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STATE TAXATION: THE ROLE OF CONGRESS 

IN DEFINING NEXUS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

COMMERCIAL AND ADMINISTRATIVE LAW 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

FEBRUARY 4, 2010 

Serial No. 111–68 

Printed for the use of the Committee on the Judiciary 

( 

Available via the World Wide Web: http://judiciary.house.gov 

(II) 

COMMITTEE ON THE JUDICIARY 

JOHN CONYERS, JR., Michigan, Chairman 

HOWARD L. BERMAN, California 

RICK BOUCHER, Virginia 

JERROLD NADLER, New York 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

WILLIAM D. DELAHUNT, Massachusetts 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

PEDRO PIERLUISI, Puerto Rico 

MIKE QUIGLEY, Illinois 

JUDY CHU, California 

LUIS V. GUTIERREZ, Illinois 

TAMMY BALDWIN, Wisconsin 

CHARLES A. GONZALEZ, Texas 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California 

LINDA T. SA ́ NCHEZ, California 

DEBBIE WASSERMAN SCHULTZ, Florida 

DANIEL MAFFEI, New York 

[Vacant] 

LAMAR SMITH, Texas 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

DANIEL E. LUNGREN, California 

DARRELL E. ISSA, California 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TOM ROONEY, Florida 

GREGG HARPER, Mississippi 

PERRY APELBAUM, Majority Staff Director and Chief Counsel 

SEAN MCLAUGHLIN, Minority Chief of Staff and General Counsel 

SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW

STEVE COHEN, Tennessee, Chairman 

WILLIAM D. DELAHUNT, Massachusetts 

MELVIN L. WATT, North Carolina 

DANIEL MAFFEI, New York 

ZOE LOFGREN, California 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

JOHN CONYERS, JR., Michigan 

JUDY CHU, California 

TRENT FRANKS, Arizona 

JIM JORDAN, Ohio 

HOWARD COBLE, North Carolina 

DARRELL E. ISSA, California 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

MICHONE JOHNSON, Chief Counsel 

DANIEL FLORES, Minority Counsel 

(III) 

C O N T E N T S 

FEBRUARY 4, 2009 

Page 

OPENING STATEMENTS 

The Honorable Steve Cohen, a Representative in Congress from the State 

of Tennessee, and Chairman, Subcommittee on Commercial and Administrative Law ........................................................................................................... 1 

The Honorable Trent Franks, a Representative in Congress from the State 

of Arizona, and Ranking Member, Subcommittee on Commercial and Administrative Law .................................................................................................. 2 

The Honorable Zoe Lofgren, a Representative in Congress from the State 

of California, and Member, Subcommittee on Commercial and Administrative Law ................................................................................................................ 59 

The Honorable Henry C. ‘‘Hank’’ Johnson, Jr., a Representative in Congress 

from the State of Georgia, and Member, Subcommittee on Commercial 

and Administrative Law ...................................................................................... 59 

WITNESSES 

Mr. Walter Hellerstein, Francis Shackelford Distinguished Professor in Taxation Law, University of Georgia School of Law 

Oral Testimony ..................................................................................................... 60 

Prepared Statement ............................................................................................. 62 

Mr. Joseph Crosby, Legislative Director, Council on State Taxation 

Oral Testimony ..................................................................................................... 73 

Prepared Statement ............................................................................................. 75 

Mr. R. Bruce Johnson, Commissioner, Utah State Tax Commission 

Oral Testimony ..................................................................................................... 86 

Prepared Statement ............................................................................................. 88 

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Material submitted by the Honorable Trent Franks, a Representative in 

Congress from the State of Arizona, and Ranking Member, Subcommittee 

on Commercial and Administrative Law ........................................................... 3 

APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD

Prepared Statement of the Honorable John Conyers, Jr., a Representative 

in Congress from the State of Michigan, Chairman, Committee on the 

Judiciary, and Member, Subcommittee on Commercial and Administrative 

Law ........................................................................................................................ 119

Response to Post-Hearing Questions from Walter Hellerstein, Francis 

Shackelford Distinguished Professor in Taxation Law, University of Georgia 

School of Law ........................................................................................................ 121 

Response to Post-Hearing Questions from Joseph Crosby, Legislative Director, 

Council on State Taxation ................................................................................... 128 

Response to Post-Hearing Questions from R. Bruce Johnson, Commissioner, 

Utah State Tax Commission ............................................................................... 134 

Prepared Statement of 303 Products, Inc. ............................................................. 146 

Prepared Statement of the American Bankers Association ................................. 149 

Page

IV 

Prepared Statement of the National Association for The Specialty Food Trade, 

Inc. (NASFT) ........................................................................................................ 153 

Prepared Statement of Kathryn Wylde, President & CEO, Partnership for 

New York City ...................................................................................................... 156 

Letter from Edward A. Zelinsky, Morris and Annie Trachman Professor of 

Law, Benjamin N. Cardozo School of Law of Yeshiva University ................... 158 

Letter from Matthew R. Shay, President and CEO, the International Franchise Association (IFA) ........................................................................................ 162 

Letter from Joe Huddleston, Executive Director, Multistate Tax Commission 

(MTC) .................................................................................................................... 165 

Prepared Statement of Mark Louchheim, President, Bobrick Washroom 

Equipment, Inc., on behalf of the National Association of Manufacturers ..... 167 

Prepared Statement of the Organization for International Investment (OFII) . 171 

Prepared Statement of Carey J. ‘‘Bo’’ Horne, Past President, and Katherine 

S. Horne, Past Vice President, ProHelp Systems, Inc. ..................................... 176 

Prepared Statement of the United States Council for International Business 

(USCIB) ................................................................................................................. 190 

Prepared Statement of the American Trucking Associations .............................. 192 

Law Reviw Article submitted by Marjorie B. Gell, Assistant Professor, The 

Thomas M. Cooley Law School ........................................................................... 203 

Letter from Nate K. Garvis, Vice President, Government Affairs & Sr. Public 

Affair Officer Target Brand, Inc. ........................................................................ 253 

Letter from the Direct Marketing Association (DMA) .......................................... 257 

(1) 

STATE TAXATION: THE ROLE OF CONGRESS 

IN DEFINING NEXUS 

THURSDAY, FEBRUARY 4, 2010 

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON COMMERCIAL

AND ADMINISTRATIVE LAW, 

COMMITTEE ON THE JUDICIARY, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 11:43 a.m., in 

room 2141, Rayburn House Office Building, the Honorable Steve 

Cohen (Chairman of the Subcommittee) presiding. 

Present: Representatives Cohen, Watt, Lofgren, Johnson, Scott, 

Chu, Franks, Jordan, Coble, and King. 

Staff present: (Majority) Norberto Salinas, Counsel; Adam Russell, Professional Staff Member; and Stewart Jeffries, Minority 

Counsel. 

Mr. COHEN. This hearing of the Committee on the Judiciary, 

Subcommittee on Commercial and Administrative Law, will now 

come to order. 

Without objection, the Chair will be authorized to declare a recess of the hearing and apologizes for being a few minutes late. 

I will now recognize myself for a short statement. 

Currently, States levy a tax on income earned or on a transaction 

occurring within its borders. The taxpayer is liable only if there exists a nexus or a connection between the State and the activities 

of the taxpayer. 

Some taxpayers have expressed concerns that current State tax 

policies are difficult to navigate, leading to unpredictable tax bills 

or incurring onerous paperwork. They contend that States utilize 

an overly broad tax nexus standard to impose unnecessary taxes 

and urge Congress to step in and define State tax nexus. 

State government representatives disagree. They contend the 

State taxes in accordance with the taxpayers’s use. States—the redefining of nexus would unfairly preempt States’ authority to tax 

and very likely lead to a substantial loss of State tax revenue. 

In response to the confusion, many legislative proposals have 

been introduced to clarify the nexus requirements. These proposals 

now before the Committee seek to limit or expand the ability of 

States to impose certain taxes. 

One such proposal urges Congress to grant States the authority 

to collect and remit use taxes from those with whom the States 

currently do not have a sufficient nexus. 

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Another proposal would prohibit a State from taxing the income 

of a taxpayer who has not established a physical presence within 

the State. Essentially, these and many other proposals attempt to 

establish or solidify what constitutes a sufficient nexus. 

Before determining what constitutes that sufficient nexus for 

State tax purposes, Congress should ensure that it understands 

how defining nexus would affect State revenues. 

Additionally, we must consider how defining nexus would affect 

business development and investments. And we must explore how 

clarifying nexus would impact individual taxpayers. 

Today’s hearing should help us understand the implications of 

defining nexus. The hearing will also provide Subcommittee Members the opportunity to examine generally how the legislative proposals would impact State taxation. 

So it is your classic situation of States wanting and needing more 

revenue and desiring their province and control and taxing to support their services, and businesses not wanting to be interfered 

with and having that difficulty of having interstate commerce and 

having less government intrusion. It is your classic situation. 

With that, I thank the witnesses for appearing today, and I look 

forward to their testimony. 

I now recognize my colleague, Mr. Franks, the distinguished 

Ranking Member of the Subcommittee, for his opening remarks. 

Mr. Franks? 

Mr. FRANKS. Well, thank you, Mr. Chairman. 

Mr. Chairman, today’s hearing is sort of an anomaly for this Subcommittee. You know, rather than discussing a particular bill and 

how it would impact this industry or that State, we are discussing 

the constitutional limitations on States’ ability to tax, and it is a 

question that I am obviously interested in, having been the former 

Ranking Member of Constitution Committee. 

And so before I start, I have several statements from various 

business groups that I would, with your permission, Mr. Chairman, 

like to see inserted into the record. 

Mr. COHEN. Without objection. 

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Mr. FRANKS. As many of those groups know, I am a co-sponsor 

of several State tax-related measures along with some of the individuals on the other side of this aisle, and I encourage the ChairVerDate Aug 31 2005 15:01 Apr 20, 2010 Jkt 000000 PO 00000 Frm 00061 Fmt 6633 Sfmt 6601 H:\WORK\COMM\020410\54763.000 HJUD1 PsN: DOUGA

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man of the Subcommittee to move on a markup of those bills as 

soon as is practicable. 

That said, you know, I am sort of a reluctant co-sponsor of Statetax-related measures simply for the reason that I am a strong believer in the 10th Amendment, which says, ‘‘The powers not delegated to the United States by the Constitution nor prohibited by 

it to the States are reserved to the States respectively or to the 

people.’’ That is not really that hard to understand, but it is hard 

to apply here. 

We will hear from our distinguished panel today about how the 

Commerce Clause prohibits a State from taxing an entity that 

lacks a substantial nexus with that State. For sales taxes on the 

sale of physical goods, that restriction has been limited to companies that have a physical presence in the State. 

