April 1, 2012 Internet Taxation without Representation on Montana’s Small Businesses Position Summary The three Federal bills (the Main Street Fairness Act of 2011 S. 1452/H.R. 2701, Marketplace Equity Act of 2011 H.R. 3179 and Marketplace Fairness Act of 2011 S. 1832) currently under consideration by Congress and the Senate, should not be enacted in any form because they could have a devastating impact on the U.S. economy that will reverberate down to all states, including non‐sales tax states such as Montana. 
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The prohibitive cost and complexity of compliance may force many small online businesses to downsize or close, thereby accelerating further consolidation of large offline and online retailers The bills will stifle innovation, competition and economic growth, at a time when the economy is struggling to recover Consumers will be hit hard: they will ultimately foot the bill for these taxes and will face higher prices and less choice with market consolidation Secondly, all non‐sales tax states, such as Montana should be exempt from any remote sales tax legislation as they would bear the prohibitive cost of compliance with no benefits returning to the state. This also goes against the principle of representation through taxation. Finally, in support of entrepreneurs across the U.S., any small business definition should be consistent with industry standards. The Small Business Administration defines retail non‐store ‘electronic shopping’ (NAICS code: 454111) small businesses as those with a maximum of $30 million in annual receipts. As these types of remote retailers are prime targets for these bills, $30 million should be the small seller exemption threshold for any federal or state tax legislation. Innovation, entrepreneurship and e‐commerce in Montana “Many smaller companies, which do not have the advantages of scale and market position but can innovate more quickly, are leading the way [of the digital future]. Small and medium enterprises, historically the growth engine of national economies, are also becoming Internet successes… The Internet is driving sales and job growth at these companies.” “The Digital Manifesto,” The Boston Consulting Group1 With a population just shy of one million, Montana is ranked #44 relative to other states, yet in terms of entrepreneurship and innovation, the state gets high honors. Montana was ranked in the Top 7 for five key indicators, including entrepreneurial activity, R&D intensity, STEM job growth, business birth rates and small business lending activity.2 The state of Montana is a haven for new business innovation and is a place where many technology and Internet‐related businesses call home.
Page 1 of 9 April 1, 2012 Examples of Montana‐based Internet companies affected by these tax bills: 3ForksSaddlery Technology, and specifically e‐commerce, has allowed remote sellers, such as those located in Montana, to compete on a national and global scale. Based on analysis of state and national data, Montana generated approximately $742 million of retail e‐commerce sales for 2011.3 Over the past four years, retail e‐commerce grew at 8.8%, over seven times the rate of the total retail sector and 8.9% for total e‐
commerce, nearly five times faster than the rate across all sectors. MT: E‐Commerce Retail sales estimate
$million
742 800
600
517 522 2007
2008
569 638 2009
2010
2007‐2011
CAGR
8.8% vs. 1.2% for total retail sector
400
200
‐
2011
% of US 0.37% 0.37% 0.39% 0.38% 0.38%
*Includes retail trade sales, manufacturing shipments, merchant wholesale trade sales (including MSBOs) and selected services revenues as per e‐stats definitions, U.S. Census. Source: Analysis; 2007 Economic Census; Bureau of Economic Analysis, 2008 and 2009 County Business Patterns, e‐stat annual and quarterly reports.
