Direct Marketing Association, The v. Huber

Filing 69

DESIGNATION OF DEPOSITION TESTIMONY Excerpts from the Transcript of the Deposition of William F. Fox and accompanying deposition exhibits by Plaintiff Direct Marketing Association, The. (Attachments: # 1 Exhibit Dep. Ex. 95, # 2 Exhibit Dep. Ex. 96, # 3 Exhibit Dep. Ex. 98, # 4 Exhibit Dep. Ex. 99, # 5 Exhibit Dep. Ex. 100, # 6 Exhibit Dep. Ex. 101)(Schaefer, Matthew)

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1 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO 1 2 3 4 THE DIRECT MARKETING ASSOCIATION, 5 6 Plaintiff, v. CIVIL ACTION NO. 10-cv-01546-REB-CBS 7 8 9 10 ROXY HUBER, in her capacity as Executive Director, Colorado Department of Revenue, Defendant. 11 12 /\ .. 13 * * * * * * * * * * * * * * * * 14 15 DEPOSITION OF WILLIAM F. FOX 16 17 November 16th, 2010 18 19 20 21 22 23 ===================================================== TRUESDEL & RUSK Registered Professional Reporters Ginger Truesdel, RPR, RDR, CRR Certified Realtime Reporter LCR #003 7047 Duncan's Glen Drive Knoxville, Tennessee 37919 (865) 450-9772 24 25 www.truesdelrusk.com gingertrue@comcast.net Truesdel "' Rusk 12 ( , It is to my understanding a copy of 1 2 your report with your attached Vita. 3 an opportunity to look at that? 4 5 6 Have you had I did, and I agree it does appear A to be my report and my attached vita. And on Page 5 of that document, is Q 7 that not your original, but is that your signature 8 there in this photocopy? 9 It is. 10 Q And the date of the report is 11 November 5, 2010? 12 ( A A That's correct. 13 Q Can you tell me in what areas you 14 15 are an expert? A Well, generally, in economics and 16 also in taxation and with much of that focused on 17 state and local taxation. 18 Q Now, am I correct that the report 19 that you prepared in connection with this case 20 marked as Exhibit 95 was derived from another report 21 that you did outside of this litigation in 2009? 22 A That's correct. 23 Q And, in fact, on Page 1, you 24 indicate: "The estimates and methodology discussed 25 below are drawn specifically from the 2009 report Truesdel & Rusk 13 ( 1 written by several colleagues and myself that is 2 referenced immediately above it. Do you see that just below the 3 4 II list? A 5 Just below the list. r think it's 6 true, r just don't see it on the page, but it is 7 true, nonetheless. 8 Q 9 10 Just for purposes of the - - right below the five bullets you'll see a sentence that begins "the estimates and methodology." 11 Yes. 12 Q And that's correct 13 A That is correct. 14 Q - - 16 A Yes. 17 ( A Q When was that 2009 report 15 18 that it's drawn from the 2009 report. published? A 19 Well, we prepared it in the late 20 winter and mostly in - - sorry, in the early and late 21 winter of 2009. 22 2009. 23 24 ( ". 25 Q It was published then in May of Okay. As indicated, it was published in State Tax Notes? A That's correct. Truesdel " Rusk 14 ( 1 Q 2 We'll mark as the next exhibit this document. 3 4 (Exhibit Q No. 96 marked) So I'm showing you what we marked 5 as Exhibit 96, which is a document entitled State 6 and Local Government Sales Tax Revenue Losses from 7 Electronic Commerce dated April 13th, 2009. 8 one is Bates stamped WF000033 through WF000068. This 9 Is that there the report that you 10 just described that was published in the State Tax 11 Notes in May 2009? 12 ( A It certainly looks to be, yes. 13 Q And is that the report that has 14 formed the basis of your report in this case, 15 Exhibit 95? 16 A Yes. 17 Q In preparing Exhibit 95, did you, 18 in essence, extract data specific to Colorado from 19 your 2009 report? 20 A 21 22 23 Yes, plus describe a general methodology. Q In preparing Exhibit 95, did you do anything to update your work from 2009? 24 A 25 exception to that. NO. Well, let me -- let me make an I did, however, go back and Truesdel I< Rusk 15 ( 1 compare estimates that were included in the 2009 2 report with data that are currently available from 3 the U.S. Department of Census. 4 that. Q 5 Okay. I do remember adding Other than that update with 6 regard to a comparison to census data or data 7 available from the U.S. Census Bureau, anything else 8 to update it? A 9 I don't think. And then the data 10 for Colorado that are used in my current report did 11 come, for Colorado, did come from this 2009 report. 12 ( 13 Q How many hours did you spend preparing Exhibit 95? 14 A Well -- 15 Q The report in this case. 16 A Yeah. What I have spent is 15 17 hours on the case in total. 18 the report, gathering documents for you and for the 19 Attorney General's Office, you know, getting my 20 resume prepared and so forth. 21 Q okay. That includes preparing Are you able to isolate from 22 the 15 hours how much time was spent preparing the 23 actual report? A 24 l 25 I didn't keep my time in that fashion. Truesdel & Rusk 20 ( 1 A NO. 2 Q Can you tell me what you discussed? 3 A I would describe it as general 4 advice for me in terms of the deposition, things 5 like make sure to answer the questions that you ask, 6 that sort of general advice. 7 any -- any noticeable conversation about the 8 substance of the report itself. 9 Q Okay. I don't remember Did you talk about any other 10 issues not contained in your report that -- related 11 to sales and use tax? A 12 ( You know, let me admit that I'm a 13 person who doesn't remember telephone conversations 14 all that well, and we did have conversations, I'm 15 not sure I'll be able to give you any specifics, it 16 wasn't that long of an overall telephone call, but 17 about some other kinds of questions that might be 18 posed. 19 But, you know, just that, just a 20 couple of examples of the kinds of questions that 21 might be posed. 22 23 24 25 Q What other kinds of questions did you talk about? A That's what I'm trying to remember and -- you know, one issue I remember us talking Truesdel & Rusk 21 ( 1 about was, you know, the best approach to dealing 2 with states' difficulties in collecting sales and 3 use taxes on remote commerce. 4 literally the only example that occurs to me. 5 Q That's actually What do you mean by dealing with 6 states difficulties in collecting remote -- taxes on 7 remote sales? 8 9 A My view is that states and local governments need to be able to effectively 10 administer the sales and use tax on all sales to 11 their residents and businesses, and the Colorado 12 statute is one approach to -- to dealing with that 13 14 Q Did you communicate about any other 15 16 Come back to that in a moment. subjects that you can remember? 17 A Nothing else that I 18 Q Did you communicate bye-mail in 19 remember. preparation for this deposition? 