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55–940 PDF 2010

STATE TAXATION: THE IMPACT OF CONGRESSIONAL LEGISLATION ON STATE AND LOCAL 

GOVERNMENT REVENUES 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

COMMERCIAL AND ADMINISTRATIVE LAW 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

APRIL 15, 2010 

Serial No. 111–90 

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 

APRIL 15, 2010 

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

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

and Administrative Law ...................................................................................... 3 

The Honorable Judy Chu, a Representative in Congress from the State of 

California, and Member, Subcommittee on Commercial and Administrative 

Law ........................................................................................................................ 3 

WITNESSES 

The Honorable Jim Douglas, Governor, State of Vermont, on behalf of the 

National Governors Association 

Oral Testimony ..................................................................................................... 5 

Prepared Statement ............................................................................................. 7 

The Honorable B. Glen Whitley, County Judge, Tarrant County, TX, on 

behalf of the National Association of Counties 

Oral Testimony ..................................................................................................... 14 

Prepared Statement ............................................................................................. 16 

Mr. Robert B. Ward, Deputy Director, Nelson A. Rockefeller Institute of 

Government 

Oral Testimony ..................................................................................................... 33 

Prepared Statement ............................................................................................. 35 

Mr. Joseph Henchman, Tax Counsel and Director of State Projects, Tax 

Foundation 

Oral Testimony ..................................................................................................... 43 

Prepared Statement ............................................................................................. 45 

Ms. Kerry Korpi, Director of Research and Collective Bargaining Services, 

American Federation of State, County and Municipal Employees 

Oral Testimony ..................................................................................................... 54 

Prepared Statement ............................................................................................. 56 

Mr. Scott D. Pattison, Executive Director, National Association of State Budget Officers 

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

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

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 ........................................................................................................................ 71 

Page

IV 

Prepared Statement of the Honorable Henry C. ‘‘Hank’’ Johnson, Jr., a Representative in Congress from the State of Georgia, and Member, Subcommittee on Commercial and Administrative Law ......................................... 73 

Response to Post-Hearing Questions from the Honorable Jim Douglas, Governor, State of Vermont, on behalf of the National Governors Association .... 74 

Response to Post-Hearing Questions from the Honorable B. Glen Whitley, 

County Judge, Tarrant County, TX, on behalf of the National Association 

of Counties ............................................................................................................ 78 

Post-Hearing Questions submitted to Robert B. Ward, Deputy Director, Nelson A. Rockefeller Institute of Government ....................................................... 83 

Response to Post-Hearing Questions from Joseph Henchman, Tax Counsel 

and Director of State Projects, Tax Foundation ................................................ 84 

Response to Post-Hearing Questions from Kerry Korpi, Director of Research 

and Collective Bargaining Services, American Federation of State, County 

and Municipal Employees ................................................................................... 87 

Response to Post-Hearing Questions from Scott D. Pattison, Executive Director, National Association of State Budget Officers ............................................ 91 

Prepared Statement of the Direct Marketing Association ................................... 93 

Prepared Statement of the Honorable Ronald O. Loveridge, President, National League of Cities, and Mayor, Riverside, CA ........................................... 99 

(1) 

STATE TAXATION: THE IMPACT OF CONGRESSIONAL LEGISLATION ON STATE AND 

LOCAL GOVERNMENT REVENUES 

THURSDAY, APRIL 15, 2010 

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON COMMERCIAL

AND ADMINISTRATIVE LAW, 

COMMITTEE ON THE JUDICIARY, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 11:04 a.m., in 

room 2141, Rayburn House Office Building, the Honorable Steve 

Cohen (Chairman of the Subcommittee) presiding. 

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

Chu, Franks, Coble, Jordan, and Issa. 

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. 

I will now recognize myself for a short statement. 

Today’s hearing focuses both on the current fiscal situation of 

state and local governments, what impact tax legislation for this 

Subcommittee would have on state and local revenues. The effect 

of the current economic climate has been widespread. 

Consumers have closed their pocketbooks and cut back on nonessential spending. Businesses have delayed investments in new 

technologies, or have resorted to laying off their employees. And 

with declining tax receipts due to lower payrolls, real estate, property values, and consumer spending, state and local governments 

have had to consider cutting spending, raising taxes, or a combination of both to balance their budgets. 

Yet, the economy is improving. We see great support in the economy from the ARRA and other areas, which shows that the economy is making a turn. And the Dow, of course, has gone over 

11,000. So, happy days will be here again. 

While governors and mayors and city councils must make difficult decisions to stay in the black, a discussion on the current fiscal plight of state and local governments is not complete without 

2 

discussing what role, if any, Congress has in the affairs of state 

and local governments. 

Obviously, we have had a role in the last year or 2, for we have 

kept all state and local governments afloat with the ARRA. Congress has a responsibility to review state tax policies and determine whether those policies burden interstate commerce—specifically, we must examine the legislative proposals that have been introduced, and consider whether they would either restrict or expand the ability of states to tax certain activities or taxpayers. 

There must be a balance between protecting the authority of state 

and local governments to tax, while providing taxpayers with certainty and fair tax policies. 

I thank the witnesses for appearing today, and I look forward to 

their testimony. 

I now recognize my colleague from Arizona, Mr. Franks, the distinguished Ranking Member of the Subcommittee, for his opening 

remarks. 

Mr. FRANKS. Well, thank you, Mr. Chairman. Thank you for calling this third general-oversight hearing on state taxation. 

You know, in February, this Subcommittee held a hearing on 

when states can constitutionally impose taxes on businesses, individuals, and transactions. And, last month, the Subcommittee was 

supposed to learn how those states divided up that tax authority. 

And I know that a hearing had to be postponed because of conflicts 

on the floor. And I am hoping that that can be rescheduled in the 

near future. 

As witnesses may be aware, I am a cosponsor of several statetax related measures. And I encourage the Chairman of this Subcommittee to move the markup on those bills as soon as it is possible or practical. But that said, I am a bit of a reluctant cosponsor 

of state-tax related measures, because I am such a strong believer 

in the 10th Amendment, and in states’ rights. 

That amendment reads, ‘‘The power is not delegated to the 

United States by the Constitution, nor prohibited to it by the—nor 

prohibited by it to the states, are reserved to the states respectively, or to the people.’’ 

I remember that the founders created a Federal Government 

with limited powers. However, I also believe that some of those tax 

bills are necessary to ensure the flow of interstate commerce. And 

that, of course, is definitely one of the powers that the Constitution 

granted to Congress. 

So, for my friends in state government, I have a straightforward 

question: When is it a good time for Congress to regulate in this 

area? Time and again, states and localities have come to Congress 

saying that they cannot afford for Congress to cut their revenues. 

And I understand that. I mean, when—this is said when states 

have coffers that are full, and certainly now, when they are empty. 

Given that we know that we cannot tax our way to prosperity— 

or at least we pretend to know that—I want to know when it is 

a good time for Congress to assist states in making some muchneeded tax reforms. Perhaps, just as importantly, what are the key 

principles that Congress should keep in mind when legislating in 

this area. 

3 

And so I look forward to hearing from our witnesses on these and 

other questions. And with that, Mr. Chairman, I yield back the balance of my time. 

Mr. COHEN. Thank you, Mr. Franks. 

We are going to recognize two of our Members here, who have 

particular desires. And we are going to ask them to limit their remarks to 2 minutes, so that we can get concluded before the Holocaust Memorial service in the Rotunda begins. 

First, I would like to recognize the gentleman from Georgia, 

Chairman of the Subcommittee on the Anti-Trust, Mr. Johnson. 

Mr. JOHNSON. Thank you, Mr. Chairman, for holding this important hearing on state taxation today. Today, it takes me back probably about 45, 50 years ago—and I would watch as my daddy 

would come home on April 15th. And he would lay all these receipts and things like that out on the table. And he would leave 

the house around a quarter to 12 to go to the post office to file the 

tax return. And so this is the anniversary of the time to do that. 

And I guess it is only fitting that we hold a hearing on state taxation today. 

Today, we will examine the impact of congressional legislation on 

state and local governments. This hearing will give us the opportunity to examine the pending legislative proposals before this Subcommittee regarding state taxation. 

The recession has severely affected state and local governments 

and their residents. State and local governments are forced to 

make tough decisions regarding their budgets. They are faced with 

laying off worker, making cuts to education, police and fire departments. We need to provide a solution for our constituents. That is 

why I have introduced H.R. 2010, 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 taxes are 

withheld and paid to the states, without the undue burden that the 

current system places on employees and employers. The Mobile 

Workforce Bill does not relieve any employee from paying state income taxes imposed by his or her state of residence. Therefore, the 

resident state of the short-term traveling employee will not be affected by this legislation. 

From a national perspective, the Mobile Workforce Bill will vastly simplify the patchwork of existing inconsistent and confusing 

state rules. It would also reduce administrative costs to states, and 

lessen compliance burdens on consumers. 

I thank the Chairman for holding this hearing, and I look forward to hearing from our witnesses today. And like Ranking Member Franks, I would love to bring H.R. 2010 to our Subcommittee 

as soon as possible, as practical, as Mr. Franks said. 

Mr. COHEN. Thank you, Mr. Johnson. 

Now, I would like to recognize Ms. Chu from California, who has 

a long history in state government. 

Ms. CHU. Thank you, Mr. Chair. 

I would like to thank the state and local government officials 

who have taken time to speak with us today about this very important issue. 

4 

Before becoming a member of the California Congressional Delegation, I was a chair of the California Board of Equalization, which 

is the elected taxation board for the state. And as such, I know how 

devastating the loss of tax revenue can be to local and state government. 

I am particularly concerned about the damaging effects of the recent economic downturn on state and local government budgets. 

Over the past few years, these entities have been squeezed from 

both directions by shrinking tax rolls and increasing demands for 

public services. 

As the testimony today demonstrates, the crisis is far from over. 

And as Members of Congress, we must do everything we can to 

help our state and local governments weather this storm, and must 

not be tempted to cut off the vital revenue streams that keep these 

government entities afloat. 

I look forward to your testimony, and to working together with 

you on solutions for the future. 

Mr. COHEN. Thank you, Ms. Chu. I appreciate your and Mr. 

Johnson’s accepting the brevity of our remarks. 

Now, I would like to thank our witnesses for appearing today, 

and any other Members of the Committee that want to make a 

statement can have it included in the record. 

I would like to introduce our first panel. And thank you for participating in today’s hearing. Without objection, your written statements will be placed in the record. And we would ask that you 

limit your oral remarks to 5 minutes. 

We have got a little system there of lights. And when it gets yellow, it means you have got a minute to go. Green means you are 

in the first four. It doesn’t stand for Vermont. It just means green, 

4 minutes; yellow doesn’t mean cheese—it means you have got 1 

minute to go; and red—you are over it. It has nothing to do with 

red states. So that is where we go. 

After each witness has made his testimony, each Subcommittee 

Member will be permitted to ask a question. We get 5-minute limits as well. 

Our first witness is Governor James H. Douglas. Governor Douglas was elected to the Vermont House of Representatives in 1972. 

He spent his entire life in government, an admirable thing to have 

done. He became assistant majority leader in his second term and 

majority leader in his third term, at the tender age of 25. 