Growth and innovation under threat This entrepreneurial momentum is under threat however by proposed federal bills: The Main Street Fairness Act, The Marketplace Equity Act and The Marketplace Fairness Act. Three bills with similar names, slightly different approaches and political backing, but with one goal: to require out‐of‐state sellers to charge sales tax on purchases from in‐state customers (who reside in states with state or local sales tax). Montana‐based companies who sell remotely into other states via the Internet, phone or catalogs, will be impacted by these bills. Until now, remote sellers are not required to collect sales tax unless they have had a ‘substantial nexus’ or physical presence in a state.4 Fallout from this new legislation will be significant for our burgeoning Internet and mail order businesses based in Montana. In 2009, this equated to 406 establishments (79 employer and 327 non‐employer), representing 631 Montana jobs.5 Page 2 of 9 April 1, 2012 Taxation without representation Many states are far from being in Montana’s enviable position6: ranked as the state with the lowest budget gap in the country (in fact at rank #1, Montana operated with a $300 million surplus during the past budget cycle).7 In the wake of prolonged overspending,8 many states view this new federal legislation as a way to address their mismanagement of their state finances and bolster their budgets by forcing out of state companies to do their dirty work: collect ‘use tax’ which states are owed, but until now, have had very limited success in collecting from consumers . While many remote purchases do not incur sales tax today (unless the vendor has a physical presence in the state), many states require consumers to declare and pay a ‘use tax’ on these transactions. In reality, very few people pay or are even aware of ‘use tax’ and state governments find collection too cumbersome, worthwhile, or more importantly, unpopular to pursue outside of big ticket items such as cars and boats. Why should companies from non‐sales tax states such as Montana, be burdened with tax collection for other states, particularly, when they will realize no benefit from those tax dollars? Should they not be exempt? This issue was raised in a House Judiciary hearing discussing these very bills.9 Moreover, by removing minimum connection or nexus and allowing one state to force a company that lies outside its border to collect sales tax on its behalf, it may be opening up a Pandora’s Box. “My concern is since we are getting rid of that minimum connection, are we opening the door for other states to actually apply their regulatory environment on to companies who have no physical presence within that state?” 10 “I have little patience for new methods of governmental exploitation. This country has been founded on certain principles, one of which was “No Taxation without Representation.” If my business is required to now pay taxes in all 50 states, would I then have the opportunity to vote in all states?” Jack Kiefer, CEO BabyAge.com11 “In my opinion, the pending bills allow states to shirk their responsibilities to administer and collect the taxes they impose on the taxable “end consumer.” Instead, they pass that burden on to non‐resident, non‐voting businesses. Passage of such legislation would curtail the emergence of the next innovative E‐commerce company and poison the Internet‘s fertile ground for growth and innovation…We oppose the pending bills because they ‘outsource’ to retailers, without compensation, the burden of collecting taxes from residents of states where those retailers have no physical presence nexus…Imposing such an obligation on a company that has no political say in the taxing decision, the election of state and local officials who make that decision, or how the tax revenues are used, is about as perfect a definition of taxation without representation as can be devised in the 21st Century.” 12
Dr. Patrick Byrne, Chairman & CEO of Overstock.com Cost of compliance could be devastating for small businesses So what does this mean for small and medium‐sized Montana businesses selling to other states? While retailer groups are claiming these bills will ‘level the playing field’ or ‘close the tax loophole’13 it will in fact, result in placing smaller retailers at a distinct disadvantage. If small retailers become tax collection agents for over 9,600 tax jurisdictions14 across 46 states,15 small online businesses will bear the brunt of these prohibitive tax compliance costs. A Price Waterhouse study16 found that compliance costs for small retailers were 13.5% or six times greater than large retailers at 2.2%.17 Overstock.com was faced with a $300,000 software bill in addition Page 3 of 9 April 1, 2012 to months of IT man hours when they implemented sales tax software in preparation for establishing nexus in one state.18 The top three costs for small businesses are: 1) return preparation and related costs, 2) documentation of tax‐exempt sales; and 3) training of personnel on sales tax.19 Analysts estimated that subjecting e‐retailers to taxation could affect the valuations of web‐only retailers by up to 25%20 and reduce online sales by 24%.21 If small businesses, already operating on slim margins, were forced to meet these costly and burdensome compliance requirements and deal with possible dips in sales, the net outcome would be job cuts, downsizing, closing shop or being sold to larger retailers. The bills are essentially proposing a dual tax system: physical retail outlets will continue to charge a single rate based on the applicable combined state and local tax rate, which is an ‘origin‐sourced’ taxation method while remote sales will charge sales tax based on the location of the buyer (who could be located in over 9,600 tax jurisdictions), essentially a ‘destination’ based’ system. The latter represents an incredibly complex taxation system, which may be overwhelming for small businesses or Main Street retailers who supplement store income with online sales. How does this level the playing field? “In these difficult economic circumstances, placing new, unfunded mandates on out‐of‐state companies to comply with complex and changing tax structures in many states around the country will hamper e‐
