Direct Marketing Association, The v. Huber

Filing 70

DESIGNATION OF DEPOSITION TESTIMONY Excerpts from the Transcript of the Deposition of Dieter G. Gable by Plaintiff Direct Marketing Association, The. (Schaefer, Matthew)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO

The Direct Marketing Association,

)
)
)

)
)
)

Plaintiff,
vs.
ROxy Huber, in her capacity as
Executive Director, Colorado
Department of Revenue,

Civil Action No:
10-CV 01546
REB-CBS

)
)
)
)
)
)

Defendant.
---------------------------------)

DEPOSITION OF DIETER GEORGE GABLE

Phoenix, Arizona
November 17, 2010

(Copy)

Prepared by:
Meri Coash, RMR, CRR
Realtime Reporter
Certified Reporter #50327

Coash & Coash, Inc. 602-258-1440

Dieter George Gable - November 17,2010
1

12

apologize for interrupting.

2

What is the business of Finance Law Center?

3

A.

HR sourcing.

4

Q.

Meaning that you place employees with --

5

A.

People.

6

Q.

-- with other companies?

7

A.

Yes.

8

Q.

You said "Law Center."

9
10
11
12
13

It there a particular

type of company for whom you place employees?
A.

For attorneys and in the area of experts for

mortgages, mortgage-related matters.
Q.

Okay.

The experts, though, they're intending to

be employed?

14

A.

Contract.

15

Q.

Contract.

16

A.

HR placement.

17

Q.

I see.

Okay.

So temp, sort of?

18

19

A.

Yes.

20

Q.

Okay.

21

All right.

Any other actively operating

LLCs?

22

A.

Next Step Advisors.

23

Q.

Okay.

24

A.

Yes.

25

Q.

And where is Next Step Advisors located?

LLC?

Co ash & Co ash, Inc. 602-258-1440

Dieter George Gable - November 17, 2010

1

A.

Nevada.

2

Q.

All right.

3

A.

2003.

4

Q.

You're currently a manager of that?

5

A.

Yes.

6

Q.

What is its business?

7

A.

That's how I run any consulting work for myself

8

primarily.

9

Q.

13

Operations in Arizona.
When was it founded?

Have you engaged --

Does Next Step

10

Advisors, LLC, have any part in your engagement in this

11

case?

12

A.

No.

13

Q.

SO what type of consulting,

14
15

then, would you be

managing for yourself through Next Step Advisors?
A.

Example would be work I did for the Colorado

16

lottery.

Essentially work outside of the scope of what I

17

would do as TB Consulting.

18

Q.

Do you have partners in TB Consulting or other --

19

A.

In TB Consulting?

20

Q.

Yes.

21

A.

Yes.

22

Q.

Okay.

23

A.

One.

24

Q.

How many other people are principals, if any, in

25

How many other folks are principals of --

AZ Merchant Partners?

Coash & Coash, Inc. 602-258-1440

14

Dieter George Gable - November 17, 2010

1

A.

One.

2

Q.

Is it the same person?

3

A.

No.

4

Q.

Who is it for TB?

5

A.

Marcus Sipolt, S-i-p-o-I-t.

6

Q.

And for AZ?

7

A.

Shannon, S-h-a-n-n-o-n, Bard, B-a-r-d.

8

Q.

All right.

9

Other than Finance Law Center and

Next Step Advisors, any other actively operating LLCs?

10

A.

I don't believe so.

11

Q.

Okay.

Now, you mentioned that there were some

12

that are not actively operating but may still be in

13

existence based on Arizona's treatment of LLCs.

14

inactive LLCs, are you currently a manager of any inactive

15

LLCs?

So

16

A.

Yes.

17

Q.

Okay.

18

A.

I don't even know the exact names of them.

Which ones?

19

would honestly have to look that up.

20

I

I can give you my

best approximation and my best list of them, but

21

Q.

Okay.

22

A.

I honestly was not prepared for this part of --

23
24
25

That's fine.

what you were looking for.
Q.

Okay.

Give me your best list.

That's all I can

ask for if that's the best you can do.

Coash & Coash, Inc. 602-258-1440

Dieter George Gable - November 17,2010

1

all the different variations of that.

2

IntelliChoice Home Services.

3

iteration of that.

4
5
6

There's also

There might be one more

I don't know.

I don't recall.

When you say "different iterations," does that

Q.

mean -A.

17

Are they dbas?
No.

Are they --

They are different --

IntelliChoice

7

Mortgage Services was the main one.

8

were meant to branch off, but those were never -- we never

9

did anything with them.

10
11

Q.

Okay.

And then other ones

When did IntelliChoice Mortgage

Services, LLC, come into existence?

When was it founded?

12

A.

2005.

13

Q.

And where was it located?

14

A.

Phoenix.

15

Q.

What was its business?

16

A.

Mortgage origination.

17

Q.

What does that mean exactly?

18

A.

So mortgage origination and loan modifications.

19

So mortgage origination for the vast majority of that

20

time.

21

get your financing, that's considered mortgage

22

origination.

23

whoever they broke red it out to, Wells Fargo or

24

Fannie Mac (sic) and so forth.

25

doing mortgage origination.

And that's --

When you go to a mortgage broker to

So the company was doing that on behalf of

Those are mortgage brokers

Co ash & Coash, Inc. 602-258-1440

Dieter George Gable - November 17, 2010

1

A.

I don't think so.

2

Q.

21

When did mortgage -- IntelliChoice Mortgage

3

Services, LLC, stop operating?

4

A.

2009.

5

Q.

Okay.

6

A.

It's a very long story.

And why did it discontinue its operations?
Bottom line is we did an

7

acquisition of a firm in California in the business of

8

loan modifications.

9

Q.

Okay.

10

A.

And we were licensed through the California --

11

it's CFL.

12

what it's called.

It's a corporation finance license, I think is

13

Q.

Okay.

14

A.

Because California has two ways to license

15

mortgage brokers.

One is through the Corporation

16

Commission with a CFL license.

17

Department of Real Estate with what they call a DRE

18

license.

The other is through the

19

Q.

Okay.

20

A.

After

21

Q.

I was just going to ask, when was the acquisition

22

I'm sorry.

Go ahead.

of this company in California?

23

A.

I believe late 2008 or early 2009.

24

Q.

And what was that firm called?

25

A.

Mantis, M-a-n-t-i-s, Inc.

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Dieter George Gable - November 17, 2010

22

1

Q.

Okay.

2

A.

San Diego.

3

Q.

Was the acquisition of Mantis the manner in which

4
5

6

Where was it located?

you began doing business in California?
A.

No.

That's the manner by which we expanded into

loan modifications in California.

7

Q.

Okay.

8

A.

Mortgage originations.

9

Q.

In California?

10

A.

Yes.

11

Q.

Okay.

12

Prior to that, you were doing --

And was Mantis doing business in any other

states than California?

13

A.

I don't believe so.

14

Q.

Okay.

15
16

After the acquisition, what happened with

regard to the business of IntelliChoice?
A.

The state of California changed the rules as to

17

who was allowed to do loan modifications from allowing

18

either a CFL or a DRE licensee to only DRE licensees.

19

applied for a DRE license and for an approved contract to

20

do loan modifications, which they called an advance fee

21

agreement.

22

We

We were granted the license and the contract.
The legislature passed -- California

23

legislature then passed -- and I don't remember the exact

24

act, but I believe it might have been -- I should probably

25

remember it better.

SB 1902 is my best guess as to what

Coash & Coash, Inc. 602-258-1440

Dieter George Gable - November 17, 20 I 0

1

23

the number was.

2

Q.

When was this?

3

A.

This would have been summer of '09, June of '09,

4

somewhere in that time frame.

They passed that act which

5

made any advance fee agreement void, including the ones

6

approved by the state under our license.
We had completed about 1,200 loan

7

8

modifications, and we had, I am thinking, about 500 called

9

in flight or in process.

And essentially, we had to

10

refund the money to those people, and that put us out of

11

business.

12

Q.

Okay.

When you said --

When you were using the

13

term "we,ll was it including we with regard to applying for

14

a DRE license?

15

license?

Who is the "we" that applied for a DRE

16

A.

My partner Shannon Bard and I.

17

Q.

And you obtained such a license?

18

A.

Yes.

19

Q.

When did you get your DRE license?

20

A.

Spring of '09.

21

Q.

Okay.

22

Maybe March time frame.

Did the firm need to be licensed?

Did

IntelliChoice need to be licensed?

23

A.

Absolutely.

24

Q.

So did you apply on behalf of IntelliChoice or as

25

an individual?

Coash & Coash, Inc. 602-258-1440

Dieter George Gable - November 17, 2010

1

A.

You have to apply as both.

24

It's like an alcohol

2

license, I suppose.

3

Plus the individuals have to be vetted.

4

Q.

The--

5

A.

Sorry.

It's not only the establishment.

I just realized we had an FHA and a VA

6

license, so even though -- I want to make sure.

We may

7

have originated loans in other states where we're allowed,

8

where we, through FHA or VA, wouldn't need to be licensed

9

in that state.

So we're still doing that through Arizona.

10

I mean, the operation is all in Arizona, but ultimately,

11

the customer could have been in a -- could have been in

12

Utah.

13

14
15
16

Q.

When you say "Utah," is that specifically

because
A.

A random -- a random --

It has to be in our

region.

17

Q.

What was your region?

18

A.

So we weren't doing a

19

southwest.

20

FHA region that we operated in.

So it would be --

I don't recall.

It's

Southwestern states is the

21

Q.

It's a region defined by the FHA?

22

A.

Yes.

23
24

25

So those are the two other licenses we had,

was FHA and VA.
Q.

You also indicated that you applied for approval

of an advanced fee agreement.

Co ash & Coash, Inc. 602-258-1440

25

Dieter George Gable - November 17, 2010

1

A.

Yes.

2

Q.

Who applied for that?

3

A.

The company has to apply for that.

4

Q.

When did you receive that approval?

5

A.

Shortly after we got approval of the DRE license.

6

Q.

So you think that was in spring of '09?