The Commerce Clause also prohibits a State from imposing a tax 

regime that disproportionately affects out-of-state vendors in favor 

of in-state companies. 

And I hope we will also learn how the due process clause of the 

14th Amendment requires that a State have certain ‘‘minimum 

contacts’’ with a company before that State can tax that company. 

And we also hope to hear how Congress has the authority to 

shape tax authority by States under the Commerce Clause. 

What I would like to hear from today’s witnesses, however, is 

really more a subtle question, perhaps even more important. And 

that is when should Congress use its Commerce Clause powers to 

regulate States’ taxing authority, and how should the 10th Amendment constrain Congress’ authority on these matters. 

If it sounds like I am siding with the States on these questions, 

Mr. Chairman, to a significant degree I am. I believe the founders 

created a Federal Government with limited powers. 

However, as I said before, I also believe that some of the—these 

tax bills are necessary to ensure the flow of interstate commerce, 

and that is definitely one of the powers that was given to Congress 

as well under the Constitution. 

So for my friends in State government, I have a question. When 

is a good time for Congress to regulate in this area? 

Time and time again, the States and localities have come to Congress saying that they cannot afford for Congress to cut their revenue, and I understand that. I mean, but they have said when the 

coffers are full and when the coffers are empty. So that has been 

consistent. 

But given we know that we cannot tax our way to prosperity, I 

want to know when is a good time for Congress to assist States in 

making some much-needed tax reforms. 

So that is the mission from my perspective, Mr. Chairman, and 

I look forward to hearing from our witnesses on these and other 

questions, and I yield back the balance of my time. 

Mr. COHEN. Thank you, sir. 

As I understand it, no one on the Republican side is desiring to 

make an opening statement. There are a few folks on the Democratic side that would like to make a brief opening statement, and 

there is one person on the Democratic side that would like us to 

have no opening statements because he is so interested in hearing 

the panel. 

59 

Because we have come here late, no—through mostly no fault of 

theirs, a little bit of mine, but mostly the Congress’ for the votes, 

I am going to ask anybody that wants to make a statement to 

make a statement but to limit your remarks to 2 minutes. 

So with that, Ms. Lofgren, you are recognized, and you are in the 

2-minute zone. 

Ms. LOFGREN. Thank you, Mr. Chairman. I will take 2 minutes. 

This is an important hearing, and I think there are certainly academic issues that will be addressed. But I hope that the witnesses 

will talk about not just the impact on State and local governments, 

which we care about—I was a county supervisor for 14 years before 

I came here—but also the impact that State and locals can have 

on our business environment. 

I think that we need to be concerned that local governments— 

and I did the same when I was there—have to meet a bottom line. 

Their job is not to worry about the national economy. Their job is 

to meet their payroll. 

But the Congress has a responsibility for the entire economy of 

the country, and unduly burdening electronic commerce with the 

patchwork of taxes may have an impact on economic growth. 

So I just wanted to put that out there in the hopes that the witnesses will address it, and I am eager to hear them. 

And I will yield back, Mr. Chairman. 

Mr. COHEN. Thank you, Ms. Lofgren. 

Chairman Johnson is recognized for 2 minutes. 

Mr. JOHNSON OF GEORGIA. Thank you, Mr. Chairman. Thanks 

for holding this important hearing on State taxation today. 

Today we will examine the intricacies of nexus and its impact on 

State taxation. We will also have the opportunity to examine the 

pending legislative proposals before this Subcommittee regarding 

State taxation. 

This hearing is necessary because States have widely varying 

and inconsistent requirements regarding taxation. The Supreme 

Court has acknowledged that Congress has the authority under the 

Commerce Clause to legislate in the area of nexus for State tax 

purposes. 

Therefore, Congress should take action to simplify the tax system 

and make it fair for individuals, States and businesses. This is why 

I introduced H.R. 2110, the ‘‘Mobile Workforce State Income Tax 

Fairness and Simplification Act.’’ 

This legislation provides for a uniform, fair and easily administered law that would ensure that the correct amount of tax is withheld and paid to States without the undue burden that the current 

system places on employees as well as employers. 

Understanding nexus is extremely important because it directly 

affects our districts and their ability to collect revenue for essential 

services that benefit our constituents. 

I thank the Chairman for holding this hearing, and I look forward to hearing from our witnesses today. Thank you. 

Mr. COHEN. Thank you, sir. 

Mr. Scott, Chairman Scott, are you—is that who is next? He is 

gone? Ms. Chu is left. 

Welcome. I am now pleased to introduce the witnesses and hear 

the testimony for today’s hearings. First, thank you all for particiVerDate Aug 31 2005 15:01 Apr 20, 2010 Jkt 000000 PO 00000 Frm 00063 Fmt 6633 Sfmt 6601 H:\WORK\COMM\020410\54763.000 HJUD1 PsN: DOUGA
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pating in today’s hearing. Without objection, your written statements will be placed into the record and we would ask you limit 

your oral remarks to 5 minutes. 

You will note that we have a lighting system. It starts with a 

green light. At 4 minutes, it turns—it doesn’t turn yellow; at 4 

minutes a yellow light comes on. The green light goes off. And then 

the red light comes on at 5 minutes, and that means you should 

have concluded by that time. 

After each witness has presented his or her testimony, Subcommittee Members will be permitted to ask questions subject to 

the same 5-minute limit. 

First witness is Mr. Walter Hellerstein. Professor Hellerstein is 

the Francis Shackelford Professor of Taxation at the University of 

Georgia Law School. He is co-author of State Taxation Volumes I 

and II and other tax manuals—over 100 journal articles he has 

published. 

Professor Hellerstein has practiced extensively in the State tax 

field and has been involved in numerous State tax cases before the 

U.S. Supreme Court. He did not teach Herschel Walker. 

Thank you for being here, Professor Hellerstein. Begin your testimony. 

TESTIMONY OF WALTER HELLERSTEIN, FRANCIS SHACKELFORD DISTINGUISHED PROFESSOR IN TAXATION LAW, UNIVERSITY OF GEORGIA SCHOOL OF LAW 

Mr. HELLERSTEIN. Thank you, Mr. Chairman. I am honored by 

your invitation to testify here today, and I hope I can be of assistance to the Subcommittee. 

My testimony addresses three basic questions. First, what is 

State tax nexus? Second, what can Congress do about State tax 

nexus? And third, what should Congress do about State tax nexus? 

First, what is State tax nexus? Essentially, State tax nexus is 

the minimum required constitutional connection that a State needs 

to tax a taxpayer or to require someone to collect a tax. 

For the most part, that nexus had been defined by the courts because Congress has only rarely enacted statutes relating to nexus. 

And the general rule under the due process clause for all taxes 

is that nexus is created even without physical presence if a taxpayer purposely directs its activity toward a State as, for example, 

by selling to in-state customers. 

The way the law now stands with regard to the Commerce 

Clause is that nexus for purposes of collecting a sales or use tax 

requires the physical presence of the seller. 

With regard to the imposition of income taxes, however, no physical presence has been required. Instead, courts have looked to 

what they call economic or—presence or a significant exploitation 

of the State’s market. So that is where the law stands. 

What can Congress do about State tax nexus? The answer is 

Congress can pretty much do anything it wants in this area, subject only to the very loose restraint that it cannot authorize a violation of the due process clause. 

In fact, the courts, in talking about this very issue, said, ‘‘No 

matter how we evaluate the burdens, no matter what the court 

says, Congress remains free to disagree with our conclusions.’’ AcVerDate Aug 31 2005 15:01 Apr 20, 2010 Jkt 000000 PO 00000 Frm 00064 Fmt 6633 Sfmt 6601 H:\WORK\COMM\020410\54763.000 HJUD1 PsN: DOUGA
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cordingly, Congress is free to decide whether, when, and to what 

extent States may burden interstate mail order concerns with a 

duty to collect use taxes. 

Third, what should Congress do about State taxes? I should 

make it clear that I have not been asked to address the specifics 

of the proposed legislation. 

Instead, I am just going to share with the Subcommittee some 

of my general—some important considerations that I think the 

Subcommittee should take into account in considering what, if anything, to do about the various nexus proposals. 

First, in my view, there is no one-size-fits-all solution to the 

State tax nexus problem. A solution to one problem—for example, 

a 30-day physical presence rule for triggering a tax withholding obligation—may well be inappropriate for another problem—for example, whether or not a State vendor should be required to collect 

a use tax on sales to in-state consumers. 

My second point, related to my first, is that nexus issues raised 

by sales taxes are different from nexus issues raised by income 

taxes. And Congress should pay attention to that difference. I think 

I can best illustrate this by an example. 

As I think most people sitting in this room know, all States that 

impose sales taxes on things that are purchased locally also impose 

so-called use taxes on stuff that people buy outside the State and 

bring into the State. 

The reason for this is that States, quite sensibly, want to impose 

a uniform tax on all things that are consumed in the State without 

giving in-State folks an incentive to leave the State to shop elsewhere. 

So for example, if a resident of Washington goes to buy a car in 

Oregon, she doesn’t pay a sales tax. Why not? Because Oregon 

doesn’t have a sales tax. She brings the car back to Washington. 

What happens? She pays a use tax. 

The same thing in principle is true when I buy a book from Amazon.com. I don’t pay a sales tax because title passes where the— 

Amazon is. When I receive that book in Athens, Georgia, I owe a 

use tax. 

There is, however, one significant difference. When my Washington resident goes back to Washington, when does she pay the 

use tax? She goes to register the car and she pays a use tax. Well, 

pretty simple. 

When I buy the book in Athens, Georgia, I just go to the book 

registry and I register the book, right? Obviously not. As long as 

we have a First Amendment, we are not going to have book registries. 

So the real question in the use tax area—it is clear I owe the tax. 

The only question is under what circumstances can we reasonably 

ask someone to help the State collect a tax that is clearly due. 

In the income tax area, it is a little bit different. Why? Because 

in the income tax area, the question as to whether or not a tax is 

due is not always clear when, for example, there is no presence of 

a taxpayer in a State. 

So there, it is a much more complicated question. I think in looking at these issues, Congress needs to keep in mind these differences. 

62 

Third point—and I see my time is about to run out—I think it 

is very important for Congress to look at the question of physical 

presence and to ask whether physical presence makes sense or nonsense in the context of a tax collection obligation. 

I think we can all agree that requiring a remote seller to comply 

with a use tax obligation may well impose a burden on interstate 

commerce if the compliance burdens are unreasonable. 

The question, however, is whether physical presence is a good 

proxy for determining whether such burdens exist. 