Governor Douglas retired from the legislature in 1979, and became a top aide to then-Governor Richard Snelling. 1980, he was 

elected secretary of state. He held that post until 1993. His service 

to the people of Vermont continued with his election to state treasurer in 1994. And, then, in 2002, he successfully was a candidate 

for governor; reelected on 2-year terms through the current time, 

which would be 8 years of four terms. 

He served as president of the Council of State Governments, and 

he is the new chairman of the National Governor’s Association. We 

thank you for appearing here, Mr. Governor, and look forward to 

your testimony. 

5 

TESTIMONY OF THE HONORABLE JIM DOUGLAS, GOVERNOR, 

STATE OF VERMONT, ON BEHALF OF THE NATIONAL GOVERNORS ASSOCIATION 

Governor DOUGLAS. Thank you very much, Mr. Chairman. I, first 

of all, should say that Judge Whitley is a CPA. And he would be 

happy to file an extension for any member who needs it, before the 

end of the day. 

I am honored to be here on behalf of the Nation’s governors. And 

I want to thank you for the opportunity to address the Subcommittee. I appreciate the fact you are taking time to examine 

how the state’s fiscal situation relates to legislation before your 

Subcommittee and the full Committee. 

As you know, economists have declared the national recession 

over, but for those who are still unemployed, or who have lost their 

homes, it is clear that, as a Nation, we have a long way to go. The 

situation remains poor for states. As governors, we are working 

with our legislatures to set budgets for 2011 and, in some cases, 

2012. 

What we are finding is that, from a state-fiscal standpoint, the 

worst is yet to come. To put it in perspective, it is important to review what states have been through, and examine what lies ahead. 

As you know, states must balance their budgets. So when revenues 

fall, states must cut services or increase revenues to make up the 

difference. Both actions can slow recovery. 

Beginning with the last calendar quarter of 2008, state tax revenues plummeted for five consecutive quarters. Because of those declines, 43 states cut $31 billion from state budgets in 2009, and 36 

states cut another $55 billion for the current year. These are cuts 

made after budgets were approved—budgets that were conservative 

to begin with. They also involve cuts to programs governors fight 

hard to preserve, like K through 12 education and public safety. In 

other words, everything is on the table. 

In my own state, revenues are $25 million below their 2006 lev- els, and a staggering $113 million below where they were at the 

height of the economic bubble 2 years ago. We face a fiscal year 

2011 shortfall of about $154 million. That is 14 percent of our general fund budget. 

With revenues not expected to return to their pre-recession levels 

until 2013, our fiscal crisis extends far beyond today. Without sustainable reductions, the shortfall for fiscal 2012 will balloon to over 

$250 million. That is more than we spend on economic development, environmental protection, public safety and higher education 

combined. 

Unfortunately, the road ahead doesn’t look much better. NGA 

and the National Association of State Budget Officers recently surveyed states for information on their fiscal situations. They found 

that for fiscal 2010, states closed $90 billion in budget gaps, and 

have $19 billion more to close. And even after reducing revenue estimates, states’ 2011 budget gaps stand at more than $55 billion, 

followed by another $61 billion the following year. So the total 

budget gaps over a 3-fiscal-year period—about $136 billion. 

The reason these facts are important for the Subcommittee is 

that your jurisdiction over state tax issues provides you with 

unique authority to impact the speed of states’ recoveries. Simply 

6 

put, governors ask that the Committee take no action that would 

undermine the ability or authority of states to develop and manage 

our fiscal systems. Governors steadfastly believe that decisions 

about state revenue systems and state taxation should be made by 

elected officials in the states, and Federal action should favor the 

preservation of states’ sovereignty over that of preemption. 

As the Committee considers whether to take up legislation regarding state taxation, governors encourage you to review all proposals in light of these principles. First, do no harm. Legislation 

dealing with state taxing authority shouldn’t undermine existing 

state revenue streams. Second, preserve flexibility. State fiscal crisis is forcing all governors and legislators to ask fundamental questions about the role of government. These will lead to changes at 

the state level that could have long-term positive effects on the delivery of services, modernizing revenue systems and holding government accountable. State reform efforts should not be hurt by 

Federal legislation that restricts states’ authority to act. 

Third, be clear. Federal legislation should be clear to limit the 

need for expensive and time-consuming legislation. Finally, find 

the win-win. The goal of all legislation should be to find a balance 

that improves the standing of all stakeholders. 

Congress, through its authority under the Commerce Clause, has 

brought authority to regulate state taxation. The key question, 

though, is not whether Congress can regulate state taxation, but 

whether and when Congress should. 

For governors, the answer stems from the basic principles of federalism. We believe that the ability of states to develop and manage our fiscal systems is a core element of sovereignty; one that 

should not be interfered with unless absolutely necessary to preserve interstate commerce. 

So I thank you for the opportunity to be here and testify on behalf of the Nation’s governors. And I look forward to working with 

the Subcommittee as you consider these important questions for 

the people we serve. 

[The prepared statement of Mr. Douglas follows:] 

7 

PREPARED STATEMENT OF THE HONORABLE JIM DOUGLAS


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Mr. COHEN. Thank you, Governor Douglas. I appreciate your remarks and finishing before the red light came. You are the first 

person, I think, in the entire time I have been in Congress, that 

has ever done that—particularly, members. 


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Our second witness is Judge B. Glen Whitley. He is a judge in 

Tarrant County, Texas—aka, Fort Worth, I guess—of course, selected to the—Tarrant County commissioner in 1996, and elected 

to the chief executive position as county judge in 2006; presides 

over the commissioner’s court in the county of 1.8 million residents 

in the heart of the Nation’s fourth largest metropolitan center, with 

great art museums. 

Judge Whitley was elected first vice president of the National Association of Counties, NACo, of which I was a member in 1978 to 

1980, on July 28, 2009, and became president-elect in this year, 

2010. 

Thank you, Judge Whitley. Begin your testimony. 

TESTIMONY OF THE HONORABLE B. GLEN WHITLEY, COUNTY 

JUDGE, TARRANT COUNTY, TX, ON BEHALF OF THE NATIONAL ASSOCIATION OF COUNTIES 

Judge WHITLEY. Thank you, Mr. Chairman, and Ranking Members of the Committee—and Members of the Committee. I am 

pleased to provide testimony today on behalf of America’s 3,068 

counties; and thank you for holding this hearing to discuss the impact of Federal legislation on local government revenues. 

While Federal legislation can have a positive impact on local government revenue streams, it can also cause just the opposite. Unlike the Federal Government, local governments must balance their 

budgets, which is not an easy thing to do in today’s financial climate. According to an October 2009 NACo survey, 56 percent of the 

counties report that they will start their fiscal year with budget 

shortfalls of up to $10 million; 47 percent of the counties report 

that those shortfalls will increase after the start of the fiscal year. 

And a whopping 82 percent of the counties state that the anticipated shortfalls are even greater into the next fiscal year. 

This is why the imposition of unfunded mandates and the preemption of local taxing authority can have such a negative impact 

on local government. We strongly urge Congress, as it takes further 

action to spur our economy and create badly needed jobs, that it 

carefully considers the role of local governments play in our economic rebirth, and not take actions that would adversely affect 

county budgets and revenue streams. 

Traditionally, counties perform state-mandated duties, which include assessment of property, record-keeping, maintenance of rural 

roads, administration of election and judicial functions, and safetynet services. Today, counties are moving rapidly into other areas, 

undertaking programs related to child welfare, consumer protection, economic development, employment training, planning and 

zoning, water quality—just to name a few. 

It is important that Congress recognize that not all counties tax 

and spend in identical fashions, and that Congress creates a slippery slope when it removes the linkage between tax flexibility and 

services delivered. 

Preemption of local taxing authority is a major concern of local 

governments. Preemption dictates policy implementation of traditional county responsibilities and functions; undermines the concept of federalism; and is contrary to the constitutional framework 

underlying Federal, state, and local relations. Federal preemption 

15 

of local taxing authority should not be initiated unless there is an 

overriding issue of national importance. 

Further preemption must not be undertaken if its fiscal impact 

on local governments has not been evaluated closely and openly in 

a public forum. For example, hotel taxing authority is under attack 

by online hotel operators such as Expedia and Travelocity. Local 

governments use hotel taxes in various ways. In some locales, the 

revenues are funneled to the general fund to help provide badly 

needed community services to the residents. Some locales use revenues to promote tourism, while others use these funds to pay for 

voter-approved convention centers, sports arenas and other public 

buildings. 

It would be unconscionable during our current financial crisis for 

Congress to even consider the possibility of granting online travel 

companies preferential tax treatment at the expense of county 

budgets. State and local governments lose billions of dollars annually because of the inability of taxing authorities to collect from remote sellers. 

Federal legislation which would permit the collection of these 

taxes has not been introduced in the 111th Congress. Although 

NACo supports efforts to reduce the complexity of state and local 

sales-and-use-tax laws, tax simplification should not be used by the 

Federal Government to undermine county-government taxing authority and revenue streams. 

NACo has long supported communication, tax reform, and simplification. But any changed must treat like services alike, and 

must allow for an increase in tax revenues as the service or industry grows. Tax simplification vehicles such as any legislation that 

would implement the streamlined sales-and-use-tax agreement 

should not be used as a means to undermine local-government finances, while at the same time, granting preferential treatment to 

special interests. 

This is why NACo is concerned with Sale Tax Fairness Act, 

which would impose a 5-year moratorium on new discriminatory 

taxes on mobile-service providers and property. Moratoriums harm 

local governments’ ability to reform their tax systems, and are especially troubling for local jurisdictions that rely on wireless taxes. 

It is inescapable that Federal legislation have both a positive and 

negative impact on local-government revenues. 

County governments urge Congress, when it considers tax and 

revenue-related legislation, to avoid preempting local tax authority, 

preserve local budgeting flexibility, and resist imposing unfunded 

Federal mandates. 

On behalf of NACo and the Nation’s counties, I would like to 

thank you for the opportunity to testify before you, and look forward to working with you, and would be happy to answer any 

questions. 

[The prepared statement of Judge Whitley follows:] 

16 

PREPARED STATEMENT OF THE HONORABLE B. GLEN WHITLEY


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Mr. COHEN. Thank you. That was perfect. The red light just went 

on. I appreciate it. 

We will now begin questioning. And I will start. 

One of the issues that has been raised for many industries is 

that industries have asked Congress to give them protections from 

state and local taxes. We have heard from the hotel industry. We 


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have heard from the car-rental industry. We have heard from satellite-television groups, Internet-access providers, and others. 

Many of them have stories, charts, and whatever, on how this affects their business. And they argue that they are Federal concerns 

because of interstate commerce. You know, I know, in my state, 

that we have used car-rental taxes to help fund sports arenas. And 

we have used hotel taxes to do it. 

And I know when I go out of state and I rent a car, and they 

charge me high taxes to pay for their stadiums and arenas, it bothers me. I am not too upset when we do ours, but I am upset 

when they do theirs—‘‘Don’t tax me. Do tax that guy behind the 

tree—’’ 

And, Governor, first, I would like your thoughts. Is it really fair 

to gore your tourists to fund your facilities? 