7

A.

Yes.

8

Q.

And your recollection is that the law changed

9

10

soon after in California?
A.

All the rules started changing early in '09, and

11

whenever that state bill was put the nail in the coffin

12

for anybody, even if they had approved agreements by the

13

state.

14

at that time.

15

Q.

So it was a -- what's called a fluid environment

When were the loan modifications you've

16

described -- you say there were 1,200 or so.

17

begin contracting for the loan modification services with

18

individuals in the state of California?

19

A.

State of California?

When did you

I don't know when exactly.

20

Most of them was -- I would say the vast majority of our

21

business was Arizona, California.

22

maybe summer of '08.

23

that exact --

24

that, the details.

25

right.

It was the fall of '08,

I honestly don't

I don't have

I mean, I was, I guess, ill prepared for
But I can

Those are approximately

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Dieter George Gable - November 17, 2010

30

1

Marcus Sipolt and I individually invested in the firm, and

2

then we are providing services to the company in the area

3

of conversions and ongoing advice.

4

5
6

Q.

Okay.

When you say "conversions," what do you

mean?
A.

So these are when doctors convert whatever method

7

they have right now for electronic medical records, they

8

convert to this platform.

9

and converting their old data, their patient data, patient

10
11

12

It might be training the people

records into a format that's usable in the system.
Q.

Do you have, yourself, a background in

programming of software?

13

A.

Yes.

14

Q.

Just tell me briefly about that.

15

A.

I grew up, so to speak, in the Arthur Andersen

16

what was called the management information consulting

17

division, MICD, and everybody there went through the

18

training course to learn COBOL.

19

RPG, Assembler, Machine Instructions, and Job Control

20

language.

21

other things

22

programming, because that's how everybody got trained at

23

that firm at that time.

I don't know.

So I programmed in COBOL,

You can list a whole bunch of

I've got a very good background in

24

Q.

Have you programmed in Linux?

25

A.

I have not.

Coash & Coash, Inc. 602-258-1440

Dieter George Gable - November 17, 2010

37

1

case in just a moment, but just so that the question is

2

resolved, you yourself -- would you identify yourself as

3

an expert in any other areas?

4

MS. SCOVILLE:

5

THE WITNESS:

6

BY MR.

7

Q.
A.

No.

9

Q.

Okay.

Lottery systems and services.

Any others?

8

Same objection.

10

SCHAEFER:

Which areas of expertise are you applying

in this case?

11

MS. SCOVILLE:

12

THE WITNESS:

Object to the form.
I believe the systems

13

integration, probably the program management as well.

14

for that matter, I suppose the running of a business and

15

realities of running a business.

16

BY MR.

17

Q.

SCHAEFER:
Okay.

Any others?

18

MS. SCOVILLE:

19

THE WITNESS:

20

BY MR.

21

Q.

And

Same objection.
No.

SCHAEFER:
Have you ever been employed by a company that

22

derives a substantial portion of its revenues from

23

direct-to-the-consumer sales of goods?

24

A.

No.

25

Q.

Have you ever served as an officer or a manager

Coash & Coash, Inc. 602-258-1440

Dieter George Gable - November 17,2010

38

1

of a company that derives a substantial portion of its

2

revenues from direct-to-the-consumer sales of goods?

3

A.

Yes.

4

Q.

Which company?

5

A.

Fl Race Factory.

6

Q.

What does Fl Race Factory sell?

7

A.

Indoor karting.

8

Q.

Indoor karting?

9

A.

Karting.

10

Q.

C-a-r-t-i-n-g?

11

A.

No.

Ironically, it's k-a-r.

There's a slight

12

difference there.

Probably only appreciated by people in

13

the industry.

14

business is consumers and companies for team-building

15

events, probably the easiest way to understand it.

But they do indoor karting.

Primary

16

Q.

SO what do they sell?

17

A.

Indoor kart racing.

18

Q.

A package?

19

A.

Well, they sell some goods in the sense that

Are they selling a service or a good?

20

there's a pro shop that sells racing gear, and the rest is

21

services, so it's racing and entertainment.

22

kitchen, bar.

23

24
25

Q.

The pro shop is located on-premise of a place

that has indoor karting?
A.

We have a

On-premise and on the web.

Coash & Coash, Inc. 602-258-1440

Dieter George Gable - November 17,2010

Q.

1

So

But with regard --

39

Sort of to separate

2

the service from the product for the moment, what is the

3

service they're providing?

4

of

5

A.

Entertainment.

6

Q.

They're providing a service

Of entertainment.
And it has a location here in Arizona?

7

8

A.

Yes.

9

Q.

Does it have locations anywhere else?

10

A.

No.

11

Q.

Do you provide the service of developing similar

12

businesses in other locations?

13

A.

We do provide consulting services, yes.

14

Q.

So if someone wants to start indoor karting, they

15

can come to you and say,

"How do I do this?"

16

A.

Yes.

17

Q.

Do you sell franchises?

18

A.

We do not.

19

Q.

And you have a pro shop located at the site in

20

Arizona?

21

A.

Yes.

22

Q.

People can come into the store and buy there?

23

A.

Yes.

24

Q.

What's the average in-store inventory?

25

A.

25,000 probably.

Coash & Coash, Inc. 602-258-1440

Dieter George Gable - November 17,2010

40

1

Q.

And how many SKUs?

2

A.

You're asking a level of detail I don't know.

3

It's certainly not a grocery store.

4

thousands.

5

Q.

6

It doesn't have

It has maybe -- less.

Are you involved in the operation of the pro

shop?

7

A.

From an advisory capacity, yes.

8

Q.

The pro shop is available at the Internet at what

10

A.

f1racefactory.com.

11

Q.

Were you involved in the development of the -- of

9

12
13
14
15
16

URL?

the website at which you can find
A.

Yes.

involved in,
Q.

I was involved --

I cofounded it, so I was

I would say, every aspect of that business.

What are the online sales of that entity?

What

were they in 2009?

17

A.

I don't know.

18

Q.

Are you aware of whether or not the

19

f1racefactory.com makes sales to consumers in Colorado?

20

A.

I don't know.

21

Q.

Does it have a warehouse?

22

A.

It's in a warehouse, 120,000-square-foot

23

warehouse.

24

Q.

25

Where are orders that are placed over the

Internet fulfilled from?

Coash & Coash, Inc. 602-258-1440

Dieter George Gable - November 17,2010

41

1

A.

In the facility.

2

Q.

Do they take goods right out of the pro shop?

3

A.

Or the storage.

4

Q.

How many employees work in the pro shop?

5

A.

Well, everybody can work in the pro shop.

The

6

pro shop is part of the operation, so total employees are

7

50.

8

cross-train people, so --

9

10

I don't think we have it broken down by - -

Q.

We

Who supports the operation of the website?

How

many employees?

11

A.

We have it outsourced.

12

Q.

To whom is it outsourced?

13

A.

I don't know the name of the company right now.

14

Q.

In connection with your work for either

15

TB Consulting or AZ Merchant Partners, LLC, have you ever

16

been engaged as a consultant by a company that derives a

17

substantial portion of its revenues from

18

direct-to-the-consumer sales of goods?

19

A.

Yes.

20

Q.

What were those engagements?

21

A.

First one is Succeed Corporation.

22

Q.

What is that?

23

A.

They provide, for sake of simplicity, a

24

storefront in a box for people who want to have a web

25

presence.

Co ash & Coash, Inc. 602-258-1440

Dieter George Gable - November 17, 2010

42

1

Q.

Is this a software product that they sell?

2

A.

Yes.

3

Q.

SO if an individual wished to operate a online

4
5

store, they would potentially purchase this software?
A.

They would buy the software, and they could buy

6

ancillary services, which could mean everything, including

7

building out and providing things all the way down to

8

inventory for them, meaning things that they could

9

actually sell.

10

Q.

Do they have product?

11

A.

Through fulfillment houses.

12
13

So they're

drop-shippers.
Q.

SO an individual who is interested in having an

14

online store but doesn't want to have the inventory

15

themselves, they basically contract with a drop-shipper

16

and utilize that inventory as their product mix?

17

A.

Fulfillment.

So they could have that.

They

18

could have their own product; they could have a mix of it.

19

Generally, it would be --

20

would be somebody who has a

21

affinity

22

and they build custom lures, so they would put a

23

storefront out there,

24

could then layer on top of that a whole host of fishing

25

gear things that would be drop-shipped for them through

The typical consumer for that
either group or personal

Maybe they're, for an example, into fishing

sell their custom lures, but they

Coash & Coash, Inc. 602-258-1440

Dieter George Gable - November 17, 2010

1
2

3
4

43

national suppliers.
Q.

2009?
A.

How many software packages did Succeed sell in
Do you know?
I don't know.

So my involvement with them was

5

2007 and 2008 primarily.

We helped --

We were engaged as

6

a result of the accountant coming to us.

7

in some financial -- facing some financial challenges,

8

let's say.

9

making sales in the low millions.

The company was

We turned around the company, and they're
So I would say on a

10

number of customer bases, we're probably talking in the

11

less than 10,000-a-year category of storefronts.

12

Q.

Okay.

Any other engagements as a consultant with

13

companies that derive a substantial portion of their

14

revenues from direct-to-consumer sales of goods?

15

A.

Well, I put --

Well, let me ask you, if it's

16

a -- if we have confidentiality agreements with a client,

17

where does that fall here with respect to disclosing a

18

company name?

MS. SCOVILLE:

19
20

It's a well-known -Well, we don't have a

protective order in place yet.

21

Matt, would it be sufficient if he described

22

the type of engagement without giving you the company

23

name?

24

MR. SCHAEFER:

25

THE WITNESS:

Probably.
Okay.

Let's start there.

A company that sells

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Dieter George Gable - November 17, 2010
1

seminars, books, CDs, DVDs, so forth and so on, both

2

domestically and internationally.

3

44

BY MR. SCHAEFER:

4

Q.

What are its annual sales?

5

A.

In the lOs of millions.

6

Q.

Sells these through what channels?

7

A.

Everything from web to affiliates, resellers.

