[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]




NO REGULATION WITHOUT REPRESENTATION: H.R. 2887 AND THE GROWING PROBLEM 
               OF STATES REGULATING BEYOND THEIR BORDERS

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

                                HEARING

                               before the

                            SUBCOMMITTEE ON
                           REGULATORY REFORM,
                      COMMERCIAL AND ANTITRUST LAW

                                 of the

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 25, 2017

                               __________

                           Serial No. 115-20

                               __________

         Printed for the use of the Committee on the Judiciary


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]





      Available on the World Wide Web: http://judiciary.house.gov
      
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                       COMMITTEE ON THE JUDICIARY

                   BOB GOODLATTE, Virginia, Chairman
F. JAMES SENSENBRENNER, Jr.,         JOHN CONYERS, Jr., Michigan
  Wisconsin                          JERROLD NADLER, New York
LAMAR SMITH, Texas                   ZOE LOFGREN, California
STEVE CHABOT, Ohio                   SHEILA JACKSON LEE, Texas
DARRELL E. ISSA, California          STEVE COHEN, Tennessee
STEVE KING, Iowa                     HENRY C. ``HANK'' JOHNSON, Jr., 
TRENT FRANKS, Arizona                    Georgia
LOUIE GOHMERT, Texas                 THEODORE E. DEUTCH, Florida
JIM JORDAN, Ohio                     LUIS V. GUTIERREZ, Illinois
TED POE, Texas                       KAREN BASS, California
JASON CHAFFETZ, Utah                 CEDRIC L. RICHMOND, Louisiana
TOM MARINO, Pennsylvania             HAKEEM S. JEFFRIES, New York
TREY GOWDY, South Carolina           DAVID CICILLINE, Rhode Island
RAUL LABRADOR, Idaho                 ERIC SWALWELL, California
BLAKE FARENTHOLD, Texas              TED LIEU, California
DOUG COLLINS, Georgia                JAMIE RASKIN, Maryland
RON DeSANTIS, Florida                PRAMILA JAYAPAL, Washington
KEN BUCK, Colorado                   BRAD SCHNEIDER, Illinois
JOHN RATCLIFFE, Texas
MARTHA ROBY, Alabama
MATT GAETZ, Florida
MIKE JOHNSON, Louisiana
ANDY BIGGS, Arizona

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

                                 ------                                

    Subcommittee on Regulatory Reform, Commercial and Antitrust Law

                   TOM MARINO, Pennsylvania, Chairman
                 BLAKE FARENTHOLD, Texas, Vice-Chairman
DARRELL E. ISSA, California          DAVID CICILLINE, Rhode Island
DOUG COLLINS, Georgia                HENRY C. ``HANK'' JOHNSON, Jr., 
KEN BUCK, Colorado                       Georgia
JOHN RATCLIFFE, Texas                ERIC SWALWELL, California
MATT GAETZ, Florida                  PRAMILA JAYAPAL, Washington
                                     BRAD SCHNEIDER, Illinois
                                     
                                     
                                     
                                     
                                     
                                     
                                     
                                     
                                     
                                     
                                     
                                     
                                     
                                     
                                     
                                     
                                     
                                     
                                     
                                     
                                     
                                     
                                     
                                     
                                     
                                     
                                     
                            C O N T E N T S

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                             JULY 25, 2017
                             BILL TEXT PAGE

                                                                   Page
H.R. 2887, the ``No Regulation Without Representation Act of 
  2017''.........................................................     V

                           OPENING STATEMENTS

The Honorable Bob Goodlatte, Virginia, Chairman, Committee on the 
  Judiciary......................................................     4
The Honorable John Conyers, Jr., Michigan, Ranking Member, 
  Committee on the Judiciary.....................................     2
The Honorable Tom Marino, Pennsylvania, Chairman, Subcommittee on 
  Regulatory Reform, Commercial and Antitrust Law, Committee on 
  the Judiciary..................................................     1
The Honorable David Cicilline, Rhode Island, Ranking Member, 
  Subcommittee on Regulatory Reform, Commercial and Antitrust 
  Law, Committee on the Judiciary................................    20

                               WITNESSES

Mr. Neil Dierks, CEO, National Pork Producers Council
    Oral Statement...............................................     7
Mr. Chad E. DeVeaux, Esq., Associate, Atkinson, Andelson, Loya, 
  Ruud & Romo
    Oral Statement...............................................     9
Mr. Andrew Moylan, Director of the Interstate Commerce 
  Initiative, National Taxpayers Union
    Oral Statement...............................................    10
Hon. Deb Peters, President-elect, National Conference of State 
  Legislatures, Senior Assistant Majority Leader, South Dakota 
  Legislature
    Oral Statement...............................................    12

              Additional Material Submitted for the Record

Testimony and letters of support for H.R. 2887 submitted by the 
  Honorable Bob Goodlatte, Virginia, Chairman, Committee on the 
  Judiciary. These materials are available at the Committee and 
  can be accessed on the Committee Repository at:
    http://docs.house.gov/meetings/JU/JU05/20170725/106310/HMTG-
      115-JU05-20170725-SD002.pdf.
Testimony, letters, and Harvard Journal on Legislation article 
  submitted by the Honorable John Conyers, Jr., Michigan, Ranking 
  Member, Committee on the Judiciary. These materials are 
  available at the Committee and can be accessed on the Committee 
  Repository at:
     http://docs.house.gov/meetings/JU/JU05/20170725/106310/HMTG-
      115-JU05-20170725-SD003.pdf.
      
      
      [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
      
 
NO REGULATION WITHOUT REPRESENTATION: H.R. 2887 AND THE GROWING PROBLEM 
               OF STATES REGULATING BEYOND THEIR BORDERS