20 A No. 21 Q How much time did you spend 22 preparing in total? 23 For the deposition itself? 24 L A Q Yes, for the deposition. 25 A About two hours including reading Truesdel & Rusk 29 ( 1 business that did not market to Colorado, for 2 example, or a particular state; in other words, 3 there's no reason not to market to a state, per se? 4 A It just would depend -MS. SNYDER: 5 Objection to the form. 6 Q You can go ahead. 7 A It would depend on what they're 8 selling, I think, as to whether or not Colorado 9 would be a target for a particular thing or not. 10 11 Q But an internet seller, and you've analyzed e-commerce, correct? 12 A Yes. 13 Q So you're actually talking about 14 internet sellers. 15 are available essentially indiscriminately over the 16 united states to those who have access to the 17 internet? 18 A Yes. 19 Q For purposes of allocating income Internet sellers, their websites 20 21 have allocated the e-commerce sales based, as I 22 understand it, on -- well, tell me and I'll see if I 23 can find it in the report. 24 ~ .... or allocating sales, rather, for your report, you total state and local tax revenues? 25 A Based on their share of That's correct. Truesdel r. Rusk 30 ( 1 Q And this allocated about 2 1.7 percent of the national e-commerce sales in each 3 category to Colorado, is that correct? 4 A Yes, that is correct. 5 Q So if we were using that measure, 6 1.7 percent, we could take a firm's national sales 7 and we could apply 1.7 percent to get an estimate of 8 its Colorado sales? A 9 Well, let me re-emphasize, that 10 we're in no way trying to apply this to individual 11 firms 12 Q 13 A Correct. so what one can do in an 14 aggregate sense and is meaningful is very different 15 from what makes sense to apply to a particular 16 business. 17 about here. 18 Q That's the part that I am being hesitant Okay. But over the run of 19 businesses in the united states, you've done this to 20 apply it to sales of e-commerce nationally -- 21 A Yes. 22 Q -- and you've used that percentage 23 to -- that 1.7 percent against national e-commerce 24 sales? 25 A That's correct. Truesdel & Rusk 31 ( Q 1 So over the run of businesses 2 dealing in e-commerce, you've viewed it as being a 3 reasonable measure to apply about 1.7 percent of 4 those sales to Colorado? 5 A We do. 6 Q Page 2 of your report, Exhibit 95, 7 under the heading Estimated Sales and Use Tax Losses 8 for Colorado, you provide certain estimates, is that 9 correct? 10 A Yes. 11 Q And to be more specific, why don't 12 ( you tell me what those estimates are listed there in 13 the first line of that section? 14 A The estimates are the dollar amount 15 that we believe will go uncollected in Colorado in 16 2010, 2011, and 2012 because of the state's 17 inability to fully collect the sales and use taxes 18 due on e-commerce sales. 19 Q okay. And what you're measuring 20 there is the loss on all e-commerce sales delivered 21 into Colorado? 22 A That's correct. 23 Q And I think as you note on the same 24 page in the prior paragraph, these are almost 25 exclusively use taxes, not sales taxes? Truesdel & Rusk 32 1 A Yes. 2 Q When you say almost exclusively, 3 4 what percentage are we talking about? A Yeah, I mean it's very high. It's 5 hard for me to come up with examples when it would 6 not have been a use tax situation that's involved, 7 but I'm not saying it's impossible, it's just -- all 8 the examples that I think of would be use tax. 9 10 Q Now, if you look at your April 2009 report, Exhibit 96, Page 4 of that report 11 A Okay. 12 Q -- talking about national findings, 13 you indicate there at the top of Page 4, and tell me 14 if I read these right: 15 "These losses are equal to what 16 states would collect if they could achieve 17 100 percent compliance on the sales and use 18 taxes due on e-commerce sales, and arise 19 because states are unable to enforce 20 collection, particularly because of 21 limitations such as those imposed by Quill 22 v. North Dakota. " Did I read that right? 23 24 A You did. 25 Q And is that same statement Truesdel « Rusk 33 ( 1 applicable to the estimates you have here in Exhibit 2 95 with regard to Colorado? 3 A Yes. 4 Q So these are amounts that could be 5 collected if Quill v. North Dakota were overturned 6 by the Supreme Court or by federal legislation 7 enacted by Congress, is that correct? 8 9 10 A And if there was 100 percent compliance. Q So Quill would need to be 11 12 Court, 100 percent compliance. 13 that, I think you note in your 2009 report that it 14 ( overturned by the legislation or by the Supreme presumes there's no small seller exception? Is it also true 15 A That is true. 16 Q Okay. 17 A If it were federal legislation, it 18 would depend on the characteristics of that 19 particular federal legislation. 20 Q And, in fact, isn't it true that 21 22 advocates of federal legislation seeking to overturn 23 Quill as a -- in support of their efforts to 24 l your longer report from 2009 has been cited by convince Congress to enact such legislation? 25 A At least they've used the numbers Truesdel « Rusk 38 ( 2 So you have year by year and then Q 1 the far right column is an average of those years. Do you see that with regard to 3 4 both, assuming a small business exception and then 5 assuming there is no small business exception, that 6 Eisenach and Litan conclude that the average 7 uncollected use tax on e-commerce is something less 8 than half of your estimate? . 9 A I do see that. 10 Q Now, are you aware that there are 11 12 ( others besides Eisenach and Litan, who have also opined that your estimates might be too high? am. 13 A I 14 Q We'll mark as the next document 15 this Exhibit 98, which I have handed you and, 16 Melanie, 17 document entitled "Setting The Record Straight: 18 Modest Effect of E-commerce on State and Local Sales 19 Tax Collections," prepared by Peter A. Johnson, 20 Ph.D., and this dated July 31, 2008. I'll read it carefully for you, it's a (Exhibit NO. 98 marked) 21 22 The Q Now, among the folks who have 23 offered counter-estimates is, in fact, 24 Marketing Association, is that correct? 25 A the Direct That was my understanding, right. Truesdel & Rusk 39 ( 1 2 But I was not familiar with this report. Q Okay. Professor Johnson is, as 3 identified here, is a senior economist with the 4 Direct Marketing Association. 