commerce, a fast growing segment in our economy.” 22
Statement from the Direct Marketing Association (DMA), November 9, 2011 “Whereas any Federal legislation that would upset the free and fair Internet marketplace and allow State governments to impose new, onerous and burdensome sales tax‐collecting schemes on out‐of‐State, Internet‐enabled small businesses would adversely impact hundreds of thousands of jobs, reduce consumer choice and impede the growth and development of interstate commerce.” 23
House Resolution 95, introduced by Rep. Dan Lungren (R‐CA), Rep. Zoe Lofgren (D‐CA) Enforcement will come down heavy on small businesses Statistics show that small businesses are more often the target of tax audits versus large corporations: companies with $10‐$50 million in assets were 29% more likely to be investigated by the IRS in 2007 than in 2005, while companies with more than $250 million in assets were almost 40% less likely to be audited than in previous years.24 Small businesses represent easier targets for taxing authorities: “Large corporations, with their armies of tax attorneys and accountants, are able to drag out an audit for years at a time. Consequently, auditors tend to focus on smaller businesses that lack such resources.”25 State auditors are also getting more aggressive in hunting down non‐resident income taxes, searching social media sites for travel schedules, tracking down companies who hire in‐state employees and “generally imposing a colossal compliance burden that is a net revenue wash.”26 If internet taxation legislation were passed, small business entrepreneurs would be faced with the prospect of over 9,600 tax authorities from all over the nation, potentially auditing their company. Further, the taxing states would be emboldened to hire armies of new sales tax auditors. Page 4 of 9 April 1, 2012 What is the definition of a small business? Advocates of the new bills argue that accommodations have been made for smaller players, a gesture which acknowledges the difficulties a small company may have in staying abreast of sales tax on a nationwide basis. The Marketplace Fairness Act includes small seller exemption or “de minimus” language, which sets an annual sales threshold, under which a small out‐of‐state business would not be required to collect sales and use tax without a physical presence, at $500,000 of remote sales and the Marketplace Equity Act has extended this to $1 million in total sales‐ both remote and other products (or $100,000 in an individual state). This is a far cry from the first streamlined sales tax bills introduced in Congress over a decade ago: $5 million was the initial exemption point for small retailers. The Treasury Department sets the small businesses threshold at $10 million of income or deductions.27 The Small Business Administration (a U.S. government agency no less), sets the size standard for non‐store Electronic shopping (NAICS: 454111) small business retailers as $30 million in total annual receipts: 28 This particular group is one of the main targets for these new taxation bills: retail establishments using non‐store means such as catalog, telephone or electronic media. Some have argued that at a minimum, the small business threshold should be set at $30 million.29 However, given the scale and scope of how large corporations have become, including bricks and clicks retailers, we argue that the threshold is $50 million. “Protecting small business retail from blanket remote sales tax collection is beneficial for retail competition and economic growth, and should be retained in any new remote sales tax regime.” Tod Cohen, Vice President and Deputy General Counsel, Government Relations, eBay Inc. Nov. 30, 2011
30
Further market domination by big players Many would argue that certain factors pertaining to the very nature of online retailing, already level the playing field. Online prices are on average 9‐16% lower than in conventional outlets,31 as a result of price transparency, and free delivery costs (offered in over half of online sales)32 are often absorbed by the online vendors. Although they operate ‘online’, e‐retailers also often have costs associated with their physical presence in the form of warehouses, offices and production facilities. Conversely, it would be more apt to refer to large ‘brick‐and‐mortar’ companies as ‘Brick & Click’ retailers as nearly 45% of their in‐store sales are web‐influenced and these retail giants constitute 18 of the Top 25 retail websites today. 33 These giant “Brick & Click” retailers and large online retailers (with $20 million or more in sales) such as Amazon, have been rapidly squeezing market share from the small end of the market (Web‐enabled retailers with less than $10 million in sales) whose market share of e‐commerce has dropped from 31% in 2008 to 19% in 2010, while the large players grew from 69% to 81% over the same period.34 Big box discount retailers alone have jumped from 42% of retail sales in 1987 to 87% in July 2010.35 Analysis suggests states will yield more results by targeting their efforts on large firms: the top 10 firms (ranked by uncollected taxes) account for approximately 47% of total uncollected revenues.36 Pursuing online taxation for small e‐retailers, will only hasten the demise of many of these innovative and entrepreneurial small businesses while accelerating consolidation at the top end of the market. Page 5 of 9 April 1, 2012 “The Main Street Fairness Act has little to do with Main Street or fairness. Small retailers have every right to build e‐commerce sites and start competing today. It’s actually about Big Boxes lobbying politicians, complaining that they aren’t big enough already.” 37