                              ----------               


                         TUESDAY, JULY 25, 2017

              House of Representatives,    
         Subcommittee on Regulatory Reform,
                      Commercial and Antitrust Law,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10:00 a.m., in 
Room 2141, Rayburn House Office Building, Hon. Tom Marino 
[Chairman of the Subcommittee] presiding.
    Present: Representatives Marino, Goodlatte, Farenthold, 
Issa, Collins, Buck, Ratcliffe, Handel, Cicilline, Conyers, 
Johnson of Georgia, Jayapal, and Schneider.
    Staff Present: Dan Huff, Counsel; Andrea Woodard, Clerk; 
and Joe Ehrenkrantz, Minority Counsel.
    Mr. Marino. The Subcommittee on Regulatory Reform, 
Commercial and Antitrust Law will come to order. Welcome, 
everyone.
    Without objection, the Chair is authorized to declare 
recess of the Committee at any time. We welcome everyone to 
today's hearing on ``No Regulation Without Representation: H.R. 
2887 and the Growing Problem of States Regulating Beyond Their 
Borders.'' And I now recognize myself for an opening statement 
and welcome to the hearing.
    Justice Jackson wrote that the ``vision of the Founders'' 
was ``that every farmer and every craftsman shall be encouraged 
to produce by the certainty that he will have free access to 
every market in the Nation . . . and no foreign State will by . 
. . regulations exclude them.'' Extraterritorial regulations 
let States export onerous regulations and even activist agendas 
outside the normal checks of the Democratic process. States 
shift regulatory burdens to out-of-staters or insulate their 
own residents from the natural effects of job-killing 
regulations by subjecting other States' workers and employers 
to them.
    There are numerous examples. Connecticut's e-waste law 
requires manufacturers who supply electronics to ``any 
distribution network'' that reaches Connecticut to pay for 
recycling. The Consumer Electronics Association challenged a 
similar 2009 New York City law that went further than any 
``other take-back programs anywhere in the world.'' My State of 
Pennsylvania is home to one of the largest natural gas deposits 
in the country. I worry that extraterritorial regulation could 
allow fringe environmentalists to kill those jobs from afar.
    If that sounds farfetched, consider this. Colorado law 
requires electricity generators, including those out-of-State, 
to ensure that 20 percent of the electricity they sell to 
Colorado consumers comes from renewable sources. The coal 
industry challenged the law but lost. The tenth circuit read 
the Commerce Clause's extraterritoriality jurisprudence 
narrowly as applying to protectionist price control regulations 
only.
    In December of 2016, Portland, Oregon passed legislation 
addressing what the city deemed excessive CEO pay. Beginning 
January 1 of 2017, a 10 percent tax surcharge is applied to any 
company whose CEO makes more than 100 times the median employee 
pay. Pay ratios greater than 250 times the median trigger a 25 
percent surcharge. By its terms, the law applies even to out-
of-State businesses if they are ``delivering goods or providing 
services to customers within the city.'' Whether this is good 
policy can be up for debate, but it should only apply to those 
who had the ability to vote for the government that imposed the 
tax.
    The Constitution gives Congress the authority to ``regulate 
commerce . . . among the several States.'' Courts do not view 
this grant of authority as exclusive, so the question is how 
much authority States retain in the arena. To answer this 
question, the judiciary has developed a doctrine known as the 
``Negative'' or ``Dormant'' Commerce Clause, under which courts 
will invalidate State laws that either discriminate against or 
unduly burden interstate commerce.
    Courts will also block State laws exhibiting certain forms 
of extraterritorial reach. However, the survival of Colorado's 
anti-coal law illustrates the shortcomings of relying on this 
malleable doctrine. Advocates of greater regulation always cite 
public safety. In one of the early extraterritorial regulation 
cases, New York raised its public safety concerns to defend its 
demand that out-of-State milk producers adhere to New York's 
minimum price. There are also numerous Federal laws protecting 
consumer safety covering items in interstate commerce.
    I look forward to hearing from the panel of witnesses on 
the dangers of extraterritorial regulations and the need for 
Congress to address this issue. The Chair now recognizes the 
Ranking Member of the full Judiciary Committee on Regulatory 
Reform, Commercial and Antitrust Law, Mr. Conyers.
    Mr. Conyers. Thank you, Mr. Chairman.
    Mr. Marino. Mr. Conyers, just give me one moment. The 
Ranking Member, Congressman Cicilline from Rhode Island, of 
this Subcommittee will be with us shortly. So, that is why I 
ask the Ranking Member of the full Committee to read his 
opening statement.
    Mr. Conyers. Well, thank you very much, Chairman Marino. I 
am delighted to be here to join in this serious conversation 
that we will be having. But before I begin, I would like to 
just take a moment, if I can, to recognize Joseph Ehrenkrantz 
for his dedicated service over the past couple years, in which 
he has diligently served the House Judiciary Committee as a 
professional staff member.
    Mr. Ehrenkrantz began his career with the House Judiciary 
Committee shortly after his graduation and has worked 
tirelessly on issues of civil rights, State and local taxation, 
and voting rights ever since. He has served with energy and 
enthusiasm and helped coordinate so many of the briefings, 
markups, and hearings that we have had.
    We thank you, sir, for your many outstanding contributions 
and wish him well. I cannot give you the reason that he is 
going to begin law school at Georgetown this fall, but I think 
what he has seen, and heard, and learned on his work here has 
had an important influence on him. So, we will say farewell but 
not goodbye.
    Now, turning to today's hearing which focuses on the no 
regulation without representation, it appears that supporters 
of this legislation intend to address the apparent problem of 
States regulating beyond their borders. A quarter of a century 
ago, the United States Supreme Court in the Quill case held 
that a State may require a business to remit a sales tax only 
if such business had a physical presence in the State where the 
goods or services are provided. In an effort to respond to this 
holding, various legislative responses have been introduced 
over the years including two of which I was happy to support. 
Namely, the Remote Transactions Parity Act and the Marketplace 
Fairness Act.
    Although one of these bipartisan measures overwhelmingly 
passed the Senate in 2013, our Committee has, unfortunately, 
failed to consider either of these bills. Instead we are 
focusing today on H.R. 2887, which I think contains a number of 
problems that we will be looking at more closely. Among its 
flaws, the bill would eviscerate the 10th Amendment and 
override the powers of all 50 States by expanding the physical 
presence standard to all taxes and to all regulations.
    H.R. 2887 represents an extreme rethinking of the 
constitutional role of States in our Nation and would strip 
essential consumer protection powers and taxing authority from 
all 50 States, every one of them. To quote the bipartisan 
National Governors Association and the National Conference of 
State Legislatures, ``This legislation is a direct threat to 
representative government. It is a direct threat to 
representative self-government.'' Simply put, it would preempt 
tens of thousands of State laws and saddle these States with 
untenable budget constraints by reducing their ability to 
collect tax revenues.
    Also, this bill appears to ignore the real problems that 
Main Street retailers face today. Local retailers that have to 
collect sales taxes are desperately struggling to compete with 
the reduced prices and convenience offered by remote internet 
sellers whose online prices are generally lower because many 
consumers do not pay any sales taxes and thereby can save 
upwards of 10 percent or even more on the purchase price of 
these items. Technological advancements have made it easier for 
consumers to take advantage of this disparity, and the 
consequences of this loophole are becoming increasingly more 
apparent.
    Since October, at least 10 major, nationwide, brick-and-
mortar retailers have filed for bankruptcy. And more than 
90,000 workers have been laid off. Retail sector growth is at 
its weakest since the Great Recession, and recent projections 
estimate that a quarter of all shopping malls will close in the 
next 5 years. Without question, I am a strong supporter of 
competition, especially when it benefits consumers and 
encourages innovation. Nevertheless, competitors should compete 
on things other than sales tax policy. We should ensure parity 
at the point of sale among retailers and level the playing 
field.
    And lastly, H.R. 2887 by codifying Quill would effectively 
prevent States and local governments from accessing a 
substantial part of their tax base. State governments rely on 
sales and uses taxes for nearly one-third of their total tax 
revenue. Yet, as more Americans purchase more of their goods on 
the internet, the States receive less in sales tax revenue. So, 
we owe it to our local communities and local retailers as well 
as State and local governments to take up helpful legislation 
rather than considering measures like the one that is before us 
this morning. And, accordingly, I urge our Committee Chairman, 
Goodlatte, and our Subcommittee Chairman, Marino, to instead 
consider H.R. 2193, the Remote Transaction Parity Act, 
bipartisan legislation introduced by Representative Kristi Noem 
early this year.
    In closing, I look forward to hearing the testimony for 
each one of our distinguished witnesses. And I yield back any 
time that may be remaining, and thank you, Mr. Chairman.
    Mr. Marino. Thank you. The Chair now recognizes the 
Chairman of the full Judiciary Committee, Congressman Goodlatte 
of Virginia, for his opening statement.
    Chairman Goodlatte. Thank you, Mr. Chairman. Mr. Chairman, 
for most of American history it was axiomatic that States 
cannot regulate beyond their borders. This fundamental premise 
was woven into our founding documents. The principle was 
reiterated by our courts.
    In 1834, Justice Story wrote in his Commentaries on the 
Conflict of Laws that, ``no State or Nation can, by its laws, 
directly affect, or bind . . . persons not resident therein.'' 
Writing for a unanimous Supreme Court in 1881, Chief Justice 
Waite observed that, ``[n]o State can legislate except with 
reference to its own jurisdiction.'' In 1895, the New York 
Court of Appeals stated, it is, ``a principle of universal 
application, recognized in all civilized States, that the 
statutes of one State have . . . no force or effect in 
another.''
    The chief constraint on State regulatory power is the 
democratic process. Exporting regulations dodges 
accountability. As the Supreme Court has explained, when ``the 
burden of State regulation falls on the interests outside of 
the State, it is unlikely to be alleviated by the operation of 
those political restraints normally exerted when interests 
within the State are affected.''
    Indeed, States have become increasingly aggressive in 
exporting regulatory burdens.
    A 2016 Massachusetts law bans the sale of products from 
livestock raised in certain types of cages. Since there is only 
one in-state farm using the targeted cages, Massachusetts Farm 
Bureau members say they, ``Feel like pawns in a national 
campaign to drive policy in other States.'' Alameda County, 
California forces pharmaceutical companies that sell into the 
jurisdiction to pay for drug disposal. The chief sponsor of the 
legislation admitted that the only thing ``wrong'' with a 
preexisting, ``publicly-funded [disposal] program,'' was that 
``The taxpayers pay for it.''
    North Dakota has one of the country's largest deposits of 
lignite coal. The industry employs 4,000 people and provides 
substantial revenue to the State. In 2016, North Dakota won a 
5-year legal battle against a Minnesota law that limited the 
ability of out-of-State utilities selling power into the State 
to use coal.
    A response from Congress has become increasingly important, 
because neither the Due Process nor the Commerce Clause of the 
Constitution has proven a durable, adequate check on 
extraterritorial State regulation. In both cases, beginning 
with the New Deal, the original understanding of the 
Constitution's protections was watered down or abandoned by 
courts to make way for big government.
    H.R. 2887 would provide a clear congressional response that 
would, at the same time, protect States' rights: ``If equal 
States are to retain autonomy over their own affairs, they must 
refrain from regulating each other's affairs.'' H.R. 2887 would 
establish just this kind of restraint, by barring States from 
imposing tax or regulatory burdens on entities that are not 
physically present.
    At the same time, H.R. 2887 specifically permits States to 
ban the instate sale of items that do not meet Federal health 
and safety standards or the standards of the producing State.
    Opponents of this legislation may warn of a ``race to the 
bottom.'' That theory is a handy scare tactic, but scholar 
Michael Greve writes that, ``Modern scholarship has severely 
undermined [it]s theoretical and empirical foundations.'' 
Furthermore, since H.R. 2887 does not disturb State tort law, 
producers still have to fear lawsuits from lax standards. There 
are also a myriad of Federal laws protecting consumer safety.
    The No Regulation Without Representation Act respects the 
States' role as ``laboratories of democracy.'' The legislation 
merely demands that States experiment on their own citizens, 
not everyone else's. H.R. 2887 is a bipartisan bill that helps 
curb State overregulation by restoring democratic 
accountability between the regulators and the regulated. I am 
proud to cosponsor it.
    I thank Mr. Sensenbrenner for sponsoring the bill, and I 
look forward to hearing from our witnesses. Thank you, Mr. 
Chairman.
    Mr. Marino. Thank you. With no objection, other members' 
opening statements will be made part of the record.
    I will begin by swearing in our witnesses before 
introducing them. Would you please stand and raise your right 
hand? Do you swear or affirm that the testimony you are about 
to give before this Committee is the truth, the whole truth, 
and nothing but the truth, so help you God?
    You may be seated. Please let the record reflect that all 
the witnesses have responded in the affirmative. I will go 
through and read the intros on each of you, and then you will 
be able to make your opening statements.
    Neil Dierks is chief executive officer of the National Pork 
Producers Council responsible for the implementation of all 
NPPC programs. NPPC represents on Capitol Hill the interests of 
America's 60,000 pork producers and other participants in the 
U.S. pork industry. Mr. Dierks is a graduate of Iowa State 
University. He grew up on a livestock farm in Eastern Iowa and 
remains involved in the family farming operation. I live in the 
middle of several farms, and one is a pork producer.
    Mr. Chad DeVeaux. Did I pronounce that correctly?
    Mr. DeVeaux. Yes.
    Mr. Marino. Is a commercial litigation attorney at 
Atkinson, Andelson, Loya, Ruud & Romo in Southern California. 
He specializes in constitutional law, particularly the field of 
horizontal federalism, the laws governing the delineation of 
power between the States. He has litigated multiple cases 
concerning the dormant commerce clause and written extensively 
on the subject, particularly its application to nationwide 
class actions, agricultural regulations, and marijuana laws. He 
has also successfully litigated cases involving the First 
Amendment, procedural and substantive due process, 
administrative law, and Federal enclave law. He graduated 
second in his class from the University of Notre Dame's law 
school and earned a master's of law from Harvard Law School. 
Welcome.
    Andrew Moylan, is that correct, sir?
    Mr. Moylan. Yes.
    Mr. Marino. Andrew Moylan is executive vice president of 
the National Taxpayers Union Foundation, a non-partisan 
research and educational organization dedicated to showing 
Americans how taxes, government spending, and regulations 
affect them. He also leads NTU's Interstate Commerce 
Initiative, a new project to explore the policy implications of 
governments reaching outside their borders in ways that impede 
the free flow of goods and information. He was previously 
executive director of the R Street Institute, a pragmatic, free 
market think tank, where he conducted policy analysis, oversaw 
the organization's research, communications, and outreach 
efforts. Welcome.
    With almost 20 years of professional experience in the 
business community as a certified public accountant, small 
business owner, and dedicated public servant, Senator Deb 
Peters is a champion of creating more accountability and 
transparency in government. Senator Peters became State senator 
in 2010 after 6 years in the State House of Representatives. In 
November 2016, she was reelected to her fourth term in the 
Senate.
    Recognized as one of the Governing magazine's public 
official of the year in 2016, as well as one of the top 40 
political rising stars who are under 40 years old by the 
Washington Post in 2014, she serves as Chair for the Government 
Operations and Audit Committee as well as an Appropriations 
Member in the South Dakota Senate. Welcome, Senator.
    Each of the witnesses' written statements will be entered 
into the record in its entirety. I ask that each of you 
summarize your testimony in 5 minutes or less. And if you have 
not been here before, there is a box in front of you that will 
help you keep the timing. A light will show that green is the 
go. When it turns to yellow, that gives you about 1 minute. And 
when it turns to red, that indicates that your 5 minutes have 
elapsed. And I know when I am sitting there testifying, I pay 
no attention to the lights.
    So, what I will do is diplomatically just sort of pick up 
the gavel a little bit and ask you to conclude with your 
statements at a reasonable spot. Mr. Dierks, the floor is 
yours. Put your microphone on, please.

    STATEMENTS OF NEIL DIERKS, CEO, NATIONAL PORK PRODUCERS 
  COUNCIL; CHAD DEVEAUX, ESQ., ASSOCIATE, ATKINSON, ANDELSON, 
 LOYA, RUUD & ROMO; ANDREW MOYLAN, DIRECTOR OF THE INTERSTATE 
 COMMERCE INITIATIVE, NATIONAL TAXPAYERS UNION; AND HONORABLE 
   DEB PETERS, PRESIDENT-ELECT, NATIONAL CONFERENCE OF STATE 
 LEGISLATURES, SENIOR ASSISTANT MAJORITY LEADER, SOUTH DAKOTA 
                          LEGISLATURE