5 A Okay. 6 Q Were you aware that Professor 7 8 9 Johnson had prepared a report? A I was not. I was aware that Direct Marketing Association, in my memory, had done one 10 some years before, 11 Q I was not aware of this study. Okay. Several years before in 12 connection with federal legislation that had been 13 pending before congress at the time? 14 A Well, back in the early 2000's when 15 our first report was put out, my remembrance is that 16 the Direct Marketing Association had a response at 17 that time. 18 Q Okay. And if you look at this 19 document, Exhibit 98, turn to Page 8, if you would, 20 and you'll see that on Page 8 there is a Table 5 21 that is entitled "Total unremitted Tax on E-commerce 22 Sales in Billions," and it gives a listing by year 23 for 2005 through 2008. Do you see that? 24 A I do. 25 Q And the total uncollected tax Truesdel & Rusk 40 1 identified in Professor Johnson's report for 2008 is 2 ( estimated to be 5.4 billion? 3 A Yes. 4 Q And in your report, Exhibit 96, at 5 Page 7, so your 2009 report, which is Exhibit 96, if 6 you turn to Page 7? 7 A Yeah. 8 Q Your estimate for 2008 with 9 baseline as opposed to optimistic was 7,726,000,000? 10 That's correct. 11 Q So -- 12 A I'm sorry, seven billion, seven 14 Q Twenty-six? 15 ( A A Sorry, sorry, you're right, you're Q So Johnson's estimate is about 13 16 17 18 hundred right. 30 percent less than your estimate for 2008? 19 A That sounds about right, yes. 20 Q with regard to your report, Exhibit 21 22 cited in your report to support your conclusions 23 regarding the level of uncollected sales and use tax 24 ( 95, you've relied on various sources of information in Colorado as set forth in the report? 25 A That's correct. Truesdel " Rusk 41 ( 1 Q And those sources, many of them are 2 cited also in the 2009 report regarding the 3 nationwide picture? 4 A Yes. 5 Q Among those is a compliance stated 6 by the Washington Department of Revenue? 7 A That's correct. 8 Q Do you recall that? 9 A Yes. 10 Q And so, for example, I think it's 11 cited in two places, at least it's identified in 12 Footnote 3, I believe, first, on Page 3, and then 13 again in Footnote 12 on Page 5. 14 A Yes. 15 Q And for what principle or point did 16 you rely upon the Washington Department of Revenue 17 study? 18 A One aspect of the study is -- of 19 our study, is to be able to anticipate what level of 20 compliance is anticipated both with use tax by 21 vendors when they comply and by use tax when 22 individuals or businesses comply. 23 study provides estimates of that. 24 25 Q The Washington The Washington study is a business compliance, yes? Truesdel " Rusk 42 1 A Yes. 2 Q So it's a B to B sales -- and it's 3 use tax compliance as well as sales tax compliance? 4 A In fact, all taxes. 5 Q Okay, by Washington businesses. So -- and the report that you 6 7 relied upon indicates it was from 2008? 8 A That's correct. 9 Q Okay. So looking at your report at 10 11 approximately 25 percent noncompliance with 12 ( Page 3, I believe you indicate that there is e-commerce sales for use tax, is that -- do I have 13 that right? 14 What is the level of, based on the 15 washington report, the level of noncompliance with 16 use tax for businesses? 17 A Right. I want to be clear, the 18 numbers in this paragraph that you're referring to 19 on Page 3 did not derive directly and solely from 20 the washington study. 21 compliance rate, I'm being approximate now, from the 22 washington study in our calculations. 23 We do use the 75 percent It just so happens that it's also 24 l true that when you work through all of our 25 calculations, you end out with about 75 percent Truesdel & Rusk I 43 ( 1 compliance overall with e-commerce and that's what's 2 being reported in the paragraph that you're 3 referring to. 4 So when you say overall compliance, Q 5 it's by businesses with regard to reporting use tax 6 on e-commerce? 7 A And by individuals. And so what we 8 have is both. What's going on in our calculations 9 here is, first of all, allowing for the possibility 10 that there is sales tax compliance by firms that 11 either have nexus or agree to voluntarily comply 12 with the tax. 13 is for those transactions where vendor compliance 14 did not take place, we then allow for use tax 15 compliance. 16 for both B to Band B to C transactions. 17 Q And then -- and then a second level And so we're doing that at both levels Okay. And that's what you're 18 saying is in the paragraph on Page 3 that we're 19 looking at? 20 21 22 23 A That's right, is an aggregate of all of our analysis that's in that paragraph. Q But if I want to focus for a moment on the use tax compliance by businesses 24 A Yes. 25 Q -- is that a -- is that number Truesdel & Rusk 44 ( 1 derived from the Washington study? 2 3 4 A Yes, it's taken from the Washington Q Okay. study. And there's -- with regard 5 to business compliance with regard to sales tax, it 6 appears that you indicate that it's about a 7 1.7 percent noncompliance rate by businesses in the 8 washington study with regard to sales tax? 9 A That's correct. 10 Q And just to be clear, those are 11 12 ( businesses registered in the state of Washington? A That's correct. The washington 13 study, in fact, underestimates noncompliance because 14 it only includes registered vendors. 15 Q Obviously, the problem that you 16 have attempted to describe in your report, if the 17 1.7 percent were the national compliance rate on 18 sales taxes, it wouldn't be nearly the same issue. I mean, in other words, the 19 20 1.7 percent, that would indicate 98.3 percent by all 21 firms nationwide and that's not what we're talking 22 about here, this is washington registered 23 businesses? 24 25 A Right. MS. SNYDER: Objection to the form. Truesdel & Rusk 45 ( MR. SCHAEFER: 1 Fair enough. 2 Q Go ahead if you understood it. 3 A I mean, this does refer 4 specifically the 1.7 percent refers specifically 5 to compliance in the state of Washington by 6 registered vendors. 7 nonregistered vendors that might, 8 nexus under current constitutional rulings in the 9 state, but aren't choosing to comply with the law. It does not include in fact, have 10 Q Right. 11 A And I can give you a variety of 12 13 happening. 14 tax estimates as lower bounds of what the reality is 15 ( examples of why that and how that might be in the state of washington. Q 16 And so we view both the sales and use At the risk of getting way too in fact, the firm 17 sales and use tax wonky, the 18 that may have nexus, but isn't registered, their 19 liability may actually be for use tax and, in fact, 20 it may be a use tax they should be collecting 21 because they may not be -A 22 It could be, but it doesn't need to 23 24 l be. You could envision a situation along the Washington border where you have oregon with no 25 sales tax and washington with a sales tax, and you Truesdel & Rusk 46 ( 1 could envision a situation, in fact, accountants 2 tell me this absolutely happens with great degree of 3 regularity where firms driving from oregon into 4 washington, thereby almost surely establishing S nexus, engaging in selling their product, driving 6 back to Oregon and delivering it by common carrier 7 from washington -- from Oregon and saying we have no 8 sales tax liability and not registering, that's a 9 use tax problems. 