Johnson.
    I think he hits the message spot-on. You know, the key word 
there is balance. The mobility of our workforce is one of our 
economy's greatest assets. This bill is not an effort to 
regulate our state tax system or to nationalize our state tax 
system. It is a recognition that we have 50 different rules and 
we could very easily have one rule.
    We are a Nation of 50 states but only one economy. 
Companies that are operating within that economy have to 
compete globally with companies operating in the Pacific Rim, 
in the E.U., and South America that don't have to deal with the 
cumbersome nature of a subnational tax system such as ours. 
This is just a, you know, the problem is not that a specific 
state has the wrong statute. The problem is in the disparity of 
the rules.
    Mr. Johnson. Thank you.
    And with that, Mr. Chairman, I would ask unanimous consent 
to insert the following materials into the record. One is a 
letter from Acuity Brand's lighting, one of the leading 
manufacturers of lighting and controls equipment in the world, 
in support of H.R. 2315. And also, a letter from the Council on 
State Taxation, the premiere state tax organization 
representing taxpayers, in support of H.R. 2315.
    And with that I yield back.
    Mr. Marino. Without objection.
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                               __________
    Mr. Marino. The Chair now recognizes the Chairman of the 
full Judiciary Committee, Congressman Goodlatte.
    Mr. Goodlatte. Thank you, Mr. Chairman.
    I want to thank all of our witnesses for their testimony 
and I will start with Mr. Norquist.
    You support the Business Activity Tax Simplification Act, 
BATSA, which would codify physical presence as the standard for 
business activity taxes. What do you say about the Marketplace 
Fairness Act, the Senate bill on sales taxes, remote sales 
taxes, and similar proposals that would move in the opposite 
direction and repeal the physical presence standard as it 
currently applies to sales taxes?
    Mr. Norquist. Yes.
    The target of politicians who want to be able to raise 
taxes on people who can't vote against them was never really 
online sales or sales taxes. I served on the commission that 
you guys set up to think through back in the 90's how do we tax 
the Internet or Internet sales. And one discussion was, well, 
what if we taxed Internet sales but we passed BATSA and the 
advocates of higher taxes said, ``Oh, no. Are you kidding? 
There is no money to be had taxing sales tax as we want. We 
want to be able to tax business activity across state lines.''
    So while they are nice to have this small amount of money 
that they can garner from people in other states and businesses 
in other states from online sales, so-called ``Marketplace 
Fairness Act,'' which we strongly oppose, they also don't want 
BATSA because they want to reach across state lines on 
corporate and income taxes as well.
    Mr. Goodlatte. Thank you. And you have pretty much answered 
with that answer my second question. So I will go down the line 
starting with Mr. Rosen.
    It strikes me that all of these bills are addressing areas 
where states waste a lot of resources and businesses waste a 
lot of resources complying with regulatory tax procedures that 
cost a lot of money and don't yield, often, a lot of revenue. 
And I am wondering if you would just comment on that 
observation?
    Mr. Rosen. Yes, that is absolutely true.
    There is a study conducted by a University in Michigan that 
found that complying with income taxes, state income taxes, was 
much more burdensome than even sales taxes. And in preparation 
for today, I was thinking of bringing a 600-page printout of 
just how to source certain services among the various states. I 
decided that would be too dramatic so I didn't bring it. But 
the complexities involved in dealing on an interstate basis are 
just huge.
    And that is in addition to the principle that, if I am not 
getting the benefits protections from the government, why 
should I have to learn all the laws and rules that the 
government promulgates?
    Mr. Goodlatte. Do you think the states, themselves, would 
be better served by having clear, bright lined tests in all 
these areas? They can tax their own constituents and those who 
clearly have sufficient physical nexus in a state or locality 
to impose that tax, but then, also, encourage their own 
businesses in their area to not worry about all of these tax 
complications and go out and expand their businesses. That 
really seems to me what the whole purpose of interstate 
commerce is and why we wrote a new Constitution to promote, in 
1787, to promote interstate commerce and have the Federal 
Government regulate it to the extent it needs to be regulated 
and not have, at that time 13, and today 50 different states 
imposing complicated different regulations?
    Mr. Rosen. I think you are absolutely right. I think the 
inefficiency is generated by this murky area of nexus. When 
does a company have enough connection with a jurisdiction 
before that jurisdiction can assert its jurisdiction over that 
business has been a debate for many, many decades.
    Mr. Goodlatte. Okay. I am running out of time so I am going 
to give Mr. Lindholm an opportunity to weigh-in on this.
    Mr. Lindholm. You know, on the BATSA bill specifically, you 
know, we have the world's strongest economy and we still don't 
know, companies still don't know when they have a filing 
obligation when they enter into a state. That is 
unconscionable. That should be fixed.
    Mr. Goodlatte. Mr. Leaman?
    Mr. Leaman. With respect to H.R. 2315, we have a real 
example within the State of Michigan where we pattern the audit 
process after the IRS Federal Cap program; where they are 
auditing us in real-time. And they have taken 40 percent of 
their time out of the audit process.
    And so, to address your question about the efficiencies of 
government, government is looking for the opportunities to 
reduce the administrative burdens internally. And I think these 
laws go a long way to reduce that burden.
    Mr. Goodlatte. Mr. Carpenter?
    Mr. Carpenter. With respect to the Digital Goods bill, I 
think clarity and simplicity absolutely would benefit not only 
consumers and the businesses that are trying to serve as agents 
of the states, but clarity in the form of this legislation 
would benefit the states. I think it is a very open question 
today whether they have clear authority to tax in the digital 
goods space. I think it is very analogous to when this 
Committee acted 15 years ago to bring some clarity to how 
mobile voice was dealt with. And I think for that reason the 
legislation would benefit all sides of the equation; consumers' 
businesses and states alike.