8

Q.

What was the nature of your engagement?

9

A.

We developed their website, and we provide

10

hosting, meaning the technical infrastructure hosting.

11

Q.

For the website?

12

A.

For the website and their entire information

13

technology infrastructure.

14

e-mail and file servers and so forth.

15
16

Q.

So that would be, you know,

Does that mean that you actually have on-site

servers at --

Is it AZ Merchant Partners?

17

A.

This is through TB Consulting.

18

Q.

Inside TB Consulting, the servers that provide

19
20

the hosting?
A.

We keep the servers at 10 Data Centers, which is

21

a -- basically a high-tier data center.

22

those at an office.

23

all the things that come with that.

24

25

Q.

You wouldn't keep

You would have redundant power and

Did you contract out the hosting service to

10 Data Centers?

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Dieter George Gable - November 17, 2010

1

2
3

4
5

6
7
8

9

A.

47

I believe that's the customer file, as best I

understand it.
Q.

What is the term "householding" as that term is

used in the direct marketing industry?
A.

My understanding of it is to aggregate purchases

within a household by household members.
Q.

What is a "fulfillment center" as that term is

used in the direct marketing industry?
A.

As I understand it, it's the packaging and

10

distribution supplier.

I don't know if I --

The company

11

that takes the product and fulfills the order is the

12

fulfillment center, is how I think --

13

decent definition for you.

Hopefully that's a

14

Q.

Are there retailers that do that for themselves?

15

A.

Fulfillment for themselves?

16

Q.

Have you ever been ordered by any state or state

Yes.

17

agency to discontinue offering any financial service in

18

the state?

19

A.

We got related to the relicensing from our CFL to

20

DRE license, the CFL

21

basically documented the fact we could not use a CFL

22

license anymore with a -- and I hope I got the term

23

right -- desist and refrain order.

24

25

Q.

looking for the right word --

Your recollection is CFL, you said, was the

California --

Coash & Coash, Inc. 602-258-1440

Dieter George Gable - November 17,2010

1

A.

48

I believe it's the California Corporation

2

Commission, and what it is,

is a consumer or corporation

3

finance lender, is what CFL stands for.
When they cleared up who should do what and

4
5

under what license, that's when we relicensed ourselves

6

under DRE, and we had a DRE license, and the CFL issued a

7

desist and refrain to all CFL licensees to ensure they all

8

knew that nobody could operate with that anymore.

9

10
11

Your recollection is it was the CFL that did

Q.

that?
Well, the thrust was that you could not use a CFL

A.

12

license anymore.

13

order.

14

order.

15

Q.

16

I don't know who ultimately issued that

question.

Somebody at the state of California issued that

Let me make sure I understand by reframing the

17

Have you ever been ordered by any state

18

agency to desist and refrain from soliciting borrowers

19

and/or performing services for borrowers or lenders in

20

connection with loans secured directly or collaterally by

21

one or more liens on real property?

22

A.

Yes.
MR. SCHAEFER:

23

24
25

And we'll mark as the next

exhibit -(Deposition Exhibit 109 was marked for

Coash & Coash, Inc. 602-258-1440

Dieter George Gable - November 17, 20 I 0

1

Q.

And finally,

53

it orders you to "Immediately desist

2

and refrain from collecting advance fees,

as that term is

3

define in Section 10026 of the Code, in any form;

4

particularly with respect to loan modification, loan

5

refinance, principal reduction, foreclosure abatement or

6

short sale services, unless and until you demonstrate and

7

provide evidence satisfactory to the Commissioner that you

8

have," and then there are two conditions listed on page 5

9

of the order.

Is that correct?

10

A.

That is correct.

11

Q.

Have you complied with or otherwise attempted to

12

provide evidence to the California Department of Real

13

Estate indicating you have complied with the two

14

conditions on page 5?

15

A.

We shut down the business, so --

16

Q.

So you did not?

17

A.

Did not.

18

Q.

Now, does this order from the Department of Real

19

Estate change your recollection at all regarding the

20

nature of the events in California or your licensure in

21

California?

22

MS. SCOVILLE:

23

THE WITNESS:

24

BY MR.

25

Q.

Object to the form.
Not at all.

SCHAEFER:
So you believe that you obtained a license in

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1

California in the spring of 2009 to act as a mortgage

2

broker, a DRE license?
A.

3

Yes.

Honestly, you would have to --

There's a

4

whole lot of documentation you would have to look at to

5

understand how this doesn't make sense to people who were

6

going through it at the time, which is why, essentially, I

7

think the legislature finally passed that bill and said,

8

"You know what?

9

without license, with or without advance fee agreement."

10

Q.

We're not allowing it in any form with or

If you'll look at the first finding of fact on

11

page 2, it indicates,

12

IMS"

13

licensed by the Department in any capacity."

that's IntelliChoice Mortgage Services -- "been

14
15
16

"At no time herein mentioned has

Does that change your recollection about
your licensure status with the Department of Real Estate?

A.

No.

There are material errors in all of this,

17

including --

18

would have to have a whole bunch of information to go

19

along with this.

20

when they were shutting everything down, so there are

21

material errors throughout this.

22

Q.

Well, like I said, you would have

you

These were churned out by the department

Did you receive a request from the Department of

23

Real Estate to submit information in connection with this

24

investigation?

25

A.

I don't believe so, or I am certain we would have

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1
2

Q.

84

Did you have reason to interact with Ms. Huber in

connection with your work for the Colorado lottery?

3

A.

casually.

4

Q.

How many times have you met her since the summer

5

6

Not in any substantive manner.

of 2008?
A.

It would have been one more all-hands meeting and

7

a number of lottery board meetings.

8

board members, so I don't know what the number would be.

9

But, again, none of those would have been of any

10

She is one of the

substantive interaction.

11

Q.

Why did you attend the lottery board meetings?

12

A.

Because they discussed things of interest and

13
14
15

we're a significant vendor to the lottery.
Q.

Were these public meetings that anyone could

attend, or were you on the agenda?

16

A.

No.

17

Q.

Did you speak at any of these board meetings?

18

A.

I don't believe so.

19

Q.

Do you have an ongoing relationship with the

20

They were public meetings.

Colorado lottery?

21

A.

We do -- TB Consulting does.

22

Q.

What do you do for them?

23

A.

We implemented our proprietary back office system

24
25

and provide ongoing support and services.
Q.

Do you actually operate the back office for the

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1

85

Colorado lottery?

2

A.

No.

3

Q.

Is that done by the employees of the Department

4
5

of Revenue?
A.

They are lottery employees.

I don't know if they

6

are technically Department of Revenue employees or not.

7

We interact with the lottery.

8

contract being through the Department of Revenue, don't

9

have much interaction there.

We really, other than the

So I don't know what the --

10

if there is a separation of Department of Revenue versus

11

their state employees.

12
13

Q.

The ongoing support services that you provide,

are those in the nature of IT support?

14

A.

primarily.

15

Q.

When you say "back office system," this is the

16

management of the lottery administration, not of the

17

lottery itself or

18

A.

So this is the lottery core functions except for

19

the online terminals and systems that are at the retailer

20

and the network that goes with it.

21

Powerball, Mega Millions, Lotto, and all those games,

22

those are administered by Scientific Games using their

23

system.

24

inventory control, distribution, marketing, the retailer

25

licensing, security, billing, accounting.

So with respect to

We handle all the scratch ticket, accounting,

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Q.

86

How is that contract with the Colorado lottery

2

structured in terms of compensation for TB -- is it

3

TB Consulting?

4

A.

Yes.
It's a time and materials, with a

5

6

not-to-exceed,

I believe.

7

Q.

Is the not-to-exceed set on an annual basis?

8

A.

On a contract basis.

9

Q.

What's the term of the contract?

10

A.

It is up October of 2011.

11

Q.

When did it go into effect?

12

A.

Would have been October 2008.

13

Q.

So this is a three-year?

14

A.

Three-year contract.

15

Q.

What's the not-to-exceed for the three-year

16

contract?

17

A.

I don't have that number handy.

18

neighborhood of probably $4 million.

19

hardware,

20

It's in the

professional fees.

21
22
23

Q.

third-party, and so forth,

That includes
TB Consulting

Are you familiar with any other officials of the

Colorado Department of Revenue?
Actually, before I ask that, who is the

24

point person with Colorado lottery that you interact with,

25

if there is one?

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87

1

A.

Currently?

2

Q.

Yes.

3

A.

J.E. Lewellen, L-e-w-e-I-I-e-n, I believe.

4

Q.

And was there a person in that role prior to

5

Ms. or Mr. Lewellen --

6

A.

Mr. Lewellen.

7

Q.

Was there a person prior to Mr. Lewellen?

8

A.

Jack Boehm, B-o-e-h-m.

9

Q.

Who is the top official of the Colorado lottery,

10

if you know?

11

A.

The current executive director of the lottery is

12

Abel Tapia.

13

Q.

Is that an appointed position?

14

A.

Yes, it is.

15

Q.

Who does the appointment?

Do you know?

16

Ms. Huber who makes the appointment, or is it the

17

governor?

18

A.

Is it

I do believe it's the executive director of the

19

Department of Revenue, so ROxy Huber would be making that

20

appointment.

21

Q.

In this conference call in which individuals from

22

the Colorado Department of Revenue participated, did they

23

provide you any information in connection with the

24

preparation of your report?

25

A.

They reviewed the materials that were on the

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Dieter George Gable - November 17,2010

96

1

A.

Yes.

2

Q.

-- or meaning

3

A.

Both.

4

Q.

Did you also review the statute?

5

A.

I did not review the statute.

6

Q.

Did you do anything else to prepare?

7

A.

No.

8

Q.

How long in total did you spend preparing for

9
10

this deposition?
Two hours.

A.

11

MR. SCHAEFER:

12

(An off-the-record discussion ensued.)

13
14

Off the record for a moment.

BY MR. SCHAEFER:
Q.