Governor DOUGLAS. Well, first of all, we use our car-rental tax 

receipts to maintain and improve our roads and bridges so that 

folks can drive those rental cars on them—an appropriate use, I 

would suggest, of—of that source of revenue. Tourism is the second 

biggest part of our GDP. We welcome people to Vermont. We encourage people to come. Some of our ski areas are still open, by the 

way, and we hope that you will take advantage of that. 

So we don’t want to do anything that would give tourists a bad 

experience, or discourage them from coming again. But it seems to 

me that states ought to make those decisions for themselves. And 

if a tourist is disappointed in the use of a tax revenue for a particular purpose, then perhaps that tourist might choose to go somewhere else in the future. 

The question is—— 

Mr. COHEN. Where are they going to see foliage like that? 

Governor DOUGLAS. Well, that is why we are using car-rental 

revenues for the right purpose. 

You are our best cheerleader, Mr. Chairman. Thank you. 

I think, in the context of the fiscal crisis that states are facing, 

we—we have to maintain the flexibility to solve their problems as 

states see fit. The decisions that governors and legislators are making all across this country are profound. The 14 percent budget gap 

that we are working to fill in Vermont now is prodigious. We have 

negotiated a pay cut with our state employees. We have negotiated 

pension cuts for our public-school teachers. We have closed welcome centers—well, maybe that is not good for tourists. 

We have limited some of the—corrections to population, which is 

obviously controversial. But we have to make tough decisions in 

order to stay within those budgetary parameters. So what we are 

asking for is to maintain that flexibility. 

As I indicated in my remarks, we respect and recognize the role 

of the Congress to tax where it affects interstate commerce, but we 

ought to be able to work together and find a win-win outcome so 

that we can do what is right for the people we represent. 

Mr. COHEN. And Governor, let me ask you this—and I am just 

kind of guessing. I may be wrong. But you are kind of, I think, a 

moderate, and kind of tend to be kind of more pro-business, maybe, 

in some areas. Do you think arguments that businesses make 

about the undue burden on interstate commerce to have any merit? 

22 

Governor DOUGLAS. Well, I understand he interest in uniformity; 

the ease with compliance, when it is on a national basis. But I 

come back to Congressman Franks’ eloquent quotation of the 10th 

Amendment, and would urge the Congress to respect the prerogative of the state to determine their own destiny from a budgeting 

and tax standpoint. 

I think that is critical as we wrestle with the challenges I have 

mentioned. We have got one city in our state, Mr. Chairman, that 

is literally having a debate about whether to maintain its police department or its fire department. It is that serious, because of the 

fiscal crisis that that community is facing, and that many are, 

across the country. 

So I am suggesting that the Congress ought not to tie the hands 

of state and local government, but work with us to find a system 

that benefits us all. 

Mr. COHEN. Thank you, Governor. Knowing the wonderful state 

that you are from, I would think they would—probably the fire department—police themselves, I think. 

Governor DOUGLAS. We do have a low crime rate. Thank you. 

Mr. COHEN. Judge Whitley, you have seen benefits, I imagine, to 

your county, from the American Recovery and Reinvestment Act. If 

that act weren’t passed, what would have happened to your county 

in terms of the personnel that you employ, and programs? 

Judge WHITLEY. You know, we have some summer training funds 

that we did—that was a very successful program. We have been 

fairly fortunate in my particular county, from a county’s perspective, because of some—our recent gas finds. The Barnett Shale 

have helped us tremendously. 

But I will tell you that the city of Fort Worth laid off close to 

100 folks last year. And their budget deficit this year is far worse 

than it was last year—the same with the city of Arlington. So they 

are looking at some real problems. And at the same time, they did 

get some benefit. 

A lot of the local budgets within Texas are pretty much arrived 

at locally. We get very little benefit from the state, when it comes 

back to taking care of our budgets; so most of our budgets come 

through sales-and-use tax or through property tax. And that is why 

it is very important that, as we try to figure out how we are going 

to put that budget together—that we have as many, and as flexible 

of options as possible. 

Mr. COHEN. Thank you, Judge. 

My time has expired. I will recognize Mr. Jordan, from the state 

of Ohio. 

Mr. JORDAN. Thank you, Mr. Chairman. 

Let me start with just some kind of broad concepts and questions, if I could. 

Do you, as a governor and a county official—do you think that 

taxes can get so high that—I mean, I guess I would ask: Do you 

agree that the—with the idea that taxing can get so high that we 

actually hurt economic growth, don’t foster job creation and, thereby, actually decrease revenues that come in, and—to provide the 

services and goods and things that you want to do? 

Governor DOUGLAS. I agreeing completely. 

23 

In fact, last year, our legislature imposed some tax increases over 

my veto. And lo and behold, greater revenues haven’t been realized 

because of it, for the reason that you cited, Congressman. 

Mr. JORDAN. Governor—— 

Judge WHITLEY. I guess I would say that, yes, most definitely, 

it can get too high. But I will absolutely guarantee you, before I 

look at any tax increase or any additional fee, or anything along 

that line—I know that I am going to have to go back to my voters 

and respond and answer, and be held accountable for that. 

The problem that we have so often is that we get unfunded mandates, both from you—— 

Mr. JORDAN. I agree with that. 

Judge WHITLEY [continuing]. And from the state. 

And so once you begin trying to limit what we can do from a revenue-generation—without limiting what we have to do to be—for 

the most part, county government is the implementer of Federal 

and state—— 

Mr. JORDAN. No, well said. Well said. 

Let me ask you two other broad questions. I never thought I 

would see this day, but it is being talked about a lot here in Congress and across the country—a value-added tax. You know, in 

America—I mean, I can’t believe it is being considered, on top of 

all the other taxes we currently have, and on top of all the taxes 

that have been put in place, frankly, over the last year—many of 

them impacting the middle class. 

Your thoughts on what that tax would do to economic growth, 

economic activity, and how it would impact you as a county, and 

you as a state? 

Judge WHITLEY. I am not sure I know the answer to that. At this 

point, it is a concept that is, as you indicated, Congressman, being 

discussed more broadly now. And I guess we shouldn’t rule anything out summarily. But the principle that ought to be applied is 

the one you articulated. 

We ought to find a way to move all of our states and counties 

and localities toward greater prosperity; to encourage entrepreneurship; to put more people back to work, to support the services 

of government through greater economic activity and revenue-generation, rather than raising tax burdens. 

So I guess, in this fiscal climate, we shouldn’t say no to anything 

at the outset. But we should gain some information from the experience of other nations that have done it, and then decide where 

to go. 

Mr. JORDAN. Governor, I am curious—well, look the counties talk 

is a little bit—as a general statement, do you believe Americans 

are overtaxed or under-taxed right now—if you had to say one or 

the other? 

Governor DOUGLAS. Well, I would argue that the tax burden is 

quite high. According to a recent report, Vermonters bear the second-highest burden in America of state taxes per capita. And that 

is something that I continue to try to reduce. But the principle that 

I outlined in my remarks, and would suggest again, is that states 

ought to be given the flexibility to make their own decisions and, 

in fact, their own mistakes. 

24 

Judge WHITLEY. As a CPA, it may surprise you a little bit to 

hear me say that I really believe we have got to move away from 

the taxing system that we currently have. I have to send my employees to an 8-hour training session just to figure out how to depreciate this table for tax purposes. 

Mr. JORDAN. Yes. 

Judge WHITLEY. So it is absolutely ridiculous—the complications 

that we have moved ourselves into. I guess, also, I would say that, 

if you look to some sort of a value-added—I mean, you have got a 

lot of things. It is regressive. So you are going to have to look at 

some means by which to move some of that—the dollars actually 

being paid back to those at the lower-income levels. But you also 

avoid the—for the most part, the people who fail to file; the people 

who are making income and who are not paying or not filing a tax 

return. 

Mr. JORDAN. Yes. 

I mean, look, I happen to think the value-added tax is a terrible 

idea; and particularly, when you try to impose it on top of all the 

ridiculous tax burden and complex tax system we have today. 

Let me ask one final thing, because I am down to my last 30 seconds. This was also in the news just last week: Do you think it is 

healthy for a Nation to have 47 percent of the citizens not paying 

income tax—not paying into the system? Now, they pay payroll tax 

and other things. But do you think that is healthy for our culture; 

healthy for our society; healthy for our great country? 

Judge WHITLEY. As one of the 53 percent who had to write a 

check today, no. 

Governor DOUGLAS. Well, interestingly, in the recent health-care 

debate, one of the principles was everybody had to pay. But that 

is not true in our system of income taxation. 

Mr. JORDAN. Thank you, Mr. Chairman. I yield back. 

Mr. COHEN. Thank you. 

Mr. Johnson, you are recognized. And if you would like to ask if 

it would be better if our society didn’t have this big gap between 

the rich and the poor, where everybody did pay—if you could do 

that—— 

Mr. JOHNSON. Well, I was just getting ready to mount a vicious 

attack on those who are well-healed and find all kinds of loopholes 

to utilize so that they don’t have to pay taxes. And we have been 

on a tax-cutting binge since 1980. And during that time, the tax 

system has become so complex that even my daddy—he would have 

to start about 10—15 days early to get his taxes squared away. 

And, for me, I have to have someone else do my taxes, because I 

don’t want to end up pulling my hair out. 

But I will say that, with respect to state and local governments, 

I am very attuned to the fact that the Federal Government has established a habit of imposing mandates without funding, on state 

and local governments. And I am also particularly affected by how 

state legislatures impose the mandates upon local government. And 

the fact is local government does not have any option to be able to 

shift responsibility for certain expenses to another entity. And so 

the buck stops with local government. 

I want to congratulate you, Mr. Whitley, for your recent election 

as chair of NACo. I was a member of that organization up until 

25 

2006, when I started campaigning for this office. And I was also 

Budget Committee chair for DeKalb County. That county is now 

upwards of $80 million shortfall. 

And, by the way, we are one of two counties in Georgia that relies upon a sales tax, as opposed to property tax, for county operations. And our school board, which still relies on property taxes, 

is—is laying off power professionals and closing schools because of 

a roughly $55 million reduction in the amount of income that they 

are receiving—the amount of revenue that they are receiving. 

And everyone feels like we are paying too much in taxes. But I 

will tell you, one of the counties that I represent partially—people 

got so riled up about a millage increase that there was a mass rally 

right there at the commission meeting. And it forced the commission to back off of a plan to raise the millage rate. And when those 

same people found out that it was affecting the operation of their 

library system, and when they found out that police and fire protection was being adversely affected, then they changed course and 

went back to the county commission. And, as a result, the millage 

rate was increased so that those services did not have to be cut. 

And those are the things that we are straddled with in our state 

government—a shortfall that continues to escalate at unprecedented numbers, causing lots of layoffs, early retirements, and this 

kind of thing. 

I am very sensitive to state and local governments, when it 

comes to unfunded mandates and—but I do want to say that—Governor Douglas, there has never been a instance where all states 

have enacted a uniform tax law. They have gone as far—group 

states—agreeing to model uniform tax laws; but a minority of those 

states have enacted the various model laws. 

So H.R. 2010—which has the approval of 49 of 50 state-revenue 

collectors—would be the first, should it pass. Do you think that mobile workers and their employers would benefit from a uniform act? 