Is a small business that happens to send a few salespeople into 

a State, thus establishing a physical presence and triggering a tax 

obligation, better able to comply with another State’s tax laws than 

a multi-million-dollar out-of-state retailer that may not have physical presence in the State but has sophisticated software programs 

that not only track a customer’s buying habits, frequently informing them of product offers, but also fulfills tax collection obligations 

of similar businesses that have physical presences in the State? 

If not, perhaps there is a better metric than physical presence for 

determining nexus for use tax collection purposes in the 21st century. 

Thank you, and I apologize for going over. 

[The prepared statement of Mr. Hellerstein follows:] 

PREPARED STATEMENT OF WALTER HALLERSTEIN


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Mr. COHEN. Thank you, Professor Hellerstein. Appreciate it. 

Second witness, Mr. Joseph Crosby. Mr. Crosby is the senior director of policy of the Council on State Taxation and its chief operating officer. 

He regularly testifies before State legislatures and other State 

and national policy-making boards, such as the Federal Advisory 

Commission on Electronic Commerce, and frequently quoted in 

State and local tax policy publications. Previously served this organization as legislative director. 

Prior to joining COST, Joe was national director of the State legislative services for Ernst & Young in Washington, D.C. 

Mr. Crosby, thank you very much, and we—you may begin your 

testimony. 

TESTIMONY OF JOSEPH CROSBY, LEGISLATIVE DIRECTOR, 

COUNCIL ON STATE TAXATION 

Mr. CROSBY. Thank you, Mr. Chairman, Members of the Committee. I appreciate the opportunity to share with you today 

COST’s views on the important issue you have before you, the role 

of Congress in defining tax nexus. 

Council on State Taxation, COST, is a trade association based 

here in Washington, D.C. We represent approximately 600 of the 

Nation’s largest businesses on State and local tax issues. 

In my written statement, I demonstrate two things. First, that 

the existing hodgepodge of State tax nexus laws burden interstate 

commerce; and second, that Congress has a responsibility to regulate issues associated with State tax nexus. 

In the interest of time, I am going to focus my comments on the 

second part of that, which is the need for Congress to act. 

Nexus laws very widely and are constantly changing. Over the 

past few years, the pace of change has accelerated, and new laws 

and regulations are directed almost exclusively at expanding the 

jurisdiction of State tax nexus. 

These expansive nexus standards have implicated many areas of 

State taxes, including personal income taxes, business activity 

taxes, sales and use taxes, and telecommunications transaction 

taxes. 

The fact that States have been very active over the past few 

years in adopting new and amended laws and regulations has not 

provided taxpayers with either clarity or certainty. 

Indeed, clarity and certainty are not the motivations for the enactment of these laws. The primary motivation for expanded State 

tax jurisdiction, as the Chairman indicated in his opening remarks, 

is to bring in more tax revenue to the States. It is quite natural 

for State legislators to seek to export their tax burdens to the 

greatest extent possible. 

Even if the States did have a desire to provide clear and certain 

nexus standards, though, they cannot do it. They can’t do it because State tax jurisdiction is ultimately a constitutional construct. 

States acting alone or even in concert cannot usurp the Constitution. And so ultimately it falls on this body to determine the appropriate extent of State tax jurisdiction. 

74 

With regard to nexus for business activity taxes, absent Federal 

action the controversy that exists today will continue unabated. It 

imposes significant burdens on our national economy. 

Since Quill was decided by the court nearly two decades ago, the 

court has had many opportunities to take State tax nexus cases 

and has chosen not to do so. Even if the court were to decide to 

take a case, it is likely that it would be decided on the limited facts 

of the case. Quill has taught us this. 

As Professor Hellerstein noted, even if the court were to take 

such a case, the Congress still ultimately has the authority to determine the appropriate extent of State tax nexus. 

Congressional legislation clarifying that physical presence is the 

appropriate nexus standard for the imposition of direct taxes on 

business is fair to both States and businesses and provides predictability and consistency necessary to promote economic growth. 

Turning to sales and use taxes, the States and the business community have actually come together in this area. Mr. Delahunt was 

here briefly earlier. He has long worked on this issue. 

The States and the business community over—for over 10 years 

have worked together on the Streamlined Sales and Use Tax Act 

to address the burden issue that the court spoke to in Quill. Unfortunately, that process cannot come to resolution absent congressional action. 

The process was initially predicated on congressional enactment 

of authorization of States to collect sales taxes, coincident with 

Federal legislation that demonstrated—required the States to simply, that compensates sellers for any burdens that remain, and that 

make sure that there is a fair and even nexus standard that applies nationwide. 

Finally, turning to non-resident taxation of employees and telecommunications taxes, the problems in these areas are not necessarily the case that tax jurisdiction isn’t clear. For non-resident 

employees who travel to multiple States, it is clear that States 

have nexus over these folks and can impose tax on them. 

The question is whether the multiplicity of jurisdictions that 

have the ability to tax the same income makes sense in our national economy. And as the Federation of Tax Administrators said 

in testimony before this Committee in a prior Congress, ‘‘Complying with the current system is indeed difficult and probably impractical.’’ 

A Federal solution to the issue of non-resident personal income 

taxes and telecommunications transaction taxes can be crafted 

without imposing financial hardships on the State and without unduly interfering with State tax authority. 

It is conceivable in these areas that the States acting in lockstep 

could address the problem. The reality is, however, we have no example in our history of the States coming together on a tax issue 

like this to create and continue uniformity over any period of time. 

In conclusion, I urge this Committee to favorably report the legislation that is before it. It is critical that the Congress have a 

thorough debate on these issues, and I applaud the Chairman and 

the Ranking Member for holding this hearing today. 

I welcome any questions that you or the Committee may have. 

Thank you very much. 

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[The prepared statement of Mr. Crosby follows:] 

PREPARED STATEMENT OF JOSEPH R. CROSBY


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Mr. COHEN. You are welcome, Mr. Crosby, and a wonderful close. 

Our final witness is Mr. Bruce Johnson. Commissioner Johnson 

was appointed to serve as commissioner of the Utah State Tax 

Commission by Governor Leavitt in October 1998. December 2009, 

Governor Herbert named him chair of the commission. 


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The tax commission is comprised of four commissioners who have 

the constitutional duty to administer and supervise all the tax laws 

of the State of Utah, including property tax, income tax, franchise 

tax, sales tax and other miscellaneous taxes. 

Prior to his appointment, Commissioner Johnson was a partner 

in the law firm of Holme Roberts & Owen. And prior to joining that 

firm, he was a trial attorney for the tax division of the U.S. Department of Justice. 

Thank you, Commissioner Johnson, and we welcome your remarks. 

TESTIMONY OF R. BRUCE JOHNSON, COMMISSIONER, 

UTAH STATE TAX COMMISSION 

Mr. JOHNSON. Thank you, Mr. Chair and Members of the Committee. It is a great pleasure for me to be here today. 

It is particularly an honor to testify with Professor Hellerstein. 

I learned a lot from his father’s textbook. I continue to consult his 

textbook. 

It is also a pleasure to appear with Mr. Crosby. I worked with 

COST extensively over the last 12 years, and I think we have had 

the opportunity to make some progress on some of these difficult 

State tax issues. 

I am appearing today on behalf of the Federation of Tax Administrators, which is a group of tax agencies across the country. It is 

all 50 States, the District of Columbia and New York City. 

Nexus is a fundamental concept in State taxation and it benefits 

both taxpayers and tax collectors. It is rooted in the fundamental 

laws of the country—in the Constitution, as interpreted by the 

courts, as Professor Hellerstein has noted. 

Mostly, Congress has chosen to forbear from limiting—from exercising its ability to limit the States, and we urge that forbearance 

to continue. 

There are times in the past when the States and businesses have 

come together and recognized that they need a congressional solution, and that has been forthcoming, and we appreciate the Congress’ forbearance on these important issues. 

The basic issue before us really is is economic presence appropriate or is physical presence the appropriate test for nexus. I 

would agree with Professor Hellerstein that this is not a situation 

in which one size fits all. But the basic question is physical presence versus economic presence. 

And the fact is that the economy of the 21st century is electronic 

and borderless. Many multistate businesses can and do operate 

without any physical presence in a State. They exploit the State’s 

market. They make millions or hundreds of millions of dollars of 

sales into those States and derive income from those States. 

Consequently, the businesses that utilize these modern technologies may have less of a physical presence in the State, but they 

have a much greater impact on the State and on a State’s economy. 

Appropriate nexus standards need to take that into account. 

Let me give you a couple of real quick examples. I have a couple 

of credit cards in my wallet, one of them from a local bank. One 

of them is from a bank that is headquartered in the east. 

87 

Let’s assume both of those banks have $10,000—or 10,000 customers in the State of Utah. Let’s assume they both receive the 

same amount of revenue from bank charges from stores in the 

State of Utah. Let’s assume they both receive exactly the same 

amount of interest income from Utah cardholders. 

Does it make sense that one bank has to pay income tax on all 

of that money and the other bank doesn’t? Why should an out-ofstate bank be able to come in, exploit the Utah market, and not 

have to pay an income tax on the income it derives from the Utah 

market? It simply doesn’t make sense in this economy. 

Another example—one of my favorite bookstores—actually, my 

favorite bookstore in Salt Lake is Sam Weller’s Bookstore. My 

grandmother used to buy books there before I was born. She 

brought me a book every year on my birthday. 

My other favorite bookstore is Amazon. Amazon sends me emails two or three times a week that tell me what I have ordered, 

what I have browsed, what my favorite choices are, what books 

they think I would like, and I have some of those downloaded onto 

my Kindle in about 20 seconds. 

Does it make sense that Sam Weller has to collect sales tax on 

the sales of books to me and Amazon, who knows a heck of a lot 

more about me than Sam Weller does, frankly, doesn’t have to collect a sales tax? 

The fact is that the physical presence standard was outmoded 

and recognized as outmoded by the court in Quill in 1992 and was 

affirmed on the basis of stare decisis. It was outmoded, you know, 

18 years ago and commerce has changed radically since then. 

This is simply a—the physical presence standard is a relic of a 

bygone era and should be rejected. 

The other point I would like to make is—two other points I 

would like to make. This is not a question of States—hungry States 

versus businesses. 

This is a question of taxpayers within the State versus taxpayers 

that are multistate businesses. How is the burden appropriately 

and fairly distributed among all of the people, all of the businesses 

doing business in the State? It is a fairness issue. 

The States gave up a lot of their sovereignty when the Constitution was adopted. And they did it for good and appropriate reasons. 

But because they did give up that important part of their sovereignty, it is important that this Congress recognize and deal very 

carefully in this area. 

Thank you very much. 

[The prepared statement of Mr. Johnson follows:] 

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PREPARED STATEMENT OF R. BRUCE JOHNSON


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Mr. COHEN. Thank you, Commissioner Johnson. 