10 Sorry, sorry, that's a sales tax problem. They're in Washington, they have 11 12 ( physical presence in Washington, it's a transaction 13 in Washington, might even be drop-shipped into 14 washington, and so you know it could be either one, 1S just depends on the specifics of the situation. Q 16 17 That did get too sales and use tax wonky. You applied the rates, though, the 18 19 washington rates with regard to -- of compliance 20 rates from the washington DOR study with regard to 21 the estimates for Colorado? 22 A That's correct. 23 Q Now, it's true, is it not, that use 24 2S tax compliance rates, in fact, vary state to state? A They will. Truesde1 & Rusk 47 1 2 3 Q Is there a reason that you've used the washington study? A Yes, because washington -- and let 4 me note here, there have been a series of these 5 washington studies. 6 one for this particular analysis, but we have relied 7 on earlier ones for other estimates that we did. 8 9 We relied on the most recent And the results in them are very consistent, very, very little deviation in terms of 10 their compliance rates. And so it's a consistent 11 set of studies from the state of washington. 12 ( Q Okay. 13 A And to our knowledge, they are the 14 best estimates of sales and use tax compliance that 15 are available for U.S. states. 16 Q Okay. When you said they are 17 consistent, you meant within Washington study to 18 washington study, they are consistent? 19 A I did mean that, yes. 20 Q If the Colorado experience differ 21 in some respects in terms of compliance, that would 22 change your estimates. 23 information for Colorado, if it were available, as 24 you say, it would change the estimates with regard 25 to Colorado? If you had correct Truesde1 & Rusk 48 A 1 2 It could either decrease or increase the revenue implications for Colorado. But you think the Washington study Q 3 4 is a reliable one and a good basis for estimating 5 compliance in other states, including Colorado? 6 A Yes. 7 Q Now, you mentioned they have data, 8 are you aware that the Washington DOR, in fact, 9 updated its study in August of 2010? A I have not gone out and looked at 12 Q okay. 13 A Thank you for letting me know. 14 Q Your report, of course, continues 10 11 ( 15 it. to rely on the 2008 study? 17 Well, because we didn't redo the A 16 report, yes. I'm going to mark a copy of that Q 18 19 2010 Washington DOR compliance study as the next 20 exhibit, I think as Exhibit 99. 21 22 (Exhibit NO. 99 marked) Q So handing you a copy of Exhibit 23 24 l 99, which is a document entitled Department of Revenue Compliance Study, it's on State of 25 washington Department of Revenue letterhead, Truesdel & Rusk 49 ( 1 indicates that it was prepared -- dated August 20th 2 of 2010. 3 4 Does this look similar in format to the other studies from Washington that you recall? 5 A It does. 6 Q And if you look at Page 2, there's 7 a chart on Page 2, which in fact compares the 2008 8 compliance study that you've relied upon to the 2010 9 compliance study. 10 A I do. 11 Q So looking at first a use tax, it Do you see that? 12 ( indicates that the rate of noncompliance for 2010 is 13 estimated to be 23 percent as opposed to the 14 25.5 percent from 2008? 15 A Yes, that's correct. 16 Q Okay. Now, if you use this new 17 rate, this new 23 percent rate instead of 25.5, that 18 would reduce somewhat your estimates of uncollected 19 tax, would it not? 20 A If I were going to redo the study, 21 I would of course redo all of the numbers, I 22 wouldn't just pick one number and make a change. 23 would use -- if I were to redo my 2009 study, I 24 would use this 23 percent use tax compliance, but I 25 also would make a lot of other changes, including Truesdel & Rusk I 50 ( 1 the fact that our estimates of e-commerce are much 2 lower than the reality that we've seen in the 3 meantime. 4 Q I'm trying to isolate the effect of 5 this change, that this particular updated report 6 would indicate that there is a lower level of 7 noncompliance, at least according to the washington 8 Department of Revenue, than you had estimated for 9 your 2009 report? 10 11 12 ( 13 A Than what we used in the earlier report, that's correct. Q And than used in your Exhibit 95, your report in this case? 14 A That's correct. 15 Q And in looking at the sales tax 16 line immediately above it, that indicates that 17 noncompliance with the sales tax, again by 18 washington registered businesses, is now one percent 19 estimated for 2010 as compared to the 1.7 percent 20 estimated for 2008? 21 A That's correct. 22 Q And so similarly, just isolating 23 that effect, that would have the effect of reducing 24 estimated levels of uncollected or unreported tax 25 all other things being equal? Truesdel & Rusk 51 ( 1 2 A All other things being equal, but they are not equal, I have to re-emphasize. Q 3 So in terms of just that effect, 4 the effect of that change, of that indication that 5 there is a somewhat higher compliance rate, lower 6 noncompliance rate for the sales tax with regard to 7 registered businesses, that would tend to reduce the 8 estimates of uncollected tax. A 9 10 Holding everything else equal, that's not equal, that's correct. Q 11 In your report, Exhibit 95, you 12 ( also relied upon a university of Maryland study, 13 which I believe is cited in Footnote 11 -- 14 A Yes. 15 Q -- Page 5. 16 A Yes. 17 Q And this is a study from a group of 18 academics at the university of Maryland, is that 19 correct? 20 A Yes. 21 Q So I'm going to mark a copy of 22 that, which is among the documents that you produced 23 or that the Attorney General's Office produced in 24 connection with your report, and mark that as 25 Exhibit 100. Truesdel & Rusk 52 ( (Exhibit No. 100 marked) 1 2 Q So I'm handing you Exhibit 100, 3 which is a document Bates stamped -- and when I say 4 Bates stamped, Professor Fox, maybe you're familiar 5 with it from other cases, maybe you're not, the 6 Bates numbers is the lower right-hand number that 7 attorneys in litigation assign so that they can keep 8 track of documents by a more simplified numbering 9 system rather than having to do something else, so 10 11 stamped WFOOOl77 through WF000184. 