    Mr. Goodlatte. My time has expired but if you allow the 
people with a somewhat contrary point-of-view to weigh-in----
    Mr. Magee. Without objection, of course.
    Mr. Goodlatte. I would like to hear Ms. Magee.
    Why wouldn't having clear bright line tests save the states 
a lot of resources that they devote to trying to collect what 
are sometimes small amounts of taxes and the growth of your in-
state businesses in their ease with which they can do more 
business outside of the state, and you will derive more revenue 
from that, replace whatever your concerns are for losing 
revenue now?
    Ms. Magee. Well, with regards to income tax, the State of 
Alabama almost, as totally coupled with IRS regulations. So 
there is a lot of consistency already on the books and that is 
pretty common nationwide.
    So most states do adhere and couple to the IRS regs. So if 
a corporation is following IRS rules regarding its certain 
taxing issue than they are also following the states.
    Mr. Goodlatte. Good. So that consistency helps you.
    Ms. Magee. The state percentage is very, very small, bear 
in mind, compared to the Federal income tax amount. Our 
effective rate in Alabama for corporations is about 3 percent.
    Mr. Goodlatte. Got it.
    Mr. Crippen?
    Mr. Crippen. I would say clarity is always good, but as an 
economist I would say those lines need to be drawn to meet the 
economic reality. These days, physical presence is much less 
important as a means or end of business than it ever was. 
Manufacturing is not in states, it's off-shore. Electronic 
commerce can exist anywhere. Incentives to move income around 
are paramount. So, yes, lines are nice, but they have to be 
drawn in a sense to reflect economic reality.
    Mr. Goodlatte. But duplicative taxation and regulation that 
a business might face in a multitude of states that it is 
attempting to do business in can have a detrimental effect, can 
it not, on the economic growth of that business and job 
creation?
    Mr. Crippen. It could have but it depends on, again, where 
we have talked about some solutions here today on mobile 
workforce, for example. States are working on exemptions not 
unlike the bill would entail, but it is not, I think, I think 
it is a false promise to say that a number of day's exemption 
relieves a lot of burden. You are still going to have to track 
those employees.
    And so, the question is what relief do you want to give 
these larger businesses as opposed to what revenue impacts do 
you want to have on states and----
    Mr. Goodlatte. Well, on many of these issues we are talking 
about smaller businesses too, are we not? I mean particularly 
with regard to Internet sales tax issues. A business going into 
a state to attend a meeting or attend a conference or an 
exposition of some kind and then being subject to filing tax on 
that would seem to yield very little to the state relative to 
what it is effort has got to be to try to collect that.
    Thank you, Mr. Chairman.
    Mr. Marino. The Chair recognizes the Ranking Member of the 
full Judiciary Committee, Congressman Conyers.
    Mr. Conyers. Thank you very much.
    Back to Director Crippen, you have indicated that Congress 
should address the remote sales tax issue before any other 
Federal legislation regarding state tax issue is passed. And I 
think you are pretty firm on that and I would like you to 
elaborate if you think you need to anymore.
    Mr. Crippen. Sure.
    Well, I think the one point we may not have made as much as 
we ought to is that it is a very large and growing problem as 
Internet sales increase. We are now approaching $300 billion a 
year. Estimates are that within a few years that will double. 
And so, it means that the inefficiencies in our tax system and 
the imposition on small businesses and governments will double 
as well. It is a very large problem and growing rapidly.
    Mr. Conyers. Now you have had something to say, I think, 
about Mr. Norquist's suggestion that we pass a permanent 
Internet tax moratorium. As you know, we have historically 
extended the moratorium on a temporary basis. Are there 
circumstances in which we could pass a permanent moratorium 
that would meet your approval?
    Mr. Crippen. I don't think so, Mr. Chairman. Certainly, 
none that we have seen. It is obviously in a position on state 
taxing authority and there are a number of states, as you know, 
who already have this, have exercised this power, and are 
grandfathered in these extensions.
    Mr. Conyers. Ms. Magee, there are several legislative 
proposals introduced or are floating around to address the 
remote sales tax issue. There is the Marketplace Fairness Act 
in the Senate, Chairman Goodlatte's discussion draft focusing 
on hybrid origin sourcing approach, Mr. Chaffetz's discussion 
draft of a rewrite of marketplace fairness. Are any of these 
proposals meet the perspective that you have on this subject?
    Ms. Magee. I have not seen Chaffetz bill yet. So I am told 
it looks pretty similar to Marketplace Fairness Act and we 
strongly support Marketplace Fairness Act.
    We have had consumer's use tax on the books in Alabama 
since 1936. The tax is owed. It is a field on the individual 
income tax return for every taxpayer in our state to complete, 
to fill out, how many dollars they spent on remote sales in 
order to calculate the tax. It is a mandate that has been on 
the books since 1936.
    What we are asking now is that you pass a law that requires 
the retailers to collect and remit the tax to the states in a 
simple way. They are already doing it now. We have hundreds of 
thousands of accounts in Alabama that are already remitting use 
accounts. And what we have, of course stores that have nexus, 
but we also have voluntary remittance because some of the 
retailers don't want to program their shopping cart twice. They 
want to program it once.
    So we are already receiving, from voluntary remitters, this 
use tax that is legally owed. We are just asking the retailer 
environment be directed by Congress to remit it to the states 
in a simple way.