Governor DOUGLAS. The National Governors Association hasn’t 

taken a formal position on that proposal, Congressman Johnson. 

But we would be willing to engage in those discussions with you 

and your colleagues. We all have that phenomenon of people living 

in one state and working in another. We are next door to New 

Hampshire—that has no personal income tax. And so folks come 

across the state line, work in Vermont, and we have the benefit of 

their income-tax payments. And, obviously, it is quite prodigious of 

the New York metropolitan area. 

So I think it is an issue that is worth discussion. And we would 

be happy to be a part of that. 

Mr. JOHNSON. Thank you. 

Mr. COHEN. Thank you, Mr. Johnson. 

I now recognize the Ranking Member, Mr. Franks, for 5 minutes. 

Mr. FRANKS. Well, thank you, Mr. Chairman. Thank you for your 

indulgence here. 

Gentlemen, thank you for being here. 

Governor Douglas, you know, I used to be in state government. 

And I really do sincerely identify with the challenges of state government. It seems like the Federal Government is always placing 

unfunded mandates or something that just complicates state governments’ lives to the extent that it is maddening. And I just wish, 

26 

you know, you could know how much I do identify with that. So, 

please grant me diplomatic immunity here, with any of these questions, if you would. 

At the end of your written testimony, you set forth a number of 

principles that Congress should consider when enacting state-tax 

legislation. I know there have been a number of legislative proposals put forth in the last few years, as you know—the Business 

Activity Simplification Act, the Cell Tax Fairness Act, the Mobile 

Workforce Act—to name three. 

And do any of these bills, in your judgment, or the other statetax bills that may be out there, satisfy your principles as a state 

governor, or—that would merit NGA support? 

Governor DOUGLAS. Most of them, I would not be enthusiastic 

about, frankly, Congressman Franks. The one area where we would 

like to see the Congress consider action is the Streamlined Sales 

Tax. In order to be fair to the merchants on Main Street in our 

communities, we want to make sure that they are not placed at a 

competitive disadvantage by untaxed transactions over the Net. 

So 18 states now are full, participating members. Six other are 

part way toward being a part of that compact. And we would like 

to see the Congress embrace that in order to have a fair system of 

taxation in that area. 

But most of the other proposals, frankly, would work to the detriment of states, in my view, to either collect revenues, or impose 

restrictions that would limit the ability of states to have the flexibility to design their own tax structure. So I would urge the Subcommittee to be cautious in proceeding with most of the bills that 

are pending. 

Mr. FRANKS. Well, your testimony establishes that the current 

economic crisis has, you know, been a burden on states. And I 

think somebody would have to be living on the moon to not realize 

that. 

I live in Arizona, which is close. But the reality is that it has 

been a profound challenge for the states. And I do understand that. 

So I guess the question I would ask is: It does, in spite of that, 

seem that states or cities or counties really never have a time when 

they think it is okay for us to do this. 

And so I want to ask you to predict the future. But can you give 

me an example, in the last 20 years, when states would have considered it acceptable, from a budgetary standpoint, for Congress to 

pass a tax-related law? 

Governor DOUGLAS. Well, first of all, I have a son who lives in 

Arizona. So I get firsthand reports on the fiscal and economic challenges of your state. And there—— 

Mr. FRANKS. So you know I speak the truth—— 

Governor DOUGLAS. Indeed. 

I don’t know. I am trying to think of an example. Obviously, the 

Federal Government has imposed certain telecommunications taxes 

over the recent past. And there may be some legitimate justification for some of them. But I think, as a general proposition, since 

states have to balance their budgets on an annual basis, especially 

in this climate, we ought to respectfully limit the involvement of 

the Federal Government in tying their hands, so that they can design structures that are best for their constituents. 

27 

And sometimes, those decisions won’t be advantageous, as I suggested earlier. But that is the laboratory of democracy—— 

Mr. FRANKS. Sure. 

Governor DOUGLAS [continuing]. That we need to let states pursue. 

Mr. FRANKS. Well, you know, the ironic part, of course, here, is 

I—everything you are saying resonates in my own heart, because 

you—it makes a lot of sense to me. The challenge, of course, is that 

when one state does—overtaxes here, then it impacts another state. 

And, then, we are called upon to have some sort of, you know, effort to try to maintain commerce through the states. And it makes 

it kind of difficult. 

So let me just ask you a final question. Say, with respect to the 

Sale Fairness Tax Act, of which I am a—I am a cosponsor of that 

bill—the national average tax rate that consumers pay for wireless 

services—15.2 percent. But consumers in some states, as you know, 

pay over 20 percent in taxes and fees. And I guess I would just ask 

you: Is there a point—or what point does the tax rate on a competitive good or service—you know, that can be bought from interstate 

situations—is there a time when it becomes exorbitant? 

Governor DOUGLAS. Well, I guess, a couple of thoughts in response to that question—first of all, the bill uses the term ‘‘discriminatory,’’ and there will probably be a lot of debate over what 

constitutes a discriminatory tax. And that is why I think the best 

policy is to reserve that to the states. 

I am sensitive to your comment about states’ developing a level 

of taxation that is excessive; but, to some extent, I think that can 

be self-correcting. It is no secret back home that I believe we have 

a—a tax level that is quite high—as I mentioned, second only to 

Alaska, in terms of per-capita taxation. 

And because our income tax is so high, we have seen an exodus 

of well-to-do residents to other states, where the burden is less. So 

I am urging our legislature to reduce that burden so we can be 

more competitive. And I hope other legislative bodies will do the 

same, when the burden gets too high. 

Mr. FRANKS. Well, thank you, Governor. You are a very compelling witness. Thank you very much. 

Mr. JOHNSON. [Presiding.] Thank you. 

Next, we will have questions from Congresswoman Chu. 

Ms. CHU. Governor Douglas, your association, the National Governors Association, along with the Congressional Budget Office and 

other analysts have estimated that the passage of the Business Activity Tax, H.R. 1083, would cumulatively cost states between $1 

billion and $6.6 billion annually. Of course, it is because it would 

expand the Federal prohibition against state taxation of interstate 

commerce. 

Well, what does that amount mean to you, and what kind of impact would that have on the states? 

Governor DOUGLAS. I have seen some different calculations, but 

they are in that range, Congresswoman Chu. I have seen some as 

high as $8 billion; but in that order of magnitude. 

It is hard to know what the impact is on an individual state. It 

depends on its own structure of taxation. But I return to the principle that I outlined in my opening remarks—that we ought not to 

28 

tie the hands of states, especially when we are confronting cumulative shortfalls of $136 billion over the next couple of fiscal years. 

States are really struggling. I know Members of the Subcommittee are well aware of that. But I want to make sure I put 

an exclamation point on that comment, because this is such an extraordinary time. And the challenges are so profound. We have, cumulatively, $1 trillion worth of unfunded pension liabilities in state pension systems as well. And as governors are laying off employees, cutting back on things that we feel strongly 

about—environmental protection, K-through-12 education, higher 

ed, vital human services—we need to have a tax structure that 

doesn’t tie our hands, and gives states flexibility through this difficult period. 

So the impact of that particular proposal is a little less than 

some of the other initiatives that we have seen; but in the cumulative sense, can be quite serious, especially when states are facing 

budget shortfalls of that magnitude. 

Ms. CHU. Let me bring up another thorny issue, which is auction 

sites, like EBay, which offer entrepreneurs a great opportunity to 

bring home some extra money, or get their small business off the 

ground. On the other hand, much of this commerce has not produced tax revenue, even if those products are sold within the same 

state. And, then, there are the myriad of tax regulations that are 

different from across the states. 

What can we do to address this problem, and should there be different tax standards for online sellers that make a certain amount 

of profit in a state, or complete a certain amount of business in a 

state? 

Governor DOUGLAS. Well, I think the streamlined-sales-tax 

project would be an important step forward to capture some of the 

revenue that is lost from online transactions. There are about 1,000 

companies nationwide that voluntarily participate now, and collect 

those revenues, and distribute them to the states, and so the lost 

amount that we have been estimating has come down somewhat. 

But it is still on the order of magnitude of $12 billion a year. So 

I think that would be an important first step that would be very 

helpful for the Subcommittee to consider. 

Judge WHITLEY. You know, I would add on that, I guess, that we 

are—if you don’t have level playing fields, you are really going to 

hurt your Main Street businesses—your small businesses back 

home. And with technology today, I just refuse to accept that the 

programs can’t be developed that will take into account the complexity, or what a particular local area tax rate is. When Google 

can look at my home from its satellites, then I have an idea that 

there is a program out there that can figure out what my tax rate 

is in Tarrant County. 

Ms. CHU. I appreciate that. 

Now, Judge Whitley, I know you indicated that NACo supports, 

yet opposes some of the language in the streamlined sales-and-use 

tax legislation. I was wondering what the governors’ position was. 

Are the positions of support and opposition along the same lines, 

or what? What are the differences? 

Governor DOUGLAS. I haven’t seen the NACo policy, Congresswoman Chu, but the Governors are concerned about those proviVerDate Aug 31 2005 11:21 Jul 12, 2010 Jkt 000000 PO 00000 Frm 00032 Fmt 6633 Sfmt 6601 H:\WORK\COMM\041510\55940.000 HJUD1 PsN: 55940
29 

sions that suggest compensation to local companies. We think that 

that ought not to be a part of what, ultimately, is passed. So I 

think we may be on on the same page, there. 

Ms. CHU. Okay. Thank you. I yield back. 

Mr. JOHNSON. Thank you. 

Next questioner will be my friend, the Ranking Member of the 

Courts and Competition Policy Subcommittee, which I Chair, Mr. 

Howard Coble. 

Mr. COBLE. Thank you, Mr. Chairman. 

Governor—good to have you and the judge with us. 

Governor, I have come in back and forth, because of—so I may 

ask that—this may be repetitive. But is the Green Mountain State 

the only state that does not have an amendment or a statute to require a budget to be balanced? 

Governor DOUGLAS. That is correct. 

Mr. COBLE. How, Governor, has that impacted your ability to either cut spending on the one hand, or raise taxes on the other? 

Governor DOUGLAS. We like to think, Congressman Coble, that 

Vermonters don’t need that constitutional imperative—we are so 

responsible and thrifty. 

Mr. COBLE. I can see why you are the governor, Governor. 

Governor DOUGLAS. And, in fact, we are rated AAA by both 

Moody’s and Fitch. So I think the fiscal responsibility that we have 

been able to achieve has been comparable to that of other states, 

even though we are the only one, as you noted, without a requirement—either constitutional or statutory—to have a balanced budget. 

Mr. COBLE. And that speaks of self-discipline. I think that is 

noteworthy. 

Now, Governor, are you here on behalf of the National Governors 

Association? 

Now, of the other state groups, such as the National Conference 

of State Legislatures, has expressed support for the Streamlined 

Sales Tax Agreement, and the Main Street Fairness Act. I noticed, 

however, that your testimony was silent on that. Do you want to 

comment one way or the other about that? 

Governor DOUGLAS. I did refer to that in response to a question. 

We do support, as an association, the streamlined-sales-tax project. 

Vermont is one of 18 states that is a full-fledged member of that 

effort now. And I believe, as Judge Whitley and I have suggested, 

that it is only a matter of fairness to those vendors—those retailers 

in our states and counties and communities who are faced with unfair competition through online transactions. 