                    STATEMENT OF NEIL DIERKS

    Mr. Dierks. Good morning, Chairman Marino, Ranking Member 
Cicilline when he arrives, and also, I would say Ranking Member 
Mr. Conyers and also Chairman Goodlatte from the full 
Committee. I appreciate the opportunity as well as the thanks 
to the Subcommittee for this opportunity. As the statement 
said, I am the CEO of the National Pork Producers Council, 
which represents interests of America's 60,000 hog farmers. And 
I did grow up on a farm in Eastern Iowa, a diversified crop 
livestock farm. And I am involved in that family operation 
today.
    First, today, I want to convey two important messages. The 
first being that pork producers are not animal rights 
activists. Lawmakers or regulators should make the decisions 
about what production practices are best for their animals and 
for producing safe food. Changes in production practices should 
be driven by the marketplace, not government fiat or ballot 
initiatives.
    Second, today's pork industry offers American consumers 
many nutritious choices at affordable prices. Laws and 
regulations should not restrict the producer's right to choose 
how to raise and care for their animals or eliminate choices 
for consumers that have when it comes to producing safe, 
affordable food for their families.
    As you know, there has been a considerable debate over 
certain animal housing. For our industry, it has been 
individual pens for housing pregnant sows, often known as 
gestation stalls. Several States, most with little pork 
production, have banned gestation stalls, either through ballot 
initiatives or legislation which was their prerogative, however 
ill-advised and uninformed their motives.
    What NPPC and pork producers object to is one State 
adopting a law, or regulation, or initiative that dictates the 
practices of producers in the other 49 States. That is what 
California in 2010 and Massachusetts did last year in banning 
the sale of out-of-State pork from pigs born to sows that were 
housed in gestation stalls which those States have prohibited 
for their own hog farmers.
    I want to point out that California and Massachusetts have 
very little pork production, and they are telling farmers and 
States such as Iowa, Minnesota, and North Carolina, Ohio which 
have a lot of pork production how to run their farms if they 
want to sell pork in California, Massachusetts.
    This has had and will have significant consequences for 
consumers in the States, for pork producers throughout the 
country, and ultimately, for all U.S. consumers of pork. 
Several sow operations in California, for example, moved out of 
the State after the voters there, in 2008, approved a ballot 
initiative banning gestation stalls, as well as battery cages 
for egg-laying hens, and crates for veal calves. A 2016 Cornell 
University study found that California's ban on battery cages 
and on selling eggs from out-of-State hens housed in such cages 
resulted in a $0.49 per dozen increase in price. An increase 
not that severe for the average California household, but the 
same cannot be said for the poorest California households.
    Other research has found that applied to the entire 
economy, such an increase in egg prices would 
disproportionately harm lower income households, primarily 
minorities. And, remember, poor people spend a much larger 
share of their incomes on food. There is also an economic 
impact on the producers of those products. For hog farmers, 
there could be a significant cost for converting their 
operations from one housing system to another as well as a 
higher cost of producing pork in some alternative housing 
systems.
    Again, any changes in systems or practices should be based 
on signals from the marketplace. If all producers were forced 
to abandon gestation stalls, it would cost the pork industry 
between $1.9 billion and more than $3.2 billion to transition 
to an alternative housing system. Some of those costs would 
have to be passed onto consumers.
    It seems clear that a prohibition on the instate sale of 
out-of-State pork from pigs born to sows housed in gestation 
stalls or any other housing system that might be outlawed is a 
restraint of trade of interstate commerce, and therefore a 
violation of the U.S. Constitution's Commerce Clause. NPPC is 
supporting Congressman Sensenbrenner's H.R. 2887, the No 
Regulation without Representation Act, to stop such State 
intrusions on the sovereignty of other States. This legislation 
will help reign instates restrained of interstate commerce and 
prevent a patchwork of State laws and regulations affecting the 
scientifically accepted production practices of producers.
    In conclusion, I want to make clear that for the pork 
industry, States regulating beyond their borders transcends the 
stall issue. That is just the tip of the iceberg. No doubt, 
activists will go and have gone after other production 
practices. And the pork industry will face the prospect of a 
death by 1,000 cuts resulting in much higher retail pork prices 
if these non-science-based actions by States are permitted to 
continue. Of course, this is what the anti-meat activities 
want. Thank you for the opportunity to testify. Mr. Chairman, I 
would be happy to answer any questions the Subcommittee has.
    Mr. Dierks' written statement is available at the Committee 
or on the Committee Repository at: http://docs.house.gov/
meetings/JU/JU05/20170725/106310/HMTG-115-JU05-Wstate-DierksN-
20170725.pdf.
    Mr. Marino. Thank you, sir.
    Mr. DeVeaux.

                   STATEMENT OF CHAD DEVEAUX

    Mr. DeVeaux. Mr. Chairman, Ranking Member Conyers, and 
distinguished members of the Committee, it is a great honor to 
speak to you this morning.
    The power of the States to regulate activities beyond their 
borders is an issue that is literally older than the 
Constitution itself. Under the Articles of Confederation, 
States possessed the full scope of power over trade possessed 
by independent nations. And like too many foreign adversaries 
of the modern world, they frequently engaged in protectionist 
economic warfare against their neighbors.
    James Madison condemned such trespasses of the States on 
the rights of each other, particularly, the practice of many 
States in restricting the commercial intercourse with other 
States. This spurred mutual jealousies and aggressions, 
triggering an ever-escalating series of rivalries and 
reprisals, a series of events which came to a head during the 
so-called critical period of 1781 to 1787, which led to the 
Constitutional Convention.
    As Justice Stevens observed, the Commerce Clause was the 
Framers' response to the central problem that gave rise to the 
Constitution itself. The principal objective of the 
Constitutional Convention of 1787 was the establishment of a 
nationwide free-trade zone. As Judge Richard Posner has 
observed in recent years, the door to rivalries and reprisals 
can be opened by extraterritorial legislation projecting one 
State's legislation into neighboring States, even when the law 
presents no outright discrimination or protectionism in favor 
of local businesses. Such laws are undemocratic because 
compliance costs fall on citizens in other States who have no 
voice in the politics of the enacting State.
    For this reason, until recently, our courts have recognized 
that in the absence of congressional action, the Commerce 
Clause of its own force, the so-called dormant commerce clause, 
prohibits States from directly regulating extraterritorial 
conduct by, precluding the application of State statutes to 
commerce that takes place wholly outside the State's borders, 
whether or not the commerce has effects within the State.
    Such regulation, exceeds the inherent limit of States' 
power. This so-called extraterritorial doctrine protects the, 
autonomy of individual States within their respective spheres 
by dictating that no State shall have the authority to tell 
other polities what laws they must enact or how their affairs 
must be conducted. I have referred to this as the Commerce 
Clause's sovereign capacity function.
    From its inception, the extraterritorial doctrine has 
weathered unrelenting attack. Critics charged that the 
doctrine, is a relic of the old world with no useful role to 
play in the new. And in 2015, the tenth circuit pronounced the 
doctrine effectively dead. Many hailed this development as a 
leap forward, arguing that prohibitions against 
extraterritorial regulation inhibit Brandeisian 
experimentation: State experimentation with laws that attempt 
to solve their social and economic problems. But a vibrant 
extraterritorial doctrine protects regional variation. As the 
second circuit has noted, consumer protection matters are 
typically left to control of the States precisely so that 
different States can apply different regulatory standards based 
on what is locally appropriate.
    Allowing a State to reach into another State's affairs 
inhibits such variation. How is a State to apply standards that 
it deems locally appropriate if legislatures in a distant State 
or even a distant municipality can intercede in its affairs? 
Worse, as the great Benjamin Cardozo warned long ago, 
permitting a State to impose its will on other polities 
invites- a speedy end to our national solidarity. Such measure 
invite rivalries and reprisals. The Constitution, as Justice 
Cardozo reminded us, was framed under the dominion of a 
political philosophy less parochial in range.
    Mr. DeVeaux's written statement is available at the 
Committee or on the Committee Repository at: http://
docs.house.gov/
meetings/JU/JU05/20170725/106310/HMTG-115-JU05-Wstate-DeVeauxC-
20170725.pdf.
    Mr. Marino. Thank you.
    Mr. Moylan.

                   STATEMENT OF ANDREW MOYLAN

    Mr. Moylan. Thank you, Mr. Chairman, for the invitation to 
testify. My name is Andrew Moylan. I am the executive vice 
president of the National Taxpayers Union Foundation. And as 
mentioned, I am also the director of a newly-created Interstate 
Commerce Initiative at NTU, which is a policy project that 
focuses on these very issues, the pernicious effects of States 
attempting to exercise power outside their borders. After 
spending more than a decade devoting myself to analyzing this 
growing problem, I came to believe that they required a deeper 
study which I hope the initiative can give.
    Now, much of this is driven by the rise of the internet. 
The internet has disrupted business models across the economy, 
but it has also disrupted the business model of governments. 
Before the internet revolution, individuals and businesses were 
much more stationary in the conduct of their affairs. It used 
to be the case that global necessarily meant big. That is no 
longer the case. Now, the internet allows anyone to act 
globally. It is vast. It is powerful. It is borderless. But we 
must not allow the internet to become the vehicle for 
governments to become similarly vast, powerful, and borderless.
    Now, in response to the disruption, we see innumerable 
examples of States pushing beyond their borders in search of 
revenue and control. Some have construed this hearing as just 
being about the issue of internet sales taxes, and I have a 
great deal to say on that as a manifestation of State 
overreach. But I want to stress that this is about so much more 
than that one issue alone. It is about the very nature of State 
power and the minimum connection that we deem acceptable as the 
basis for a State to exercise power over an individual or a 
business.
    Some States have proven that they think the answer to that 
question is basically zero. If you are a Midwestern farmer with 
the temerity to sell into other States across the country, 
well, as mentioned Massachusetts and California think that you 
are subject to their regulatory authority. If you are an 
individual who does not live in the State but telecommutes for 
a business that is, New York thinks you are subject to their 
tax authority. If you are a trucking business with no property, 
no employees, and no customers in the State, Nebraska has shown 
that it thinks you are subject to its tax authority. If I had 
stronger tendencies toward masochism, I could devote the 
entirety of my testimony to these examples. But I will spare 
you along with myself.
    So, you will hear from opponents of this bill that it is a 
dramatic infringement on States' rights, that it would, 
``Destroy the fundamental principles of federalism that have 
guided our Nation since its founding.'' I am a big proponent of 
the notion that States are better equipped than the Federal 
Government to address many policy issues. I believe strongly 
that the Federal Government is too large and too powerful. It 
has, in fact, usurped a great deal of authority from the States 
with considerable negative consequences. I have testified to 
this view multiple times before this very Committee.
    But let us make something clear: States do not have rights. 
States exercise power. People have rights. And States exercise 
power that they are granted by people. And what is happening 
across the country is a dramatic infringement on the rights of 
the people from which States derive their power in the first 
place, their right to be subject to taxation and regulation 
only by governments with which they or their businesses have 
significant connection to laws they can understand and comply 
with to ensure the free flow of goods and information in 
interstate commerce.
    And if our friends in the States seek a world in which they 
are not only sovereign within their own borders but also free 
to exercise power outside them as well, we have just the trick 
for them. They need simply go back to the 1780s and warn the 
Founders that we should not draft a new Constitution at all, 
that this Articles of Confederation thing is working out 
brilliantly for us. And under that system, we had States 
exercising power outside their borders with impunity. And 
Congress had no Commerce Clause power to restrain their abuses. 
So, tell the Founders that they were wrong, that the careful 
balance of power between States and the Federal Government that 
they crafted with the Constitution and that has sustained this 
Nation for more than two centuries is in fact inferior to a 
system that collapsed of its own weight in less than a decade.
    So, I will close by saying this. Any reasonable conception 
of limited government must recognize that there are limits on 
State power just as it recognizes that there are limits on 
Federal power. States are sovereign within their own territory, 
but their power must stop at border's edge. Absent reasonable 
guidelines like those laid out in H.R. 2887, the alternative is 
an unthinkable morass of cross-border taxes and regulations 
that undermines interstate commerce and subjects taxpayers to 
the authorities of governments with which they have no 
connection.
    H.R. 2887 would prevent that in very plain language 
consistent with Congress' proper constitutional role while 
preserving States' legitimate prerogatives to conduct their own 
affairs. It is a simple bill. It is a smart bill, and I think 
it deserves your support. And I look forward to the committee's 
questions. Thank you.
    Mr. Moylan's written statement is available at the 
Committee or on the Committee Repository at: http://
docs.house.gov/meetings/JU/JU05/20170725/106310/HMTG-115-JU05-
Wstate-MoylanA-20170725.pdf.
    Mr. Marino. Thank you.
    Senator Peters.