    Mr. Conyers. What about the hybrid origin sourcing 
approach, does that meet your high standards?
    Ms. Magee. No, sir, it does not. [Laughter.]
    Mr. Conyers. Okay.
    Mr. Lindholm, what is your view on some of these different 
approaches?
    Mr. Lindholm. On the sales tax collection issue?
    Mr. Conyers. Yes.
    Mr. Lindholm. The Supreme Court has indicated that the 
reason that they are low to allow collection is because of the 
burdens imposed by our 50 state system. We have been very 
supportive of the streamline sales tax project in an effort to 
get standardization in the area, standard definitions, adequate 
notice to make things simpler for businesses trying to comply 
with 50 states and thousands of localities, different rules.
    We, therefore, are supportive of efforts to allow a 
collection responsibility as long as significant steps are 
taken to make it a simpler system for businesses to operate 
within.
    Mr. Conyers. Thank you so much.
    Mr. Chairman, I would like unanimous consent to enter these 
three documents into the record: The National Council of State 
Legislatures letter; a joint letter from local government 
organizations; and a joint letter from several labor groups 
including AFSCME, AFL-CIO, AFT, NEA--has he done it already?
    Okay. And UAW.
    Mr. Marino. Without objection, so ordered.
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    Mr. Conyers. Thank you, sir.
    Mr. Marino. Yes.
    The Chair now recognizes the gentleman from California, 
Congressman Issa.
    Mr. Issa. Thank you, Mr. Chairman.
    Every once in a while, we get an opportunity here to quote 
something and, in this case, I guess I will paraphrase. It does 
seem like it is Groundhog Day again. And although, those who 
remember that movie realize that, you know, we keep coming 
back, we keep having the same discussion, the panel does 
change, some of you age, others do not. [Laughter.]
    Grover, you can take it any way you want on that one. 
[Laughter.]
    So, since we are here again, I am going to try and take a 
different tack than I did perhaps the last seven or eight times 
we had a similar hearing on fairness and Constitutionality, and 
so on. And ask my question briefly and really intended for the 
public to make sure that the American people get more 
comfortably with the approaches that Congress is taking.
    And Mr. Carpenter, I will probably use you as the 
Constitutional Strawman. That will make Chris Cox happy.
    But, Mr. Crippen, I think you did a good job of it too.
    Sales tax is owed by whom?
    Mr. Carpenter. Sales tax on a digital good would be owed by 
the purchaser of the digital good.
    Mr. Issa. But an analogue good?
    I buy a washing machine, it leaves Pennsylvania, it arrives 
in Ohio, I live in Ohio, it is delivered to my home; who is the 
tax authority that determines that and who is to pay it?
    Mr. Carpenter. Ohio would be the tax authority. And the 
consumer, to the extent they----
    Mr. Issa. Right.
    So, going to the commissioner for just a second, any good 
arrives in Alabama pursuant to whatever the tax is, where it is 
delivered, where the person resides depending upon how you 
configure your law, that tax owed by the individual. We, the 
people, voting public, all the rights in privileges and 
obligations that come with taxation and representation. We are 
taxing ourselves at six and a half, seven and a half, 8 
percent, whatever, on that washing machine delivered to our 
home in Alabama. Correct?
    Ms. Magee. That is correct, sir. That is the law.
    Mr. Issa. Okay.
    So here today, we are really only dealing with whether or 
not we participate in assisting the states in the collection by 
their citizens of the tax. And, would you all agree, for 
everyone out there, that the taxes on the citizen or the person 
who buys it and that in fact that tax is lawful and determined 
by the states. Right? The states have a right to tax their 
residents and they do it. And I am not dealing with some of the 
other bills here today. I am just sort of dealing with digital 
or non-digital products delivered to someone.
    So the perplexing problem we have been dealing with for 
five or six Congresses is how do we in fact or do we assist the 
states in doing it recognizing that we have a long tradition 
that if you do not have nexus--Commissioner, if you do not have 
nexus over a company, the mere shipping of goods or even the 
incidental participation of a salesman going in and out, does 
not create nexus. From your background, that is true right?
    Ms. Magee. Well, because of the Quill decision, yes, sir.
    Mr. Issa. Right.
    And we want to keep that. We don't want to have 50 states 
putting an auditor into a cubicle at every small business that 
happens to sell over state lines, do we?
    Mr. Magee. No, sir.
    And I think you will find great support for a uniform 
auditing methodology as marketplace fairness had in it. I think 
that the states----
    Mr. Issa. Okay. Well, before we get into the uniform 
auditing because you would agree--and Mr. Crippen, I guess I 
will go to you because I cited some of your good words earlier. 
We, in Congress, do not easily have the ability to say that a 
nonresident of a state shall in fact fall under any mandate of 
another state, do we?
    Mr. Crippen. That is right.
    Mr. Issa. We do, though, have the ability to support a 
state in collection of taxes by its own residents. Correct?
    Mr. Crippen. Correct.
    Mr. Issa. So I am just going to close with one question and 
it is not in any of these bills. Every state in the union 
today, as I understand it, would have the ability to mandate 
that UPS, not the post office, we would have to assist in that, 
UPS, FedEx, and any other common carrier collect taxes at the 
time of delivery or ensure that they are collected the same as 
customs does when something comes from outside the country into 
the U.S. That authority exists. Isn't that true?
    So ultimately, it is a question if this economy, this 
digital economy, continues to grow, of whether states in order 
to defend, if you will, the destruction of their own brick and 
mortar businesses find it necessary to find ways to collect if 
we don't act. Would that be correct? Would you all agree that 
some acting will in fact prevent arbitrary actions by the 
states?