Normally, I start the questioning, but in recognition of the fact 

that we have reasonably good attendance and that Mr. Watt was 

so good to want to hear the witnesses and not do an opening statement, I am going to let Mr. Watt be the first person to ask questions. 

Mr. Watt, you are recognized. 

Mr. WATT. Thank you, Mr. Chairman. 

I plead guilty to being the person who was rushing to hear the 

witnesses because I was hoping that the witnesses would shed a 

lot of light on this, and they have educated us substantially on the 

issues. 

This is an issue that a number of us have been working on for 

a number of years, and it just seems to be like the little pink 

bunny. It keeps going and going and going. And it never gets resolved. 

Mr. Johnson, there was a movement at some point to have the 

States come together and get a number of States to enter into some 

kind of streamlined agreement, compact, whatever. Can you tell us 

what the status of that is presently? 

And because I am—there is a growing pressure to do something 

in this area because of the mismatch of—hodgepodge of things that 

is going on, and the pressures to do what you have suggested, 

which is stay out of this and do nothing, I think, are growing adversely to that position. 

So tell us what is going on in that area and what is the impediment. 

Mr. JOHNSON. Thank you. I appreciate that. The streamlined 

sales tax project is alive and well. We added our most recent State, 

Wisconsin, just in the last year. And this is one of those few areas 

in which we would ask Congress to act. 

The business community and the States collectively have been 

working together to simplify their sales tax systems, to simplify 

their sales tax bases, to have more uniformity in the rates, more 

uniformity in the tax base among the various jurisdictions within 

a State—— 

Mr. WATT. Now, how many—— 

Mr. JOHNSON [continuing]. More uniformity—— 

Mr. WATT [continuing]. How many—Wisconsin made how many 

States that have come on board? 

Mr. JOHNSON. I believe there are 21 States now that are full 

Members, and there—— 

Mr. WATT. Wasn’t there some agreement at some point that once 

you reach some critical mass Congress would act, or at least that 

was implicitly understood? What was that magic number? And am 

I mistaken that there—— 

Mr. JOHNSON. Well, there was a magic—excuse me. There was 

a magic number before the agreement actually took effect, and we 

have reached that magic number. The magic number that is necessary before the Congress acts is a magic number that, frankly, 

is up to the Congress. 

Mr. WATT. So what was the magic number that Congress didn’t 

implicitly agree to? 

101 

Mr. JOHNSON. The magic number that was in place before the 

agreement became effective I think was 10 States with 20 percent 

of the population—— 

Mr. WATT. Okay, and—— 

Mr. JOHNSON [continuing]. Of the sales tax States. 

Mr. WATT. Now, what would Congress need to do to move on 

that? 

Mr. Crosby, you know about the history of this. What do we need 

to do? Or should we be doing nothing on that issue? 

Mr. CROSBY. Thank you, Congressman Watt. First, in this current Congress, legislation has not yet been introduced. I know that 

is something that Mr. Delahunt and others have been working on. 

So critically, of course, to get legislation introduced—legislation 

that has been introduced in prior congresses that—— 

Mr. WATT. Which would do what? 

Mr. CROSBY. Which would authorize States that have complied 

with the simplification requirements in the legislation to impose a 

collection obligation on all sellers regardless of nexus. 

Mr. WATT. Okay. 

Mr. CROSBY. So it would allow them to require these sellers to 

collect taxes under a simple sales tax system. 

Mr. WATT. Now, would that solve the whole problem, or would 

this—is that just a particular segment of the problem? 

Mr. CROSBY. It would address the problem with respect to sales 

and use taxes only. It would remain unsolved the issue of nexus 

for business activity taxes, the assignment of charges for telecommunications transaction taxes like voice over Internet protocol. 

And then, finally, with regard to mobile workers, people who 

travel for business, there would still need to be relief provided for 

those who travel for—— 

Mr. WATT. And would that resolve at least that sales and use tax 

thing for all of the States or just for the 21 that have entered into 

the compact? 

Mr. CROSBY. It would solve it for all of the States that chose to 

comply with it. So for the—those that have entered the compact, 

it would obviously—they would be almost all the way there. 

Other States then could choose—and we know in talking with 

State legislators, there are many of them who have chosen not to 

act because until Congress acts that those—the remote sales dollars are not available to them, and so for many States there is a 

negative financial implication for acting now, and I know that has 

been the case in a number of States, including some of the States 

represented here. 

Mr. WATT. Mr. Chairman, you rewarded me for not saying something, and I am—I hope you will reward me for being close to 

being—end of my time. So I will yield back. 

Mr. COHEN. Thank you, Mr. Watt. I appreciate it. I will hold in 

reserve your reward. 

Mr. Franks, you are recognized. 

Mr. FRANKS. I usually go after you. 

Mr. COHEN. If you would like to pass and we will recognize—— 

Mr. WATT. I have discombobulated him. 

Mr. FRANKS. Yes. 

Mr. WATT. He doesn’t know how to react to it. 

102 

Mr. FRANKS. Mr. Watt does that to me a lot. If it is all right, I 

am going to pass over to Mr. Jordan. 

Mr. JORDAN. Thank you, Mr. Chairman. 

Mr. Johnson, is there anything in the example you gave, the two 

banks—is there anything prohibiting the bank in Utah from marketing their services and products out of State, or is there anything 

prohibiting—I think you said Sam’s Bookstore versus Amazon—is 

there anything prohibiting Sam from marketing his product outside 

your State? 

I mean, it seems to me we always have this idea to reach some 

sort of fairness, we have got to increase the tax burden on certain 

businesses who may be located out of the State versus there is 

other ways to be fair in the marketplace and for people to compete 

in the marketplace. 

Mr. JORDAN. If those businesses—if Utah businesses—and many 

of them do—choose to exploit markets in other States, that is perfectly fine, and they should be subject to the taxation in those other 

States. 

If those other States choose not to tax it, that is—that is their 

prerogative as well. But the States should have the authority to do 

that. 

Mr. JORDAN. And, Mr. Crosby, you talk about the hodgepodge of 

laws and the idea that, you know, we need to tax more—or at least 

some think that—states think that—talk to me about what you 

would perceive as the burden on economic growth, particularly if 

we start putting an additional tax on cell providers, satellite providers. 

It seems to me that—and particularly in this climate, economic 

climate, we find ourselves in, that would be the wrong approach. 

Mr. CROSBY. Thank you, Congressman Jordan. The biggest problem, I think, is the considerable uncertainty that the business community faces today without an adequate answer as to when they 

are going to be subject to a State’s tax jurisdiction. 

Governor Gregoire in the State of Washington just last month 

proposed a bill that would say—would abandon Washington’s longheld physical presence nexus standard and say you now have nexus 

if you sell into Washington. It would also say that if you stop selling into Washington you still have nexus for the next 4 years. 

It is clear to me that in these cases the purpose of these bills is 

to export the tax burden, and that is a natural tendency, I think, 

for State legislators. And that, I think, is the role—and Chairman 

Cohen set it up very well at the beginning. At what point and how 

should Congress step in to make sure that the needs of the States 

are balanced with the needs of the national economy? 

Mr. JORDAN. And you are representing briefly in your testimony—what about the impact on the individual? You know, I 

mean, to me, you know, obviously, at some point it is people paying 

these taxes, and the person who is traveling or whatever—talk 

about that. 

Mr. CROSBY. Right. 

Mr. JORDAN. I think that is a big concern. 

Mr. CROSBY. It is a terribly large issue. Many of us—I mean, 

many of the folks here in this room today have traveled here. 

Washington, D.C., of course, doesn’t have the right, as you well 

103 

know, to impose personal income taxes on non-residents. But every 

other State does. 

Mr. JORDAN. Right. 

Mr. CROSBY. Or every State does, I should say. And when individuals travel for business in many States today you are legally required to pay State taxes and, in some cases, local taxes even if you 

are there for 1 day. 

Mr. JORDAN. Right. 

Mr. CROSBY. The burden of that is, from an administrative perspective, on the individual and the employer—vastly exceeds the 

value to the economy. The legislation that Congressman Johnson 

has introduced addresses this in a very balanced way—— 

Mr. JORDAN. Right. 

Mr. CROSBY [continuing]. And does so in a way that has almost 

negligible effect on most States financially. 

Mr. JORDAN. I am a co-sponsor of that legislation. 

Professor, what do you say about Congressman Johnson’s legislation requiring you to be in a State for a certain period of time—— 

Mr. HELLERSTEIN. Yeah. I have actually testified on this issue 

before and I—in principle, I think that this is a very appropriate 

exercise of congressional power. Whether it should be 29 days or 

25 days, you know, that is not—— 

Mr. JORDAN. Yeah. 

Mr. HELLERSTEIN [continuing]. It is beyond my pay grade. But 

clearly, I think this is—in part for the reasons I think that have 

been suggested to the Subcommittee, this is a quite appropriate 

area for Congress to act. 

Mr. JORDAN. And are you opposed—just for the record, are you 

opposed to Congressman Boucher’s legislation, Professor? 

Mr. HELLERSTEIN. Excuse me? 

Mr. JORDAN. Congressman Boucher’s—the BAT, the Business Activity Tax Simplification Act—are you—— 

Mr. HELLERSTEIN. No, I am not—am I opposed? I mean, no. And 

I have not—again, I am not here to either favor or disfavor any 

bills other than those I have already taken a position on. 

If you ask me about—specifics about that bill, I would say—in effect, go back to my general point, which—it seems to me you have 

got to look very carefully at what it is—what is the context of an 

income tax. 

Perhaps you might want to look at what other jurisdictions, including foreign jurisdictions, do. Should we have the same rules domestically as we have internationally? That is an important question. 

I think you also have to ask the question whether or not, you 

know, where is the tax base. If, in fact, all the States are saying, 

often with businesses’ encouragement, that the base should be defined entirely by sales, it might not make a lot of sense to have a 

jurisdictional rule that says you can’t tax if all you do is sales in 

the State. 

So I think these are things Congress needs to think about. 

Mr. JORDAN. I have got 30 seconds. You are supportive of Congressman Johnson’s. You are unsure of Mr. Boucher’s. Where are 

you at on 1019 and 1521, Video Tax Fairness Act and the Cell Tax 

104 

Fairness Act? Where are you at on those two? We have got four 

bills kind of in front of the Committee—— 

Mr. HELLERSTEIN. Right, and I am—again, I have—you know, I 

may not have the numbers right, but I can tell you that I think 

that the bill involving the question as to whether or not New York 

should be able to employ its convenience of the employer rule— 

again, I think that would be—that would be appropriate for Congress to say, ‘‘Here is the general rule for allocating personal income from—among States, rather than having overlap.’’ 