                    STATEMENT OF DEB PETERS

    Ms. Peters. Good morning.
    Mr. Marino. Good morning.
    Ms. Peters. I am Deb Peters. I am a Republican elected 
official from the State of South Dakota, and I want to thank 
Chairman Marino, Ranking Member Cicilline, and Chairman 
Goodlatte, and Ranking Member Conyers, and distinguished 
members of the Subcommittee. I am pleased to submit my written 
statements on behalf of the National Conference of State 
Legislatures and respectfully request that they be added to the 
record.
    In drafting the United States Constitution, the Framers 
envisioned a union of sovereign States that granted limited 
power to the Federal Government. This was reinforced by the 
ratification of the 10th Amendment which protects against 
centralized power and reserves powers to the States that were 
not delegated to the Federal Government.
    The 10th Amendment has defined American federalism: the 
relationship between Federal and State governments by 
preserving broad powers to the States and to the people. States 
have used this sovereignty to enact laws to protect the health, 
safety, and welfare of their citizens. State lawmakers 
understand that Federal Government has the power over important 
policy arenas such as national defense and interstate commerce. 
However, we also understand the role of State governance. Each 
State is unique and is confronted with different problems and 
policy choices from their constituents. There are rare 
instances where a national one-size-fits-all approach is the 
best policy for citizens in every State.
    Unfortunately, Congress and the Federal Government often 
ignore States' concerns and enact rules and laws that one, 
preempt States, put undue burden on State finances, and are 
extremely difficult to implement. And as Congress and State 
legislatures represent the same constituencies, the people who 
often suffer from failed national one-size-fits-all policies 
are the same people we all represent. Since the beginning of 
the 20th century, Congress has increasingly eroded the 
regulatory powers of States, primarily through the Commerce 
Clause. This erosion of State sovereignty has only been 
accelerated in recent years as Congressional thirst to dictate 
State governance apparently cannot be quenched. The Framers of 
our Constitution should be alarmed.
    Ultimately, States have the constitutional right and 
obligation to enact laws that are not only in the best interest 
of their citizens and businesses but that reflect the popular 
approval of their citizens. State sovereignty, or states' 
rights, is not a doctrine of convenience. Rather it is an idea 
that States and their citizens know best how to govern 
themselves. The No Regulation without Representation Act 
embodies the Federal encroachment of State sovereignty the 
Framers feared. This legislation violates the Tenth Amendment 
guarantee that sovereign rights of the States cannot be 
abridged by Congress and aims to eliminate states' powers 
within their borders.
    While the full scope of thousands of State laws and 
regulations would be preempted by this bill would be almost 
impossible to quantify, I did include a couple of examples in 
my written testimony. And I do not want to talk about them 
today. But with respect to remote sales tax collection, this 
bill unjustifiably preempts States' authority as it goes beyond 
physical presence standard established in the Supreme Court 
Quill decision in 1992. And for the record, this bill today 
does not codify the Quill decision.
    Since 2002, broadly supported legislation has been 
introduced into Congress to fix remote sales tax collection 
problems which has included the Marketplace Fairness Act, MFA, 
and the Remote Transaction Parity Act, RTPAs. Just for the 
record, it has been 1,541 days since MFA overwhelmingly passed 
the United States Senate with a 69 to 27 vote in 2013. It has 
been 1,502 since that legislation was referred to this 
Subcommittee. It has been 750 days since RTPA was first 
referred to this Subcommittee in 2015. RTPA was just 
reintroduced into this Congress 89 days ago, and it was 
referred to this Committee 81 days ago.
    However, today's hearing is not on MFA or on RTPA. Instead, 
it is on a bill referred to this Committee just 6 days ago. 
This bill does not fix remote sales tax collection problems. It 
exacerbates it. This bill is one of the most preemptive 
legislative measures ever introduced into Congress. NCL 
adamantly opposes it, and I urge Congress to do so as well.
    I appreciate the opportunity to testify today. I am also 
proud to sit here as an elected official from South Dakota 
supporting Representative Kristi Noem's commonsense 
legislation, the Remote Transaction Parity Act. RTPA should 
have been a part of today's hearing and is widely supported by 
businesses, governors, and State legislatures. As sovereign 
States, we look forward to constructively working with Congress 
and the administration to usher in a new era of federalism in 
the United States which will return decision making back to the 
States. States are the laboratories of democracy, and we need 
the power and the flexibility to innovate, create, and adapt 
policies and procedures that best meet the needs of our 
citizens. As your counterparts in the States, we look forward 
to continuing the partnership that will advance State 
legislatures' role in innovative policy making that our 
forefathers have envisioned.
    And with that, I will stand by for questions. Thank you.
    Hon. Peters' written statement is available at the 
Committee or on the Committee Repository at: http://
docs.house.gov/meetings/JU/JU05/20170725/106310/HMTG-115-JU05-
Wstate-PetersD-20170725.pdf.
    Mr. Marino. Thank you. The Chair now recognizes the 
Chairman of the full Judiciary Committee, Chairman Goodlatte, 
for his 5 minutes of questioning.
    Chairman Goodlatte. Thank you, Mr. Chairman. Senator 
Peters, welcome. I want to thank all the witnesses for their 
testimony. I am particularly interested in yours because you 
did not address the problem that this legislation is attempting 
to address. Let me give you an example.
    California's controversial low-carbon fuel standard 
purports to regulate the out-of-State production of ethanol 
sold into California in order to reduce carbon emissions. I 
want to read you a lengthy quote from an appellate brief 
challenging the law. ``The LCFS is an attempt to impose the 
views of one large State, California, on the other 49 States. 
As sovereign States, Amici recognize California's ability to 
regulate conduct that occurs wholly within its borders such as 
imposition of stricter emission limits on ethanol-producing 
facilities and other activities within California.
    But here, the LCFS reaches out across the Rockies and into 
the Plains to regulate Amici States' ethanol industry, corn 
farming, and a host of activities that are far removed from 
California. The only difference is how ethanol is produced in 
other States which is not California's right to decide. Here, 
the whole premise of California's approach is to use 
California's economic power to control out-of-State activities. 
California wants to discourage such activity because it 
believes it contributes to global warming. But Amici States may 
want to encourage cultivation and other economic activity. That 
is our decision to make.
    The penalty is also affected by California's views about 
various farming practices. California is thus seeking to change 
out-of-State farming practices based on its views of what is 
more sustainable. It is none of California's business how 
farmers in other States choose to grow their corn. The United 
States is a common market. California may not blockade out-of-
State products in an attempt to force changes in out-of-State 
farming policies.'' This is the case of Rocky Mountain Farmers 
v. Goldstein. Do you know what State signed the appellate brief 
that I just read from?
    Ms. Peters. I do not know as I am not an attorney.
    Chairman Goodlatte. Well, the answer is that one of the 
States that signed it was the State of South Dakota. Do you 
think South Dakota has a strong point in arguing against 
California's attempt to regulate corn farmers in South Dakota?
    Ms. Peters. Mr. Chairman, I do not disagree with you, Mr. 
Chairman.
    Chairman Goodlatte. Good. That is all I am asking. Do you--
--
    Ms. Peters. However, I would like the opportunity to answer 
your question.
    Chairman Goodlatte. Okay.
    Ms. Peters. You are right. This bill attempts to create 
solutions for ethanol, pork, taxes, you name it, ethanol, corn, 
eggs, you name it.
    Chairman Goodlatte. It does not attempt to create any 
solutions. What it attempts to do is stop States from 
regulating businesses and people outside their jurisdiction.
    Ms. Peters. Mr. Chairman, if I can continue? I do not 
disagree with you, but specific issues with specific problems 
should be regulated on a case-by-case basis. You cannot just 
drop a one-size-fits-all thing that is going to help our pork 
producers, or our cattle industry, or our egg industry. And for 
that matter, now you are trying to throw in legal discussions 
about tax policy on digital goods, and mobile workforce, and 
employees in workforce.
    Chairman Goodlatte. This does not----
    Ms. Peters. It should all be one----
    Chairman Goodlatte [continuing]. Does not help.
    Ms. Peters [continuing]. Case-by-case----
    Chairman Goodlatte. Mr. Chairman, the time is mine. This 
does not solve any of those problems. What it does is prevent 
States from attempting to regulate businesses outside of their 
jurisdiction. That is all that it attempts to do, and that is 
why it is important. The Ninth Circuit rejected South Dakota's 
challenge. H.R. 2887, the bill that Mr. Sensenbrenner 
introduced, would shield South Dakota farmers from precisely 
such regulatory overreach. Does that not suggest the need for 
congressional action?
    Ms. Peters. Mr. Chairman, again as I would say, it is not 
this body's responsibility to talk about my constituents. The 
people, if they vote to institute a law----
    Chairman Goodlatte. I am talking about----
    Ms. Peters [continuing]. That regulates eggs, then it is up 
to them.
    Chairman Goodlatte. Reclaiming my time, I am talking about 
my constituents. My constituents in the State of Virginia, and 
I very much respect your respect for the 10th Amendment to the 
United States Constitution. But that amendment preserves the 
powers of the States within their borders, not to regulate 
commerce outside their jurisdiction. And that is what the 
Constitution reserves for the Congress through the Commerce 
Clause. And this legislation is simply attempting to respond to 
what the courts have ignored for a number of years now.
    Ms. Peters. Mr. Chairman, if I can respond as well?
    Chairman Goodlatte. You can.
    Ms. Peters. My constituency should be able to do what they 
wish. And if my businesses in my community cannot sell in 
California because they do not follow California law, that is 
open and free market. And that is their decision. Now, do I 
think that that is an issue that we need to address? 
Absolutely. However, I do not believe that this particular 
piece of legislation is the right answer to fix the ag 
community. I think the ag community should come up with a 
solution separately from a tax solution, separately from a 
legal solution, or separately from a regulatory solution.
    Chairman Goodlatte. Mr. Moylan, would you care to respond 
to that?
    Mr. Moylan. I would make one point that the epitome of a 
one-size-fits-all solution is quite literally in the State of 
California a one-hen-cage-size fits all solution that I talked 
about in my written testimony where California has attempted to 
regulate the size of cages of hens grown for egg production. 
And they are attempting to force that standard on businesses in 
Missouri and other kinds of places that have much more dairy 
production. That is a one-size-fits-all solution, and that is a 
bad application of a one-size-fits-all solution.
    I would say one other thing, though, that there are some 
situations where a one-size-fits-all solution actually is 
appropriate. And it is when we are talking about basic 
constitutional principles. The First Amendment is a one-size-
fits-all solution. Now specific application of regulations 
consistent with the First Amendment after that, of course, 
States have different approaches in how they regulate any 
number of different things. But when we are talking about 
basic, baseline constitutional principles like that, that is 
what I think this bill does, is it establishes a basic, 
baseline constitutional principle that you have to have a 
physical presence in a State before you can be expected to 
comply with their laws. So, I think that that phrasing provides 
an interesting bit of analysis.
    Chairman Goodlatte. Thank you. Thank you, Mr. Chairman.
    Mr. Marino. The Chair now recognizes the Ranking Member of 
the full Judiciary Committee, Congressman Conyers.
    Mr. Conyers. Thank you, Mr. Chairman. Senator Peters, you 
really put this thing into a perspective that I think is very 
important. Now, Chairman Goodlatte is a very experienced 
national legislator, and I wanted to give you a chance if you 
wanted to get your idea to him across to take 1 minute or 2 on 
that if you would, please.
    Ms. Peters. Thank you, Mr. Conyers. To put it into a 
perspective as far as states' rights and constituencies, we all 
represent the same people. Our citizens and our communities 
bring things to us.
    For example, in my written statement, Salvia. Salvia is a 
dangerous hallucinogenic drug that has not been addressed by 
Congress or put as illegal across the country. But it has been 
an issue that was brought to us in the legislature because it 
is a dangerous hallucinogenic drug that causes psychotropic 
experiences similar to LSD. Because that was a constituency 
issue, it was brought to us, we made it illegal to consume it, 
to sell it. We found out that that particular drug was being 
sold in t-shirt shops as an herb. But it was not dealt with at 
the Federal Government. So, the States took it upon themselves 
to ban it and regulate it.
    This bill today will not allow my State, because it is 
shipped in from somewhere else. It cannot be grown in my State, 
but it is shipped in. And this will not allow me as my State to 
take a dangerous drug that my constituencies have said is a 
dangerous drug and to ban it.
    Another example is pine beetles in South Dakota. We have 
just finally beat the pine beetle epidemic in the State of 
South Dakota, and we had to change a lot of regulations on 
regulating transportation and a lot of things. We have a lot of 
Federal land in the State of South Dakota, and we had to work 
with the Federal Government. But because of the differences in 