    Mr. Carpenter?
    Mr. Carpenter. We certainly think clarity in this space 
would be helpful and should come from Congress.
    Mr. Issa. And Mr. Chairman, if we could just let Mr. 
Norquist chime in and I----
    Mr. Norquist. I think that Congress certainly could make 
things a lot worse. They have a track record that suggests this 
happens from time to time and the Marketplace Fairness Act 
would empower states against citizens and businesses in other 
states. So that would be moving in the wrong direction, but a 
number of these bills all move in the right direction in 
simplifying what is going on and making sure that states only 
tax citizens that actually live and work in their states.
    Mr. Issa. Thank you, Mr. Chairman.
    Mr. Norquist. And vote.
    Mr. Marino. The Chair now recognizes the Congressman from 
the State of Washington, Ms. DelBene.
    Ms. DelBene. Thank you, Mr. Chair. And thanks to all of you 
for being with us today. I am very happy that we, as a 
Committee, are taking up state tax issues. In many areas of the 
law, the digital age has created new complexities and 
definitely at times illogical results where the law hasn't kept 
up with the pace of technology or the ways we purchase or live 
and do business. However, as someone who has a career in 
business, in technology, and a former revenue director for the 
State of Washington, I can tell you that from both perspectives 
some of the bills we are discussing today seem to be misguided.
    The physical presence standard in BATSA, for example, would 
favor large businesses that have a limited physical presence, 
but a huge volume of economic activity within an individual 
state. Meanwhile, shifting the state corporate tax burden to 
main street small businesses along with manufacturing, national 
resources, and service industries, businesses that create local 
jobs and pay local property taxes. It is easy to envision an 
environment under BATSA where the big guys are planning around 
and avoiding local taxes all the while reaping the benefits of 
doing businesses in states across the country.
    Meanwhile, small businesses that are paying for the 
benefits for doing business in any given state are put at a 
competitive disadvantage. And this critical point goes to 
marketplace fairness, which we have been talking about or the 
online sales tax issue, which really boils down to ensuring 
brick and mortar stores that make up the fiber of our 
communities aren't penalized or put on an unequal playing field 
without a state online retailers.
    I know we've talked about this a bit and, Commissioner 
Magee, I wondered if you could tell us the economic impacts 
this not passing legislation like marketplace fairness has on 
your state? And I also would like you to highlight what that 
means to local jurisdictions because we talked about state 
revenues but this is primary revenue source for local 
jurisdictions that I think is important we highlight the impact 
there.
    Ms. Magee. Oh, absolutely. Thank you.
    You know, I have never been a big fan of passing a tax 
because the state needs the revenue. I am more of a fairness 
person. And I think the issue here is an unequal playing field 
for the brick and mortar versus the Internet retailer, or the 
online remote seller. So I would not want to say, Alabama, it 
needs this law because we need a $100 million for the general 
fund. That is true and it would probably bring anywhere from 
$100 and $175 million per year into our state, city, and county 
coffers. But that is not my point here today.
    My point for all state administrators is that we don't like 
to pass taxes or incur new regulations just to plug a funding 
gap. We think it is a fairness issue. We want to treat all 
business owners with an equal manner. And right now, there is 
not an equality issue when it comes to having a brick and 
mortar store in Alabama or any other state that has a sales 
tax.
    Ms. DelBene. Now, to be clear, this is not a new tax. This 
would not be passing new taxes. You indicated earlier, these 
are use taxes that are already owed.
    Ms. Magee. Since 1936.
    Ms. DelBene. You know, I went to a renting store in my 
district, good example, brick and mortar in a local community. 
People come in, try on running shoes, find the exact pair they 
need and many times might leave that store and buy it online 
just because of the difference between the amount they would 
pay with sales tax versus without sales tax. They are still a 
resident of a state. They are still buying it, but that shows 
you that we have an unequal playing field where there is a 
disadvantage from our local retailers. I assume you have 
scenarios like that that you hear about all the time.
    Ms. Magee. We definitely do. It is called showrooming.
    And so, it is incredibly unfair because they are paying, 
the local business paying property tax, they are paying payroll 
tax, they are employing our citizens. And yet, the profit 
margin is being increased for the online retailer than the 
brick and mortar retailer. So it is definitely a huge problem.
    We are seeing a great erosion of our sales tax base and it 
is only because of the way the product is distributed. The 
product is exactly that same pair of tennis shoes. But the way 
it is distributed means the state, cities, and counties lose 
out on that sales tax we would have otherwise received. Except 
for the consumer who technically owes a tax and we will still 
ask them for that tax, but can you imagine tracking down that 
kind of volume in order to get the same tax revenue had the 
retailer just collected it at point-of-sale.
    Ms. DelBene. And in a state like mine, Washington State, 
where we do not have a state income tax, collection is even 
more complicated because there is not that place on the form to 
fill out. It would be a totally separate process, which makes 
it even more challenging and highlights how important 
legislation like marketplace fairness would be.
    Thank you very much. I am running out of time.
    And I yield back, Mr. Chair.
    Mr. Marino. Thank you.
    The Chair now recognizes the Congressman from Michigan, Mr. 
Bishop.
    Mr. Bishop. Thank you, Mr. Chair.
    Thank you to the panel. I greatly appreciate your time and 
testimony today.