With regard to Exhibit 116, your report,

if you

15

will turn to page 2, the Statement of Opinions,

16

opinion A

17

minimum threshold of $100,000 in gross annual Colorado

18

sales, the relatively small number of retailers are

19

subject to the Requirements."

it's cap A - - you state,

"Based on the

Did I read that correctly?

20

A.

Yes.

21

Q.

The report elaborates, to a certain extent, on

22

these opinions.

With regard to opinion A, there's

23

additional material on pages 5 and 6.

Is that correct?

24

A.

That's correct.

25

Q.

Right at the bottom of the page on page 5, last

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1

few words, you indicate that "the number of affected

2

retailers should be in the low thousands."

3

correct?

Is that

do.

4

A.

I

5

Q.

What do you mean by the "low thousands"?

6

A.

If I draw a -- or extrapolate from the numbers

7

that are provided on sales data and see that we're going

8

from somewhere north of a billion, excluding outlying data

9

points like Amazon, but retailers with north of a billion

10

dollars of sales down to 10 million in sales

so down to

11

1 percent of that -- and that encapsulates 500,

that would

12

suggest to get down to 6 million is not going to be an

13

overly significant number of retailers.

14

stats that track every possible retailer, but I would

15

extrapolate out that it would be reasonable to say that

16

the number we're talking about is, as I stated, low

17

thousands and not a significant number of the entire

18

retailer base that exists in the United States or

19

elsewhere.

20

Q.

21

22

So

But how many do you mean when you use the

word "low thousands"?
A.

So there are no

What number?

I don't have a number for you.

I think you can

23

statistically extrapolate and the argument would then be

24

whether or not that's statistically valid, because there's

25

really no data.

But I think it's a minority of

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1
2

98

retailers -- a small minority of retailers.
Q.

Can you provide a range?

When you say "low

3

thousands," what's the range of numbers you're talking

4

about?

5

A.

I would hesitate to give a range, but I would say

6

we can be reasonably certain that it's closer to 10,000

7

than any other much larger number.

8

9

Q.

The affected retailers that we are talking about

and that you're mentioning here are all those having

10

annual gross sales in Colorado in excess of a hundred

11

thousand dollars.

Is that right?

12

A.

That's correct.

13

Q.

And I think you, on page 5, in paragraph 1 of

14

opinion A, indicate that a hundred thousand in gross sales

15

in Colorado translates into approximately $6 million in

16

total nationwide sales?

17

A.

If we assume that there is a proximate

18

relationship between population and sales, it came out to

19

be just north of $6 million in sales.

20
21

Q.

That's the assumption you've made for purposes of

this report?

22

A.

Yes.

23

Q.

So when you refer to "affected retailers," you

24

are referring to retailers having sales in excess of

25

$6 million that do not collect Colorado sales tax.

Coash & Coash, Inc. 602-258-1440

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Dieter George Gable - November 17, 2010

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99

that right?

2

A.

Not necessarily.

3

Q.

Okay.

4

A.

I think I'm referring to retailers that have more

5

than a hundred thousand in gross sales.

6

comes into play merely to point to the fact that the

7

number of retailers should be low.
Q.

8

The 6 million

Fair enough.
In estimating the number of affected

9

10

retailers, you're using the $6 million benchmark.

11

talking a moment ago in your answer extrapolating downward

12

from annual -- from annual sales figures that were

13

nationwide.

14

A.

Yes.

15

Q.

SO for purposes of approximating, you're using

16

that $6 million annual sales on a nationwide basis

17

benchmark?

18

A.

You're

19

I think that's the best benchmark I could come up

with to approximate how big of an issue this would be.
Q.

20

So we know that we have the 500 potentially

21

affected retailers in the Internet, top 500 that you

22

identified, and of course some of them report Colorado

23

tax.

So it's not going to be all 500.

24

A.

I think that's

25

Is that a fair

Nothing would suggest

otherwise.

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Dieter George Gable - November 17, 2010

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2

Q.

100

So the challenge is to identify those between

6 million and 10 million, in essence?

3

A.

Essentially.

4

Q.

On page 6, you indicate there are certainly

5

hundreds of thousands, at least, of total retailers,

6

because as you cite, there are even just two Internet

7

sales software -- strike that --

8

software vendors that you're aware of have more than

9

160,000 customers between them.

Two e-commerce platform

10

A.

Yes.

11

Q.

So we know there are at least hundreds of

12
13

thousands of retailers.
A.

I agree.

If I can add one more facet to this, is

14

if we look at the customer base for Succeed, which was an

15

e-commerce platform, the relative number of merchants that

16

opened a web front or storefront or start selling their

17

wares to whoever they sell them to, the number that reach

18

a meaningful level of -- I would argue even six-figure

19

sales in aggregated total, forget about what locale -- is

20

a very small percentage.

21

to believe we're talking a very small number here.

So, again, everything leads me

22

Q.

Relative to the total number?

23

A.

Relative to the total.

24

Q.

Are you aware that there are some estimates that

25

place the number of e-commerce sellers total from zero on

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101

Dieter George Gable - November 17,2010
1
2

up, that's something like 5 million?
A.

I think when you add in the hobby e-commerce

3

seller, who might be selling purely through eBay and

4

doesn't even have their own storefront, I would suspect

5

that's probably a good number as any.

6
7

Q.

Okay.

So you think 5 million is a reasonable

estimation?

8

A.

Sure.

9

Q.

And as you say, even if it were only -- I can do

10

the math -- even if there were only .2 of 1 percent of all

11

of those retailers above 6 million in sales, that would be

12

10,000 retailers?

13

A.

Am I allowed to use my calculator?

14

Q.

Absolutely.

15

A.

You say .2 of 1 percent?

16

Q.

Yes, of the 5 mil.

17

A.

.2 of 1 percent.

18

Q.

That's right.

19

If it were half of a percent of all online

20

retailers above 6 million, then we would be at 25,000

21

potentially affected retailers?

22
23
24

MS. SCOVILLE:
sure --

Object to form.

Could you say that again?
MR. SCHAEFER:

Sure.

25

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I'm not

Dieter George Gable - November 17,2010

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102

BY MR. SCHAEFER:
Q.

2

Based on the same estimate of 5 million total

3

e-commerce sellers, if a half a percent of those total

4

e-commerce sellers had annual sales in excess of

5

6 million,

6

affected retailers.
A.

7

it would approximately mean 25,000 potentially

From a pure mathematical standpoint, I can do the

8

math and get to 25,000.

From a legitimate likelihood of

9

that being the real number,

I think that's without any

10

foundation I can find, at least in the statistics I looked

11

at.

12
13

14

15
16

Q.

So you think something more like 10,000 is more

reasonable?
A.

I would have no reason to believe it would be

over 10,000.
Q.

Now, that estimate is just e-commerce vendors

17

that I mentioned.

18

Colorado law applies to other types of remote sellers?

19

20
21
22

A.

Is it your understanding that the

The catalog and everything I think would be, yes.

Anybody selling into the state of Colorado, yes.
Q.

So that would be potentially other types of

remote sellers affected by the law, potentially?

23

A.

Absolutely.

24

Q.

That would include not only catalog vendors but,

25

for example, direct-to-consumer television vendors.

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Dieter George Gable - November 17, 2010
Yes?

1

2

103

A.

Yes.
MS. SCOVILLE:

3

4

any notes, you sure can.

5

I think if you need to make

BY MR. SCHAEFER:

6

Q.

Turning to opinion B -- we may as well work with

7

the statement of it as contained in the body of your

8

report.

9

are restatements of the list at the front, are they not?

The bold headings within the body of the report

10

A.

They are intended to be identical, yes, sir.

11

Q.

Okay.

So statement B -- or opinion B, as set

12

forth on page 6, states,

"Requirements provide sufficient

13

leeway for variances in approaches for compliance to allow

14

affected retailers to comply with reasonable efforts."

15

Did I read that correctly?

16

A.

Yes.

17

Q.

The first heading underneath opinion B concerns

18

the transactional notice.

19

Transactional Notice states,

20

generalized tax statement in the event the retailer is

21

subject to a number of taxing authorities or

22

jurisdictions. "

23
24
25

And your first subsection under
"The Requirements allow for a

Did I state that correctly?

A.

I believe so.
MR. SCHAEFER:

Let's mark this document as

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Dieter George Gable - November 17, 2010

115

1

A.

Yes.

2

Q.

So we may be talking about those as we go along,

3

some of the individual aspects of each of them.

4

wanted us to have a framework for the discussion

5

Yes.

A.

6

I just

Q.

moving forward.
So under B3, the annual disclosure to the

7

8

DOR, after referencing the Colorado Department of Revenue

9

instructions in sUbpart A, you say in subpart B,

"The

10

format is a simple, well described, file that can be

11

produced with information readily available within any

12

viable eCommerce platform, using widely used Microsoft

13

product Excel or an equivalent application available for

14

free," then a citation to a couple of the documents you

15

reviewed.
What do you mean by "viable eCommerce

16
17

platform" ?

18

A.

Well, I would say viable in the sense -- and I

19

use "viable" throughout here to encompass applications

20

that have a meaningful life left in them.

21

there -- you could theoretically produce somebody who is

22

still running on a mainframe from the '60s and doing punch

23

cards.

24

available.

25

e-commerce platform, that should be readily available.

I

I

suppose that

would say that they may not have that readily
But for somebody who's got a reasonable

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Dieter George Gable - November 17, 2010

1

2

Q.

Okay.

116

So you mean viable in the current market

environment?

3

A.

Yeah.

4

Q.

Okay.

5
6

You indicate that they could use Microsoft

Excel or an equivalent application to produce the report.
A.

To produce the extract.

The report's really a

7

file for the department, and you can produce that extract

8

of information using either Excel or what's available

9

through Google tools for free,

10
11

12

if somebody doesn't have

that.
Q.

What is the format that has to go to the

department?

If it's not a .xls Excel file, what is it?

l3

A.

.csv or a comma-delimited file.

14

Q.

And is that something that you can create using

15

Excel?

16

A.

17
18

You can save your file, simple as save as, and go

from Excel to a comma-delimited file with no intervention.
Q.