So we are strong supporters of that, and hope that the Subcommittee can take it up. 

Mr. COBLE. Thank you, sir. 

Judge, your written testimony singles out telecommunications 

providers as entities that should not receive special treatment. You 

specifically mentioned the telecommunication provision in the 

Streamlined Sales Tax Agreement, and the Cell Tax Fairness Act; 

yet, telecommunications providers would argue that they should— 

that they shoulder a disproportionate burden of state and local 

taxes. 

30 

Is there any reason why NACo’s views—strike that. Is there any 

reason why NACo views telecommunication’s taxes, in particular, 

to be sacrosanct, or holy? 

Judge WHITLEY. Now, I don’t know that. I think that there is. 

What we look at—I can tell you, especially, in Texas, and in 

Tarrant County, with regards to the cell phones, and with regards 

to the taxes on that—it goes back to our emergency services—our 

911. We are making tremendous changes, and investing a tremendous amount of money in the technology that will allow us to be 

able to identify where that cell phone is calling from. And if it was 

just a land line, there wouldn’t be that problem. 

So most of the fees—when we look at fees, we don’t normally just 

stick fees on there, and then use those—the fees coming from—like 

the telecommunications arena—for other areas of general revenue 

or general budget. We are pretty well looking for it for a user-type 

fee. 

When we get to something that is going to be kind of general, 

we go back to our property tax. But our citizens get pretty testy 

when we start putting a whole lot of property tax in there to do 

things which they consider to be better paid for with user fees. 

Mr. COBLE. I got you. 

But, now, Governor, or—is either you or the judge familiar—I 

mentioned it in passing—the Sales Tax Fairness Act—are you all 

familiar with that? 

What do you say in response to that bill? 

Governor DOUGLAS. I assume that is the legislation that was referred to by some other Members earlier. Is that the proposed moratorium that is proposed? 

Mr. COBLE. Well, it prohibits states or local governments from 

imposing any new discriminatory taxes on mobile services, et 

cetera. 

Governor DOUGLAS. Yes, right. I suggested that the National 

Governors Association does not support that initiative, Congressman Coble. We really believe that there ought to be maximum 

flexibility for states to make their own determinations, and that 

that ought to not be approved. 

Mr. COBLE. Thank you, Governor. 

Judge? 

Judge WHITLEY. Same way with NACo. You know, again, when 

you start applying moratoriums, then you really tie our hands with 

regards to tax reform, and with regards to expenditures that, a lot 

of times, we are required to make. 

Mr. COBLE. Thank you both for being here. 

Thank you, Mr. Chairman. I yield back. 

Mr. JOHNSON. Thank you, Mr. Coble. 

Next, we will have questions from Congressman Scott, Chair of 

the Crime Subcommittee of the Judiciary Committee. 

Mr. SCOTT. Thank you. 

And, thank you, Mr. Chairman. 

You know, we have—we are in a situation where all of the states 

and all of the counties are suffering from a financial decline, and 

are looking for revenue whenever they can get it. And one way is 

to encroach on other states to get some of their tax revenue. It has 

the added advantage of—you are increasing taxes, but not on anyVerDate Aug 31 2005 11:21 Jul 12, 2010 Jkt 000000 PO 00000 Frm 00034 Fmt 6633 Sfmt 6601 H:\WORK\COMM\041510\55940.000 HJUD1 PsN: 55940
31 

body that actually votes for you. And so there is a great incentive 

during these times to kind of expand your tax base. 

Governor Douglas, if you expand your tax base and start taxing, 

essentially, out-of-state residents, do the out-of-state residents get 

a tax credit in their home state, necessarily, for the taxes they pay 

in your state? 

Governor DOUGLAS. That is probably a function of the tax laws 

in their individual states, but I think, in many cases, they do. 

We are very sensitive to the point that you have raised, Congressman Scott, because we rely on tourism as a major part of our 

economy. And I don’t want to take steps that would be discouraging to people to come and visit. And, also, we have a lot of second-homeowners and business property that is owned by non-residents. And so I am concerned about the burden of property taxation and not making that too high, so that it is not competitive 

either. 

So I think your point is well taken that tax policy ought to be, 

first, as low as possible to meet the legitimate needs of government; and, secondly, balanced in a way that doesn’t put any class 

of taxpayers at a disadvantage. 

Mr. SCOTT. Well, yes, but in those cases, you have indicated the 

tax is actually applied to something that is clearly going on in 

Vermont. Some of these schemes that are taxing people for things 

where you are really kind of stretching a little bit, and getting people back in the home—the Internet, where you don’t really have a 

physical presence in Vermont, and getting some activity going on 

in Vermont, and getting that kind of tax—those kind of taxes. 

But if you pay those taxes, the question is whether you get a tax 

credit, or whether you are essentially getting taxed in your home 

state for the business activity, and in the out-of-state tax—you are 

being taxed twice for the same activity—can that happen? 

Governor DOUGLAS. Well, I don’t know about the tax laws of all 

the other states. We don’t do that in Vermont. In fact, there was 

a case on a motor-vehicle tax that went all the way to the United 

States Supreme Court to make sure that Vermonters don’t pay 

double tax on their motor-vehicle-registration taxes. 

Look, both of my sons, at one point, had some income in other 

states while they were residents of Vermont. And we don’t provide 

a system of double taxation. But I, honestly, don’t know what the 

laws of other states are. 

Mr. SCOTT. Well, if there is no double taxation, then the $8 billion impact would not be an overall impact, it would be kind of a 

shifting of where you pay the taxes, not how much taxes are paid. 

Governor DOUGLAS. Yes, it is hard to estimate what the impact 

would be. I guess the essence of my testimony is that there ought 

to be flexibility for states to make their decisions, and not have an 

imposition by the Congress on what has traditionally been the prerogative of state and local government. 

Mr. SCOTT. Well, if you are only going to pay a certain amount 

of tax, then the question is: Who gets it? So—— 

Judge WHITLEY. But I think the question, in some cases, is they 

are not paying any tax at all. 

Mr. SCOTT. Well, that takes place over—to a large extent, on 

Internet sales. 

32 

What would you suggest as the appropriate thing to do with 

Internet sales, in light of the fact that the seller really has no way 

to individually calculate, even by zip code, what the tax rate is in 

the state, county, town, and whatever subdivision—business subdivision there may be—what the appropriate tax would be? 

Judge WHITLEY. I believe that, with technology as it is today, 

that, as I stated earlier—I believe that the technology exists to be 

able to take it to the zip code and determine exactly what I pay 

in Hurst, Texas, in the form of school—no, those are property 

taxes. The sales tax would simply be the city and the state. And 

it would be 8.25 percent. 

You know, if I am going to buy something in Hurst, Texas, out 

of my home, then that sales tax that I would pay if I bought that 

in Hurst, Texas, is going to take care of the fire and the police, and 

all the services that I get—— 

Mr. SCOTT. And you ought to pay the same tax if it is shipped 

in? 

Judge WHITLEY. Yes, because I am still going to—when the fire 

and the—— 

Mr. SCOTT. You don’t see a complication about the calculation of 

the tax. What about physical presence in an area—when you try 

to tax someone for an activity for which there is no physical presence? 

Judge WHITLEY. I don’t know that I—I think, if we are talking 

about—I guess the point of purchase, is what I am suggesting, is 

where the tax should apply, and not necessarily the point of the 

sale. Whether they have—you know, whether whoever someone I 

am purchasing something from has a presence in Hurst, Texas or 

not, the fact is I am buying it. Coming to Hurst, Texas—eventually, 

whatever is there, the police are going to—if it gets stolen, I am 

going to call the police and report it stolen in Hurst, Texas. 

Mr. SCOTT. I think the next panel might address this, but there 

is some—I know we have had some problems with truckers going 

up the New Jersey Turnpike and, essentially getting kidnapped because they were going through New Jersey with their shipment, 

when that was about the only activity they had. New Jersey was 

trying to assess a tax on the contents. 

But we will deal with that on the next panel. 

Mr. JOHNSON. The gentleman’s time has expired. 

I want to thank you both for your testimony. And you may both 

be excused. 

And, as you depart, the second panel can assume the positions 

that you now occupy. 

Judge WHITLEY. Thank you very much. 

Governor DOUGLAS. Thank you, Mr. Chairman. 

Mr. JOHNSON. Thank you all for participating in today’s hearing. 

And you are under the same instructions as the previous panel. 

Our first witness on this panel is Mr. Robert Ward. He is the 

deputy director of the Nelson A. Rockefeller Institute, and heads 

the institute’s State and Local Government Finance Research. He 

has studied and written about New York state government for 

more than 20 years as a newspaper reporter and editor, as assistant to the chairman of the Assembly Ways and Means Committee, 

and as director of research for the Public Policy Institute of New 

33 

York State, the research affiliate of the Business Council of New 

York State. 

He is also the author of ‘‘New York State Government,’’ published by the institute in 2002, and revised in 2006. His work on 

state finances includes leading the institute’s recent research into 

gambling revenues for states, and a study of long-term changes in 

the property tax in New York state. 

Mr. Ward, welcome; and please begin your testimony. And I will 

introduce you all as we get to you. 

TESTIMONY OF ROBERT B. WARD, DEPUTY DIRECTOR, 

NELSON A. ROCKEFELLER INSTITUTE OF GOVERNMENT 

Mr. WARD. Thank you very much, Mr. Chairman. And it is an 

honor to be invited to speak with you today. 

I would like to say a special hello to Congressman Maffei, from 

my home state of New York. 

But it is an honor to speak with all the Members of the Subcommittee. 

My testimony will focus on essentially three things. And I will 

limit my oral testimony. First, I will talk a little bit about the current picture for states. We are about to release, tomorrow morning, 

our latest look at state tax collections from around the country. I 

will also touch briefly on the long-term trends in state-and-local tax 

revenues. And I will close with some suggestions for broader thinking about the role of the Federal Government in shaping fiscal policy at the state level. 

As I mentioned, the report that we will be releasing tomorrow 

morning shows that calendar 2009 was the worst year on record in 

terms of decline in overall state-tax collections, with an overall 

drop of 11 percent from calendar year 2008. The fourth quarter of 

2009 brought the fifth consecutive quarter in which state revenues 

showed a decline. We now have preliminary data in hand for about 

half of the first quarter of 2010, and it appears likely that that 

quarter will represent a sixth-straight quarter of year-over-year decline. 

Broadening the picture just a little bit—if we compare these 

numbers to 2 years ago, tax revenues during the final quarter of 

2009 were down by 8.6 percent through that same quarter in 2007. 

Over the past two decades, before the last national recession, 

state-tax revenues have averaged annual year-over-year increases 

in the range of 5 percent to 5.5 percent. So in normal times, the 

last 2 years could have been expected to produce an overall tax-revenue increase of something in the range of 10 percent or more. 

When we combine that with the actual decline that I have mentioned, states have seen revenue drop by more than 18 percent over 

those 2 years, relative to recent historic norms. The current decline 

in overall state-tax collections is more than twice as deep as in the 

previous recession, which itself brought declines from historically 

high levels of revenue. 