12 ( we know what we're looking at. This one's Bates is entitled "The Tail is Longer Than You Think: 13 Surprisingly Large Extent of Online Sales by Small 14 Volume Sellers." And the document The The authors are Joe Bailey, 15 16 B-A-I-L-E-Y, and a series of other individuals 17 identified as being associated with the Robert H. 18 Smith School of Business at the university of 19 Maryland, and the report is dated May 12, 2008, 20 marked draft. 21 22 Is this the document that you cite in your report, Exhibit 95? 23 A It is. 24 Q Now, you state on Page 5 of your 25 report, Exhibit 95, our survey -- excuse me, strike Truesde1 " Rusk 53 1 that. Looking at the sentence to which 2 3 the Footnote 11 is attached: "Vendor compliance 4 relies on a survey of large internet vendors and the 5 Maryland Long Tail study." 6 A Yes. 7 Q This document, Exhibit 100, is the 8 Maryland Long Tail Study? 9 A That's correct. 10 Q To make sure that I'm not missing 11 something, can you show me where in Exhibit 100, the 12 Maryland Long Tail Study, the authors of that study 13 analyze vendor compliance with sales and use tax? 14 A Well, they don't. 15 Q Oh, okay. 16 A I think that wasn't exactly what it 17 said. 18 upon that study, but we don't use compliance numbers 19 from that study. 20 21 It said that our vendor compliance relies Q Okay, so you're not relying on the study for rates of compliance? 22 A That's right. 23 Q What are you relying upon the 24 25 Maryland Long Tail Study for? A For a distribution of the size of Truesdel & Rusk 54 ( 1 e-commerce vendors. 2 Q So, help me out with what you mean 3 by the distribution of the size of e-commerce 4 vendors? A 5 6 There are a relatively small number of large, as measured by volume, e-commerce vendors. 7 Q Volume of sales? 8 A Volume of sales. 9 There are a huge number of small vendors as measured by volume of 10 sales, and that is -- that information is drawn from 11 this report. Q 12 13 okay. I believe that you also cite the Long Tail Study in your 2009 report, Exhibit 96. 14 A I'm sure we do. 15 Q And if you'll get that document, 16 I'll find the reference I'm looking for. Marked as 17 an exhibit, the one that has some highlighting in 18 it, which is fine with me. A Page 5, is that what you're looking 21 Q It could be. 22 A Second paragraph. 23 Q Thank you. 19 20 24 l, 25 for? So in the second paragraph on Page 20 of Exhibit 96, there is a similar statement you Truesdel & Rusk 55 . 1 make: 2 the results from the Maryland Long Tail study." "The vendor tax compliance was informed using 3 And then it goes on to say: 4 "The study evidences that 5 6 large vendors, 20 percent by medium size 7 vendors that generally maintain their own 8 website and have annual gross receipts 9 between $1 million and $10 million, and 10 43 percent by vendors that operate on a 11 platform other than their own and have sales 12 ( 37 percent of e-commerce is conducted by under $1 million." Did I read that right? 13 14 A Yes. 15 Q And is that the principle on which 16 you -- for which you rely on the Maryland Long Tail 17 Study? 18 A Yes. 19 Q So, in other words, you're using it 20 to determine relative amounts of electronic commerce 21 conducted within those three segments of businesses? 22 23 24 ( 25 A Yes. I mean, that is -- we do use the information the way you just described it, yes. Q So the three groups are over ten million in annual sales, gross receipts or sales Truesdel " Rusk 56 1 between one and ten million, and gross receipts 2 under one million? 3 A Yes. 4 ( Q Okay. Now, the study is marked 5 draft, but do you consider the study, the Maryland 6 Long Tail Study, 7 in its estimate of the amount of e-commerce sales in 8 each of those groups that I just listed? A 9 to be a reliable -- to be reliable Well, you know, at the time I read 10 11 by people, who had, you know, worked a lot on 12 ( it, the methodology seemed reasonable and was done internet-based issues and so we did accept that as a 13 reasonable estimate, yes. Q 14 15 Okay. And you relied on it in your report that's marked as Exhibit 95 in this case? 16 A Yes. 17 Q So you continue to think it's 18 reasonable, at least as of preparing that report? 19 A Yes. 20 Q And I assume as you're sitting here 22 A Yes. 23 Q And what the Maryland Long Tail 21 now? 24 l Study shows is there is a significant amount of 25 electronic commerce that is conducted by firms with Truesdel & Rusk 57 ( 1 sales under $1,000,000? 2 A Yes. 3 Q By your calculation from the study, 4 43 percent, in fact, of e-commerce is conducted by 5 firms with sales under one million? 6 A From their calculations, yes. 7 Q From the Maryland Long Tail study. 8 A Yes. 9 Q Now -- and you've used that number 10 11 million in preparing your 2009 report and in 12 ( yourself, that estimate of 43 percent of below one connection with your report in this case? 13 A That's correct. 14 Q Now, on Page 20 of your report from 15 2009, you also indicate at the end of that same 16 paragraph that you assume that small vendors only 17 comply part of the time, even within their home 18 states, you assume a one percent compliance? 19 A Yes. 20 Q So in addition to there being a 21 22 one million, total e-commerce sales being something 23 like 43 percent of all e-commerce sales made by 24 l fairly high volume of sales among that segment under firms under a million, those same firms also exhibit 25 low compliance? . Truesde1 « Rusk 58 ( 1 A That's correct. 2 Q Now, so am I correct then, given 3 the high volume of sales among sellers under a 4 million in the aggregate, and their low levels of 5 compliance, that exempting small sellers from the 6 obligation to report sales and use tax will 7 significantly reduce the estimates of uncollected 8 tax that can be obtained? Well, it doesn't reduce the 9 10 estimates. 11 seller's exception, which said they don't have to 12 ( A comply and they don't have to pay tax, then you'll 13 reduce what you get from a more -- a broader 14 requirement to collect the tax. 15 It does, however, if you had a small Q Okay, that's better stated. 16 So, were you to institute, either 17 an overturning of Quill or some other program that 18 would require the collection of sales and use tax on 19 e-commerce sales by businesses regardless of their 20 nexus, but except from that, those small sellers, it 21 would reduce -MS. SNYDER: 22 Object to the form. 23 And, Matt, you're starting to cut out toward 24 the end. 25 MR. SCHAEFER: Okay, I think the Truesdel & Rusk 59 ( 1 reason it sounds like I cut out is because 2 I'm trying to form the question. 3 fact, So -- in I hadn't finished my question. 