Are you aware of the fact that Excel has certain

19

limitations regarding the amount of data that can be

20

contained in one Excel file?

21

A.

Absolutely.

22

Q.

It's a fairly large amount of data, but there is

23

a limitation, is there not?

24

A.

It's a very significant amount of data.

25

Q.

To your understanding, is it something like

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2

117

70,000 lines?
A.

I would not venture an exact guess, but I

3

actually would believe it's higher than that.

4

orders of magnitude, that's fine.

5

6

Q.

But for

Larger retailers may well have tens of thousands

or even hundreds of Colorado customers.

Is that true?

7

A.

I'm certain that's a possibility.

8

Q.

Okay.

9
10
11

If they were to reach the capacity of

Excel to contain data from their house file or customer
file,
A.

they would have to do something else, wouldn't they?
I would say that the report really doesn't

12

address the requirements for somebody who has got a

13

customer base of that order of magnitude, because their

14

capabilities would probably lead me to believe that Excel

15

would not be in their normal operating procedures, that

16

they have much more sophisticated tools and would extract

17

this into a comma-delimited file using their existing

18

systems with the proverbial flip of a switch.

19

Q.

There would be some cost, but it wouldn't be

20

associated with converting to an Excel file.

21

would do something else that was within their systems?

22
23
24
25

A.

It would be

And they

I would expect a nonmeaningful

number in the scheme of somebody of that size retailer.
Q.

Okay.

I want to jump ahead in your opinions to

opinion H, if you would, which is on page 11.

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Dieter George Gable - November 17,2010

118

1

is the one that sets forth some actual cost estimates.

2

on page 11, opinion H, you state as follows:

3

Requirements" -- that's a capital R.

4

term of having a definition within the scope of this

5

report.

6

capital R, you mean all of the requirements in the

7

So

statute, yes?

"The

It's meant to be a

As you use the term "the Requirements," with a

8

A.

The three meaningful parts, yes.

9

Q.

The transactional notice, the annual notice to

10

consumers, and the annual report to the DOR taken

11

together?

12

A.

Yes.

13

Q.

SO beginning again, you state,

"The Requirements

14

will require additional effort by affected retailers

15

resulting in onetime, non-recurring first year, costs that

16

range from $2,571 to $6,000 (0.043 percent - 0.100 percent

17

as a percent of sales) plus annual recurring costs

18

estimated at $589 to $1,000 (0.010 percent to

19

0.017 percent as a percentage of gross annual sales)

20

"

Now, those ranges of cost that you provide

21

there, you have given more detail for the manner in which

22

you calculated those in Exhibit A -- Exhibit A.1, yes?

23

A.

I -- I gave more detail behind the calculations

24

but also provided the italicized parenthetical comment

25

after that to notate what retailers we're talking about.

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1

determined the percentage of annual sales that that

2

represented for your small seller, or did you do it the

3

other way around?

4

dollar figures identified in opinion H?

5

A.

How did you -- how did you get to your

Yeah, I'm not sure built up to the number.

I

6

essentially took the levels of effort and the people

7

involved in that level of effort and quantified that.

8

Then I came to quantifying what is the cost of those

9

resources, tabulated that, and then afterwards attempted

10

to normalize this to give some relative meaning to the

11

numbers by putting it as a percentage of sales.

12

Q.

I think that was clear, but what

So it wasn't

13

you didn't do is say,

"I think it's going to cost

14

X percent of sales," apply that to some number like

15

6 million,

16

A.

No.

17

Q.

-- range.

18

A.

No.

19

Q.

And as you indicate in opinion H, the

then come up with a --

20

parenthetical on page 11, it states,

21

estimated for the compliance efforts of the smallest of

22

the affected retailers."

23

"the smallest of the affected retailers," what are you

24

referring to?

25

A.

"Note:

I'll stop there.

the costs are

When you say

I'm referring to the people who are marginally

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1

meeting the minimum requirement, so they've exceeded the

2

threshold, but they have not gotten to the level of a top

3

500 retailer.

4

Q.

Okay.

5

A.

Because I think those would skew the numbers, and

6

honestly, their costs are very different because theirs

7

are, in the great scheme of things, probably difficult to

8

segregate from just doing business and just maintaining

9

their normal, day-to-day operations.

10

Q.

Okay.

The --

When you say the smallest, you

11

mean below the Internet 500.

Is that the 6 to $10 million

12

range?

13

A.

Somewhere in that range, yes.

14

Q.

You go on to say,

"The costs for compliance by

15

larger affected retailers is ignored as the impact, when

16

normalized on a percentage of sales basis, is expected to

17

be lower or even inconsequential."

18

A.

Yes.

19

Q.

Okay.

Did I read that right?

Now, I just want to clarify, you're not

20

saying, are you, that there are -- retailers larger than

21

the smallest retailers will incur no costs of compliance,

22

are you?

23

A.

I think I stated that for the larger affected

24

retailers, when you normalize the cost, rather than take

25

the absolute cost of them doing anything, that it becomes

Coash & Coash, Inc. 602-258-1440

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1

inconsequential.

2

a top-10 retailer may spend tens of millions a year in

3

server and hosting and management of their infrastructure,

4

but that number is meaningless when it gets to the smaller

5

retailer.

So I'm trying to do it for the smaller

6

retailer.

The larger retailers have large cost bases, and

7

whatever requirements are within this are a drop in the

8

proverbial bucket.

9

Q.

And I put that in the context of and

Two things I want to clarify from your answer.

10

The first is

11

just make sure, because it's slightly different from what

12

the report says.

13

I think we already confirmed, but let me

When you say "the smallest retailers,"

14

you're using the $6 million benchmark for purposes of your

15

discussion in your report.

Is that fair to say?

16

A.

Somebody who is in that ballpark --

17

Q.

Okay.

18

A.

-- plus or minus.

19

Q.

You're not saying, though, that a retailer with

20

$7 million in annual revenues doesn't have costs?

21

have costs?

22

A.

They may be identical in cost.

23

Q.

Similar to the 6 million?

24

A.

Similar to, exactly.

25

Q.

I think we already discussed this.

They

Coash & Coash, Inc. 602-258-1440

But same for

Dieter George Gable - November 17, 2010

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1

8 million, you're not saying they have no costs.

2

approximate costs as the -- in absolute terms if you like,

3

as the $6 million seller?

4

A.

5

identical.

6

Q.

Same

I think in absolute terms, they may be similar or

The same was true up to about the 10 million

7

level, from what I understood from our prior

8

conversations.

9

costs, you agree?

10

A.

Sellers with 9 million in sales have some

I don't know where the delineation is.

You'll,

11

I'm sure, be able to find retailers at the $6 million

12

level that are ahead of the game and can do this for a lot

13

less.

14

spend about the same who are $20-million-a-year retailers.

15

My report intended to reflect what is the impact on the

16

people who, on a percentage of sales basis, would probably

17

be mos t impacted.

18
19

Q.

And there are retailers who will proportionately

Okay.

Your thinking in that regard is the folks

outside the Internet 500, the Internet retailer?

20

A.

Absolutely.

21

Q.

Now, the other thing I want to clarify from that

22

is your use of the term "normalization."

23

that you're using that term based upon what you've done in

24

your report to mean as a percentage of net sales.

25

Essentially, you're normalizing costs to view them through

It appears to me

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1

the lens of -- as a percentage of net sales?

2
3
4
5

6
7
8

9

124

MS. SCOVILLE:

Object to the form.

BY MR. SCHAEFER:
Q.

Is that a fair statement of your use of the term

"normalization"?
A.

And if it's not, please clarify.

I think I attempted to use percentage of sales as

a way to show relative impact.

Q.

Okay.

And is that the same process as

normalizing the costs, in your term?

10

A.

In the way I used it, yes.

11

Q.

Okay.

Now, it is true,

is it not, that even

12

retailers with over a billion dollars in sales will have

13

some costs, but on this percentage of sales basis, they

14

may be tiny, almost inconsequential in your

15
16
17

A.

Yes.

Either inconsequential or potentially

immeasurable.

Q.

Now, there are some costs, are there not, of the

18

Colorado law that will increase with the size of the

19

retailer.

20

A.

Is that a fair statement?
If nothing else, if you have a lot of notices and

21

you have a billion-dollar retailer, they have more postage

22

than another retailer, yes.

23

Q.

Okay.

24

A.

It probably reflects their overall cost of

25

business is much higher on everything they do.

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1

Q.

125

Just to make clear we're talking about the same

2

thing, the annual notices to the consumers is what you're

3

referring to with regard to -- if they have more notices

4

they have to send to consumers on an annual basis because

5

they are a larger retailer?

6

A.

Absolutely.

And they have a larger warehouse and

7

more light bills, and they have a larger warehouse and

8

more personnel.

9

be more expensive in order to generate whatever larger

10
11

Everything for them is probably going to

sales number they have.
Q.

Okay.

But they'll actually have to send out in

12

the mail more notices.

13

example, at least will cost them somewhat more, although,

14

again, it may be small to that retailer in terms of a

15

relative cost?

16

A.

You're saying the postage, for

I think I state in other places in the report

17

that Colorado provides flexibility where they can offset,

18

diminish, or eliminate the incremental cost.

19

Q.

Right.

They may have to send more annual notices if

20

21

We'll talk about that in a minute.

they're larger?

22

A.

I would agree.

23

Q.

Okay.

HI is the transactional notice.

In

24

part b, you give a range for compliance with the

25

transactional notice, which reads as follows:

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"The cost

Dieter George Gable - November 17, 2010

126

1

for compliance with the Transactional Notice Requirement,

2

if any, would range from $263

3

modifying existing Transactional Notice to comply with

4

Requirements) to $1,038 (high end for retailer having to

5

create a new Transactional Notice to comply with

6

Requirements)"
Did I

7

(low end for retailer

read that right?

8

A.

Yes.

9

Q.

Now, if you accept my representation from earlier

10

this afternoon that Colorado is the first state to

11

implement a transactional notice requirement, would you

12

agree that all retailers are -- fall into the category you

13

identify as being toward the higher end, that is,

14

retailers having to create a new transactional notice?