how we manage land, the Federal Government versus State 
government versus the localities, whether you are a private 
landowner or not, we had to make a variety of different 
changes. But this law, if it passed, would not allow us to make 
those proper changes to protect our trees, and our mountains, 
and our environment.
    So, with that, those are just two really quick examples of 
things that are not tax-related that would really force States 
to not be able to deal with the constituencies and the issues 
that are local. And that is where the power should be left.
    Mr. Conyers. Senator Peters, what do you think would be the 
effect of this bill on jobs and economic growth in the States?
    Ms. Peters. I think that is a really unique question, and I 
appreciate the opportunity to address it. You know, the States 
are laboratories of democracy. With the flexibility granted to 
us from this esteemed body, we are able to be creative and 
innovative in how things work. California has a unique set of 
jobs and circumstances in Silicon Valley. They have been able 
to adapt the rules and laws to generate jobs within Silicon 
Valley based on technology changes. South Dakota has been able 
to do the same.
    I think this particular piece of legislation will actually 
inhibit jobs, inhibit economic growth because it will not allow 
States to foster, and develop, and help create policies and 
procedures to ensure economic development across our States.
    Mr. Conyers. Let me ask you about the Quill decision which 
was decided 25 years ago. Have we not improved our technology 
to the point where the burden on collecting sales tax is 
practically nonexistent?
    Ms. Peters. Again, thank you very much for that question. I 
am a CPA in real life. I am a part-time legislator, part-time 
CPA, and full-time mother of two teenage boys. So, the whole 
idea and the whole concept of a court case in 1992 which 
reaffirmed a court case from 1967, putting this into 
perspective, 1967; I was not born yet. In 1992, I was a junior 
in high school, and I am sitting before Congress talking about 
an issue that happened before I was born.
    So, talking about technology and----
    Mr. Conyers. You are pretty good at that.
    Ms. Peters. Thank you. But talking about the way technology 
has changed since 1967, let's put it into perspective. John 
McCain was shot down over North Vietnam in 1967. A lot has 
changed since 1967. The world has changed. The way we do 
business has changed. Technology has changed the way we do 
business. So, it is an interesting discussion to have about 
sales tax and talk about technology.
    If you look at RTPA and some of the safeguards in RTPA to 
protect business, and States' overreach, and over auditing, 
they include in RTPA the ability for States to provide the 
software for free to the businesses to use. The technology is 
there. Over 24 to 26 States are currently using it today. If 
you want to talk about Californian egg laws, if California 
supplied all of the cages to the farmers, then I have no 
problem with California changing the law to protect the 
citizens because that is what they voted for.
    Mr. Conyers. Sure. Thank you----
    Ms. Peters. But that is part of the problem. So, thank you, 
Mr. Conyers.
    Mr. Conyers. Thanks so much. I want, Mr. Chairman, to 
submit for the record letters, especially--one, two, three, 
four, five, six, seven--seven different organizations, but 
especially the first one, Marketplace Fairness Coalition, 
signed by over 120 companies and associations and 12 unions, 
all of the biggies. And the Governors Association and the 
Conference of State Legislators, as well as for our Ranking 
Member, Mr. Cicilline and a letter from Representative Noem.
    Mr. Marino. Without objection.
    These materials are available at the Committee or on the 
Committee Repository at: http://docs.house.gov/meetings/JU/
JU05/20170725/106310/HMTG-115-JU05-20170725-SD003.pdf.
    Mr. Conyers. Thank you, sir. And I want to thank our 
witness, as a CPA and an expert on the considerations to this 
bill, we value your presence here today. And I thank you very 
much. Yield back, Mr. Chairman.
    Mr. Marino. Thank you.
    Chairman Goodlatte. Mr. Chairman.
    Mr. Marino. Yes, sir.
    Chairman Goodlatte. Mr. Chairman, I ask unanimous consent 
just going to send to enter in the record the following 
testimony and letters of support for H.R. 2887: a letter of 
support from the National Cattlemen's Beef Association, North 
American Meat Association, the National Pork Producers Council; 
letter of support from the Virginia Cattlemen's Association; a 
letter of support from 18 conservative organizations, including 
Americans for Tax Reform, National Taxpayers Union, ALEC 
Action, Americans for Prosperity, Center for Peace, Freedom, 
and Prosperity, Competitive Enterprise Institute, Conservative 
HQ.com, Council for Citizens Against Government Waste, Digital 
Liberty, DownsizeDC.org, Incorporated, Freedom Works, Free the 
People, Independent Women's Voice, Institute for Liberty, 
National Center for Policy Analysis, R Street Institute, 
Taxpayers Protection Alliance, Tea Party Nation; a letter of 
support from the American Catalog Mailers Association; a letter 
of support and testimony from Net Choice; a letter of support 
and testimony from Overstock, testimony from George Isaacson; a 
Supreme Court litigator and expert on federalism and nexus.
    Mr. Marino. Without objection.
    These materials are available at the Committee or on the 
Committee Repository at: http://docs.house.gov/meetings/JU/
JU05/20170725/106310/HMTG-115-JU05-20170725-SD002.pdf.
    Chairman Goodlatte. Thank you, Mr. Chairman.
    Mr. Marino. The Chair now recognizes the Vice Chairman of 
the Subcommittee Farenthold from Texas.
    Mr. Farenthold. Thank you, Mr. Chairman. Mr. DeVeaux, I 
would like to start with you. One of my concerns is how we 
define regulation in this bill. Currently the draft restrains 
regulation on production, manufacture, or post-sale disposal of 
a product. In your opinion, are these categories broad enough 
to cover the across State border regulatory overreach that is 
happening? And if not, what else would you include?
    Mr. DeVeaux. Well, yeah, I do think it is broad enough. It 
encompasses about everything in terms of the issue, but----
    Mr. Farenthold. Great. I just want to make sure we were not 
leaving something out and have to come back and revisit this 
issue. Senator Peters, you talk about the Marketplace Fairness 
Act and Remote Transaction Parity Act. What effect do you 
believe this legislation would have on the internet sales tax 
debate?
    Ms. Peters. I think it puts us back to when sales tax was 
enacted in 1939 in the State of South Dakota, and the world has 
changed since then.
    Mr. Farenthold. All right. So, Mr. Moylan, do you have some 
thoughts on that?
    Mr. Moylan. I do, you will be surprised to hear. My 
thoughts are that this legislation, I think is a very important 
first step. It is not the only step, but it is a very important 
first step in helping to sort of reset what has been a very 
difficult and, frankly, a very poisonous debate over many years 
in Washington. And the reason I think it is an important first 
step is because it underscores that incredibly important basic 
constitutional principle that a business or an individual 
should not have to comply with the laws of a State unless they 
are physically present in that State, that that ensures that 
connection.
    And then, I think it is the perfectly reasonable purview of 
this Congress or, you know, other entities to consider are 
there things consistent with those principles that might help 
to address the issues? I have testified before this Committee 
about what my own thoughts are about that approach. But I think 
this is an important first step, and what it does is it helps 
us to clear up this morass of State level litigation where 
States are passing knowingly unconstitutional bills in order to 
draw litigation. This is the kind of thing that throws 
businesses into turmoil and a tremendous amount of----
    Mr. Farenthold. Can we talk a little more about the sales 
tax issue? One of my most unpleasant memories of operating a 
small business before I came to Congress was the sales tax 
audit. They sent two folks who we had to provide an office for. 
It stuck around my office for about two weeks, and poked around 
on our computers, and every file we had. We had an employee 
dedicated to finding documents for them and helping them out. 
That was one State. That was Texas auditing a Texas company. If 
I were subject to having to pay sales tax in all 50 States, 
what is stopping each one of those 50 States from sending 
somebody in to audit me every year? I mean, I could not afford 
that.
    Mr. Moylan. Well, my condolences for your experience, and I 
would say----
    Mr. Farenthold. We did come out only owing about $200. I 
consider that a win.
    Mr. Moylan. Well, it could have been worse then. What I 
would say are two things. We heard about, well has technology 
not advanced? And I think that, you know, maybe you are a good 
example of this. I often say about the complexity issue and 
technology, if you think that technology can solve sales tax 
complexity, you must think that TurboTax has solved income tax 
complexity. And anyone who has filed income taxes through 
TurboTax knows that the challenge in filing your taxes with 
TurboTax is not in doing the math. We really have had the 
technology to do the math for decades at this point.
    The challenge is in deciding what credits you might 
actually qualify for, do you meet a multiple part test, did you 
spend enough to meet this threshold? These are the decisions 
that software cannot answer for you. And as a business, you 
cannot answer just by software whether something is included in 
a tax base or not. And so, even getting free software which I 
will steal a line from a friend of mine that it is free like a 
puppy, you know, because then you have to pay to integrate it. 
You have to pay to maintain it and operate it inside your 
systems. Even if you pay for free software for people, it does 
not solve that fundamental problem. And so, I think while the 
world has changed a great deal, there are some things that we 
have not yet figured out how to solve with----
    Mr. Farenthold. All right. And just before I let go of the 
sales tax issue, I have got one more question for you. Some 
States are now forcing online retailers to report to the State 
on private and often sensitive online purchase information by 
State residents, I guess in an effort to come after those 
individual residents to collect the use tax. Does that not 
strike you as a serious privacy violation?
    Mr. Moylan. It does indeed. I think it provides some very 
serious concerns about privacy. We have seen the way that, 
unfortunately, the way that government agencies handle 
sensitive information for individuals. And we are talking about 
the most sensitive personal information and financial 
information as it relates to sales tax. And so, I think that 
that is a major concern. And that is why, you know, we have 
this ongoing litigation in all of these different States. That 
is why I think this bill is important, is to help clarify that 
debate, help, you know, get us past some of these arguments 
that we are going over and over in all of these States now. 
Establish that baseline principle, and then allow us to have 
what I think is a more intelligent conversation after that.
    Mr. Farenthold. Thank you very much for your answer. Mr. 
Chairman, I see my time has expired.
    Mr. Marino. Thank you. The Chair now recognizes the Ranking 
Member of the Subcommittee. The time goes to Mr. Cicilline for 
his opening statement.
    Mr. Cicilline. Thank you, Mr. Chairman, and thank you to 
our witnesses for being here today. Small, locally-owned 
businesses are the lifeblood of our communities. Whether it is 
the local bookstore, coffee shop, hardware store, restaurant, 
or grocer, these small-scale businesses form the backbone of 
communities that are more prosperous, entrepreneurial, and 
connected as the Institute for Local Self Reliance reports.
    Leading studies have also found that more than half of 
every dollar invested in locally-owned business stays in the 
community. That is because locally-owned businesses invest in 
labor, goods, and services located within our communities. 
Profits are paid to local owners who live in the community and 
local workers who receive higher wages at locally owned 
businesses. And in times of economic downturn or recession, 
locally-owned businesses create and retain jobs at a higher 
rate than larger corporations as leading economists at Yale 
University and the University of Bristol found in 2012.
    But for decades, the value of goods sold by locally owned 
business has diminished due to tax loopholes for online 
purchases. Even though taxes are owed on these purchases in 
nearly every State, few consumers are aware of this requirement 
or can reasonably be expected to track and report their own 
taxes from online purchases, also known as use taxes. The 
result of this tax loophole has been catastrophic. Over 3,000 
stores are expected to close this year, double the number of 
closings during this period last year, while the number of 
monthly job losses in the retail sector far exceeds the losses 
in every other sector of the economy combined.
    And every week, as businesses and retailers are forced to 
close their doors, hardworking Americans want to know why has 
Congress failed to act? I am a proud cosponsor of H.R. 2193, 
the Remote Transaction Parity Act, which would end these unfair 
tax breaks that stack the deck against locally owned 
businesses. This bill is a job and economic opportunity 
creator.
    Conservative economic experts report that this commonsense 
measure would create more than 1.5 million jobs over a decade 
and reduce or eliminate State budget shortfalls by providing 
equal treatment for all businesses. This State revenue is 
critical to helping our communities invest in infrastructure 
projects like bridges, roads, and broadband internet access, 
not to mention important public services like education, 
healthcare, and law enforcement.
    These are projects and services that our communities need 
to flourish in the 21st century economy. And to those who argue 
that this is a new tax, several States including Wisconsin, 
have already signed laws into place to ensure that revenue 
collected through this bill will result in tax reductions. And 
yet rather than act on this legislation which has broad, 
bipartisan support, we are now considering H.R. 2887, which 
might more accurately be called the Destroying Locally-Owned 
Business and State Sovereignty Act.
    H.R. 2887 prohibits States from collecting taxes on 
purchases from out-of-State sellers unless they are physically 