I think, in my judgment—and I have said this in print—I think 

New York has overreached in that instance. 

What was the other bill you mentioned? 

Mr. JORDAN. Video Tax Fairness Act, Sales Tax—Cell Tax Fairness Act, 1521. 

Mr. HELLERSTEIN. I don’t think I am familiar with that—with 

that bill. 

Mr. JORDAN. Okay. All right. 

Thank you, Mr. Chairman. 

Mr. COHEN. Thank you, Mr. Jordan. 

Ms. Lofgren, the distinguished Chairman of the—and an expert 

in this subject, you are recognized. 

Ms. LOFGREN. Well, I don’t know if I am an expert on the subject, but I am the author of the Cell Tax Fairness Act. 

And as I listen to—this is a complicated subject, really. I mean, 

it—in terms of business activity, taxing of employers, sales and use 

tax—I mean, it is not just a one-issue type of thing. 

But the question I have, Mr. Johnson—and I am very sympathetic to State and local government, but I am also aware that we 

have some national priorities, which is why I introduced the Cell 

Tax Fairness Act. 

We have taken a position as a Congress, and the President has 

taken the lead, that broadband deployment is important for the 

economic development of the United States, and it is more than 

just people being—it is a generator of additional economic activity. 

We are behind other industrialized nations. And we are falling 

farther behind. In some cases, we are even behind countries that 

we wouldn’t expect to be behind. 

And if you take a look at how is access occurring to broadband, 

increasingly it is with cell phones. And that is especially true for 

low-income Americans and especially true for minorities. 

If you take a look at who has access to broadband primarily 

through a cell phone, it is a younger person, it is a person with less 

income, it is an African American or Latino person, more than 

someone who has the bucks to go out and buy an expensive desktop. 

I am struggling with, you know, what is the proper balance for 

the Congress. We have this priority, and yet State and local governments have increased the taxes on—and burden to access on the 

lowest income Americans on their broadband access at a rate twice 

as fast as the taxes on any other goods. 

So do you think that that is an appropriate point of interest for 

us? And if not, why not? 

Mr. JOHNSON. Well, let me—and thank you for the question. Let 

me respond in a couple of ways. First, let me acknowledge that the 

105 

Mobile Telecommunications Sourcing Act was a good example of a 

situation where the States and the businesses came together, said, 

‘‘We need a solution here, let’s go to Congress with something we 

can all agree on,’’ and we all agreed on it, and Congress enacted 

it. 

I am sure there are some businesses that didn’t agree with it. I 

am sure there are some States that didn’t agree with it. But there 

was a broad recognition that that was a problem that needed to be 

solved, and we did that cooperatively. 

You know, I am sympathetic to the problems of the low-income 

households. And those are also the people that are primarily the 

recipients of a lot of the government aid and assistance. And if the 

infrastructure is not there, if the rapid transit systems aren’t there, 

if those systems aren’t available to the community—— 

Ms. LOFGREN. No, and that is why I am so—— 

Mr. JOHNSON [continuing]. We are going to have a problem. 

Ms. LOFGREN [continuing]. Sympathetic. I mean, so many essential services are provided by State and local government, oftentimes with Federal assistance. 

But certainly, the provider, on-the-ground provider, is often State 

and local government. And I mean, I spent almost as many years 

in that role in county government as I have in the Congress. So I 

am not hostile to that point of view. 

Mr. JOHNSON. And the streamlined sales tax agreement—let me 

point out—we did not require each locality to give up its own rate, 

but we did require them—and the agreement does require them to 

give up the ability to set their own tax rate, to have their own— 

excuse me, their own tax base. 

So those are difficult problems of balancing. 

Ms. LOFGREN. If I can, I am going to go to Mr. Crosby, because, 

really, what the bill does—it doesn’t repeal it; it just freezes it, and 

it also talks about differential rates, and I heard a muttered comment that it is always easy to tax somebody who is not a voter in 

your jurisdiction. You know, that is a preferred way. 

And that is also a preferred way for people who do not turn out 

to vote in large numbers, so I think that is why the low-income 

users of this broadband access have been particularly victimized. 

Mr. Crosby, I am very sympathetic to your concerns. However, 

business also needs what State and local governments provide, and 

especially education. If we don’t have a great educated American 

public, we don’t have a future as a country. 

So how do we—if we do these controls, how do States and local 

governments make up for the revenue that they need to provide 

these essential services? 

Mr. CROSBY. Thank you, Congresswoman Lofgren. That is a 

great question. I would say, first, turning to Professor Hellerstein, 

his encouragement to you that you look carefully at these issues is 

one that we would agree with as well. 

Certainly, COST and the business community is not suggesting 

that you should eviscerate State and local tax bases. In many 

cases, that is not at all what we are talking about. In fact, all we 

are simply asking the Congress to do is to set the boundaries for 

when State tax jurisdiction ends. 

106 

It must end somewhere. Where is it? We don’t know. The Constitution provides the due process clause. The Commerce Clause— 

that has not been well designed. I mean, in terms of—there has not 

been answers from this body or from the court as to where the limits are. 

So I think that would—you know, the main response—the goal 

is not to eviscerate State and local revenues. 

I also would like to note a study that our organization does every 

year shows that businesses in this country currently pay more than 

45 percent of all State and local taxes. These bills would not meaningfully change that figure. Businesses would still be paying substantial amounts of State and local taxes across the country. 

So I think it is really a question of the balance of what is the 

import of the national economy versus the needs of State and local 

government and striking that proper balance. And if you do that 

well, I think that the benefit accrues to all. 

Ms. LOFGREN. Thank you. 

I yield back, Mr. Chairman. 

Mr. COHEN. Thank you, Ms. Lofgren. 

I now recognize the distinguished Ranking Member, Mr. Franks. 

Mr. FRANKS. Thank you, Mr. Chairman. 

And Ms. Lofgren doesn’t confuse me nearly as much as Mr. Watt. 

Commissioner Johnson, you know, I suppose in an ideal world it 

would be great if the States—if we had some sort of magic nexus 

where the State that the business originated in, whether it was 

physical presence or economic presence, or whatever, had the tax 

base rights and then, of course, there would be competition among 

the States to keep their taxes low in order to attract those businesses. There would be sort of a natural regulation, as it were. 

But you state that the physical presence nexus standard which 

the Supreme Court has held is necessary for sales and use taxes 

is antiquated. And the State and localities have also been opposed 

to a physical presence standard for business activity or franchise 

taxes. 

So I guess my question is why should Congress support an economic nexus text over a physical presence test when the physical 

presence test gives businesses a certainty to do their tax planning? 

It is something that—you know, it is definable. So I know that is 

a fun question, but—— 

Mr. JOHNSON. Thank you, Congressman. I practiced State and 

local tax law at a private firm for 17 years before I became a member of the commission. The physical presence test in the context of 

the modern business world simply makes no sense. 

There are under the current BATSA bill—there are so many 

ways to structure your operations around that bill to avoid taxation 

and still have exactly the same economic footprint in the State. 

It is simply a roadmap to—I won’t say abuse, because it is legal. 

If it is authorized by Congress, it is legal. But the same kinds of 

things we see in tax havens overseas we would be seeing in spades 

in local taxation. It doesn’t make sense in today’s economy. 

Mr. FRANKS. Is there any overall principle—sometimes, you 

know, it is good to go back to some principle that even though it 

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girding guideline that you sort of refer to in your own mind as a 

better approach? 

Mr. JOHNSON. Well, you know, the Multistate Tax Commission, 

for example, has proposed a uniform nexus standard for the States 

to adopt that would have reasonable force. If you didn’t exceed in that case $500,000 worth of sales, or $50,000 worth of payroll, or $50,000 worth of property in a State, 

you wouldn’t be subject to the income tax. I proposed that legislation in Utah because I thought it made a lot of sense. 

Small businesses particularly should have some certainty, and 

they should have some security, and there should be some thresholds that are recognized. And the States, frankly, need to do a better job. But I would encourage COST and the businesses to approach the States and say, ‘‘Look, this is a problem for us. Let’s get 

it solved.’’ And they can knock off some States. 

Now, I know it is harder to knock off 50 States than it is, in 

many cases, to come to Congress. But that is our Constitution. You 

know, the States have sovereign rights. And I think the States will 

be receptive to those approaches, perhaps not this year. They might 

want to wait for a slightly better budget year. 

But that is basic fairness. I don’t want to get income tax returns from somebody that sells $15 worth of stuff in my State. That 

doesn’t make sense for the taxpayers. It doesn’t make sense for the 

tax collectors. 

There are some minimum thresholds that the States should 

adopt, and we would be happy to work with the business community in trying to implement those on a State-by-State basis. 

Mr. FRANKS. Thank you, sir. 

Professor Hellerstein, you don’t reference the 10th Amendment 

in your testimony, so I guess to what extent, if any, should the 

10th Amendment constrain Congress’ authority to legislate in this 

whole area we are discussing here? 

Mr. HELLERSTEIN. Well, from a constitutional standpoint—that 

is, from a legal standpoint—not at all. 

I mean, I think there is virtually no doubt that Congress has 

ample power, as the U.S. Supreme Court has said—the 10th 

Amendment, to exercise its power under the Commerce Clause to 

create uniform rules for State taxation, to create thresholds, even, 

in fact, to create bases. 

There once was a time when it was thought that the 10th 

Amendment was a constraint on Congress, and there was a case 

called National League of Cities back in 1976. That case was overruled. So I think the short answer is the 10th Amendment does 

not, as a legal matter, constrain what this body can do. 

It may well be that if one is a fan of the 10th Amendment one 

thinks Congress shouldn’t do something. But there is no legal constraint on Congress that the 10th Amendment in this context, I 

think, imposes. 

Mr. FRANKS. Mr. Chairman, could Mr. Johnson have a shot at 

the same question? 

Mr. COHEN. You are recognized, Mr. Commissioner. 

Mr. JOHNSON. Thank you, Your Honor. Excuse me. 

Mr. COHEN. You are competing with Mr. Crosby now for witness 

of the day. 

108 

Mr. JOHNSON. Oh, thank you, Your Honor. 

[Laughter.] 

The Congress, I think, does have plenary authority in the Commerce Clause area. The 10th Amendment is still very much alive 

in very many areas. And I think the intent of the 10th Amendment 

clearly has to, you know, inform what Congress chooses to do in exercising its Commerce Clause power. 

Mr. COHEN. Thank you. 

Before I recognize Mr. Johnson and continue this sexy subject 

that this Committee often gets into, I would like to pause for one 

question for Commissioner Johnson and Mr. Johnson only. 

What do you think of the BCS? 

Mr. JOHNSON. We are not fans of it in my part of the country. 