4 MS. SNYDER: Okay, I apologize. It 5 just got very quiet and I could hear a 6 little bit of noise, I couldn't tell if you 7 were still talking or not. MR. SCHAEFER: 8 9 Yeah. I think what you are probably hearing is the typing or 10 fan noise or something, but let me try 11 again. 12 ( BY MR. SCHAEFER: Q 13 Dr. Fox, I think you clarified to 14 say essentially that you will -- were you to 15 institute a program requiring the collection of 16 sales and use tax on e-commerce sales, however that 17 might occur, through an overturning of Quill or 18 otherwise, but except from that requirement, small 19 sellers, under a million dollars, it would reduce 20 significantly the amount of additional tax you could 21 collect? 22 23 24 l 25 A Based on the numbers I've seen, yes, it would. Q And I think you indicate that elsewhere in your 2009 study, perhaps in a slightly Truesdel & Rusk 60 ( 1 different context, but if you look at Pages 13 and 2 14, you have a section in your 2009 study about 3 small seller exceptions or de minimis exceptions. 4 At the bottom of Page 13 you say, 5 for example, the last paragraph in the middle of 6 Page 13: 7 "This means, for example, that the 8 price tag for a $1 million small vendor 9 exception is 30 percent as large as our 10 estimate of losses in 2012." 11 Did I read that correctly? 12 ( A You did. 13 Q okay. Now, why, if sellers under a 14 million dollars account for 43 percent of all 15 e-commerce sales and have a very low compliance 16 rate, do you estimate a small seller exception set 17 at a million dollars will result in only a 18 30 percent reduction in uncollected tax? 19 A Well, remember in every case here, 20 we have two levels of compliance that are going on. 21 The first level is compliance by the vendor, and the 22 discussion that we've been having about these small 23 firms refers only to small vendor compliance. 24 25 Then there's this second level of compliance, which is compliance by the buyer. Truesde1 I< Rusk And 61 ( 1 in the case of businesses, we're using about 2 75 percent compliance. 3 complicated function of what happens at that first 4 stage, does the vendor collect it, and then for 5 those sales which the vendor doesn't collect, what 6 kind of compliance do we get by the buyer. 7 steps are going into the calculation and that's why 8 it's not this simple arithmetic that you're looking 9 for here. So our calculations are a Both Plus, we actually assume a higher 10 11 12 ( share of vendor compliance for B to B sales than we do for B to C sales. 13 referring to from later in my text there on, like 14 around Page 20, is mostly referring to B to C sales. Q 15 In the part that you're So the 43 percent estimate is all 16 sales 43 percent of all e-commerce at that level 17 of under a million dollars for the amount of 18 sales -- strike that. The 43 percent of e-commerce, total 19 20 e-commerce sales represented by sales of firms 21 having sales less than a million is both B to Band 22 B to C? 23 24 25 A Yeah, that's my understanding from their study. Q Now, on the top of Page 14, you Truesdel & Rusk 62 ( 1 provide a table showing the small vendor exception 2 at different levels of sales for the small vendor? 3 A That's correct. 4 Q And your levels of sales are below 5 500,000, below 1,000,000 and below 5,000,000? 6 A That's correct. 7 Q And you have calculated the impact 8 on taxes that are available to be collected based on 9 each of those thresholds of small seller exception? 10 A That's right. 11 Q And at a $5 million small vendor 12 13 reduction in your estimate of uncollected tax, 14 ( exception causes, not surprisingly, an even larger correct? 15 A That's correct. 16 Q And the percentage, instead of the 17 30 percent you mentioned on the prior page, is 18 something more like 36.85 percent? 19 A It looks like you've calculated 20 that on the copy I'm looking at, so I'll accept that 21 as correct. 22 Q And just so you'll know, what I've 23 24 l done for 2010 was to take your number from your chart, the Table 8 on Page 14, of 3,177,000,000 and 25 divide it by your estimate from Page 7, baseline Truesdel & Rusk 63 1 estimate from Page 7 of total estimated state and 2 ( local revenue loss. 3 A Yes. 4 Q And so I did the math correctly 6 A It looks like you did. 7 Q I picked the right numbers? 8 A Yes, I think so. 9 Q The correct numbers for 2010. 5 there? 10 So the impact of that $5 million 11 12 ( small vendor exception would be about a 36.85 percent reduction in available uncollected 13 tax? 14 A It would be large. 15 Q You don't have an issue with my A It looks correct. 16 17 18 19 math. I didn't check it, but it looked like you got the right numbers. Q Now, would a small seller exception 20 that was set even higher than five million, say at 21 six million, reduce your estimates of uncollected 22 tax available to the states even more? 23 A Let me re-emphasize, it's not 24 changing our estimates of uncollected tax, it's 25 changing the estimate of what you might expect to Truesdel &0 Rusk 64 ( 1 collect if you required remote vendors of a 2 particular size to collect at the vendor level. Q 3 Yes. But if we except those 4 sellers from the obligation to collect, in effect, 5 the tax -- well, fair enough. 6 further, 7 above five million, it would reduce further the tax 8 available to be collected by the states? 10 if we raised the small seller exception A 9 It would reduce The tax that we would expect states to actually be able to collect. 11 Okay. 12 ( Q A Not the amount that is owed. 13 Q NO. 14 A That's unaffected by these kinds of 15 assumptions. Q 16 Right, and I used available and 17 I'll accept your word of able to be collected, 18 that's fine. But you haven't estimated any 19 20 higher thresholds than five million for a small 21 seller exception? 22 A We have not. 23 Q Okay, you haven't estimated six A No. 24 25 million? . Truesdel & Rusk 65 ( 1 Q Or 6.25 million? 2 A Nothing higher than five million. 3 To my remembrance at least, I don't remember us 4 doing anything. 5 calculated as I remember. Q 6 7 There's certainly nothing reported in Exhibit 96 above five million. A 8 9 We reported only the numbers we And I did no work associated with the small seller exception, per se, on the work for 10 Colorado. 11 Q Now, are you familiar from your 12 ( work generally in the field with efforts by states 13 to improve use tax reporting and compliance by 14 consumers and businesses? A 15 I think they're continuing I'm not a person, who works 16 regularly to do that. 17 on administrative issues, per se, but that's 18 certainly my sense, that states are trying to do 19 that. Q 21 22 Are you aware of those kinds of A 20 Well, I mean the one that I'm efforts? 