    I am very interested in this area of public policy, having 
come from small business myself, having seen the stifling 
effects of regulation on small business in particular. This 
particular bill, H.R. 2315, the Mobile Workforce bill, 
addresses the concern that I think is consistent with what we 
are seeing today with the global workforce and in a way in 
which we deploy our employees across this country. In many 
cases, we do it without a real understanding of just how well-
traveled our employees are and we have to do whatever we can to 
ensure that we follow and track our employees, which is an 
added burden.
    I am very interested to hear, and I guess I would like to 
direct this to Mr. Leaman, we have heard today a discussion 
that suggests that business is almost the enemy of government. 
We have heard words like ``evade'' and ``avoid'' tax liability. 
To me, as a business owner, I am aghast at such a thought, that 
somehow I have to defend myself from this suggestion that I am 
liable in some way, shape, or form and my business is in a 
position to have to respond to that.
    A business like Masco, to what extent do you dedicate 
resources to address these issues when a taxing entity comes in 
on an audit or some kind of inquiry? What resources do you put 
forward to have to deal with that to ensure that you can avoid 
and evade compliant with whatever law there is? Is there 
uniformity to the way in which they approach this process? I 
know you have the CAP program in your company, can you explain 
to us the resources dedicated to what you do?
    Mr. Leaman. Yes, Congressman. Likewise, I take it 
personally when you hear comments about business because 
historically Masco has always put forth the effort to cooperate 
with the taxing authorities and comply with the tax laws. To 
give a perspective at the Federal level with the IRS Cap audit 
out of a department of, let's say, 25 people, we probably have 
about six or seven people that work with the IRS, literally, on 
a regular, daily basis. They reside in our department.
    With the Michigan Cap program, we have been able to 
simplify that process where they are able to come in and, over 
a 3-month period, start and complete the audit with about two 
or three of our resources advocated. But, again, streamlining 
and simplifying the compliance and the audit process by the 
cooperation with these programs. Albeit, other states don't 
have similar programs, we make similar efforts to assist them 
in completing their task and their job because we know and we 
recognize they have a job to do to collect and to assess proper 
revenues by each company.
    So, you know, our efforts are primarily focused in terms of 
how we run our tax department around how we cooperate with 
taxing authorities.
    Mr. Bishop. So who defends the employee in situations like 
this?
    Mr. Leaman. And that is problematic. Because, again, as the 
chief tax officer of the company and my staff, we are unable to 
provide any kind of tax guidance or service and they are left 
on their own. And as I alluded to in my comments, you know we 
can't even assist their tax advisors who contact us looking for 
assistance and guidance as well, too. And I think, really, when 
you boil this matter down, you know, I think all parties are 
properly assisted with H.R. 2315. I think the employees will be 
the ones who will be the single biggest beneficiaries from this 
enactment.
    Mr. Bishop. Thank you, sir.
    Quick question for Mr. Rosen. A constituent asked me the 
other day about the CAT tax in Ohio. Their company has no 
presence, no physical presence in Ohio, yet their components, 
Ohio's commercial activity tax taxes their component down the 
line in its end sales position. Can you tell me about this and 
tell me whether or not BATSA trust is the issue?
    Mr. Rosen. Yes.
    Ohio was the first state to statutorily enact economic 
nexus with a quantitative threshold. And so, the people--the 
businesses in Ohio, and the residents of Ohio--loved it when it 
first happened; they said, ``This is great. We are going to get 
the revenue from outside our state. We don't have to pay 
anything. This is wonderful.''
    But then, we found businesses over time, when no other 
state were following Ohio's lead, now those in-state businesses 
have to pay tax to other states. So they didn't get very far. 
And so, the CAT, the Commercial Activity Tax, in Ohio would be 
covered by BATSA. The 1959 law, 86-272, refers just to net 
income taxes. But a number of states have done inappropriate 
tax planning by looking at the Federal law saying, ``Ah, if we 
change from a net income tax to another tax, we don't have to 
obey this Federal law. We have that in legislative history in 
several states.''
    And, Ohio is one of those. Yes.
    Mr. Bishop. Thank you, sir.
    Now, Mr. Chair, may I ask for unanimous consent that a 
document that I am holding be entered into the record entitled 
Employer-Employee Experiences with Nonresident Withholding? It 
is a testimonial of several different employers and employees. 
It is compiled by members of the Mobile Workforce Coalition, 
the American Payroll Association, and the Council of State 
Taxation.
    Mr. Marino. Without objection, so ordered.
    [The information referred to follows:]
    
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                               __________
    Mr. Marino. The Chair now recognizes the Congressman from 
New York, Mr. Jeffries.
    Mr. Jeffries. Thank you, Mr. Chair.
    And I also want to thank the panelists for your presence 
here today and for the information that you have communicated.
    If I could just start with Mr. Norquist, and I thank you 
for you presence and for the work that you have done in the 
area of tax equity. We may not always agree on your particular 
positions but your contribution to the public square has been 
notable and significant. So I thank you for that.
    I wanted to ask about this concept that I think exists 
among some in the tax equity space, which is that there is this 
notion that there are donors and there are takers in the tax 
context. Is that a framework that some people use in the tax 
equity space?
    Mr. Norquist. Well, do you mean cities and states raise 
taxes and take money from people who earned it?
    Mr. Jeffries. Talking about individuals, for instance. As I 
understand it, there is the view among some, and I don't know 
if you subscribe to this position, but there is a view amongst 
some that you have got donors in the tax system and then you 
have got takers. And the donors, as I understand it, are 
individuals who give more to the Federal Government in income 
tax than they get back in return in terms of Federal benefits. 
Is that a framework that----
    Mr. Norquist. You are looking at states and cities or 
individuals?