15

A.

I do not.

16

Q.

Okay.

17

A.

I believe retailers who are in many jurisdictions

And why not?

18

and may have mUltiple physical locations and be subject to

19

tax in multiple locations already have some form of a

20

transactional notice related to tax with respect to

21

example, we operate in Texas, Vermont, and Oklahoma, and

22

you'll be charged taxes there but not elsewhere.

23

though they don't have a transaction notice in the sense

24

of what we're talking about here, they have a

25

transactional notice related to taxes to cover their

Coash & Coash, Inc. 602-258-1440

For

So even

Dieter George Gable - November 17, 2010

1

2

127

collecting states requirements.
Q.

Understood.

But by the premise of this law,

3

we're talking about folks

4

not have an obligation to collect in Colorado.

5

notices that exist would make no reference to Colorado,

6

would they?

7

A.

that is, retailers

who do
So their

They would make no notice or make no reference to

8

Colorado, but they would be able to modify an existing

9

notice.

And from a level of effort standpoint, it's a

10

matter of "Do I have something that we can modify, or do I

11

need to find a new place for it?

12

room for it.

13

level of effort.

14

doesn't imply that there is a modification of a generic

15

transactional notice, because that wouldn't require it.

16

That's covered in item C, which says, theoretically, if

17

they had a generic notice, there would be no cost.

18

Q.

Because I have to find

Now, do I need to move things around?"

Right.

So that's the modification part.

That
It

So just to clarify with regard to item C,

19

you're saying,

theoretically, if they had such a thing --

20

if Colorado is the first -- then no one would?

21

A.

At onset.

22

Q.

Right.

23

A.

But the reality is going down five years from now

24

when somebody starts a retailer and grows up and it

25

becomes a retailer subject to this, at that point they may

Coash & Coash, Inc. 602-258-1440

Dieter George Gable - November 17, 2010

1

128

have one and may actually not have an incremental cost.

2

Q.

Right.

3

A.

So these are retailers also in the future.

So

I

4

understand that currently there may be none, but certainly

5

in the future, as retailers bubble up and get to that

6

mark, they may very well not have any incremental cost.

7

Q.

You're talking about first-year requirements here

8

now being first year of the bill as well as first year

9

of

10

A.

Yes.

So I think -- I don't believe it's a fair

11

representation to say that everybody's going to be having

12

to create one.

13

are going to modify an existing multistate transactional

14

notice, and there will be people who will have to create

15

one from scratch.

16

Q.

I think there are going to be people who

SO in that regard, you're using the term

17

"transactional notice" here broadly, any kind of notice

18

with regard to the transaction -- any kind of notice that

19

concerns taxes on the transaction?

20

A.

As one example.

It's a transactional notice,

21

anything related to some sort of notification to the

22

customer about that.

23

about shipping charges or taxes, something in the general

24

area of your checkout that you can modify to -- and

25

leverage to meet the requirement.

It could be that they give notices

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130

1

specific forms that I don't recall in the Colorado

2

regulation.

3

it's all new or so substantially new.

4

Q.

So I'm not entirely certain I could say that

On page 12, we have the customer service

5

inquiries item there at the top of the page,

item

6

number 2.

7

amend or add to their Customer Service call or web-chat

8

scripts to address inquiries from customers related to the

9

compliance with the Requirements."

And you indicate that "Retailers may have to

10

subparagraph,

11

will range from $735 to $1,470."

In the next

"The estimated cost of this one time change
Did I read those right?

12

A.

Yes.

13

Q.

Does the range 735 to 1470 depend on whether they

14

are amending or adding in the words that you used in the

15

first part?

16

A.

I would say if they have substantially everything

17

in place, it may be lower than this cost.

18

the range of having to develop something to address this

19

specific requirement.

20
21

Q.

Right.

This is more in

This is your report, though, right?

report says it will be between 735 and 1470.

Your

Yes?

22

A.

Exactly.

23

Q.

What I would like to know, for the present

24

purpose, is, is the range from 735 to 1470 dictated by

25

what you describe in the immediately preceding paragraph

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1

as being a question of whether or not they have to amend

2

or add?

3

4
5

6

A.

To the extent that the report says may have to

amend or add.
Q.

So it does depend on whether they're amending or

adding?

7

A.

If at all.

8

Q.

Okay.

9

Is it fair to say that

I'm

interpreting this right to say that if they're amending,

10

their costs are lower; if they're adding, their costs are

11

higher?

12

A.

Yes.

13

Q.

Now, in item 3, the annual notice to consumers,

14

you make a point to indicate again that you're estimating

15

these costs for a retailer on the smaller side, 6 million

16

in magnitude, certainly outside the Internet top 500.

17

that fair?

18

A.

Yes.

19

Q.

You talked a moment ago about the fact that

20

larger retailers will incur costs to send the annual

21

Is

notice, will they not?

22

A.

Yes.

23

Q.

Okay.

24

A.

Subject to them having to send annual notices.

25

So -I

mean, it's conceivable that somebody could have 20 million

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132

1

in sales and not send a single notice if they happen to

2

sell a lot of lower-end ticket items and not reach that

3

threshold.

4

Q.

Right.

They have to have at least one customer

5

who purchases $500 from them in the state of Colorado for

6

that requirement to apply?

7

8
9

A.

And they may only have 10, so to speak.

I know

we're talking about extremes, but -Q.

Right.
And,

10

in fact, you indicate there the annual

11

notice preparation and distribution requires an effort

12

with variability only in the size of the retailer and the

13

number of notices required to be sent.

Is that correct?

14

A.

Yes.

15

Q.

They send more notices, they'll have somewhat

16

more cost associated with the actual mailing and materials

17

costs for the notice, at any rate?

18

A.

Yes.

To the extent that, obviously, the larger

19

retailers will

I am guessing at least be afforded the

20

opportunity or take the opportunity to mitigate their

21

costs?

22

Q.

Right.

23

And we'll talk about that.

In subpart B, with regard to the first year,

24

you indicate,

"For these retailers, the total initial one

25

time or first-year cost would be between $1,601 and $3,023

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133

1

or .027 percent and 0.050 percent as a percentage of gross

2

annual sales."
Now,

3

that first-year cost includes costs

4

related to understanding the requirement,

5

system to produce it, settling upon the actual language to

6

use, and the mailing costs for that first year.

7

fair characterization?

8
9

A.

developing a

Is that a

I would say that's a reasonable characterization,

but I don't believe you mentioned the mechanics of it and

10

a mail merge or some sort of a process by which to bring

11

all that together in an efficient manner.

12
13

Q.

That would be one other component that's included

in that first year also.

14

A.

Yes.

15

Q.

And the range there is based upon how many

16

notices being sent in terms of the actual number of

17

notices?

18

A.

Your range of costs.
I believe the spreadsheet says it was 200

19

notices, which was somebody reaching. the $100,000

20

threshold and sending out exactly 200 notices to add up to

21

the hundred thousand dollars worth of sales.

22

Q.

So on Exhibit A.l, your cost calculations, the

23

last set of rows under the word "Consumables, " there's an

24

indication that there are 200 annual notices.

25

A.

Is that

Simply by dividing the hundred thousand by 500

Co ash & Coash, Inc. 602-258-1440

Dieter George Gable - November 17,2010
1

and saying that it happened to be that they had 500 or

2

$501 purchases times 200 customers, and that would be a

3

maximum number of notices that they would have to be

4

134

sending out.

5
6

Q.

But your range of costs is based on that

assumption?

7

A.

On the maximum worst-case scenario.

8

Q.

To make sure we get the number, it's based on the

9

assumption of 200 notices?

10

A.

Yes.

11

Q.

Now, in item -- sub item i under b, you indicate,

12

"Retailers who already have a generic notice to consumers

13

meeting the Annual Notice requirement would not incur a

14

'1st Year' expense but would immediately fall into the

15

'On-going' cost estimate reflected in G.3.c."

16

If you take my representation that Colorado

17

is the very first state to impose such a requirement, do

18

you agree with me that there wouldn't be,

19

year, retailers who already have a generic notice to

20

consumers that meet the annual notice requirement?

21

A.

It would be highly unlikely.

in the first

I think this would

22

be more looking at future retailers that are becoming

23

subject to.

24

Q.

25

indicate,

But agreed.

Now, with regard to 3c, the ongoing cost, you
"For these retailers, the on-going yearly cost

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Dieter George Gable - November 17,2010
1

would be between $354 and $530 or 0.006 percent and

2

135

0.009 percent as a percentage of gross annual sales."
Did I read that right?

3
4

A.

Yes.

5

Q.

And your annual sales percentages there, again,

6

are based on a company with 6 million in annual sales?

7

A.

Yes.

8

Q.

Am I right that the ongoing yearly costs of the

9
10

annual notice are lower because you don't have some of the
first-year development costs in those later years?

11

A.

Absolutely.

12

Q.

SO what are the

You have materials costs,

13

correct, in every year?

14

nonmaterials costs associated with the annual notice?

15

A.

What are the remaining

The fulfillment component of that, so the

16

extraction of data, the mail merge, the stuffing of

17

envelopes.

18

Q.

19
20

21

The human cost of stuffing envelopes.

Okay.

Okay.
A.

And I do believe --

Let me just check something

real quick here.

22

I do have in here at least some management

23

time to glance at it and see whether or not there's

24

anything materially different.

25

Q.

Right.

So Exhibit A.1 for that annual notice

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136

1

ongoing, it looks like you have between half an hour and

2

an hour of management time?

3

4
5

6

A.

Yes.

At least take a look at it and see if

there's anything glaring.
Q.

A higher portion of the ongoing cost is in the

production.

Almost all of it is in the production?

7

A.

Yes.

8

Q.

That little exception of management.

9

A.

I believe the highest cost is in the -- continues

10

to be labor, because we're talking a reasonably small

11

number of notices and, quite honestly, a very high

12

estimate of what it would take to stuff 200 notices.

l3

14

Q.

And just to

Again, this is based on how many

notices being sent?

15

A.

200 notices.

16

Q.