Mr. COHEN. I didn’t think so. 

Mr. Johnson, you are recognized. 

Mr. JOHNSON OF GEORGIA. Thank you, Mr. Chairman, for holding 

this hearing. 

And before I get started, I did want to announce my own personal choice for witness of the day, and that honor should go to my 

good friend from Georgia, Professor Hellerstein. 

Mr. HELLERSTEIN. Thank you, Congressman. 

Mr. JOHNSON OF GEORGIA. Yes, sir. 

Mr. COHEN. You realize he has no jurisdiction to put any honor 

on you, sir. 

Mr. HELLERSTEIN. He has jurisdiction over my children. 

[Laughter.] 

Mr. JOHNSON OF GEORGIA. There you go. 

I do want to talk a little bit about H.R. 2110, the mobile workforce bill that would clarify and make uniform the laws with respect to employee withholding taxes and a duty on employers to 

withhold those taxes. 

And what kind of problems do we get when we have so many different tax rules coming out of 50 States? How does that affect our 

ability to compete? How does that affect efficiencies with respect to 

both sides of the issue, States and employers and employees? 

And I also would like to take the opportunity, before I expect an 

answer, Mr. Crosby, to say that this is a issue that has been percolating long before Hank Johnson arrived in Congress. 

And a previous congressperson from Utah was a big proponent 

of this, as you well know, Mr. Johnson. 

So, Mr. Crosby, if you would take a stab at that. 

Mr. CROSBY. Thank you, Congressman Johnson. We appreciate 

your leadership on this issue and Congressman Franks and Congressman Jordan also for their leadership on this issue. 

The problem of traveling employees and their taxation is a very 

interesting one. It is one of those classic examples where the greater someone tries to comply, the greater the burden becomes. 

If you travel for business around the country and are unaware 

of the laws, or choose to ignore the laws, your burden is likely relatively light. 

But if you actually try to comply with the laws of this country, 

you could have a substantial burden to pay income taxes and to file 

tax returns in the States where your presence is fleeting at best. 

109 

And from a financial perspective, for your taxes, in most cases 

you will not end up worse off, because in your home State you are 

going to get a credit against those taxes, but administratively the 

financial burden of filing all those forms can be quite considerable. 

I myself have looked into this. I travel fairly widely around the 

country. I live in the State of Maine that has an 8.5 percent personal income tax rate. And so for almost every place I travel, were 

I to file in all those places, I would receive a credit on my Maine 

state return. 

But in 2008 I would have had to file returns in nearly 20 other 

States. That would have been an enormous burden. And I am willing to admit that I did not do that, because I could not do that. 

For the employer, the burden is equally great. The employer has 

to track their employees’ whereabouts, and for most traveling employees there is nothing that ties back into the payroll system that 

says where the employee is. 

Their boss may know, but the fact is most traveling employees 

don’t fill out time sheets, don’t keep track of their time on a daily 

basis. They do their jobs as they are instructed to do them. 

And so for the payroll systems to have to try to split pay periods, 

and withhold part to one State and part to another State, and keep 

track of all these things is enormously complex and expensive. 

And so again, here, the companies that try to comply with these 

withholding requirements are the ones that bear the greatest burdens. 

And in the current environment, the changes that now has—that 

have come from Congress and other places over the past decade, 

companies are increasingly concerned about complying with all 

laws and regulations regardless of whether a tax authority is auditing them. 

So this is an increasingly important issue for businesses and employees. And as more companies put in place systems to comply, 

more employees are forced to deal with these laws. 

Mr. JOHNSON OF GEORGIA. Thank you, Mr. Crosby. I would like 

to have a response from Mr. Johnson to this question. The mobile 

workforce bill, H.R. 2110, would set a 30-day uniform threshold 

across the Nation. Why is this 30-day threshold preferable to a 

shorter period as many have—or as some have suggested? 

Mr. JOHNSON. Thank you, Congressman Johnson. Why is it preferable to a shorter period? I think States—as far as I know the 

FTA is comfortable with a 30-day period. 

A shorter period would be even more burdensome on the businesses because then if they had, you know, a 2-day threshold they 

would have to file in lots of places. So I think the 30-day period 

is reasonable. 

The FTA, as you know—I hope you know—has been working 

closely on many provisions of this bill. We certainly recognize there 

is a problem. There is also a uniform law project under way at the 

Multistate Tax Commission to address this problem. 

It is a problem. We recognize it. And we want to work with the 

business community in solving it. 

Mr. JOHNSON OF GEORGIA. Thank you. 

And if I could, Mr. Chairman, just one—if I could get a comment 

on that same issue from Professor Hellerstein. 

110 

Mr. HELLERSTEIN. Yes. Thank you, Congressman. Well, again, as 

I testified a couple of years ago, I believe this is a perfect type of 

intervention by Congress. We need a uniform rule. We have heard 

about the burdens that this creates. 

You know, precisely what the line is—again, that is not my area 

of expertise. But I would say this is exactly, I think, what Congress 

should be looking at, looking at administrative burdens, I would 

say, in other areas, too, and making sure that in this context, 

where, as Mr. Crosby has pointed out, there is really not a huge 

amount of revenue at stake, and it is really a question of which 

State gets the income, and if—it is not going to make a large bit 

of difference. 

This is, I think, a place where Congress can do a lot of good without doing a lot of harm in terms of intrusion into State sovereignty, 

because the States are not going to voluntarily get together and 

choose the right or a particular rule. That I think we have learned. 

States are not very good at doing that. 

Mr. JOHNSON OF GEORGIA. Thank you, Mr. Chairman—witnesses. 

Mr. JOHNSON. Mr. Chair, I apologize. I need to amend my testimony. As I am looking at my notes, if I may, the 30-day period— 

I think the problem that we have with 30 days is that, you know, 

30 working days is closer to 6 weeks, and I think we are—we do 

have a problem with that. 

Mr. COHEN. In the Senate, it is about 3 years. 

[Laughter.] 

Mr. JOHNSON. We would like a shorter period than that. Like I 

say, working days—that is 6 weeks. If you are going to be in a 

State, you know, for a month, you are working 20 days. Certainly, 

that, I think, is not an unreasonable burden to put on an employer. 

The other concern we have, of course, is the limitation on the 

taxation. We recognize that there are good reasons—problems with 

withholding, but at the end of the year, you know where you have 

been. There is no uncertainty. And you can figure out what the 

taxes are and get appropriate credits. 

So I apologize for my misstatement on that. 

Mr. COHEN. Thank you. You are now second place, a half a remark behind Professor Hellerstein and Mr. Crosby. 

Mr. Coble, you are recognized. 

Mr. COBLE. Thank you, Mr. Cohen—thank you, Mr. Chairman. 

It is good to have you all with us today. Gentlemen, it is essential for our economic well-being and only fair to businesses or taxpayers that they have certainty in knowing where they may or 

must pay their taxes. 

In reading the prepared remarks submitted for the record, particularly of the American Truckers Association, U.S. Bancorp and 

the Consumer Electronics Association, it appears clear to me that 

we have an unpredictable, chaotic and sometimes unfair system of 

State tax collection. And I will be glad if you all concur or disavow 

that subsequently. 

But H.R. 1521 prohibits local governments from imposing new 

discriminatory taxes on mobile services for 5 years. Now, I understand that many taxing regimes for mobile services are unpredictable. 

111 

But, gentlemen—and I will start with you, Mr. Johnson—why 

has this occurred to the mobile industry as opposed to other local 

industries? 

Mr. JOHNSON. I am sorry, Mr. Coble, could you repeat that question? 

Mr. COBLE. H.R. 1521 prohibits local governments from imposing 

new discriminatory taxes on mobile services for 5 years. Why is 

this applied only to the mobile services, as opposed to other local 

industries? I think you may have touched on that earlier. 

Mr. JOHNSON. Well, we are certainly not—we are not supporters 

of this bill. We do think it singles out a particular industry for special treatment. 

We would also note that this is a dynamically changing industry. 

Any kind of a preemption, particularly for 5 years, seems to us to 

be unreasonable. Discriminatory is also in the eye of the beholder. 

If this discriminates against interstate commerce in a constitutional way, the State law wouldn’t be upheld. 

So what we are talking about here is preventing a locality from 

distributing its tax base the way it thinks appropriate. And all 

taxes in one sense are discriminatory. Some things are in the tax 

base. Some things are not. 

You know, some income earners get a different rate than other 

income earners on income taxes. That is discrimination, I think, 

within the sense of this bill, but it may be very, very good tax policy. So we would oppose that bill. 

Mr. COBLE. Thank you, sir. 

Mr. Crosby, do you want to weigh in on that? 

Mr. CROSBY. Thank you, Congressman Coble. I will preface my 

statement by noting that as an organization that broadly represents business, we tend not to become involved with taxes on individual business segments. 

That said, however, COST has long studied the impact of taxes 

on telecommunications around the country, sort of adding them up 

and determining what burden is imposed on telecommunications. 

And Mr. Johnson indicated that the legislation singles out one 

industry. I would note that I think that the reason that the bill is 

before the Congress is because that industry has been singled out 

for extra attention when it comes to tax matters as well. 

And so, you know, certainly, it is the case that over our history 

State and local governments have imposed greater tax burdens on 

regulated utilities and they have, as the cellular telecommunications industry has grown, begun to export those tax burdens to 

wireless telecommunications as well. 

Mr. COBLE. Thank you, sir. 

Professor, do you want to insert your oars into these waters? 

Mr. HELLERSTEIN. All I would say is, you know, you have to be 

very, very careful, I think, in legislating for specific industries, at 

least without very strong evidence that that particular industry 

needs the protection. 

There is the ‘‘me, too’’ problem, as you have probably seen. Once 

one industry says, ‘‘Gee, we are having this problem,’’ then there 

are always the economists that can bring you the data that show 

that they are being discriminated against. 

112 

So I think it is certainly an area where I think intrusion into 

State prerogatives as choosing their tax base is quite sensitive. 

Now, there may well be instances in which the proof is overwhelming that a particular industry has been singled out, looking 

at all taxes, and if the evidence is overwhelming it may be appropriate for Congress to act. 

But I think Congress has to look very, very carefully at the facts 

before, in effect, saying that States may not tax this or that or the 

other, because there is a tendency, I think, once one industry gets 

a particular benefit—‘‘Why not me? I want that same benefit.’’ 

Mr. COBLE. Thank you, gentlemen. 

I yield back, Mr. Chairman. 

Mr. COHEN. Thank you, Mr. Coble. 

Mr. Scott, the Chairman of the Criminal Law Subcommittee and 

gentleman from Virginia, you are recognized. 

Mr. SCOTT. Thank you. Thank you, Mr. Chairman. 