After accounting for inflation, state-tax revenue is essentially at 

the same level as it was 10 years ago, although the Nation’s population has increased by approximately 10 percent during that period. In my written testimony, I have some discussion of the outlook. I will simply say here that looking immediately ahead, we 

34 

think that there is significant risk that income-tax revenues in 

April and May will fall relative to the already weakened level of 

a year ago. 

And, echoing some of the comments in Governor Douglas’ prepared testimony, we do not expect much strengthening during the 

remainder of this year; and, of course, we know that there are 

enormous fiscal challenges for states in the years ahead. 

Some reflections on longer-term trends—the income tax has become much more important to states over time. And one ramification of this is a heightened risk of volatility in states’ revenue 

streams. Economists from the Federal Reserve Bank of Chicago 

have concluded that greater reliance on the income tax and increases in the more volatile sources of income, such as capital 

gains, have made state revenues more responsive to the business 

cycle since 1998. 

We have seen the downside of such volatility over the past 12 to 

18 months in New York and in other states, as income-tax revenues have plummeted, and states that are highly dependent on 

capital gains have seen particularly significant declines in overall 

tax revenue. 

Many of the issues that the Congress considers relating to state 

and local taxes reflect varying perceptions over the burden of taxation, and the adequacy of resources for public services. In that 

context, it may be worth noting that, measured as a proportion of 

the Nation’s economic activity, the total burden of state and local 

taxes has remained remarkably constant for the last 20 years. 

And there is a chart in my prepared testimony showing that. As 

a matter of fact, there has been relatively little change over the 

past 40 years. And, perhaps, that is worth keeping in mind as we 

now enter a period at the national level, where we are looking at 

significant changes in the overall fiscal relationship between Washington and the states. 

On that point, Congress and the Federal courts have stepped in 

to policy-setting or policy-shaping roles, in selected, and often narrow, areas, generally, with relatively little attention to the overall 

structure of state and local tax systems. Perhaps it is time for 

broader thinking and analysis within the boundaries that the Constitution provides. 

Beyond the fiscal challenges to states that I mentioned earlier, 

we are all well aware that the Federal Government faces its own 

major budgetary concerns in the years and decades ahead. Whether 

one’s favored solutions to the challenges facing both the national 

and state governments—whether those favored solutions involve 

more revenue sources such as a value-added tax, or new restraints 

on health-care and other spending, or some combination, the complex array of fiscal relationships between Washington and the 

states will be an important subtext of any serious debate. 

Mr. JOHNSON. And, Mr. Ward, if you could, sum—— 

Mr. WARD. I will simply sum up by saying that there will be debate about the—ongoing and significant debate—about the relationship between Washington and the states. The question is how 

we may best inform that debate. 

[The prepared statement of Mr. Ward follows:] 

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PREPARED STATEMENT OF ROBERT B. WARD


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Mr. JOHNSON. Thank you, sir. 

Next, we will hear from Mr. Joseph Henchman. He is a constitutional attorney and policy analyst, who supervises the Tax Foundation’s state policy and legal programs. His analysis of state-tax 

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lications, and in court decisions and testimony at the Federal and 

state levels. 

Before joining the Tax Foundation in 2005, Mr. Henchman previously worked in the historic 2003 California Recall Election as 

press-policy aide to gubernatorial candidate and interned with the 

Office of D.C. attorney general, Citizens against Government 

Waste, and University of California Outreach in the Central Valley. 

Thank you, Mr. Henchman. Please begin your testimony. 

TESTIMONY OF JOSEPH HENCHMAN, TAX COUNSEL AND 

DIRECTOR OF STATE PROJECTS, TAX FOUNDATION 

Mr. HENCHMAN. Thank you, Mr. Chairman; Mr. Ranking Member; and Members of the Subcommittee. 

I appreciate the opportunity to testify today on the role of Congress in ensuring that state taxation does not do harm to the national economy. This is not a new issue. One of the reasons we 

have a constitution is because of states’ impulse to do death with 

a thousand cuts to the national economy through their tax policy. 

As Professor Daniel Shaviro put it, ‘‘Perceived tax exportation is 

a valuable political tool for state legislators, permitting them to 

claim that they provide government services for free.’’ Frowning on 

these divisive and destructive practices, the founders inserted several constitutional provisions empowering Congress and the courts 

to restrain state tax power. And for over a century and a half, 

states’ power of taxation stopped at their border and did not extend 

to interstate commerce. 

That changed in the 1977 Complete Auto decision, where the 

U.S. Supreme Court permitted states to tax interstate commerce if 

the tax met a four-part test. The most relevant one of today is 

nexus. Nexus survives as a restraint on state tax power, although 

it is now under attack. 

First, there is the state corporate income tax. It is a dying tax, 

killed off by thousands of credits, deductions, abatements and incentive packages. Corporations are able to plan their way out of the 

corporate income tax, resulting in significant compliance and administrative costs, compared to other revenue sources. 

The beggar-thy-neighbor policy adopted by states of apportionment formula games, mercantilist film and incentive-credit programs, destructive gross-receipts taxes, and corporate welfare are 

the reason for the collapse of this tax as a revenue source. But 

rather than fix those problems, the push has been, by some states, 

to reach across state lines and out of their borders with the nebulous concept of economic nexus. A uniform physical-presence standard would limit these destructive state efforts to export tax burdens, and they will decrease transaction costs for the interstate 

business activity. 

For sales taxes, the adoption of sales taxes in the 1930’s was 

quickly followed by use taxes to discourage consumers from buying 

goods in lower-tax states. Use taxes seek to equalize tax burden for 

the tax on transactions occurring in other states—essentially a protectionist measure. But judicial decisions have barred states from 

forcing non-physically-present individuals and businesses to collect 

their use taxes. These decisions are premised both on the geoVerDate Aug 31 2005 11:21 Jul 12, 2010 Jkt 000000 PO 00000 Frm 00047 Fmt 6633 Sfmt 6601 H:\WORK\COMM\041510\55940.000 HJUD1 PsN: 55940
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graphic limit of state powers, and on the difficulty of complying 

with over 8,000 constantly changing sales taxes, with different 

bases, different rates, different exemptions; and, contrary to popular belief, not aligned with nine-digit or even five-digit zip codes. 

Brick-and-mortar retailers claim unfairness. They must collect 

sales taxes while their online and out-of-state competitors do not. 

Of course, the proposal on the table is to impose a greater obligation on out-of-state and online businesses, forcing them to collect 

thousands of different sales taxes, while brick-and-mortar retailers 

need to track and collect only one. 

For the income tax, nearly half the states require non-resident 

employees to set up individual income-tax withholding for their 

first day of travel into the state. Sixteen more states also require 

withholding after a certain point—and that is just withholding, not 

the obligation to file a return or pay taxes. 

A few years ago, we at the Tax Foundation got a call from a 

woman in Ohio. Her son was a soccer goalie, and he had earned 

$28,000 doing that. And spread across this woman’s kitchen table 

were 10 state income-tax returns, divvying up the tax on $28,000. 

States are becoming more aggressive in this regard, with non-resident income taxes, hunting down schedules via Twitter, demanding 

travel vouchers; generally imposing a colossal compliance burden 

that is a net national-revenue wash, transferring tax dollars from 

low-tax, low-expense states to the states with the highest tax burdens. 

The states are hurting, it is true. But they aren’t entirely innocent in that predicament. I want to echo Mr. Ward, who emphasized that those states that rely heavily on volatile revenue sources 

such as taxes on capital gains and taxes on high-income earners 

are those states that are hurting the most. I should also note that 

state fiscal pain does not justify beggar-thy-neighbor policies that 

impose significant compliance burdens and deadweight losses on 

the national economy. State power to tax should not extend to everything, everywhere. Simplification should be something that everyone embraces, and is not a partisan issue. 

As Chief Justice Marshall said, ‘‘The power to tax is the power 

to destroy,’’ and state tax overreaching can destroy. 

As a country, we have gone from the artisan to Amazon.com. But 

the sophistication of technology does not override the timeless constitutional principles designed to restrain states from burdening 

interstate commerce and imposing uncertainty on the national 

economy. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Henchman follows:] 

45 

PREPARED STATEMENT OF JOSEPH HENCHMAN


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Mr. JOHNSON. Thank you, Mr. Henchman. 

Next, we will hear from Ms. Kerry Korpi, our final witness. 

Ms. Korpi is director of the Department of Research and Collective Bargaining Services for the American Federation of State, 

County and Municipal Employees, a union of 1.6 million working 

and retired public-service workers. The department provides assistance to AFSCME affiliates on a variety of issues, including publicsector budgets and finance, and health and pension benefits. 

Ms. Korpi has worked for AFSCME at its Washington, D.C. 

headquarters, and in various field assignments since 1982. 

Welcome, Ms. Korpi, and please begin. 


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TESTIMONY OF KERRY KORPI, DIRECTOR OF RESEARCH AND 

COLLECTIVE BARGAINING SERVICES, AMERICAN FEDERATION OF STATE, COUNTY AND MUNICIPAL EMPLOYEES 

Ms. KORPI. Thank you, Mr. Chairman and Members of the Committee, for holding this hearing, and for inviting me to testify—— 

Mr. JOHNSON. And would you turn that microphone on right 

there, and pull it a little closer to you? 

Mr. HENCHMAN. It is on. I don’t think it is working. 

Ms. KORPI. Can you hear me? 

Mr. JOHNSON. Maybe we could switch microphones. 

Ms. KORPI. This works? 

Mr. JOHNSON. Yes. 

Ms. KORPI. There we go. 

Mr. JOHNSON. Yes. Thank you. 

Ms. KORPI. Thank you for holding this hearing, and for inviting 

me to testify on behalf of AFSCME’s 1.6 million members. We represent public-service workers around the country, in jobs ‘‘from accountants to zookeepers,’’ as we say, and everything in between. 

You have got my written testimony, so rather than repeat that, 

let me speak to this topic from the perspective of our members and 

the people that they serve. 

We have heard a lot about the recent couple of difficult years. 

Back in the years 2002 to 2005, we were seeing a fiscal crisis in 

state and local governments that, at that time, was the worst that 

I had seen in my years at AFSCME. And, little did we know then, 

it would be nothing compared to what we are seeing now. 

In the last couple of years, our members have experienced layoffs, furloughs, wage freezes, wage cuts, and we expect more fiscal 

trouble in the next 2 fiscal years. This certainly puts a strain on 

our members, but also puts serious strains on the public services 

and the people that they work for. The demand for food stamps, 

unemployment insurance, employment services, TANF, Medicaid, 

the need for child-welfare services, have all increased dramatically 

in this downturn. And systems that were stretched before this crisis have reached a breaking point. 

And the role of other public services in a bad economy may not 

be quite as obvious, but they are just as important—public safety, 

parks and recreation; libraries have become a place where people 

search for jobs. And they are closing and shortening hours and putting a lot of people at real hardship. So when we talk about taxes, 

I think it is important to remember what those taxes pay for. 

What we are also seeing are major policy changes enacted as a 

result of the budget crisis. In some states, there are fewer school 

days. As Governor Douglas mentioned, several states are releasing 

inmates en mass early, before they serve their sentences. Now, 

these policies certainly shouldn’t be set in stone, and there is room 

to debate them. But we probably shouldn’t just change them because we have run out of money. 