    Mr. Jeffries. Individuals.
    Mr. Norquist. I guess you could look at it that way, but 
everybody and the Army would be a taker then.
    Mr. Jeffries. Okay.
    I am just wondering because there are some----
    Mr. Norquist. I am not sure it is a useful concept but, 
yes.
    Mr. Jeffries. I am not sure I agree with the concept either 
but there certainly have been some conservative thinkers within 
this institution in my other service on the Budget Committee 
who have put forth this context that there are donors and there 
takers and the donors give more to the Federal Government in 
income tax, pay this high burden, 39.6 percent, and don't get 
reciprocal benefits in return in terms of whatever the case may 
be; Social Security, Medicare, Federal benefits.
    Mr. Norquist. We are going to have to come up with a 
different word than donor because, as I understand it, tax 
collection is not a voluntary activity.
    Mr. Jeffries. Okay. I think we can agree with that.
    Now, in terms of the Mobile Workforce State Income Tax 
Simplification Act of 2015, I think I got that right. Seems 
like we need a simpler title. But the Mobile Workforce State 
Income Tax Act, it would cost New York State, I represent a 
district within New York State, approximately $110 to $130 
million per year which is more than all other states combined; 
as I understand it. And I am trying to figure out the rationale 
for putting this forward.
    From an equity standpoint as it relates to--what federalism 
allows is the individual states to have an opportunity to tax 
activity that occurs within its jurisdiction. So, if you could 
help me out, Mr. Norquist or Mr. Lindholm, with the rationale, 
I would be grateful.
    Mr. Norquist. Well, I think you want the workforce to be as 
mobile as possible. You want it to be, for people to travel 
across state lines and across city lines, as easily as 
possible. You want to reduce the total regulatory paperwork on 
how people handle this stuff. And there are very real abuses 
where, you know, the government says we think you thought of 
something in California and you moved to Nevada and you 
invented it there, and they chase after people for years and 
years to tax--they were doing their thinking in California.
    I think that it is very dangerous if governments can, 
again, reach out into people who largely live in other states 
and easily raise taxes on them because there isn't the capacity 
to vote against those elected officials. A lot of people in New 
York who do some of their work outside of the state, I think 
bright lines that make it easier for people to travel and work 
and not feel they are going to end up getting, you know, gone 
after by the government is probably a good idea.
    Mr. Jeffries. Well, thank you and I understand your 
electoral accountability point.
    In the time I have remaining, Mr. Chair, I would just ask 
unanimous consent to introduce a document prepared by the Tax 
Foundation Special Report, Number 158, ``Federal Tax Burdens 
and Spending by State.''
    Mr. Marino. Without objection, so ordered.
    [The information referred to follows:]
    
    
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                               __________
    Mr. Jeffries. And what this document demonstrates is that a 
state like New York, for instance, in the data that was used 
with this particular study regularly, or at least in this 
particular tax year, sent an access of $23 billion more to the 
Federal Government than we get back in return. And I don't 
necessarily subscribe this donor and taker philosophy that some 
have articulated, but I think, if we are going to apply this 
framework where we are concerned about tax equity and fairness, 
that the fact that New York State regularly sends tens of 
billions of dollars more to the Federal Government to be spread 
across the entire Nation, including states like Georgia which 
received billions of dollars more from the Federal Government 
than they send, then, you know, we have got to think carefully 
about how we are going to deal with impacting a state like New 
York; where we know people come in and use the infrastructure, 
use the police services, use the fire services, use the 
sanitation services, use the court system in order to make 
money.
    I know my time has expired, but thank you for your answers 
and I yield back.
    Mr. Marino. Thank you.
    The Chair now recognizes the Congressman from Texas, Mr. 
Ratcliffe.
    Mr. Ratcliffe. Thank you, Mr. Chairman. Thanks for holding 
this hearing today. I appreciate all the witnesses being here. 
I think it has been a very good hearing and discussion about 
many of the inequities that our current tax system has that is 
frankly resulting in taxation without representation.
    Mr. Lindholm, I would like to start with you. In your 
written testimony, you discussed the disproportionate costs of 
the current system on folks who live in states with no personal 
income tax like the 700,000 Texans that I represent. And I 
agree with you.
    Many of my constituents are severely impacted under the 
current structure. They have to deal with enormous compliance 
costs and can't file for refunds or credits in other states. 
But, some of my colleagues here are still arguing that the 
Mobile Workforce Act isn't necessary because states offer these 
offsetting credits for income taxes paid in other 
jurisdictions.
    So my question is: Can you talk about whether or not these 
offsetting credits do anything to solve the problem of a filing 
burden for employees and employers?
    Mr. Lindholm. Thank you, Mr. Ratcliffe. It does not.
    And let me clarify, or go back to your initial comment 
about states that have no personal income tax because those 
states have chosen to fund their essential resources without a 
personal income tax. So, when those states send their, or 
employers in those states send employees across state lines, 
they should pay personal income taxes and taxes where they work 
and, as you say, do not have a personal income tax they pay in 
Texas for which to offset those. That is one of the reasons why 
there is a very slight revenue dislocation, is because of 
those. But, again, the person who is hurt there is the employee 
that lives in the state with no personal income tax who was 
paying higher property taxes or higher sales taxes because the 
state has no personal income tax.
    The filing burden is enormous. And the rate of 
noncompliance because of the filing burden is enormous. The 
AICPA is one of the strongest supporters of this bill. They are 
put in a terrible position of having somebody come to them and 
say, ``I have worked in ten states, do I have to file in those 
states?''