present in the State for at least 15 days in a taxable year. 
This legislation in my view is a dangerous and transparent 
attempt to bait our local stores to negotiate against the 
interests of local communities. It should come as no surprise 
that this bill was drafted without input from locally-owned 
businesses, brick and mortar stores, or State and local 
governments. At a time when online commerce is a large and 
rapidly growing portion of all sales, H.R. 2887 has carve-outs 
for online commerce and would prevent States from collecting 
taxes on goods from out-of-State sellers.
    And according to the Congressional Budget Office, requiring 
physical presence requirement for corporate income taxes alone, 
as this bill would do, would steal billions from State budgets 
every year. Worse still, this legislation is an existential 
threat to the sovereignty of State governments. And this is no 
exaggeration. H.R. 2887 prohibits States from imposing 
standards on commerce made by out-of-State manufacturers and 
sellers unless they have a physical presence within the State 
for 15 days in a taxable year.
    As the coalition of leading administrative and 
constitutional law scholars note, this bill unconstitutionally 
ejects States from their role in the Federal system and is 
anathema to long-settled constitutional law, bedrock principles 
of federalism, and State innovation. Yes, I am. Okay. I am 
going to yield back and return later for my questions.
    Mr. Marino. The Chair now recognizes Congressman Buck for 
his questioning.
    Mr. Buck. Thank you, Mr. Chairman. Mr. Dierks, quick 
question since you seem lonely over there. I just want to know 
your thoughts on some of the comments by Senator Peters. Is it 
in your opinion that a State like California may regulate 
commerce in a State like South Dakota?
    Mr. Dierks. No, we understand California's ability to 
regulate their own citizens. It is by making requirements of 
what gets sold in a given State that producers in South Dakota, 
Iowa, Missouri, or whatever respond to. And part of the problem 
is it puts a wedge in between the marketplace and what the 
customer wants. We are all for the marketplace, and if the 
marketplace demands it, our industry is plastic. We will 
respond to it.
    What we get is a false signal of a requirement, and 
generally what we see in our industry with these housing 
changes is that there has been some adoption. It has been slow. 
And one of the common things we hear is that there is no 
economic incentive to do it, and for a lot of producers, there 
is quite a burden to retrofit operations that have a long life 
to them in order to fill a desire in a State that I would 
argue, if there was a market for, the marketplace would have 
demanded.
    Mr. Buck. Okay. Mr. DeVeaux.
    Mr. Dierks. Rather than----
    Mr. Buck. I am going to move on. Mr. DeVeaux, any comments 
on that?
    Mr. DeVeaux. Well, I mean I would say the key thing to 
think about, and I am, with respect to all witnesses here, my 
bigger concern in terms of the sovereignty issue is not so much 
just the parties that are being regulated themselves but the 
consumers in the various States. Because these kind of effects 
will raise the cost of agricultural products in other States 
for consumers. You know, the folks here have lobbies to help 
protect them, but the consumers that go to the grocery stores 
in Ohio do not.
    So, my own personal stake in it would be it is above my 
paygrade to make a judgment about whether Massachusetts is 
right and Nebraska is wrong or Nebraska is right and 
Massachusetts is wrong. It is more a function of----
    Mr. Buck. I did not ask that. I asked whether a State like 
California can regulate commerce from South Dakota, regulate 
what a farmer in South Dakota does.
    Mr. DeVeaux. Well, I mean, under the current constitutional 
tests that are being applied by the courts, they effectively 
can because basically the rule is that if the State is imposing 
a law that burdens interstate commerce, it is subjected to what 
is called the Pike test. And under the Pike test, the question 
is: is the burden on interstate commerce clearly excessive in 
relation to the putative local benefit? And that test is 
extremely deferential to the regulating States. And virtually 
the only time that something does not pass the Pike test are 
cases where the regulation serves no local benefit.
    Mr. Buck. Mr. Moylan, let me ask you a question, maybe make 
it a little more specific. Can the State of California place a 
tax on products that are exported from the State of South 
Dakota to the State of California?
    Mr. Moylan. Well, you have cut right to the heart of what 
this bill is about. And the answer is that there is some gray 
area today, and that this bill would eliminate that gray area, 
I think, in an important fashion. But rather than sort of 
restating what some of my colleagues have said, I would make a 
different point which is that often the response to, well if 
you do not like California's laws then do not sell into 
California. That is something that we hear an awful lot in 
these instances. And I think that it is interesting because it 
reveals the very interstate commerce burden that this bill is 
intent on trying to address. That folks say, well----
    Mr. Buck. And would not we end up----
    Mr. Moylan [continuing]. Do not sell, that is the commerce 
burden we are talking about----
    Mr. Buck. Would we not end up in that situation with 50 
different statutory schemes that would face 50 different 
burdens on a producer in any given State? Whether it is a tax, 
whether it is an environmental regulation, whatever the 
regulation is, practically no farmer in my district in Colorado 
which is close to South Dakota--only Wyoming separates the two 
of us--and Wyoming is fairly big. But no farmer could possibly 
comply with 50 different regulatory burdens. And the whole 
point of promoting interstate commerce, the whole point of 
moving from the Articles of Confederation to the Constitution 
was to promote a marketplace that would be fair to especially 
small business in America. Comments?
    Mr. Moylan. I think that is right, and I think that, 
unfortunately, what we are seeing is that this gray area is 
pushing us farther down this slippery slope and faster toward 
that scenario that you describe of having to comply with all of 
these different jurisdictions, faster than many folks thought. 
And that is why this bill is necessary.
    Mr. Buck. I yield back, Mr. Chairman.
    Mr. Marino. The Chair now again recognizes Ranking Member 
Congressman Cicilline for his questions.
    Mr. Cicilline. Thank you, Mr. Chairman, and thank you again 
to the witnesses. A group of leading administrative and 
constitutional law scholars have noted that H.R. 2887 will 
undermine ``a vast scope of State regulation that would fall 
under H.R. 2887's prohibitions, licensing for service 
professions, consumer protections, tort reforms, oil and gas 
extraction laws, environmental health and safety protections, 
agricultural standards, and even State quarantine laws.''
    Well, let me first ask Mr. Moylan, how do you justify a 15-
day physical presence requirement for essential protections for 
State citizens? It is a State's, of course, interest and 
obligation to protect its citizens. Why should it be dependent 
in fulfilling that responsibility on a 15-day physical presence 
requirement?
    Mr. Moylan. Well, I would answer first by saying that it is 
not at all clear to me that each one of those laws would be 
invalidated by H.R. 2887. We have----
    Mr. Cicilline. Why not?
    Mr. Moylan. Well, one example that was prior to your 
arriving was Senator Peters talked about the issue of Salvia, a 
drug that they have banned in the State of South Dakota. It is 
not at all clear to me that this bill would prevent South 
Dakota from regulating the production or consumption of that 
drug. And to the extent that there are genuine interstate 
commerce issues, which there likely are if it is being 
transported into the State, then that is an area where we would 
expect the States and the Federal Government to work together 
to come up with a solution that is consistent with the Commerce 
Clause.
    And that is where I think a 15-day physical presence 
standard is certainly reasonable for any sort of business that 
might be engaged, is in that sort of limited slice. But I think 
this broad swath that folks posit is a little bit overblown in 
my opinion.
    Mr. Cicilline. Senator Peters, I apologize for promoting 
you to the House. Would you speak to that, what you think the 
implication would be on States' responsibilities to protect its 
citizens in those areas that I described or that these leading 
administrative and constitutional law scholars referenced of 
consumer protection, health and safety standards, quarantines, 
et cetera?
    Ms. Peters. Thank you very much for your question. You 
know, I do not even know where to begin with some of the issues 
that you have raised simply because this is such a broad piece 
of legislation. It encompasses everything from energy to 
agriculture to tax policy; it is almost like we have decided 
that we cannot fix it all in one fell swoop. So, let's just 
bring the bunker buster bomb and drop it instead of taking the 
surgical knife and saying, hey, I got a problem with the way 
California is legislating eggs and pork.
    Well, let's take the surgical knife then and the scalpel, 
and let's legislate that smart. Let's be smart. Let's do our 
homework. Let's do the hard work and make the tough decision. 
When you want to talk about 15 days, just think about every 
State and all of the little special events that you have in 
your State. South Dakota, we have the Sturgis Bike Rally. That 
is a 14- to 15-day event. We have retailers from all over the 
country and the world that fly into the State of South Dakota 
for a 2-week event. And guess what? It does not matter what 
they are. They could be selling Salvia. We do not have 
legalized marijuana in South Dakota. So, they could be selling 
marijuana because they would not meet the 15-day test.
    If you are going to start a bill with saying, wait a 
minute. That is not our intent, and you have to create a 
laundry list of exceptions like drugs. Then we have a problem. 
It is too broad. It is not specific enough to address the 
specific problems that we are here to talk about.
    Mr. Cicilline. Thank you. I mean, I think that is further 
supported by another letter that was submitted for the record 
from one of our colleagues, Kristi Noem, who sought to testify 
before this Committee. A member of the Republican Caucus, and I 
think it shows that even within their own Caucus, there are 
some concerns about this.
    Finally, the Congressional Budget Office has previously 
estimated that requiring physical presence for business 
activity would lead to losses of more than $2 billion in the 
first full year after enactment and at least that amount in 
subsequent years. The National Conference of State Legislatures 
estimates that the loss would be $26 billion. If you use the 
figure, the low figure of the $2 billion, that would be, just 
to give you some perspective, $1 billion a year would pay for 
the salary of 17,000 public school teachers, and over 16,000 
police officers, or 31,000 paramedics.
    So, I mean, I wonder what the expectation is of the 
witnesses of what States would do with this crushing loss of 
revenue as a result of enactment of this. Maybe Senator Peters, 
you could talk about what you think the implications would be 
for a State such as yours?
    Ms. Peters. Just to give an example for the State of South 
Dakota, 80 percent of our budget is a consumption tax. If you 
want to talk about tying the hands of these devices that have 
changed the way economies have worked, and how businesses do 
business, and how people buy and sell things, and you are going 
to tie our hands, now remember I am a Republican from a 
conservative State that relies on their budget, 80 percent 
consumption tax. That has been the goal is to tax and keep 
taxes at the local level to keep it so they support the local 
governments. If this bill goes into effect today, you are going 
to throw us into a whole another taxing regime like an income 
tax or a personal income tax. We do not have those today, but 
if you tie my hands that funds 80 percent of my budget, I have 
to figure out something.
    And then, how do you pay for the police, the fire, the 
schools, the education, and all of the Federal mandates that 
the Federal Government puts on us for Medicaid and et cetera?
    Mr. Cicilline. Thank you very much. I yield back, Mr. 
Chairman.
    Mr. Marino. The Chair recognizes Mr. Ratcliffe I see is 
back. Sorry about that. Mr. Ratcliffe is from Texas.
    Mr. Ratcliffe. Thank you, Mr. Chairman. I appreciate all 
the witnesses being here today. Mr. Dierks, let me start with 
you. Your written testimony describes the pork production 
process as being very complex. Now, the district that I 
represent has broader but similar agricultural processes and 
concerns, if you will. As you know, there are some activist 
groups have sought to use ballot initiatives and legislation in 
other States to essentially impose regulatory burdens on 
agricultural businesses in Texas.
    Democratic accountability is supposed to provide an 
important check and balance, if you will, on overregulation. 
But if that regulation is extraterritorial, that check and 
balance is essentially circumvented. Would you agree?
    Mr. Dierks. With the extraterritorial side it is. I mean, 
from the people in Texas taking mandates from Massachusetts, 
for instance.
    Mr. Ratcliffe. Mr.----
    Mr. Dierks. I mean, it would. And our industry tends to be 
as close to the marketplace as possible. So, if the consumer 
demands it, it will be responded to. If there is something that 
comes in as you said, activist groups that target States that 
do not have, in our case, pork production, which is where we 
have seen these things happen. And ballot initiatives that are 
worded in such a way that everybody would agree with them 
because it talks about soft, fluffy things like a Hallmark gift 
card. But then, it is the devil is in the detail. And that 
devil suddenly brings issues at hand.
    And what is interesting about it is some see this as oh, 
these sophisticated pork producers' operations. Well, unlike 
the reference that Mr. Goodlatte gave to Massachusetts, we did 
not have any operations producers from Massachusetts using 
individual maternity pens gestation housing. And, actually, 
what they are doing to their citizens to the State of 
Massachusetts is that they are creating an atmosphere where 
those people that have created a niche market will be swamped 
by commodity product that meets the different requirement from 
out of State.
    Mr. Ratcliffe. Thank you. Mr. DeVeaux, I want to give you a 