In addition to making budget cuts, states are biting the bullet and raising taxes by some $32 billion recently. But state and local 

governments are running out of options for dealing with the continuing budget problems. 

The American Recovery and Reinvestment Act was tremendously 

helpful. It closed some 30 percent to 40 percent of the deficits that 

55 

states expect from 2009 to 2012. And we thank the House and the 

Senate for passing the $26 billion extension of FMAP, and we urge 

you to quickly reconcile the two versions of the bill so that these 

can get to states. 

We also urge you to continue recovery funding for schools. There 

was funding included in the Jobs for Main Street Act, passed by 

the House, and also in representative George Miller’s Local Jobs for 

America Act, which we strongly support as well. 

And I want to join other speakers in strongly urging you not to 

restrict state’s options at this critical time. There is a temptation 

in Congress and in states to use state-tax systems to protect particular industries, particular new or emerging industries, so that 

they can grow and thrive. And while that intention may be good 

and admirable, the result is many state-tax systems that we’re 

good in the 1930’s are completely inadequate for the 21st century. 

And it means that state-tax systems capture less and less economic 

activity over time, and those sectors that are taxed foot the bill. 

So in closing, we urge you to do what only the Federal Government can do, and continue to provide relief so that states and local 

governments can provide the services we need to get our economy 

on track. And we also urge you to allow them the flexibility to do 

what they can do to get their own budgets back on stable footing. 

And thank you again for calling this hearing, and for inviting me 

here. 

[The prepared statement of Ms. Korpi follows:] 

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PREPARED STATEMENT OF KERRY KORPI


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Mr. JOHNSON. Thank you, Ms. Korpi. 

Our final witness, Mr. Scott Pattison, serves as executive director 

of the National Association of State Budget Officers, NASBO, in 

Washington, D.C. Prior to coming to NASBO, Mr. Pattison served 

for 4 years as Virginia’s state budget director. Previous to serving 

as state budget director, Mr. Pattison headed the Regulatory and 

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Korpi-4.eps
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and Budget. He also served in a variety of capacities in the Office 

of the Virginia attorney general, including as counsel. 

Mr. Pattison began his career with the Federal Government, 

serving in several positions at the U.S. Federal Trade Commission 

in Washington, D.C., including as an attorney advisor. He also 

briefly ran a small non-profit focusing on consumer-protection 

issues. 

Thank you, Mr. Pattison. And please proceed with your testimony, and welcome. 

TESTIMONY OF SCOTT D. PATTISON, EXECUTIVE DIRECTOR, 

NATIONAL ASSOCIATION OF STATE BUDGET OFFICERS 

Mr. PATTISON. Thank you, Mr. Chairman, and Members of the 

Subcommittee, for inviting me to testify today. I really appreciate 

it. 

And speaking on behalf of the National Association of State 

Budget Officers, which was founded in 1945 and represents the 

budget and finance officers in the 50 states, as well as the territories: We collect an enormous amount of data about state fiscal 

conditions. And probably no surprise—I have to tell you that states 

are currently facing an unprecedented fiscal and economic situation. 

Mr. Ward talked about the declines in revenue. We have found 

the worst situation since the Great Depression. For the first time 

ever, in the data we have collected over several decades, there are 

2 years in a row of outright actual declines—real declines—in state 

year-over-year spending. We have never had that before. And I 

think it does demonstrate a very difficult time. 

Unfortunately, I have to say, as Governor Douglas and others 

talked about, too—is we expect this to continue through fiscal 2013 

for the states. There is a lag between the time of economic recovery 

and actual recovery for state governments. So it will take a while 

there. 

Now, while there are efficiencies that come from tighter budgets, 

and some reforms, it is still important to note that states must balance their budgets, and they do not have the same flexibility and 

tools that national governments, like the Federal Government 

have, such as controlling the currency, to deal with their budget 

situations. 

The other thing that I want to emphasize, which I think is so 

critical to remember, is the constraints that states have upon them, 

that makes it very difficult already to manage their finances. There 

are very significant state expenses, governed by Federal requirements such as regulations in Medicaid. There are formulas that 

have been put into place by states themselves, in terms of Kthrough-12 funding. There are court-ordered expenditures that 

sometimes can be hundreds of millions, if not in the billions. So 

there are a lot of constraints on the flexibility of states already. 

And the reason that is important is that we do feel that any additional requirements, particularly during this 2- to 3-year period 

of unprecedented difficult fiscal times for states, are extremely 

problematic, and should be avoided. 

Now, many states are spending considerably less now than they 

did even a few years ago. One of the most extreme examples is 

61 

Michigan, which is actually spending the amount now that they 

spent in 1996. There are a lot of states that are spending less now 

than they did 2, 3, 4 years ago. In other words, there is an outright 

actual decline in spending, even with the Recovery Act funds and 

other revenue increases that they have had to take on. 

Now, states have had to work within these constraints. And 

many have attempted to do so. And I think one of the things that 

is important to remember, too, is that states do attempt to deal 

with this volatility with rainy-day funds. During the mid-2000’s, 

they had rainy-day funds equaling 11 percent of their general 

funds. That is fairly significant. And they have really helped— 

these rainy-day funds, along with the Recovery Act funds—to prevent even further cuts and tax increases, despite the fact that there 

have been significant cuts, and significant tax increases during this 

period. 

Therefore, given this unprecedented fiscal situation facing the 

states, and the fact we expect it to continue at least for another 2 

years and, unfortunately, for some states like California, beyond 

that, we urge you to consider that any changes to Federal tax laws 

that limit the states’ ability to have the flexibility to deal with this 

economic and fiscal crisis should be avoided; and, again, especially 

during this very unprecedented, difficult fiscal time for the states. 

Thank you. 

[The prepared statement of Mr. Pattison follows:] 

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PREPARED STATEMENT OF SCOTT D. PATTISON


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Mr. JOHNSON. Thank you, sir. 

And we will now begin with questioning, starting with myself, 

who I will recognize for 5 minutes. 

Mr. Henchman, in your testimony, you state that, ‘‘Simplification 

should be something everyone embraces.’’ Could you explain the 

hardships and burdens that are placed on everyday Americans 


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when there is uncertainty with respect to income-tax liability? And 

can you explain how this uncertainty affects mobile workers? 

Mr. HENCHMAN. Sure. 

I think simplicity is something that is really striking, especially 

today. Today is the deadline for filing Federal income taxes. And 

just figuring out income taxes is an enormous burden. In my spare 

time, I help some of my friends with their income-tax returns. And 

in this area, there are a lot of people who move around. So there 

are people who live in one state, or move between different states. 

So having to file multiple state returns is—it is kind of common 

around here. 

And it is starting to get more common as more states become 

more aggressive about collecting revenue. I mean, as we have 

learned from this panel and the one before it, states are doing anything they can to get cash in the door right now. And one way to 

do that is to hunt down the people that are in a state, and are not 

residents of the state, and hit them up for income taxes. And that 

is something that we are seeing. 

In D.C., I heard of a business turned upside-down to get travel 

vouchers. Schedules are getting more common online. And states 

are making use of that technology, unless there is some Federal restraint put on it. 

The catchword today seems to be ‘‘flexibility.’’ The problem with 

that is that every state wants this revenue. And you can only divvy 

it up so many ways before you are really imposing enormous compliance costs, especially with the Mobile Workforce Bill, where if 

you add it all up, it is a net national revenue wash. So we have 

all of this paperwork and all of this record-keeping and all of this 

auditing, and states, on whole, get no additional revenue out of it. 

Mr. JOHNSON. So this simplification in the Mobile Workforce Act, 

which has been proposed as H.R. 2010, would alleviate some of 

that compliance burden on the part of both states and employees. 

Mr. HENCHMAN. The virtue of the bill, I think, is that it provides 

a uniform rule in which all states have to abide by. And uniform 

rules in that regard can assist in reducing complexity. People will 

be certain about where they can go, and what their taxes will be, 

and what the rules are. Right now, it is not. 

I think the Council on State Taxation has put together a very 

good paper on what they—the best they can figure are—the rules 

are today, on people traveling around. I mean, I am sure everyone 

on the panel—and everyone on the Committee—Subcommittee— 

travels around a lot. I don’t think anybody actually sets up withholding before they travel somewhere. Maybe some people file all 

the tax returns for every state they have spent more than a day 

in. I can’t imagine many people do that. 

But it is a potential revenue source for states. And, yes, they 

want the ‘‘flexibility’’ to go after that. And this bill might help address that. 

Mr. JOHNSON. Thank you, sir. 

Next, I will address a question to Ms. Korpi. 

AFSCME represents 1.6 million working and retired public-service employees. Some of them would, I imagine, be employed by the 

city of Atlanta. And, on behalf of my colleague who had to depart 

68 

this morning early, Chairman Cohen—I am sure that there are a 

lot of employees in his area as well—Memphis, Tennessee. 

Have the state and local spending cuts affected public-service 

employees in Atlanta and in Memphis; and to what extent, if any? 

Ms. KORPI. In virtually every city around the country—Can you 

hear me now?—we have seen serious problems. The problems hit 

first at the state level, frankly. And, then, as states started cutting 

aid to local governments, we have seen—in local governments as 

well. And as property values are reset, we expect those problems 

to continue. 

The data on cities is not as comprehensive as the data on states, 

but certainly, anecdotally, in the city of Atlanta, in the city of 

Memphis, we have got members who have serious problems, who 

have been, you know, ask to sacrifice benefits, have been in discussions about wages and so on, and seeing public services cut as well. 

Mr. JOHNSON. Thank you. 

Next, we will have questions from Mr. Bobby Scott, from the 

great state of Virginia. 

Mr. SCOTT. Thank you, Mr. Chairman. 

All of the witnesses have talked, again, about the need for more 

revenue on a state and local basis. And with the reluctance, I 

guess—or decision—not to raise tax rates, you have got to go find 

more income to tax. And the best place is to smack out-of-state 

residents who don’t vote. 

Now, Mr. Henchman, you mentioned ‘‘net wash.’’ What do you 

mean by that? 

Mr. HENCHMAN. As far as I know, every state has a—gives a 

credit for taxes paid to other states. So, for instance if—I live in 

Virginia. I am a constituent. And if I work in New York and I have 

to file a New York income-tax return, I will be able to credit those 

taxes paid to New York from my Virginia return. 

Mr. SCOTT. Will you credit the taxes, or would you shield that 

income from Virginia taxation? 

Mr. HENCHMAN. Well—— 

Mr. SCOTT. That would—— 

Mr. HENCHMAN. It ends up doing both. 

Mr. SCOTT. Well, it would end up doing both if the tax rate is 

the same. If one is a higher tax rate, it would have—— 

Mr. HENCHMAN. If the tax rate is the same, it would end up— 

it really wouldn’t matter. But, of course, New York has a higher 

income-tax rate than Virginia does. So the result would be that 

New York would get more of the taxes than—than they deserve, in 

a way, because I would get a credit for all those taxes I paid to 

New York on my Virginia taxes. 

Mr. SCOTT. Now, that is for the individual income tax. 

Mr. HENCHMAN. Correct. 

Mr. SCOTT. What about things like business-activity tax? Does 

the business get a local credit for the business-activity tax they pay 

somewhere else? 