23 obviously aware of is the efforts by states to 24 include a line on their income tax return, which 25 about 20 states do, that give people an opportunity Truesdel & Rusk 66 ( 1 to report. The numbers that I have seen over the 2 years suggest very little compliance with that. 3 I think states are continuing to 4 try to improve their auditing techniques, which are 5 applied essentially only to businesses, but the odds 6 again remain very infrequent and of modest success 7 as best I can see. 8 Q 9 So you've identified inclusion of a use tax line on the individual tax return and audit. 10 11 states to improve use tax compliance and reporting 12 ( Are there any other efforts that you're aware of by by consumers? 13 14 15 A Those are the ones that occur to me off the top of my head. Q Have you worked with any states or 16 state departments of revenue in developing consumer 17 compliance initiatives for the use tax? 18 A No. 19 Q And are you aware of any other 20 initiatives with regard to business compliance with 21 the use tax that states or state departments of 22 revenue have undertaken? 23 A Nothing occurs to me. 24 Q And have you advised any states ( '-~.-- . 25 with regard to such initiatives for business tax for Truesdel & Rusk 67 ( 1 use tax compliance by businesses? 2 A No. 3 Q Now, you mentioned the use tax line 4 on the income tax return as one of those measures. 5 And you estimated about 20 states have such a line? A 6 There was a study at one point that 7 was available on the FTA website. My remembrance, S though this might be incorrect, is that it was 9 written by a person from the Minnesota Department of 10 11 states. 12 ( Revenue research staff and it had a listing of such there were over 20 on that list. 13 14 15 16 17 And my remembrance at the time was that Q DO you know if Colorado is one of those states? A I think Colorado is not one of those states. Q Is not. I'm going to mark as the next 1S 19 exhibit, which is Exhibit 101, a document entitled 20 "Use Tax Collection on Income Tax Returns in Other 21 States" from the Research Department of the 22 Minnesota House of Representatives. 23 was updated June 2010. 24 l. 25 This one is Is this the Minnesota report you just referred to? Truesde1 « Rusk 68 (Exhibit No. 101 marked) 1 Except I'm talking about an earlier A 2 3 draft. This is one that I saw several years ago, 4 and so thank you for alerting me that this more 5 recent report is available now. So, in fact, it was updated in Q 6 Does it appear to be in the same sort of 7 2010. 8 format as you're aware of? 10 I think so. A 9 Generally it looks like what I have seen. Earlier you mentioned that you Q 11 12 13 use tax compliance efforts. 14 ( advised the legislature in Minnesota on sales and in the development of this report? Well, let me be a little more A 15 Did you have any role 16 precise about what I did. 17 issues in Minnesota, not tax administration issues, 18 which is generally what -- where my expertise lies. 19 And so I have not played any role whatsoever in this 20 report. 21 of it. 22 I testified on tax policy I was just familiar with an earlier draft Q Okay. And just to clarify the 23 24 ( number you mentioned earlier, you believed it to be about 20 states, if you look at Page 2 of this 25 report, the third full paragraph indicates that "23 Truesdel & Rusk 75 1 Minnesota's exclusion of clothing from the 2 sales tax base." 3 Q Do you see that, Dr. Fox? 4 A I do, yes. 5 Q Were you aware that Minnesota 6 exempted clothing from the sales tax? was. 7 A I 8 Q Do you know if Colorado exempts 9 clothing from the sale and use tax base? A 11 If Colorado does not, would you that. 12 ( I don't think so, but I don't know Q 10 13 agree with me that it would potentially have 14 higher 15 A Well -- 16 Q -- revenues than Minnesota subject A I'm sure there are many, many other 17 to-- 18 19 differences in their tax bases and so I wouldn't 20 just apply a Minnesota result to another state 21 without looking at the characteristics of that 22 state's tax structure and the breadth of its tax 23 base. 24 25 Q But what the Minnesota House of Representatives has done here is analyzed all the Truesdel « Rusk 85 MR. SCHAEFER: 1 2 back. 3 She can read it He said it was an issue he hadn't studied. THE WITNESS: 4 an opinion. 5 MS. SNYDER: 6 7 Okay. BY MR. SCHAEFER: Q 8 9 And I couldn't offer We've been talking about use tax compliance by individuals. with regard to use tax 10 11 that additional audit efforts was one area of 12 activity that states have engaged in to try and 13 increase use tax compliance by businesses, is that 14 ( compliance by businesses, I believe you indicated right? 15 A That's correct. 16 Q Now, am I correct that the 17 overwhelming portion of e-commerce is business to 18 business sales? 19 A Yes. 20 Q About what percentage of e-commerce 21 22 is business to business sales? A It's over 90. I think the most 23 24 l recent number I had seen was 93 percent, recognizing that we're approximate in the categorization here. 25 Q Okay. Now, am I also right that Truesde1 & Rusk 86 1 businesses tend to -- transactions between 2 businesses tend to less often be subject to sales 3 and use tax? 4 A Yes. 5 Q And I think you've already 6 testified today that there tends to be a higher rate 7 of compliance for a use tax among businesses than 8 consumers? 9 A That's correct. 10 Q So those two factors, it seems to 11 12 ( me, but you correct me if I'm wrong, would tend to reduce the relative share of unreported tax by 13 businesses below 93 percent? 14 A Yes, that's true. 15 Q Do you know about what portion of 16 17 unreported use tax is by businesses? A We don't report that in this study. 18 I believe in one of our earlier studies we had it 19 about 50/50 on a share basis, but we don't report 20 that in this study. 21 Q So if we took your estimate for 22 Colorado from Exhibit 95, your report in this case, 23 for 2010, 130 million, is it your opinion that it's 24 about 65 million attributable to noncompliance by 25 businesses and about 65 million attributable to Truesdel & Rusk r I 87 1 2 noncompliance by consumers? A Again, we didn't report that here 3 and didn't separately calculate the business to 4 business versus business to consumer share, so I 5 can't offer an opinion on that. 6 that it's a much lower share than the 93 percent 7 that's business to business. 8 9 Q But I sort of agree When you say you didn't calculate, you mean for the 2009 report you didn't do that? 10 A That's correct. 