chance to comment on that because I know you talked a little 
bit about the extraterritorial legislation. So do you agree 
with that, and are those concerns limited to potential for 
protectionism? Or are there other concerns?
    Mr. DeVeaux. Well, there is always protectionism lurking 
potentially because it is often easy to disguise what might 
otherwise be, you know, a well-intentioned safety measure.
    For example, there is the famous case where North Carolina 
enacted a law that required that all the apples sold in the 
State had to be labeled pursuant to USDA labeling, apple-rating 
regulations. And it was not too much of a secret that, you 
know, North Carolina had its own apple industry. And the 
premier apple producing State was Washington, and Washington 
had its own labeling system. And this was litigated to the 
Supreme Court on the argument that, you know, that it was all 
about safety because we can have our confidence in the USDA 
rating system. And the court in a somewhat muddled opinion came 
to the conclusion that the law was unconstitutional. But they 
did not really address the, you know, I think the elephant in 
the room that it was protectionism.
    Mr. Ratcliffe. Thank you. My remaining time, Mr. Moylan, I 
want to turn to you on this remote sales tax issue. And I 
certainly appreciate there are stakeholders on either side of 
the issue. I know that because they are in my office all the 
time and a lot of the other members up here experience that as 
well. And that is why we ultimately want to get to the right 
place on this. So, when stakeholders come into my office and 
argue that the physical nexus requirement effectively creates a 
class of sellers that are above the law. Above the law in the 
sense that they benefit from States to which they are selling 
but are not required to pay taxes that other sellers have to 
pay; what should I be telling them to address those concerns?
    Mr. Moylan. Well, what I would say is that the law applies 
equally to all sellers today regardless if their business model 
is purely brick and mortar, a mixture sort of brick and click, 
or remote retail only. And the law as it stands today, because 
of the Quill decision, is if that business has a physical 
presence in the State that they are required to comply with its 
tax laws. And if they do not, they are not required.
    And that is not a loophole that was intended to advantage 
internet retail. The internet was but a glimmer in the broader 
economy's eye, rather, in 1992. And so, I understand that there 
are concerns. But sometimes there are differences in business 
models that are not appropriate for, you know, undermining 
basic principles, I think, to address. And so, that is what I 
see happening is that in sort of a competitive sense, a lot of 
folks are coming and saying, we expect a more difficult, more 
burdensome collection standard for the business that we are 
competing with than the one that we use.
    And the reason I say that is that still today 93 percent of 
sales happen in brick and mortar businesses. It is growing, but 
it is only 7 percent in online retail. For those 93 percent of 
sales, they effectively operate on a simple rule where they 
collect tax based on where that business is located. And what 
they are asking for that other 7 percent is that they have to 
jump through a bunch of hoops to figure out where every one of 
their customers is coming from. And that is not the standard 
that those 93 percent of sales operate on. And so, I think that 
that is what my response to that would be.
    Mr. Ratcliffe. Thank you all for being here. My time is 
expired. Chairman, I yield back.
    Mr. Marino. Thank you. The Chair now recognizes the 
Congressman from Georgia, Mr. Collins.
    Mr. Collins. Thank you, Mr. Chairman. I appreciate you 
yielding the time. And, Mr. Chairman, I appreciate the 
important issues that this legislation is intended to address. 
I have and will continue to be a firm supporter of this 
Subcommittee's work to enact meaningful regulatory reform. This 
is a Committee in which I take great pride of being a part of 
and have been since my time in Congress just a few short years 
ago.
    While I have nothing but the utmost respect for the work of 
the bill's sponsor, Mr. Sensenbrenner, I cannot support the 
approach that we are taking in this Subcommittee today in 
considering this legislation alone. My concern is that the 
breadth of this legislation goes well beyond the State 
regulatory overreach. There is no one that I would put my 
record up against who has fought harder against predatory, and 
at times abusive, State regulatory practices from poultry to 
pork to others.
    The bill that we are currently considering, for all intents 
and purposes, although talked about in the regulatory issue, 
codifies a Supreme Court decision in Quill Corporation v. North 
Dakota by prohibiting States from requiring remote retailers to 
collect taxes on goods sold into their jurisdiction. In doing 
so, it would simultaneously ignore the unambiguous invitation 
from the Quill Court and impliedly close the door on any 
opportunities to address this issue in a way that weighs the 
needs of States, their citizens, online retailers, local 
businesses, and the economy as a whole.
    To be clear, I believe that it is critical that Congress 
act to address the remote taxation issue and that we do so in a 
way that is clear and fair. However, defaulting to a physical 
presence standard similar to the one adopted by the Quill Court 
ignores the reality of a modern economy. Justice Kennedy 
pointed out these realities last year when he wrote in a 
concurring opinion in the Direct Marketing v. Brohl case 
stating, ``a business may be present in a State in a meaningful 
way without that presence being physical in the traditional 
sense of the term.'' But one does not have to look to modern 
day to suggest that Congress should play meaningful examination 
of a departure from the physical presence standard.
    Justice Stevens in writing for the opinion for the Quill 
majority stated, ``Congress is now free to decide whether, 
when, and to what extent the States may burden interstate, mail 
order concerns with the duty to collect sales and use tax.'' I 
believe that the members of this Committee should dedicate 
ourselves to doing just that. I believe that it is the 
responsibility of this Committee to consider and pass 
legislation to address the complex array of issues presented by 
our increasingly digital economy. I believe that it is our 
responsibility to do so in a way that is considerate of states' 
authority and the need to collect taxes without burdening 
businesses and the inherent complexities of compliance with the 
laws of thousands of jurisdictions throughout this country.
    But only when we consider the full range of options such as 
the Remote Transaction Parity Act and the Marketplace Fairness 
Act can we find solutions that work for all stakeholders. I am 
confident this Committee can strike the careful balance between 
the authority of States to collect taxes and the need to 
minimize the burden on remote sellers.
    In light of this conversation, I have been in Congress for 
4 and a half years. I have taken more meetings on this one 
issue than anything combined. I have had people from one side 
of the town square in my little town of Gainesville and the 
other side of the town square in Gainesville come to me with 
very similar business models. The first one comes in 
passionately against the proposition of online or remote sales 
tax. The other one coming in saying, you have got to do this. 
Friends, we go to church together, ball games together, 
everything else.
    When we understand this issue, and believe me, I am not 
endorsing the other bills that I spoke of. I believe they have 
problems, and I believe those are problems that we have been 
addressing and talking about behind the scenes here for many 
years in this Committee. I believe as we move forward here that 
a discussion of regulatory burden and the discussion of remote 
sales tax are unfairly bonded in this bill.
    It is one thing to say watch what we are doing here while 
at the same time saying do not pay attention to this part over 
here. And the actual reality is as much as I respect the 
purpose here, it is simply a codification of Quill. And in that 
sense, I think we can do better. I think we can do more to 
address this issue. Do I believe that there is a new economy 
coming? Yes. Do I believe that it is going to be difficult for 
States and localities who have depended on a traditional form 
of income to do that? You also do not get any more conservative 
on my side on the collection of taxes and the spending. As I 
have said on other occasions, we do not have a collection 
problem. We got a spending problem, and that includes the State 
level on which I served in the Georgia State House.
    At this point in time, I welcome this discussion. But I 
welcome a full and open discussion with all players at the 
table discussing where this Congress does its best work. And 
that is when we take the accounts of all and look at the issues 
from a straight up format, and go so at that. With no 
dispersion on anyone, this is the first step. I am glad to have 
this hearing, but those are my thoughts as we move forward. And 
my hope is we will find a solution that will end the plethora 
of meetings that I have endured. With that, Mr. Chairman, I 
yield back.
    Mr. Marino. Thank you. The Chair now recognizes the 
Congresswoman from Washington, Ms. Jayapal.
    Ms. Jayapal. Thank you, Mr. Chair. The No Regulation 
without Representation Act is one of the most coercive and 
intrusive pieces of measures that I have seen. And it would, 
unfortunately, fundamentally upend the role of States and the 
American government. The consequences specifically to my home 
State of Washington are severe. The bill would preempt a 
State's ability to collect taxes unless the business is 
physically present in a State.
    In Washington State, nearly 30 percent of our revenue comes 
from retail sales and use taxes. We do not actually have an 
income tax in our State. This bill could result in billions of 
lost revenue for our State which would hurt our ability to pay 
for critical goods and services including education, 
construction, and emergency responders, among other things. And 
I am particularly concerned about the impact on education 
because, in our State, we have had an ongoing Supreme Court 
ruling stating that our State is out of compliance with our 
Constitution around education funding. And it is, in fact, a 
paramount duty. This bill would significantly undermine our 
ability to find solutions for that education problem in our 
State and to make sure all our kids receive a high-quality 
education.
    But it would also undermine the constitutional right of 
States to protect the health, safety, and welfare of their 
citizens. It would eliminate State regulatory authority over 
any company or its products unless that company has a very 
tightly defined physical presence in that State. Again, in the 
State of Washington, we have environmental protections and 
regulations that exceed some of the Federal protections. So, 
our CEPA laws are much stronger than our NEPA laws. And it 
would be extremely disturbing to States' rights if we were to 
actually supersede that through this bill.
    The provisions are also disturbing because of the current 
administration's failure to take environmental protections or 
concerns seriously. And as a result, States like mine, 
California, New York have launched a climate alliance to 
continue to advance environmental justice. So, I have a couple 
of questions for Ms. Peters. And if you can speak specifically 
to constitutionality, what are your constitutional concerns 
with H.R. 2887? And what effect would it have on States' 
constitutional authority to establish general safety standards?
    Ms. Peters. Thank you very much for the question. I, 
actually, am an accountant not a constitutional attorney. So, 
my perspective is a little bit different. Being an elected 
official in the State of South Dakota, we view State regulation 
a little bit different than what the State of Washington does. 
But we do come together when it comes to a lot of things when 
it deals with sales tax.
    So, as far as what this bill does, I think it obliterates 
our States' abilities to do what our citizenry have elected us 
to do within our own States. So, if the State of Washington 
wants to exceed the Federal regulations, then I think that is 
the State of Washington's right. Now, if this bill wanted to 
just deal with environmental issues, then we need a bill to 
deal with environmental issues and regulations. If we wanted to 
talk about ag and the issues within exporting ag products 
across State lines, let's have a bill that talks about that.
    I think this bill, as I said before, talks too globally 
about too many different issues. And it literally just 
obliterates the whole process instead of just doing the 
surgical fixes that I think we need to have throughout all of 
the discusses whether we are talking tax policy, environmental 
issues, ag issues, and the like. So, I hope that answers your 
question.
    Ms. Jayapal. Well, let me follow up since you are an 
accountant and ask you about State tax collection. There are 
leading experts that have suggested that requiring physical 
presence as you said would trample on State tax policy 
decisions. What specific effects might you see on State revenue 
for States like yours or ours?
    Ms. Peters. The 15 days within this particular piece of 
legislation will be catastrophic, especially if you look at a 
lot of the special events that are going on. Every State has a 
variety of different special events. In South Dakota, we are a 
very small State, 850,000 people total. The Sturgis Bike Rally 
brings in 2 million people. So, if you take that 15 days and 
those retailers that come into our State, they come in. They 
set up a shop. They sell and buy goods within our State for a 
variety of different things, whether it is tattoos or t-shirts 
or a variety of different things.
    And this would take away that entire sales tax collection 
and remit for that county because we are local control county 
sales tax, not just a little bit at the State. It would 
decimate those counties for that revenue, and they rely on that 
revenue for that one special event for the rest of the year to 
pay for roads, bridges, and a variety of different things at 
the local level. This bill is just too broad to narrow it down 
to a lot of different things.
    Ms. Jayapal. Thank you. I appreciate that, and I know that 
we have other bills that have been introduced by members 
including our Ranking Member, Mr. Conyers, and I think would do 
a better job of trying to address some of these critical 
issues. They are critical. They do need to be addressed. With 