Mr. HENCHMAN. It depends, I think. I don’t think the rules are 

as certain as they are on the individual income tax. 

Mr. SCOTT. So—— 

Mr. HENCHMAN. And, often, it depends on whether a company 

has nexus. And even that can be disputed. 

69 

Mr. SCOTT. So that if one state gets very aggressive against outof-state companies, kind of making up a nexus and assessing the 

tax, the business may not get a credit back at home. 

Mr. HENCHMAN. I mean, that is a problem we see with both the 

individual and the corporate income tax. It is sort of a race to be 

the highest-tax, highest-burden state, because that is the one that 

gets to take from all of the other states. 

Mr. SCOTT. Okay. 

Internet sales—any of the witnesses—we have heard the last 

panel suggest that it is not difficult for the Internet seller to actually calculate all of the local different taxes—that there are programs that can calculate this. Is there any dispute about that on 

this panel? 

Mr. HENCHMAN. I would dispute that. I work at the Tax Foundation, where one of our missions is to keep track of all of the different taxes that are in the United States. And we try to put them 

up on our website as a public service. And it is almost impossible 

to keep track of all of the different sales taxes. 

And it is not so much a technological problem. I mean, you can 

create calculators, and if you feed the data into it, it would be fine; 

although, there is some issue of lining them up with zip codes, because most people know their five-digit zip code. Almost no one 

knows their nine-digit zip code. And of course, sales taxes aren’t 

even aligned by that. 

But the problem is essentially in states and localities constantly 

changing what is taxed and what the rate is, and little rate surcharges, because different things can be taxed under different state 

and local tax systems. So it can be very difficult to keep track of, 

especially for retailers, whose main goal is to run their business, 

not become tax experts, like the people testifying today. 

Mr. SCOTT. Is it difficult to clarify exactly—just to clarify, to simplify, exactly where the income is earned, for the purpose of taxation? 

Mr. HENCHMAN. It can be, because the main thing is who gets 

to tax it. If I, living in Virginia, buy something on the Internet, 

does Virginia get to tax it? Does the state where the person sold 

it to me get to tax it? Does the state that has the distribution center that sent it to me get to tax it? Does every state that the truck 

passes through get to tax it? 

The Streamlined Sales Tax Project has developed some uniform 

rules associated with this, although I think they are still under discussion. But, of course, not every state is a member of that. And 

if you left it up to the states, every state would say they want a 

piece of it. 

Mr. SCOTT. Well, would it be possible to leave it up to the states, 

to let them, by compact, decide who gets to tax, and let the Federal 

Government out of it? 

Mr. HENCHMAN. Yes, Representative. That would be an option. It 

doesn’t seem to be going anywhere any time soon, though. 

Mr. SCOTT. Well, if we don’t clarify it, you have got things like 

use taxes and business-activity taxes, where, based on what you 

said, it is possible for the same business activity to get taxed in two 

different states. 

Mr. HENCHMAN. Correct. 

70 

Mr. SCOTT. So we have a reason to want to clarify that. 

Thank you, Mr. Chairman. 

Mr. JOHNSON. Thank you. 

I would like to thank all of the witnesses for their testimony 

today. Without objection, Members will have 5 legislative days to 

submit any additional written questions, which we will forward to 

the witnesses, and ask that you answer as promptly as you can, to 

be made part of the record. 

Without objection, the record will remain open for 5 legislative 

days for the submission of any other additional materials. Again, 

I thank everyone for their time and patience. This hearing of the 

Subcommittee on Commercial and Administrative Law is adjourned. 

[Whereupon, at 12:40 p.m., the Subcommittee was adjourned.] 

(71) 

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 JUDICIARY, AND MEMBER, SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW

Today’s hearing focuses on the impact of federal legislation on State and local tax 

revenues. This hearing is particularly timely in light of the fact that today is also 

the deadline for taxpayers to file their federal tax returns. 

During the current economic downturn, State and local governments have greatly 

suffered as a result of decreased tax revenues and the increased need for public 

services spending. Out of necessity, many have responded by cutting spending for 

programs as well as raising taxes and fees. 

For example, my home State of Michigan, along with several other States, has resorted to furloughing employees in an effort to reduce expenditures. 

Another example is the City of Los Angeles, which is considering temporarily closing its agencies two days a week. Nevada has cut its primary and higher education 

budget nearly 7%. And Mississippi—in an effort to reduce its expenditures for its 

prison systems—is making nonviolent offenders eligible early for parole. 

Unfortunately, even these spending cuts may not fully stabilize the current financial situation of States and municipalities. Economists predict that State revenues 

will lag well behind the country’s economic rebound. 

This Committee has an interest in the current financial situation of State and 

local governments, especially those governments’ tax policies that may affect interstate commerce. 

The Subcommittee on Commercial and Administrative Law has conducted hearings over the past Congresses examining legislative proposals and general taxation 

concepts, including an oversight hearing last February that focused on defining 

nexus. 

Accordingly, I welcome today’s hearing, and find it to be particularly timely on 

Tax Day. As we hear testimony from today’s witnesses, we should consider the following three points: 

First, we should be cognizant of how the current economic situation affects our 

State and local governments. 

Given the potential for our legislative proposals to limit the ability of State and 

local governments to determine how and whom to tax within each jurisdiction’s borders, it is critical for Congress to understand the effects of pending and future legislative proposals not just on taxpayers, but also on State and local government revenues. 

State and local governments depend on tax revenues to support programs, fund 

education and essential emergency services, and enhance transportation infrastructure. 

Many States have laws that require them to balance their budgets. When tax revenues decline, as they continue to do so now in most States, because of lower employee payrolls, sales receipts, or property values, State governments must adapt. 

They must cut funding to programs, or raise taxes. 

The current economic environment requires State officials to make tough decisions. We should be aware that State legislators and governors, local councils and 

mayors, have to decide where to cut spending and how much to raise taxes. 

Second, we need to identify those legislative proposals before this Committee that 

restrict State and local governments’ authority to tax and raise revenues and be 

aware of their impact on revenues. We also should consider legislation which would 

expand State and local governments’ taxing authority, while not burdening interstate commerce. 

72 

With their revenues declining for the foreseeable future, State and local governments have had to make tough choices to spur economic growth while balancing 

their budgets. 

My home State of Michigan has been hit especially hard as its tax base continues 

to dwindle. In response, Michigan has had to cut spending and tweak its tax policies 

just to stay afloat. 

Our State and local governments have to create tax policies not only to pay for 

providing essential services, but also to spur economic development and promote job 

creation. 

When Congress considers legislation that may restrict State tax authority, we 

should remember the impact that such restrictions have on the ability of State and 

local governments to provide essential services. We should consider targeted State 

taxation legislation to lessen the burden on interstate commerce, which encourages 

the free flow of commerce. 

We should consider legislation introduced during the last Congress by Representative Delahunt, which would grant the authority of states to require remote sellers 

to remit use taxes. That legislation, setting tenets to be incorporated in the Streamlined Sales Tax Project, would establish a level playing field for brick and mortar 

retailers and electronic commerce retailers. 

But most relevant to today’s hearing, that legislation would bring in much needed 

revenue for states, which have seen their sales tax receipts dwindle when consumers move their purchase-making to the Internet, and avoid paying sales taxes. 

The Supreme Court has weighed in on the issue of States’ requiring remote sellers 

to remit use taxes. In 1992, in Quill Corp. v. North Dakota, the Court clearly left 

it to Congress to decide this issue. The Court stated: ‘‘Congress is now free to decide 

whether, when, and to what extent the States may burden interstate [commerce] 

with a duty to collect use taxes.’’ 

Congress should weigh in on this issue, especially in light of the current fiscal situation we find in the States. 

Third, we should encourage State and local governments—together with the relevant taxpayers—to work jointly to establish competitively neutral tax policies. And 

we should be actively involved in these deliberations. 

Competitively neutral tax policies would not burden interstate commerce; they 

would provide certainty and fairness, and foster business development. They would 

also encourage technological development and job creation. 

I thank Chairman Cohen for holding this very important hearing, to help us as 

we consider the impact of legislative proposals on State and local governments. 

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73 

PREPARED STATEMENT OF THE HONORABLE HENRY C. ‘‘HANK’’ JOHNSON, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF GEORGIA, AND MEMBER, SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW

Thank you, Mr. Chairman, for holding this important hearing on state taxation 

today. It is especially fitting as today is ‘‘Tax Day.’’ 

Today we will examine the impact of congressional legislation on state and local 

governments. This hearing will give us the opportunity to examine the pending legislative proposals before this Subcommittee regarding state taxation. 

The recession has severely affected state and local governments and their residents. State and local governments are forced to make tough decisions regarding 

their budgets. They are faced with laying off workers, making cuts to education, police and fire departments. 

We need to provide a solution for our constituents. 

This is why I have 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 the states without the undue burden that the current system places on employees and employers. 

The Mobile Workforce bill does not relieve any employee from paying state income 

taxes imposed by his or her state of residence. Therefore, the resident state of the 

short-term traveling employee will not be affected by this legislation. 

From a national perspective, the mobile workforce bill will vastly simplify the 

patchwork of existing inconsistent and confusing state rules. It would also reduce 

administrative costs to states and lessen compliance burdens on consumers. 

I thank the chairman for holding this hearing, and I look forward to hearing from 

our witnesses today. 

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74 

RESPONSE TO POST-HEARING QUESTIONS FROM THE HONORABLE JIM DOUGLAS, GOVERNOR, STATE OF VERMONT, ON BEHALF OF THE NATIONAL GOVERNORS ASSOCIATION


3-1.eps
75 


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RESPONSE TO POST-HEARING QUESTIONS FROM THE HONORABLE B. GLEN WHITLEY, 

COUNTY JUDGE, TARRANT COUNTY, TX, ON BEHALF OF THE NATIONAL ASSOCIATION

OF COUNTIES


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*At the time of the printing of this hearing record, the Subcommittee had not received a response to the questions submitted to this witness. 

POST-HEARING QUESTIONS SUBMITTED TO ROBERT B. WARD, DEPUTY DIRECTOR, 

NELSON A. ROCKEFELLER INSTITUTE OF GOVERNMENT* 

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RESPONSE TO POST-HEARING QUESTIONS FROM JOSEPH HENCHMAN, 

TAX COUNSEL AND DIRECTOR OF STATE PROJECTS, TAX FOUNDATION


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RESPONSE TO POST-HEARING QUESTIONS FROM KERRY KORPI, DIRECTOR OF RESEARCH AND COLLECTIVE BARGAINING SERVICES, AMERICAN FEDERATION OF STATE, 

COUNTY AND MUNICIPAL EMPLOYEES


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RESPONSE TO POST-HEARING QUESTIONS FROM SCOTT D. PATTISON, 

EXECUTIVE DIRECTOR, NATIONAL ASSOCIATION OF STATE BUDGET OFFICERS


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PREPARED STATEMENT OF THE DIRECT MARKETING ASSOCIATION


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PREPARED STATEMENT OF THE HONORABLE RONALD O. LOVERIDGE, PRESIDENT, 

NATIONAL LEAGUE OF CITIES, AND MAYOR, RIVERSIDE, CA 


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Æ 


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