11 Q The prior versions of that 2009 12 ( study were 13 you first developed it in 2000, is that correct? 14 A That's correct. 15 Q okay. 17 A Yes. 18 Q And an update in 2004? 19 A That's correct. 20 Q Do you think it was in the 2004 16 21 22 And then there was an update in 2001? report where you had a rough estimate of SO/50? A I did not go back and read any of 23 those reports either in preparation for the 24 deposition or for this report, and that's just 25 my head, that's sort of what I remember, that's why Truesdel &. Rusk in 88 ( 1 I just -- I'm not sure at all what that number was. 2 But there have been big changes in 3 the relative distribution of e-commerce sales over 4 these years as well as we have better tuned 5 estimates on the tax ability in this latest report, 6 and that's why it's very hard to take a result from 7 an earlier study and apply it specifically to this 8 one. 9 Q Okay. Would it be possible to 10 11 noncompliance by businesses from the data that are 12 ( calculate an estimate of the share attributable to available in the report? 13 A No. 14 Q Okay. Just as an I want to make 15 sure what piece of information may be missing. I 16 think you said, and I think the report says it's 17 about 93 percent of all e-commerce is business to 18 business? 19 A Yes. 20 Q And we have a number for total 21 e-commerce dollars, right? 22 total dollars and apply the 93 percent to that to 23 try and figure out dollars of e-commerce sales to 24 business; is that a fair statement? 25 A So we could take the It is, but the categorization Truesdel & Rusk 89 ( 1 matters a lot here and, you know, we're using 2 Colorado's specific tax ability numbers, so the 3 averages don't apply to Colorado. 4 go in, you know, to the 51 categories of sales we've 5 used in this study, see what's taxable in Colorado 6 and apply it. 7 numbers even to get an average, much less for 8 Colorado because of the specific elements of 9 Colorado's tax structure that are included in this 10 11 We would need to You know, you can't use the aggregate analysis. Q Okay. Is it fair to say that a 12 ( substantial portion of the $130 million Colorado 13 estimate for 2010 is attributable to sales between 14 businesses? 15 A Yes. 16 Q Okay. MS. SNYDER: 17 Matt, I didn't hear 18 your question and if there was an answer, I 19 didn't hear it. MR. SCHAEFER: 20 21 22 rather than -(Whereupon, question and answer read back) MS. SNYDER: 23 24 25 The question was -- Thank you. BY MR. SCHAEFER: Q So just to make sure, because that Truesdel & Rusk 90 ( 1 sounds like I either misspoke or perhaps it was just 2 the read back, but is it fair to say that your 3 estimate of $130 million for Colorado for 2010, of 4 that 130 million a substantial portion is 5 attributable to noncompliance by businesses? 6 A Yes. 7 Q And you are aware that some states 8 have undertaken initiatives to try to improve the 9 compliance by businesses with the use tax? 10 Just generally aware of it, yes. 11 Q Do you have any states in mind? 12 ( A A No. 13 Q Okay. 14 Are you aware whether or not California has undertaken any such initiative? 15 A No. 16 Q We'll mark as the next document, 17 18 Exhibit 106 A Just to be clear on what I know and 19 don't know about this, Harley Duncan, who was the 20 former director of the Federation of Tax 21 Administrators, and I wrote a paper for one of the 22 Georgetown Law School symposiums five years ago, 23 four years ago, on issues associated with tax 24 collection. 25 information on various kinds of compliance In there, we did include some Truesdel « Rusk 96 ( 1 Q Would you agree with me that your 2 estimates in your report, Exhibit 95, made differing 3 assumptions than are dictated by the requirements of 4 House Bill 10-1193 with regard to uncollected -- the 5 prospects for -- strike that question. Under the Colorado law, the 6 7 Colorado Department of Revenue has instituted a de 8 minimis seller exception, have they not? 9 A Yes. 10 Q Do your estimates in Exhibit 95, 11 12 ( your report, take into account a de minimis seller exception? 13 A No. 14 Q Would you agree with me that how 15 much revenue Colorado realizes as a result of House 16 Bill 10-1193 and the regulations promulgated by the 17 Department of Revenue to implement it depend 18 directly upon the Department of Revenue's 19 enforcement practices with regard to the law? 20 A We haven't done -- or I haven't 21 done any study of this particular piece of 22 legislation and what its implications are. 23 Q Okay. But how much revenue that .24 ( the department -- that Colorado could realize would 25 depend directly, would it not, on the Department of Truesdel & Rusk 97 1 Revenue's enforcement practices? A 2 As a general statement, I would 3 agree with that. 4 particular legislation, it's not something I've 5 studied. 6 Q Again, as applied to this But, for example, you know that the 7 Bill itself does not require sales and use tax 8 reporting by firms located outside of Colorado; that 9 is House Bill 10-1193 does not require that 10 companies located outside of Colorado, without a 11 physical presence in the state, collect 12 Colorado's-- 13 MS. SNYDER: 14 couldn't hear your question. MR. SCHAEFER: 15 16 Q I'm sorry, Matt, I Sure. simply, Dr. Fox, you're aware, are 17 you not, that the law at issue in this case does not 18 require or even purport to require sellers located 19 outside of Colorado, having no physical presence in 20 the state, to collect Colorado sales and use tax? 21 22 A Yes, I'm aware of that. MS. SNYDER: Excuse me, can I have 23 the question read back and the answer, I 24 really just couldn't hear either. 25 (Whereupon, question and answer read back) Truesdel. " Rusk 98 ( 1 BY MR. SCHAEFER: 2 Q with regard to Colorado's sales and 3 use tax system, are you aware that there are a 4 number of home rule jurisdictions in Colorado that 5 are not administered by the Colorado Department of 6 Revenue? 7 A Yes, 8 Q And those home rule jurisdictions 9 10 11 I'm generally aware of that. in Colorado administer their own sales and use tax, local sales and use tax system? A I have never studied that, but 12 ( that's what I have been told, yes. 13 case in previous times I was told that. 14 Q Outside of this Your estimates for Colorado include 15 an estimate of tax collected by such home rule 16 jurisdictions, do they not? 17 18 A They do. MR. SCHAEFER: I'm going to take a 19 short break, I may be quite close to 20 finishing. 21 22 23 THE WITNESS: okay. (Recess from 12:21 p.m. to 12:26 p.m.) MR. SCHAEFER: Dr. Fox, I'd like to 24 thank you for your time, I don't have any 25 further questions for you. Truesdel & Rusk