Mr. Chairman, I got involved in this issue when a local food processor brought it to my attention that one of their trucks traveling 

through the State of New Jersey had essentially been hijacked and 

held hostage until they had wired the State of New Jersey some 

money to release the truck. 

They had no sales force, nobody in New Jersey, just driving 

through, and essentially got hijacked. And that obviously isn’t fair, 

but as the gentlelady from California mentioned, it is great taxation policy where you can whack people that are out of State and 

can’t vote for you. 

Just from a practical point of view, Mr. Crosby, can you talk 

about the problems in trying to figure out what sales tax you might 

owe as you go through cities, States, counties, in terms of whether 

something is food or not food, or exempt for food, or whether it is 

a Labor Day holiday or whatever? 

Can you talk about the problems in calculating what tax you 

might owe if it is a sales tax? 

Mr. CROSBY. Thank you, Congressman Johnson—or, excuse me, 

Congressman Scott. With regard to sales and use taxes, the difficulty for retailers who sell into a national marketplace and who 

may not be physically located in a jurisdiction is the fact that there 

are more than 6,000 sales and use tax jurisdictions around this 

country—different bases, different tax rates, different definitions of 

items that may be identical across the country but defined differently across the country. 

And I think that is why, as Mr. Johnson talked about in his testimony and I briefly touched on in mine, the Council on State Taxation, the Federation of Tax Administrators and many other business and State groups have come together to try to address these 

issues through the streamlined sales tax project. 

So when it comes to sales taxes, we have been working on it 10 

years. We have made progress. We are not at the end of the game. 

But it is certainly something that Congress needs to—— 

Mr. SCOTT. What about business tax—business taxes? Do they 

differ from jurisdiction to jurisdiction—— 

Mr. CROSBY. Yes. 

Mr. SCOTT [continuing]. And cause the—— 

Mr. CROSBY. Yes, sir. 

113 

Mr. SCOTT [continuing]. And cause the same kind of complication? 

Mr. CROSBY. Business activity taxes are—it is a little different of 

an issue. Because of the sales tax arena, the tax is actually owed 

by the person who lives there. 

With regard to business activity taxes, it is unclear to businesses 

exactly what activities are going to trigger a tax liability in a jurisdiction, whether it be the State or local governments. 

And your example about the Virginia food processor who was just 

transiting goods through the State of New Jersey and had their 

truck stopped and had to wire money before they were able to get 

the truck released is not a singular example. 

These sorts of things have happened in many other businesses, 

small businesses and large businesses alike. One of the major problems is that the businesses are filing their returns under their understanding of what the law is today. That is unclear. 

Years later, tax administrators may come back and say, ‘‘You 

failed to collect or you failed to remit taxes we think you ought to 

have had to remit and you are required to file returns and contest 

them in court or capitulate and pay taxes you don’t think you owe 

to avoid the costs of litigation.’’ 

Mr. SCOTT. Well, you mention years later. You have confessed to 

possible transgressions. Is there—— 

Mr. CROSBY. Yes. 

Mr. SCOTT. Is there any statute of limitations? 

Mr. CROSBY. I am comfortable in that area because my home 

State of Maine taxes at a relatively high rate that I could file 

amended returns and receive the credits and—— 

Mr. SCOTT. Well, there is a—there is certainly a limit on how far 

back you can go. Is there any statute of limitations on what they— 

when they can go back and charge you? 

Mr. CROSBY. Not if you haven’t filed a return, no. And that is one 

of the problems—— 

Mr. SCOTT. So you can go back decades. 

Mr. CROSBY. They can go back—yes, decades, indeed. 

Mr. SCOTT. Okay. 

Mr. Hellerstein, you mentioned a situation where if you go to Oregon and buy a car without paying a sales tax because they have 

no sales tax and bring it back into a State with a sales tax you pay 

the sales tax or use tax there. 

What if you buy it from a State that has a sales tax, you pay 

the sales tax there, do you still have to pay the use tax when you 

get back home? 

Mr. HELLERSTEIN. No, you get a credit against the sales tax that 

you paid where you purchased it in the State where you bring it 

back. 

So if instead of going to Oregon you had gone to California and 

paid a sales tax and you brought it back to Washington and went 

to register it, assuming the sales taxes were the same, you would 

pay no use tax. 

Mr. SCOTT. Well, are all States—do all States give credit for 

taxes paid to other States? 

Mr. HELLERSTEIN. Yes. As a matter of constitutional law, they 

have to. 

114 

Mr. SCOTT. In terms of income tax on telecommuting, you could 

have a situation where someone lives in northern Virginia, works 

at a place located in Maryland, and never set foot in Maryland because you telecommute, or you telecommute once a week, or you 

take home—take work home with you at night. 

How would you ever calculate who—what income tax you owe to 

which State? 

Mr. HELLERSTEIN. Well, again, it would depend on the State 

rules. If a State had a rule that said—that determined how much 

a non-resident—we are talking about a non-resident, because State 

residents—will tax you on all your income. 

If it is on a physical presence, daily count, it is pretty easy. If 

it isn’t, if it is a rule such as the rule that New York has, which 

says, ‘‘Well, we are not going to count days that you are not in New 

York if it was not for the convenience of the employer,’’ if the employer didn’t say, ‘‘You must be in a particular location,’’ it becomes 

more difficult. 

Mr. SCOTT. If you do show up—I think for sports players, when 

they go to play a game, they show up for 1 day. The State where 

they are playing wants to tax them. Do they count the practice and 

all that that went into it, or they count the number of games divided up? How do they calculate it? 

Mr. HELLERSTEIN. That is a very good question. In fact, there 

are—the question as to how athletes and professional sports teams 

should calculate their income in various States—should it be on a 

games-played basis? Should it be on a physical presence during 

the—during the off season? 

And in fact, the Federation of Tax Administrators has a uniform 

statute that they have urge States to adopt to deal with sports, because that is a very special problem, and there are various approaches to this. I think there is a good uniform approach that the 

Federation of Tax Administrators has recommended. 

Mr. SCOTT. Thank you, Mr. Chairman. 

Mr. COHEN. Thank you, Mr. Scott. 

The bells indicate we have votes in 15 minutes, so we are kind 

of in overtime, and I am going to ask Mr. King and Ms. Chu, who 

have been good enough to be here, to limit their answers and questions to 4 minutes and ask the respondents to answer quickly. 

Mr. KING. Reserving my right to object, Mr. Chairman, I would 

point out that nearly everyone on this panel ran over the 5 minutes, and so I had some important things that I want to raise, and 

I will try to respect the time, but—and I will just make this point, 

because I sit here and listen to this go back and forth and back and 

forth, and there will never be an end to the discussion and the argument, because where you sit is where you stand. 

So you will always try to draw a little advantage for—whether 

it is for Maine, or Utah, or whatever it might be, because you see 

it through that lens. 

And there is a certain characteristic of human nature that I have 

noticed in my times of business and public life, and that is that if 

you appoint a committee, that is the first thing that sets the conclusion that the committee will draw. 

115 

The second thing is you assign a charge to that committee, a mission, and they will start down that path, limited within the definition of that mission. 

Then you appoint or elect a chair, and that chair will then have 

an agenda. And if it is a powerful chair, and usually it is, the members on the committee will line up behind the agenda of the chair, 

and then they will just seek to perfect that path or that track that 

has been laid out by the committee, the appointment to the committee, the mission for the committee, and by the chair of the committee. 

And so as I listen to this, it occurs to me that we have been dealing with something here, the—well, the Federal income tax and the 

State income tax—that next year we will celebrate the 150th year 

of the first income tax in America. That was by the Confederate 

States of America in 1861—lasted 10 years. 

Then in 1894 we had a Federal income tax that lasted for a year. 

It was determined to be unconstitutional. And then the Congress 

just last—100 years ago last year passed the constitutional amendment, the 16th Amendment, and it took a few more years, 4 years, 

to ratify that. 

So soon we will have a century of the income tax. And I am hearing that what we have is archaic, physical presence is archaic because the world has moved on, yet we are cobbling together how 

it is we are going to bolt new parts onto a more-than-centuries-old 

income tax system that was Federal and most of the States have 

adopted on, and each one has a different set of rules. 

So I am going to submit that this Committee has gotten more 

and more tunnel vision over the years. And we have not stepped 

back and looked at this from 10,000 feet. 

And we haven’t decided how we are going to adapt a tax policy 

for the United States of America that is right for the 21st century 

and maybe lays the groundwork for adaptation into the 22nd century. 

And I am going to say for the 21st century the IRS itself has to 

go. It is a cobbled mess that no one understands. And it creates the 

convolution of the States’ income taxes as well. 

And setting aside the Federal problems that we have, even if we 

do the things that have been advocated here by each of you in certain ways, and Mr. Johnson most recently, we are still going to end 

up with 50 different models, as clean as it might be, to go see what 

the State’s policy is. 

I am going to suggest why don’t we do one model for the United 

States of America? Why don’t we allow the States within the 10th 

Amendment to conform in a fashion that will allow us to have an 

opportunity for a single model that would be conducive to business 

in all the States and completely simplify this? 

The streamlined sales tax, which I have done some work on as 

a State legislator—and I am not quite to the point of despair, but 

it is very difficult to get to the point to get enough States to agree. 

I believe if we go to a national sales tax the States will follow, 

probably all of them eventually. And the streamlined sales tax can 

be a tax—a low tax on all sales and service, regardless—we don’t 

have to have the discussion about what is taxed and what is not— 

everything, last stop retail, sales and service. 

116 

If we do that, we eliminate everybody’s problem here. We can 

solve the Federal problem with this convoluted mess. 

Another point that I would make—and it would be in disagreement with Mr. Crosby’s statement that businesses would still be 

paying taxes—I have never believed that businesses pay taxes. 

They pass them along to their customers. Taxes are really assessed 

at the retail level, sales and service. 

And so this simplification that I am proposing solves every problem here, and it creates a dynamic economy, States and in the Federal Government, and it moves us into the 21st century in a way 

that we have got a model to work on rather than this model that 

has had parts bolted on it and been upgraded and convoluted for 

150 years. 

And if there is anybody on the panel that would like to tell me 

how much you have thought about that, that I have just described 

here today, and speak to that, I would be very interested in hearing it. 

Mr. Johnson? 

Mr. JOHNSON. I think at the FTA we believe that the State sovereignty is core. The ability to raise your revenues and determine 

how those tax revenues are shared by the people of the State is an 

important part of the legislative process. And we think that is what 

the Constitution envisioned. It is not pretty. 

Mr. KING. Mr. Johnson, I agree with you in the 10th Amendment 

principles. I am going to suggest the States would opt in if the Federal Government would go to a national sales tax, because they 

would see how it is streamlined in that fashion. 