I f we look at Exhibit A.l for a moment,

the

17

spreadsheet,

18

bottom part of the table, going to the next to last column

19

for annual notice ongoing, it appears to me

20

I'm wrong -- that you have total cost of consumables.

21

would add together the paper costs of $2,

22

cost of $4, the envelope cost of $68, the mailing label

23

cost of $17, and the stamp or postage cost of $88 to get

24

the cost of consumables for the 200 notices?

25

A.

just the consumables set of rows there at the

tell me if
You

the printing

Understand there is some -- for readability,

Coash & Coash, Inc. 602-258-1440

I

Dieter George Gable - November 17, 20 I0
1

2

didn't include any cents, but for the -Q.

137

Yes.

Fair enough.
And if I add those up -- you're welcome to

3
4

use your calculator if you'd like -- I think it's $179 of

5

cost associated with the 200 annual notices.

6

A.

I think that's right.

7

Q.

And if you were to divide that by the 200 annual

8

notices

tell me if I'm wrong

9

but I think it is 89

and a half cents per notice.
That is correct.

10

A.

Yes.

11

Q.

So the cost of per notice based on just

12

consumables and meaning materials and postage is about 89

13

and a half cents per notice?

14

A.

For somebody sending out 200 annual notices.

15

Q.

Okay.

Now, companies that have to send more than

16

200 notices will have higher absolute costs in terms of

17

consumables, won't they?

18

A.

Higher absolute costs?

19

Q.

Yes.

20

A.

And potentially lower per-notice cost.

21

Q.

Again, I think Amazon is sort of the elephant in

But yes.

22

the room in all of this discussion.

If we assume the

23

population of Colorado is about 5 million -- do you

24

understand that to be the case?

25

around 5 million people?

Population of Colorado,

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138

1

A.

Around 5 million, yes.

2

Q.

Would you agree with me that Amazon, the number

3

one Internet seller on the Internet top 500, may have a

4

million Colorado customers?

5

A.

I would have no basis to say yes or no to that.

6

Q.

Let's assume that they did --

7

A.

Okay.

8

Q.

-- for purposes of the question.

9

The law --

Colorado law at issue in this case also requires that a

10

notice be provided to non-Colorado residents who ship

11

goods into Colorado as well, as long as they are over the

12

500 threshold.

Is that correct?

13

A.

Yes.

14

Q.

SO if even only 1 percent of those million

15

customers purchased over $500 in a year, would you agree

16

with me that translates into about 10,000 customers who

17

are supposed to receive a notice?

18

A.

If I --

If is a big if on the 1 percent.

19

don't know.

20

I

out to be 10,000, I agree.

21
22
23

Q.

But if it's 1 percent, the math would work

And on a per-notice basis, it's going to be

something like 89 and a half cents per notice?
A.

I -- I think I

That would be ignoring the

24

other finding in the report, that a retailer of that size

25

would figure out a way to send out that transactional

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notice probably at little to no cost.
Q.

Well, why don't you explain that to me?

3

I think that is highly questionable.

4

Because

So give me your

explanation of that.

5

A.

Do we have the rules handy by any chance?

6

Q.

I don't.

7

A.

So let me just point to something real quick.

8
9

One second.
Okay.

If I look at the opinion J on page 14

10

and I state the opinion that "The incremental cost of

11

mailing Annual Notices can be mitigated by including other

12

information and materials for the consumer," essentially,

13

the requirement is for an annual notice to be sent -- for

14

it to be properly notated on the outside of the envelope

15

and sent first class.

16

providing inserts, some limited amount of advertisement

17

within the scope, because the limitation, as I recall, is

18

that it just not be part of a regular shipment.

19

can't be part of a shipment of goods.

20

Nothing precludes the retailer from

So it

And so I believe that in these cases, it

21

could either be mitigated by marketing costs or

22

third-party material that could be inserted, similar to a

23

utility statement, where you'll get a flyer advertising

24

some other things that, essentially, take the utility

25

company's cost of mailing that down significantly on a

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per-piece basis.

2

And I would expect that Amazon, at that

3

size, if we're talking about the extreme ends of the

4

spectrum, would have a reasonable size incentive, if they

5

had a large order of magnitude of notices, to invest money

6

into figuring out a way to mitigate that cost.

7

Q.

I take it that your understanding of the

8
9

Thank you for the explanation.

statute, which is specifically in the statute, not in the

10

regulations promulgated by the department but in the

11

statute promulgated by the general assembly of the state

12

of Colorado, indicates the notice must be sent separately

13

and not as part of any other shipment.

14

A.

That's what it said.

15

Q.

Your belief is that permits a retailer to,

16

nevertheless, include other materials, marketing or

17

otherwise, in the envelope?

18

A.

I'm not here to interpret it other than to

19

provide my perspective.

20

that a regular shipment would be a shipment of goods.

21

Could be a shipment of a catalog.

22

that would otherwise be sent.

23

think there are a number of things that would provide

24

leeway for things to be included in that notice.

25

Q.

My perspective is I would expect

It should be something

But if it's not that, I

But your assumption in this regard, your

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benefits of different efforts all the time, are they not?

2

A.

Absolutely.

3

Q.

Are you aware that there are penalty provisions

4

specific to each requirement of the statute?

5

A.

Yes.

6

Q.

Are you aware that with regard to the annual

7

notice, that the failure to provide a compliant annual

8

notice subjects a retailer to a $10 notice per -- $10

9

penalty per noncompliant notice?

10
11

12

A.

That is part of what the statute reads or the

rules read.
Q.

Isn't it far more likely that retailers

13

evaluating the statute's specific direction that the

14

notice be sent separate from any other shipment, in light

15

of the $10 penalty for noncompliance, will choose to send

16

an annual notice without accompanying material?

17

MS. SCOVILLE:

18

THE WITNESS:

Object to the form.
The numbers used herein

19

reflect no mitigation of the cost, merely a statement that

20

the larger retailers will look to mitigate that cost.

21

no way would I expect that the marginal retailer who

22

barely meets the need and has crossed that threshold would

23

spend a whole bunch of time, energy, and money to try to

24

figure out how to mitigate the cost of 200 notices.

25

Doesn't make sense.

By the time they get done figuring

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l o u t how to do it, they would have spent more than they
2

would have to just send the notice.
When you bring up Amazon

3

and I don't know

4

what the numbers are -- at some point the threshold has

5

been crossed where somebody will look into it and probably

6

invest the time to get an attorney to look at what is or

7

isn't reasonably possible because the numbers are large

8

enough to map.

9

BY MR. SCHAEFER:

10
11

12

Q.

But if they invested the time and an attorney,

then they will have attorney costs.
A.

For the larger retailers, they'll probably have

13

attorneys doing work all day long.

If I go back to my

14

days at Accenture, the attorney was working doing

15

something or another all day long.

16

for a specific item I asked a question about.

I never saw a charge

So the reality is the small retailers won't

17
18

invest that time and energy because it won't make any

19

sense.

20

possibly, in this area, would invest the time and energy.

21

But, again, on a percentage-of-sales basis to make it

22

meaningful

23

them, it's an insignificant extent amount.

24

25

Q.

The larger retailers that have a lot of costs,

a meaningful measure across the breadth of

Doesn't the $10 penalty substantially raise the

bar for determining that including some other information

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with the notice would be cost-effective?
A.

Again, we're talking about the largest retailer.

3

They may very well ask for an opinion -- or ask for

4

clarification on this or --

5

at those people who are much more sophisticated and have

6

almost no cost for any of the other pieces.

7

address the one that is a consumables production cost if

8

it becomes a large enough number.

9

10

Q.

13

They will

One other aspect to your answer, we're talking

about Internet vendors, by and large, correct?
MS. SCOVILLE:

11

12

None of this report is aimed

Object to the form.

BY MR. SCHAEFER:
Q.

The affected retailers, is it your understanding

14

that most remote sales nowadays -- or remote sellers do

15

business over the Internet?

16

A.

I would say that statistics would support the

17

fact that even catalog retailers have a big move towards

18

the Internet side of the business.

19

20
21

22
23

Q.

Internet sellers tend to communicate with their

customers in electronic means, do they not?
A.

That, certainly I would expect to be part of many

e-commerce vendors' strategy.
Q.

So their strategy is to communicate bye-mail,

24

generally, because, in fact.

25

They are an electronic

vendor?

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2
3

A.

146

I would probably say some differentiate

themselves by having nonelectronic communication.
Q.

Isn't it the case that but for this Colorado

4

requirement of sending an annual notice, the vast majority

5

of affected retailers wouldn't be sending a mailing on

6

January 31 of each year to their customers purchasing over

7

$500?

8
9

A.

I would suspect that if given the choice, they

would probably go with -- especially when we're talking a

10

low volume of notices would probably go with an electronic

11

communication if they had their druthers.

12

Q.

Were it to cost a larger vendor 89 and a half

13

cents per notice, their costs -- say they have, in my

14

example, 10,000 notices to send.

15

retailer $8,950.

That would cost that

Is that a fair exercise of math?

16

MS. SCOVILLE:

17

THE WITNESS:

Object to form.
In your

in your example,

18

yes, it's an exercise in math only.

19

extrapolate and say that that is a cost for Amazon to

20

generate sales in Colorado, I don't think that would be an

21

undue burden on the size retailer like that who has lots

22

of other costs to do business anywhere they open up shop.

23

BY MR. SCHAEFER:

24

25

Q.

And that's your opinion.

But if we were to

We're talking, for a

moment, about the cost associated, not necessarily whether

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1

or not the cost is an undue burden in anyone's point of

2

view.

3

compliance?

4

You're here to assess costs, are you not?

A.

You're asking me what the cost is.

Costs of

It may --

5

You can argue dollars and undue burden.

6

bad form of my answer.

7

of sales, it is a much lower issue for somebody of that

8

size retail operation than it is for what we're talking

9

about in this report.

10
11
12

Q.

Okay.

Maybe that's a

But with respect to a percentage

You're not purporting to offer a legal

opinion about the relative burden?
A.

No, not at all.