    And legally, the answer is, yes, you have to file in those 
states. And by the way, we are going to have to charge an extra 
$200 per state return. It really puts the CPAs in a very 
difficult box because of the complexity, because of the added 
cost.
    Mr. Ratcliffe. Thank you, Mr. Lindholm.
    Mr. Leaman, like Mr. Lindholm, in your testimony you talk 
about this confusing patchwork of state income tax rules that 
your employees are forced to grapple with every year. And I 
appreciated your testimony. I want to make sure that I heard it 
clearly with respect to nonresident filings often involving 
minimal taxes. Did I hear that correctly?
    Mr. Leaman. Correct.
    Mr. Ratcliffe. So is that another way of saying that in 
some circumstances you have mobile employees that have to hire 
a tax professional at hundreds of dollars per hour to pay for 
taxes that might be just a few dollars?
    Mr. Leaman. That is correct.
    And again, because of the corporate policy and philosophy, 
which is to put a system in place that doesn't necessarily 
track de minimis amounts because it is a policy and/or 
procedure we have in place, both a corporation and the employee 
is put in that position of having to go ahead and file.
    Mr. Ratcliffe. Okay.
    Well, I would hope that everyone here could agree that in 
addition to being unfair, that is just absurd. And also 
observed was the fact that you discussed with Chairman Marino, 
and I want to make sure that I heard that clearly. Are there 
mobile employees that are sometimes receiving 50 W-2s per year?
    Mr. Leaman. We have a couple extreme cases because of that, 
yes. That is correct.
    Mr. Ratcliffe. Well, I know how difficult it is to deal 
with the IRS with one W-2. I can't imagine having to deal with 
50, but let me ask you this question. Are these the types of 
employees that are making hundreds of thousands of dollars so 
that they can easily absorb the compliance costs?
    Mr. Leaman. And again, our typical workforce that falls 
into this category are usually making $50,000 or less.
    Mr. Ratcliffe. Okay.
    So would it be fair to say, then, in some cases this huge 
compliance burden is falling on some of the people that can 
afford it the least?
    Mr. Leaman. That is correct.
    Mr. Ratcliffe. Mr. Leaman, H.R. 2315 uses the word 
``simplification'' in its title. Does this proposed bill, does 
it actually simplify as advertised? In other words, would it 
bring uniformity?
    Mr. Leaman. I think it does, Congressman. I think, you know 
again, as my opening remarks, it is a rare opportunity to have 
a bipartisan legislation that really addresses all constituents 
in this are individuals in this process, and I think it goes a 
long way to simplifying.
    Mr. Ratcliffe. Thank you.
    I see my time has expired. I yield back.
    Mr. Marino. Thank you.
    The Chair now recognizes the Congressman from Michigan, Mr. 
Trott.
    Mr. Trott. Thank you, Mr. Chairman.
    I want to thank all the witnesses today for being here.
    And Commissioner Magee, a couple questions. So you opposed 
H.R. 2315, correct?
    Ms. Magee. We don't oppose it, but we would prefer the 
model MTC comm that each state adopted.
    Mr. Trott. The model would be, in your mind, a national 
solution, though. Correct?
    Ms. Magee. Yes, it would be.
    Mr. Trott. What happens if a state doesn't adopt the model? 
You are looking to Congress to adopt the model in lieu of state 
solutions. Correct?
    Ms. Magee. On this issue we believe is that the state 
should adopt it not Congress.
    Mr. Trott. So states have been known to tweak the models. 
So what happens then in terms of the simplification?
    Ms. Magee. Well, I mean, there is no doubt in anyone's mind 
that simplification is the best way to go. We don't want to 
have to deal with so W-2s, for example, which is an extremely 
rare, rare case. But we do need to keep up with the income 
being our in our state and this is one way to do that.
    It is not a burning issue in the State Department of 
Revenue across the Nation. This is rarely ever anything that 
comes up.
    Mr. Trott. But you would agree, though, if we are going to 
do a model that is going to be adopted by 50 states, we are not 
going to end up with a simplification. I mean isn't that a 
fairly logical assumption given how states tend to enact 
legislation?
    Ms. Magee. Well, I can't argue with you there, sir.
    States certainly tweak and model to the point you don't 
recognize anymore. But we really do--our effort and our goal is 
not to over complicate things. We don't choose to do that.
    Mr. Trott. So you know you say 50 W-2s is extraordinary. I 
had businesses where we routinely had 20 or 30. So 50 may be 
extreme but I mean 20 or 30 is still a burden for folks, 
wouldn't you agree?
    Ms. Magee. Well, it is. But we have, like Alabama has, a 
free online filing system for any employee to file a 
nonresident return, free of charge. It is a very simple process 
they can use.
    So the states have gone to measures to make it simpler.
    Mr. Trott. Still, 50 different states.
    Next question, though. One of the concerns you have with 
H.R. 2315 is the voluntary recordkeeping. I wonder if you could 
speak to that and I wonder if you could explain how the 
recordkeeping would differ under the model that you advocate?
    Ms. Magee. Well, historically the recordkeeping is done by 
the employer and the employer remits those records annually to 
each Department of Revenue and to the IRS. That is a very 
valuable source of information. Number one, we use it more 
often than not to prevent fraud. It is our key purpose over the 
next couple of years to use this information sooner and faster 
both from IRS level and the state level to prevent refund 
fraud. So the getting the W-2s is very, very important for the 
income tax return.
    And then, secondly, I mean it is a burden on the employee 
if they have to do this themselves. In corporations have 
departments that specialize in handling this sort of 
processing. This act makes it voluntary to the employee to do 
this. And so, that is why the model is something we prefer 
because it doesn't make it--the employer would still be the 
person, entity, in charge of that.