At this point, I think I would just conclude. And I appreciate the 

witnesses’ testimony. 

And I would yield back the balance of my time. 

Mr. COHEN. Thank you, sir. 

Ms. Chu? Thank you. You are recognized. 

Ms. CHU. Well, I know we are under time pressure, so I would 

be happy with a very succinct answer. But I am really happy to 

see Congress step in and to—for us to be pursuing this line of reasoning because of my previous position. 

Prior to this, I was elected to the California State Board of 

Equalization which collected the sales tax for the State. And overall, we collected $53 billion worth for the State of California. 

And we watched as there was a decline in sales tax revenue as 

there were more sales online and the bricks and mortar companies 

were suffering, which forced California to rely more on income tax 

for its State revenue rather than sales tax, which resulted in a 

much more volatile revenue stream for the State of California. 

And so we have this—these hodgepodge of laws, and the latest 

example is Expedia, which negotiated rates with hotels, of course 

charging a—ultimately charging a lower wholesale room rate than 

what an individual could get on their own, and—but then only paying local taxes on the wholesale rate rather than the rate that they 

charged customers. 

And the city of Columbus, Georgia, sued Expedia for this practice, saying that the city had a right to the—that which was 

charged the customer. Well, Expedia argued that they didn’t have 

to because they didn’t have a physical presence. 

117 

But it went to the Georgia Supreme Court and the supreme court 

decided that Expedia did have to pay the—have to pay the higher 

rate, the rate that they were charging the customers. 

And recently, there was a case in California where a California 

city is suing Expedia for—also for the hotel tax that they charge 

every hotel in the city. 

So my question is why should there be a standard definition 

across the States? What is the fairest way to create these standards? And on the nexus issue, should there be separate legislation 

for each situation, sales tax versus income tax? 

Mr. HELLERSTEIN. Is that—— 

Ms. CHU. For anybody, yeah. 

Mr. HELLERSTEIN. Well, I mean, there are a lot of questions 

there. I think, first of all, it is my view, as I stated in my testimony, that I think that certainly with regard to sales tax, which 

is probably the biggest issue than the one you address, I believe 

very strongly that Congress needs to take a very hard look at 

whether the physical presence standard really makes any sense. 

I mean, is that a good proxy for an ability to comply with the 

sales tax? And if it doesn’t, there may well be another standard, 

and another standard that is really much simpler. 

Anybody that says the physical presence is clear has not read 

hundreds of pages of my treatise, hundreds of pages of case after 

case after case which has a different definition of what constitutes 

a sufficient physical presence to create nexus. 

A simple rule that said 10,000, 100,000, a million—you pick the 

figure—I think would be certainly simpler. And that is a—that is 

a question Congress needs to ask. 

I think the Expedia question is another very important question 

but, unfortunately, for the moment, one very much mired in local 

accommodations taxes. I would agree with you that it would be nice 

to have a uniform rule that taxed on a uniform basis if the States 

decide to tax. 

Right now, the problem really is that these are not system-wide 

taxes. They are local accommodations taxes. And the real question 

is whether under one of those taxes the—is Expedia an innkeeper, 

and so it is a technical problem. Congress might well want to intervene in that area. 

But again, it would clean up a lot of the sub-national and sub— 

even below the State level—clean up a lot of the uncertainty. But 

again, there is the question of how far does the Congress want to 

intrude into what has historically been clearly a matter for local 

determination. 

Ms. CHU. Thank you. 

Mr. COHEN. Thank you, Ms. Chu. I appreciate it. 

And I thank all the witnesses for their testimony today. It is a 

tie for witness of the day. We had three great witnesses. 

Without objection, the Members will have 5 legislative days to 

submit any additional questions which we would forward to the 

witnesses and ask you answer as promptly as you can. They will 

be part of the record. 

Without objection, the record will remain open for 5 legislative 

days for the submission of any other additional materials from 

Members of the Committee or from witnesses, I guess. 

118 

Again, I thank everyone for their time and patience. This hearing 

of the Subcommittee is adjourned. 

[Whereupon, at 1:05 p.m., the Subcommittee was adjourned.] 

(119) 

A P P E N D I X 

MATERIAL SUBMITTED FOR THE HEARING RECORD

PREPARED STATEMENT OF THE HONORABLE JOHN CONYERS, JR., A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF MICHIGAN, CHAIRMAN, COMMITTEE ON THE JUDI- CIARY, AND MEMBER, SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW

Each Congress, this Committee considers several legislative proposals which seek 

to restrict or expand the ability of States to tax income or transactions. 

One such proposal includes Congress’ granting authority to States to require remote sellers to collect and remit sales taxes. 

Another proposal seeks to establish a set standard for taxing certain business activities. 

Yet another proposal, one which I introduced, focuses on the discriminatory tax 

treatment by States between cable and satellite television providers. Several of 

these legislative proposals touch upon the complicated issue of ‘‘nexus.’’ Because of 

its complexity, and it being the basis for when a State can rightfully impose a tax, 

a discussion on ‘‘nexus’’ merits its own hearing. 

I welcome today’s hearing, and find it timely in light of the current economic situation. 

As we hear testimony from today’s witnesses, we should consider the following 

three points: 

First, to lift this country out of the current economic doldrums, we should provide 

certainty to encourage the free flow of commerce. 

We need more businesses to produce goods and provide services to help create 

much-needed jobs. These jobs help workers get back on their feet, and create a market for more goods and services. To encourage this economic revival, businesses, and 

taxpayers in general, need certainty to operate. They need simple and clear tax 

structures to know what activities will trigger tax liability in a State. 

The certainty of knowing when tax liability is triggered will help businesses to 

plan for investments, and to know when to withhold an employee’s income tax, or 

collect and remit a sales tax. 

We should urge the creation of State and local tax policies which are clear, fair, 

and certain. Such policies would not hinder the free flow of commerce, but would 

encourage technological development, efficiencies, and job creation. 

Second, our State and local governments are currently hemorrhaging during this 

continuing economic downturn. Although the fourth quarter GDP points to an economic turnaround on the horizon, State and local revenues are still declining for the 

foreseeable future. My home State of Michigan has been especially hit hard, as its 

tax base dwindles after employers lay off workers, home prices fall, and consumer 

spending drops. 

For that reason, we should examine carefully any legislative proposal that could 

further depress State and local revenues and those governments’ abilities to provide 

their residents essential services. 

Congress should tread lightly when considering legislation that may force State 

and local governments to decide whether to cut spending on law enforcement, or 

much-needed repairs to infrastructure or education. 

Whenever States are forced to lay off teachers, eliminate after-school programs, 

or raise tuition at State universities, the future of the next generation, and in turn, 

our country, is negatively impacted. 

Congress should take seriously the plight of State and local governments. In fact, 

this Subcommittee should hold a hearing on what Congress can do to help State and 

local governments weather the current downturn. 

Third, when we review legislation concerning State taxation, I have encouraged 

State and local governments and the relevant taxpayers to work reasonably together 

to create tax policies that are clear and competitively neutral, and that do not unVerDate Aug 31 2005 15:01 Apr 20, 2010 Jkt 000000 PO 00000 Frm 00123 Fmt 6601 Sfmt 6621 H:\WORK\COMM\020410\54763.000 HJUD1 PsN: DOUGA
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necessarily limit State and local revenues and authority. Although Congress can legislate solutions to nexus issues, the interested parties may be able to find better solutions amongst themselves. If Congress later chooses to provide solutions, the testimony from today’s hearing will be invaluable to help us develop fair and straightforward legislation. 

I thank Chairman Cohen for holding this very important hearing, and I look forward to hearing today from our three distinguished witnesses. 

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RESPONSE TO POST-HEARING QUESTIONS FROM WALTER HELLERSTEIN, FRANCIS

SHACKELFORD DISTINGUISHED PROFESSOR IN TAXATION LAW, UNIVERSITY OF

GEORGIA SCHOOL OF LAW


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RESPONSE TO POST-HEARING QUESTIONS FROM JOSEPH CROSBY, 

LEGISLATIVE DIRECTOR, COUNCIL ON STATE TAXATION


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RESPONSE TO POST-HEARING QUESTIONS FROM R. BRUCE JOHNSON, COMMISSIONER, 

UTAH STATE TAX COMMISSION


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ATTACHMENT 


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PREPARED STATEMENT OF 303 PRODUCTS, INC. 


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PREPARED STATEMENT OF THE AMERICAN BANKERS ASSOCIATION


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PREPARED STATEMENT OF THE NATIONAL ASSOCIATION FOR

THE SPECIALTY FOOD TRADE, INC. (NASFT) 


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PREPARED STATEMENT OF KATHRYN WYLDE, PRESIDENT & CEO, 

PARTNERSHIP FOR NEW YORK CITY


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LETTER FROM EDWARD A. ZELINSKY, MORRIS AND ANNIE TRACHMAN PROFESSOR OF

LAW, BENJAMIN N. CARDOZO SCHOOL OF LAW OF YESHIVA UNIVERSITY


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LETTER FROM MATTHEW R. SHAY, PRESIDENT AND CEO, 

THE INTERNATIONAL FRANCHISE ASSOCIATION (IFA) 


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LETTER FROM JOE HUDDLESTON, EXECUTIVE DIRECTOR, 

MULTISTATE TAX COMMISSION (MTC) 


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PREPARED STATEMENT OF MARK LOUCHHEIM, PRESIDENT, BOBRICK WASHROOM

EQUIPMENT, INC., ON BEHALF OF THE NATIONAL ASSOCIATION OF MANUFACTURERS


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PREPARED STATEMENT OF THE ORGANIZATION FOR

INTERNATIONAL INVESTMENT (OFII) 


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PREPARED STATEMENT OF CAREY J. ‘‘BO’’ HORNE, PAST PRESIDENT, AND

KATHERINE S. HORNE, PAST VICE PRESIDENT, PROHELP SYSTEMS, INC. 


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PREPARED STATEMENT OF THE UNITED STATES COUNCIL FOR

INTERNATIONAL BUSINESS (USCIB) 


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PREPARED STATEMENT OF THE AMERICAN TRUCKING ASSOCIATIONS


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ATTACHMENT 1 


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ATTACHMENT 2 


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LAW REVIW ARTICLE SUBMITTED BY MARJORIE B. GELL, ASSISTANT PROFESSOR, 

THE THOMAS M. COOLEY LAW SCHOOL


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LETTER FROM NATE K. GARVIS, VICE PRESIDENT, GOVERNMENT AFFAIRS & 

SR. PUBLIC AFFAIR OFFICER TARGET BRAND, INC. 


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LETTER FROM THE DIRECT MARKETING ASSOCIATION (DMA) 

Æ 


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