Only to say that everything is

13

more expensive for a larger retailer who's doing

14

24 billion in business.

15

Q.

While we're on Exhibit A.1 -- and, again, this is

16

informed by the content of Exhibit A within the report,

17

correct?

18

A.

Yes.

19

Q.

Okay.

So, for example, you have in A.1, at the

20

top of your chart, the compliance effort.

21

the effort in terms of hours for different categories of

22

employees or professionals?

23

A.

Categories, yes.

24

Q.

Okay.

You first list

25

And you give, across the various

requirements, an estimate of the number of hours that

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1

someone in that category would need to invest for a

2

retailer the size you were evaluating to comply?

3

A.

Yes.

4

Q.

If someone were to draw a different conclusion

5

about the number of hours that this would require, that

6

would have the overall effect in the way you've done the

7

math of increasing the cost if they believed the number of

8

hours was higher?

9

10
11

A.

If you increase the number of hours, that would

increase the cost, yes.
Q.

Likewise, you have, then, a set of information

12

here under the heading Cost (per hour) for each of the

13

categories of professionals or employees that you

14

identify.

15

in that sets of rows, that it's cost per hour?

16

rate of someone in that category of employee?

Is it a fair understanding what the numbers are
The hourly

17

A.

Yes.

18

Q.

SO, for example, just to take the first one,

19

management cost per hour is estimated to be $105 per hour,

20

on average?

21

A.

I don't believe it's on average.

I believe I

22

articulated that's on the high end, based on the high end

23

pay range plus standard benefits and payroll burden,

24

taxes.

25

Q.

By saying "on average," I wasn't intending to

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1

imply that it was some middle-of-the-road number.

2

companies would have higher costs, some would have lower

3

costs.

4

here you're using some approximation for all companies?

5
6
7

A.

This is a number that you're using to estimate --

I'm using a high-end approximation for the

companies that we're talking about here.
Q.

Fair enough.
If someone were to conclude that, in fact,

8

9

Some

the hourly rate for any of these categories was higher,

10

that would have the overall impact of increasing the cost

11

estimates, would it not?

12

A.

Yes.

13

Q.

Similarly, with regard to the costs of

14

consumables in the final set of rows there, you have

15

assigned certain costs of consumables.

16

conclude that consumables might be somewhat more

17

expensive, it would have the effect of increasing the

18

overall cost of the annual notice to customers?

19

A.

Although that --

If someone were to

On a mathematical basis, yes.

20

But on a basis that these are already on the high end of

21

these types of consumables,

22

unless it's linen envelopes and hand inscribed.

23
24
25

Q.

I find it highly suspect

That would be nice, wouldn't it?

calligraphy.
A.

Calligraphy.

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(A recess ensued.)
BY MR. SCHAEFER:
Q.

3

Okay.

In your report, Mr. Gable, Exhibit 116, at

4

page 13, continuing the discussion that is under the

5

general opinion H, item 4 is the annual disclosure to the

6

DaR.

7

retailer will have to submit a file complying with the

8

Colorado Department of Revenue file layout."

And as you note in subpart a,

That's a fair statement of the law, is it

9

10

"Every affected

not?

11

A.

My interpretation of it.

12

Q.

Yes.
And then in subpart b, you indicate,

13

"For

14

these retailers, for costs for compliance with the Annual

15

Disclosure to DaR Requirement would range from $235 to

16

$470 or 0.004 percent and 0.008 percent as a percentage of

17

gross annual sales."

18
19

Again, those gross annual sales figures are
based on the seller with 6 million in annual sales?

20

A.

Yes.

21

Q.

Your estimate is that a seller with 6 million in

22

annual sales would have -- you estimated approximately a

23

hundred thousand customers.

24

used?

25

MS. SCOVILLE:

Is that the estimate you had

Object to the form.

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THE WITNESS:

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2

151

Not at all.

BY MR. SCHAEFER:

3

Q.

Okay.

4

A.

I made no assumption on number of consumers,

5

because I'm not sure that that materially impacted the

6

numbers.

7

number was a -- what I would consider, quote, unquote,

8

worst-case scenario with 200 notices adding up to exactly

9

a hundred thousand dollars worth of sales and barely

10
11

The only place where I stipulated a definitive

meeting the threshold.
Q.

Got it.
Have you ever worked with a -- with a house

12
13

file containing several hundred thousand names in any of

14

the work you've done?

15

A.

Yes.

16

Q.

In what part of your work?

17

A.

Credit card services.

18

Q.

And what kind of work were you doing with that

19

house file in that consultancy?

20

A.

We were handling credit card issuance.

21

Q.

So were these prospects?

22

A.

No.

23

These were existing clients and clients who

needed new cards, replacement cards, so forth.

24

Q.

25

Was it for a financial institution or for a

retailer?

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A.

American Express.

2

Q.

Okay.

152

And so what you were doing was managing an

3

effort to reissue cards upon expiration, that sort of

4

thing?

5

A.

It was the entire credit card platform for their

6

very broad set of credit card offerings, everything from

7

the green card to the black card and blue card, their

8

affinity cards, Delta, everybody else.

9

10

Q.

But was it with regard to

These were existing

cardholders receiving new plastic?

11

A.

Everybody.

12

Q.

Okay.

Existing and prospective.

Your estimated listed here in item 4 is

13

if I'm looking at Exhibit A.l,

is driven entirely by time

14

spent by management and a business systems analyst?

15

A.

That is correct.

16

Q.

So, for example, you haven't included any

17

professional time for an accountant or lawyer with regard

18

to compliance with this requirement in the law?

19
20
21

A.

I did not because the requirement is, of all of

these areas, probably the most straightforward.
Q.

Do you think that companies will need to spend

22

time in quality assurance or quality control with respect

23

to the file that they generate for the DOR?

24
25

A.

I think companies should spend time on the

quality of the file irrespective of this requirement, and

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the quality of their normal day-to-day operations is

2

153

driving this.

3

Q.

Okay.

To be more clear -- perhaps my question

4

wasn't a good one -- do you think they have to spend time

5

on quality assurance and quality control with regard to

6

the file extract that they need to provide to the

7

Department of Revenue?

8

9

A.

I think they need to properly extract the data.

If the data's bad, that has nothing to do with the
If the data is good,

they need to at least

10

extract.

11

verify that what they extracted is the right information.

12

Q.

They do, in fact, need to spend time verifying

13

that what they have done is extracted the right

14

information.

15

A.

Yes.

16

Q.

And, in fact, again, the file to the DOR has to

17

include not only folks with a Colorado mailing address but

18

also all consumers who have -- who live in other states

19

who have shipped goods into Colorado.

20

A.

21

Colorado.

22

Q.

Isn't that correct?

I believe all-encompassing would be shipped to

Okay.

So it includes customers who do not reside

23

in Colorado who may have delivered goods into Colorado or

24

asked that goods be delivered in Colorado?

25

A.

Absolutely.

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154

Would you agree with me that companies will have

2

a high degree of sensitivity to ensuring that they have

3

provided the proper list of customers to the Colorado

4

Department of Revenue in order that they not turn over

5

information to the department regarding individuals who

6

have not directed that goods be shipped into Colorado?

7

A.

I think their diligence of what they are

8

submitting to the Department of Revenue is going to be

9

reflective of their day-to-day operational diligence.

10

don't think there's any more or less because of this

11

annual disclosure.

12

Q.

I

Well, they don't, for any other purpose, have to

l3

create a data extract of individuals shipping goods into

14

Colorado, do they?

15

A.

The diligence

I'm not talking about that as

16

far as diligence.

17

accurate and so forth,

18

operations?

19

on a day-to-day basis, they're not suddenly going to spend

20

more time on this.

And it's right or wrong, but I think

21

that was my point.

Their day-to-day diligence will be

22

reflected in the quality of what they're SUbmitting either

23

to DOR or submitting as part of their other business

24

disclosure requirements.

25

Q.

I'm saying that if they want to be
that's part of their day-to-day

If they ultimately -- we'll call it wing it

I think what you're talking about is companies

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1

that are careful to maintain their customer information do

2

so in a manner that they try to make sure that it's devoid

3

of mistakes, that it has the proper mailing address, that

4

they have -- the information is correct and well

5

maintained?

6

A.

Yes.

7

Q.

What I'm talking about is a separate issue.

8

Certainly how well they maintain their data may provide a

9

degree of additional reliability with regard to any

10

extract they take.

Once they've taken an extract, would

11

you agree with me that a company, especially one that was

12

careful with its customer data, would invest time in

13

quality assurance and quality control to make sure that

14

the data that they were turning over to the Colorado

15

Department of Revenue was the only data that was required

16

and not data regarding individuals whose information need

17

not be submitted?

18

A.

Yes.

19

Q.

Would you agree with me that consumers in

20

general, in today's electronic commerce environment, have

21

a high degree of sensitivity around the privacy of their

22

information -- their personal information?

23

MS. SCOVILLE:

24

THE WITNESS:

25

generalization.

Object to the form.
I think that's a

I would argue that some people transact

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1

the protection of the credit card or payment information

2

from a consumer through the order process and retention

3

and handling of that information.

4

5

Q.

You're aware, are you not, that companies must

undergo an audit with regard to their PCI compliance?

6

A.

Once they reach a certain size, yes.

7

Q.

And, in fact,

8

it's viewed as being important by

companies that they successfully complete such an audit?

9

A.

Yes.

10

Q.

SO the changes with regard to their handling of

11

customer information, whether or not it actually dictates

12

any new measures to remain in PCI compliance, would you

13

agree with me that they may cause a retailer to review

14

their PCI compliance?

15

MS. SCOVILLE:

16

THE WITNESS:

Object to the form.
I don't believe any handling

17

of the information talked about within here would at all

18

make a retailer look at their PCI compliance.

19

BY MR. SCHAEFER:

20

Q.

Opinion L on page 15, you indicate,

"Requirements

21

will not materially impact the call volume for customer

22

inquiries regarding Transactional Notice."

23

Did I read that correctly?

24

A.

Yes.

25

Q.

I assume that you're not saying that you expect

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