    Mr. Trott. But because of that, the employer is still going 
to have some of the same problems they have today under the 
model. Is that a fair statement?
    Ms. Magee. Yes, sir. But their compliance has not been 
something they have created an issue over, in my opinion, over 
the 4 years of being commissioner. I have not had employers 
complain to us about keeping up with W-2s. It is part of the 
IRS process, part of the state process.
    Mr. Trott. We had several people here today complaining 
about it. I mean maybe they haven't gotten your address in 
Alabama but we have people here today complaining about it.
    Ms. Magee. The electronic world has changed so much. It has 
really simplified things so much to be able to file these 
things electronically.
    Mr. Trott. Yes and unfortunately the electronic world 
hasn't eased the regulatory burden on businesses. But thank you 
for your comments.
    I yield back.
    Mr. Marino. Thank you. Mr. Collins is next, but I 
understand he does not have any questions for Mr. Norquist. Mr. 
Norquist has another engagement that he has to attend.
    You are fine?
    Mr. Norquist. At some point I do. Does somebody want to - -
    Mr. Marino. Okay.
    Now, we have one more questioner and I didn't know if you 
had to get to where you are going instantly.
    Mr. Norquist. I do, but I will wait.
    Mr. Marino. All right. Thank you, sir.
    Now, the gentleman from Georgia, Congressman Collins, is 
next.
    Mr. Collins. Thank you, Mr. Chairman. I appreciate that and 
Mr. Norquist, you know. As an old Baptist pastor, I am used to 
people getting up and walking out whenever they feel like it. 
So, you know, if you need to, God bless you. Have a great day. 
You know?
    I want echo what my friend from California just said a few 
minutes ago. How many times are we going keep doing this? You 
all look great. God bless you. It is good to see you again. We 
have had these discussions over and over. I am one and I 
appreciate the Chairman bringing this up because it is now time 
to mark up, move on, and get something to a new topic. Okay?
    But I think at the end of this thing I support the bills 
that are being discussed today. But I really do want to talk 
about, for just a moment, one, again I had this conversation at 
this hearing last Congress about the just, what I believe is 
just ludicrous 50 W-2s that we can't simplify. This is that and 
we got into a long conversation and I am not going down that 
hole again. I just want to say that.
    But I appreciate you being here but I do want to talk about 
one that is not on our list today, and hopefully it will be 
pretty soon. And that is H.R. 235, the Permanent Internet Tax 
Freedom Act. It is not before the Committee today and I can't 
talk about states regulatory and tax authority without first 
mentioning that bill and encouraging the Subcommittee and the 
Committee as a whole to quick action on it.
    I am a strong supporter and a proud cosponsor of the 
Permanent Internet Tax Freedom Act introduced by Chairman 
Goodlatte. The Internet Tax Freedom Act has been extended 
multiple times and passed the House by voice vote only last 
Congress. Again, that is what we do a lot of times. Let us kick 
it down--it is almost like we got to find a can to kick. So let 
us just find this can and we will kick it again next year.
    It will expire on October first of this year. Simply put, 
we can't let this happen. This would actually permanently 
prohibit Federal, state, and local governments from imposing 
taxes on Internet access. I don't think anyone would argue 
about the enormous impact of the Internet and the access to 
information and the opportunity that it provides. We need to 
keep it affordable so that Americans of all backgrounds can 
access the Internet rather than adding to the already huge 
burden faced by taxpayers.
    It is critical that we make permanent the Internet Tax 
Freedom Act once and for all to protect consumers and maintain 
growth and grow access to the Internet to prevent multiple 
discriminatory taxation, to encourage innovation, and to 
promote job creation and economic growth.
    And before I yield back, I want to say something that was 
said, and I think Mr. Norquist, I think you said it. I think it 
has been actually possibly previously implied by several 
others. Until we get to a position in the Federal Government--I 
am from the state government level. I worked for 6 years in 
Georgia on the issues of taxes, the issues of spending.
    I am asked all the time by folks: Why can't you just, you 
know, do a budget. And I think it goes back to the inherent 
problem that we have. Government does it sort of the backwards 
way of most businesses. Most businesses will look at a business 
plan and they say, ``Okay, this is what it is going to cost me 
if I open this business. It is going to cost me X dollars to 
break even and then to make a profit.''
    Government starts the opposite way around. They say, ``Let 
us tax and figure out how to spend it.'' And until we get that 
problem right, states are going to be looking for money, local 
municipalities are going to be looking for money. We have had a 
lot of discussion about a bill that is not on the agenda today, 
marketplace fairness. But I think we have got to get back to--
that is what the people of the ninth district expect, and if we 
need to have an adjustment and we need to talk about the whole 
aspect of budget, let us do so. But let us remember at the end 
of the day what is government's purpose, why are we here, and 
then we can see how the funding fits the purpose instead of our 
growing purpose in finding a funded for it.
    With that, Mr. Chairman, I yield back.
    Mr. Marino. Thank you.
    Seeing all the Members on the dais, this concludes today's 
hearing. I want to thank all the witnesses for attending. I 
want to thank the people in the gallery for attending.
    And, without objection, all Members will have 5 legislative 
days to submit additional written questions for the witnesses 
or additional material for the record.
    This hearing is adjourned. Thank you.
    [Whereupon, at 12:09 p.m., the Subcommittee was adjourned.]
    
    
    
    
    
    
    
    
    
    
                            A P P E N D I X

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