that, I yield back.
    Mr. Marino. Thank you. The Chair now recognizes the 
congressman from California, Mr. Issa.
    Mr. Issa. Thank you, Mr. Chairman. Ms. Peters, since you do 
not like the bill, I am going to concentrate on you because I 
do not necessarily love this bill. I do not see it as perfect 
in its current form. But let me go through some questions for 
you because draft bills around here often get improved not by 
the proponents but by the dissidents. So, in my home State of 
California, we have a different standard for made in USA such 
that if under current law, if you put made in USA on a North 
Dakota product, including a soybean, bag of soybeans, 
California may sue your companies because they are not made in 
USA based on our definition. Is that okay?
    Ms. Peters. Mr. Chairman, I think and I do not want to not 
answer your question----
    Mr. Issa. Start with a yes or no, and then you can 
explain----
    Ms. Peters. Sure.
    Mr. Issa [continuing]. Your yes or no.
    Ms. Peters. And I do not really because this bill, I would 
be a yes and a no because I do not like regulation period----
    Mr. Issa. Okay. Explain your yes and no, please.
    Ms. Peters. Sure. Well, you know, it is up to California to 
make the rules that apply to California.
    Mr. Issa. Okay. So----
    Ms. Peters. If you have citizens that want that, that is 
fine.
    Mr. Issa. South Dakota's commodities, your number one 
commodity you export is soybean, oil cake, and other solid 
residue. Go figure, whatever that is. Your number two is 
brewing distillation.
    Ms. Peters. Yep.
    Mr. Issa. You are big on booze. Your number three is meat, 
swine, ham shoulders, bone-in. And then, we get to other swine 
which I would have probably said should have been combined. So, 
you are big in pork. You are big in soybean, and you are big in 
booze.
    Ms. Peters. Yes.
    Mr. Issa. Okay. The question is if you produce a bottle of 
whiskey, can California choose not to accept it as whiskey even 
though you have complied with all the Federal laws?
    Ms. Peters. I think that is what this hearing is here to 
address. I just would like to go back to the California egg 
discussion a little bit. The citizens of California voted for a 
law that I do not necessarily agree with.
    Mr. Issa. So, you are----
    Ms. Peters. However, the citizens of California----
    Mr. Issa. But you do not export eggs.
    Ms. Peters [continuing]. Wanted it.
    Mr. Issa. We do not export eggs so let's talk South Dakota. 
Your booze is banned in California. Is that okay?
    Ms. Peters. At this point, yeah.
    Mr. Issa. So----
    Ms. Peters. It is the law.
    Mr. Issa. The fact that the Supreme Court ruled that it 
cannot be is not a problem to you? When Michigan tried to have 
two different standards, the Court clearly slapped it down even 
though the 21st Amendment specifically, unlike other products, 
gave an exception to the interstate commerce clause. It is okay 
with you?
    Ms. Peters. Well, no, but that is why we are talking to you 
today.
    Mr. Issa. Okay. So, there is a problem that needs to be 
fixed. I will go to the other folks for a moment. The Supreme 
Court took on Michigan when they tried to have two sets of 
standards, they specifically made it clear that my California 
wine was not, since it was legal in the State, had to be 
allowed into Michigan and no secondary license was required. My 
question is have we not already made a decision at least as to 
interstate commerce, even with the 21st Amendment which gave 
special powers to the States, has the Supreme Court not already 
spoken that interstate commerce is to be protected? And are not 
we just dealing with the regulations to prohibit it? A do-good 
policy to be parochial down to the State, the county, and the 
city.
    And who is my pork producer here? Since I swined twice in 
South Dakota, would you mind going first?
    Mr. Dierks. Well the second swine I believe was breeding 
stock, live animals, going to other parts of the country.
    Mr. Issa. But I tell you, the two of them together is an 
awful lot of pork that would never leave South Dakota if other 
States decided to simply protect a domestic industry in each of 
their States. Is not that true?
    Mr. Dierks. That is true, and that is true for the Upper 
Midwest, North Carolina. I am not a constitutional attorney 
even though we have one here that can address your specific 
question on it. But I think, I mean, that is the root issue 
that we have. We are having mandates made in States that 
citizens of other States are left to deal with even though they 
had no say in it. And unfortunately, that is our concern, and 
that is why we are supportive of the bill.
    Mr. Issa. Okay. I am going to broaden the question because 
Ms. Peters had a point. Products and services are different are 
they not? With a product, in other words, you are exporting 
booze, pigs, live or not live. You are exporting a product 
which clearly our Founders thought of. Ms. Peters' example 
which I do share her concern, services including the physical 
presence of coming in for an event. We could have a bill that 
dealt with physical presence by individuals. Whether they are 
employees of somebody or not becomes a question.
    And by the way, having overseen the District of Columbia 
for years, I am well aware that professional teams that come 
into every State in the Union pretty much pay apportioned taxes 
while they are there on that professional football, basketball. 
The District of Columbia does not have that authority which is 
why the Washington Redskins do not play in Washington. So, 
would you give us sort of all the answers you want but 
specifically as to how we could look at goods versus services 
differently?
    Mr. DeVeaux. Well, I mean, the constitutional rules that 
pertain to regulation of commerce are different from, you know, 
the rules that pertain to taxation. Although the Quill decision 
is rooted in the same body of law. I mean, one of the things 
that Quill does, I think, is it really draws a line and 
explains the difference between what the Commerce Clause or the 
dormant commerce doctrine says about State sovereignty versus 
the interests of due process. Due process is about protecting 
the rights of individuals.
    So, if an individual has contact with a State, does 
business with a citizen of that State, for due process 
purposes, he is sort of on notice that that State has an 
interest in the transaction. And that is satisfied. For 
Commerce Clause purposes, presence says something about what, 
you know, the regulatory authority of States, what power they 
are intended to have within a system where they need to respect 
their neighbors, right? So they are two different questions.
    Mr. Issa. But I think for Ms. Peters, the difference 
between an event in which people come in and sales tax is 
collected as a result of a presence and a sale, a retail sale, 
in which you tax instate and out-of-State products the same 
versus simply saying that we do not like the way you use GMOs 
as your source stock for whiskey. Therefore, we, in California, 
are going to prohibit your whiskey. That is what I wanted to 
understand.
    Mr. DeVeaux. Yeah.
    Mr. Issa. Because I think not all regulations are created 
equal versus taxation.
    Mr. DeVeaux. And those are two very different things. I 
mean, with the GMO issue, I mean, there could be a lurking 
protectionism there much like Michigan was trying to protect 
its wine industry. I mean, their statute was a little more 
clear because it basically identified states qua States not 
saying too many sulfides or something. You know, there is 
always a way you could come up with that, and I am kind of 
surprised that some of the other wine producing States have not 
thought of that, you know, in terms of trying to craft a bill 
to----
    Mr. Issa. Thank you, Mr. Chairman. You have been very 
generous. I yield back.
    Mr. Marino. Thank you. I have a couple of questions now. 
Mr. DeVeaux, you are an expert in federalism.
    Mr. DeVeaux. Yes.
    Mr. Marino. I think we are missing, for most of the 
conversation, here the actual point. And that is the 
constitutionality and the 10th Amendment. What, in your 
opinion, is H.R. 2887, the legislation that we are debating 
here today, consistent with the 10th Amendment?
    Mr. DeVeaux. Well it is, and I do not mean that to 
disparage the views of any other panelists here. What I would 
say is that the 10th Amendment just confirms what ought to have 
been obvious from the framework the Framers set up for us, that 
going into the convention, we effectively had 13 independent 
countries that possessed the full range of sovereign authority. 
And when each State ratified the Constitution, they only gave 
away powers to the Federal Government that were expressly 
conveyed in that document.
    So, they retained all the sovereignty that they had that 
they did not give up. But one of the things they gave up was 
authority to regulate interstate commerce. Well, there are 
three categories. The Supreme Court has identified three 
categories of regulatory authority the commerce power 
supposedly gives. In the most recent cases, the cases that walk 
it back like Lopez and Morrison, the first category is 
regulation of channels of interstate commerce or 
instrumentalities of interstate commerce. So, channels are 
roads, navigable waterways, fiber optic cables. 
Instrumentalities are things, goods, people traveling between 
States in those channels, right? And then, there is this third 
category that was recognized in Wickard v. Filburn, you know, 
about there is also the necessary and proper clause augments 
this power to allow Congress also in some limited circumstances 
to regulate intrastate activities that have a substantial 
effect on interstate commerce.
    That is where the 10th Amendment comes in because in that 
situation we are not talking about just regulating interstate 
commerce. We are regulating beyond interstate commerce in order 
to achieve the necessary and proper effect, right? So, when you 
are talking about regulating goods and goods traveling in 
interstate commerce, Congress' power is plenary. There is no 
restraint on it.
    Whether, you know, so the power to enact this bill is 
there. Reasonable minds can differ about whether it is a good 
idea, that is your job. But I do not think there is a 10th 
Amendment component to it because we are talking about 
instrumentalities.
    Mr. Marino. Mr. Dierks, let's talk about the States 
imposing regulatory burdens on out-of-State producers. You see 
an increase: how much of an increase? Give me an example of the 
burdens that it is placing on the agricultural industry.
    Mr. Dierks. There are burdens. Some of those burdens, for 
instance, the California situation and the Massachusetts 
situation are just being perfected now. And it is difficult to 
clearly identify all the burdens. Harry Kaiser at Cornell 
University, as I said in my testimony and it is in my written 
testimony, did a study on the impact of California's cage 
laying situation and came up that it increased the price of 
eggs in California $0.49 a dozen. The issue with that though is 
that, and for most of us it is not a big deal.
    But for the, you know, as Americans we spend 10 percent of 
our disposable income on food. But if you are the bottom 
quartile of our society, you are spending 30 to 40 percent of 
your income on food. We are just starting to see those play in. 
Massachusetts is yet to be perfected, as it were, on the exact 
language. So, it is a burden in that what happens is you go 
back, you take a look at return investment. There are some 
producers that are making decisions to reinvest, but there is 
no incentive in the marketplace. And the reality of it is there 
is no clear way. In my written testimony, it really gets down 
to what the AVMA, the American Society of Swine Veterinarians, 
say. It is not about steel or design. It is about care and 
management, so we are trying to figure that out right now.
    Mr. Marino. Thank you. Mr. Moylan, absent this legislation 
that we are discussing today, 2887, could States expand 
renewable portfolio standards to ban energy produced out-of-
State by fracking?
    Mr. Moylan. Yes. You are identifying a big risk absent 
passage of this legislation. And it is a point that I was sort 
of looking for an opportunity to bring up earlier, but this 
gives me a good one which is that----
    Mr. Marino. Well, I have to give the credit to my legal 
counsel here.
    Mr. Moylan. Well, great minds think alike perhaps, but I 
think there is a risk of activism, sort of projection of 
activist legislation I guess you could say. And I mean that on 
both sides ideologically. There is a risk of more Liberal 
States saying to, you know, producers in Conservative States, 
you cannot ship something here unless it complies with our, you 
know, thoughts on hen cage sizes, or GMOs, or what have you. 
But there is also a risk in the reverse of more Conservative 
States attempting to say, you know, you could imagine any 
number of different scenarios that products imported from 
States that do not have right to work laws are for some reason 
prohibited. Or that do not comply with, you know, their 
thoughts on minimum wage, what have you.
    You brought up the issue of energy production which I know 
is a big issue in your State. And so, yes, there is a real risk 
that, sort of, through projecting their own power across 
borders that States that are intent on engaging in that kind of 
activism can use some of that gray area that exists today to 
make real mischief. And not just, you know, mischief that is, 
you know, of interest for funny examples here or there, but 
things that are real genuine burdens on interstate commerce.
    And if you will forgive me the brief diversion into 
libertarian theory, but I cannot help myself. It is a classic 
case of what is seen and what is unseen. You know, we do not 
see the employee that was not sent to that trade show because a 
business was worried about incurring nexus there. We do not see 
the diversions around State lines because they are concerned 
about their trucks getting pulled over at weigh stations and 
being essentially held up for resources. Those are things that 
are hard for us to see when people do not engage in that 
activity. But that is exactly the interstate commerce burden 
that we are talking about here and that this bill is intended 
to address.
    Mr. Marino. Okay. This concludes our hearing today. I want 
to thank all of you for being here. It was a rather good 
discussion. Without objection, all members will have 5 
legislative days to submit additional written questions for the 
witnesses or additional material for the record. This hearing 
is adjourned.
    [Whereupon, at 12:06 p.m., the Subcommittee was adjourned.]

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