Jon Hoch, Founder and CEO, Power Equipment Direct Other taxation options? The first priority is to completely reject these bills or any other similar bills. This is critical in order to (a) continue to cultivate a small business entrepreneurial environment in our economy (a proven job creation engine), and (b) slow the dominance of large brick and click retailers. If any legislation were to be passed, then the top priority would be to push for a complete tax exemption for Montana‐state based business since Montana does not have a sales tax. Finally, if a tax has to be implemented on remote and Internet transactions, the most equitable and reasonable approach would be a single default national sales tax applicable to all remote sales on all products (including software) and services – with absolutely no exemptions of any kind – paid to a single federal governing body (Congress is the only entity that has the power to regulate interstate commerce in the Constitution) with revenue redistributed to the states. Compensation, in some capacity, should be made to non‐sales tax states to lessen the administrative and cost burden of compliance. This would place the least reporting and remitting burdens on smaller e‐retailers and be the easiest to enforce. Ideally, this would be revenue‐neutral, with revenues collected to help reduce other taxes.38 A single tax option was discussed at the judiciary hearing debating these bills “The question really becomes one, not only of fairness, but also of practicality for those businesses… If we are doing this for interstate sales… why not have one uniform tax definition of what is subject to tax and one uniform tax?”39 “This proposal [Main Street Fairness Act] targets “Main Street” businesses that cannot afford to comply with the overly complex sales tax laws that change from town to town and month to month. It was drafted by the largest international corporations that use legal loopholes to pay much lower corporate taxes than real “Main Street” small businesses. A true main street fairness plan must create a simple flat sales tax that does not require any army of expensive CPAs to comply with.” 40
Todd Morris, Founder BrickHouseSecurity.com Main Street Fairness Act is unconstitutional Finally, when the proposed bills are placed under a legal microscope, they are found to be woefully inadequate: allowing states to impose taxes on interstate commerce, violates the Dormant Commerce Clause41 of the U.S. Constitution. A strong legal argument 42 regarding three major constitutional concerns with the proposed SSUTA legislation was referenced at a congressional hearing. While the bills “constitute a valid exercise of Congress’s commerce power,” if enacted, the Main Street Act would: 1. Violate the State Treaty Clause because SSUTA is not a valid interstate compact, but rather a “Treaty, Alliance, or Confederation” between states, which the Constitution flatly prohibits.43 2. Violate the Appointments Clause44 by granting federal power to the SSUTA’s Governing Board, which Member States appoint, not the President. 3. Lead to violation of the Due Process Clause by authorizing SSUTA Member States to Page 6 of 9 April 1, 2012 force out‐of‐state sellers to collect and remit taxes, even when those sellers lack sufficient minimum contacts with the taxing state. Conclusion In conclusion, internet taxation, if enacted, would be severely detrimental to the US economy and to Montana. It would be nearly impossible to meet compliance and audit costs and requirements, and kill small business innovation, therefore jobs. We strongly encourage all leaders to unequivocally oppose this or similar legislation, which reduces innovation, increases costs for consumers, rewards state for budget mismanagement, and is unconstitutional. Footnotes 1
Dean, D, DiGrande, S. and Zwillenberg, P., “The Digital Manifesto: How companies and countries can win in the Digital Economy,” Boston Consulting Group, January, 2012. 2
“Enterprising States 2011: Recovery and renewal for the 21st century,” U.S. Chamber of Commerce, June 21, 2011. 3
Categories include those used in e‐stats, US Census: Retail (NAICS 44‐45); Manufacturing shipments (NAICS: 31‐
33); Merchant wholesale trade sales (NAICS: 42, including MSBOs) and Selected services revenue (NAICS: 4849x: selected transport and warehousing, 51: information, 523x: selected finance, 532: rental and leasing services, 54: selected professional, scientific & technical, 56: administration & support & waste management & remedial services, 62: health care and social assistance services, 71: arts, entertainment & recreation services, 81: selected other services). Key assumptions: In the absence of e‐stats‐type data at the state level, best estimates were made to determine e‐commerce revenue for the state of Montana. 2007 US Economic Census data was used for Montana, then Bureau of Economic Research data for Montana GDP annual growth rates were applied to each sector and e‐stats U.S. rates for e‐commerce as a percentage of sector rates were applied. 4
This ‘nexus’ ruling is supported by two major Supreme Court cases: National Bellas Hess Inc. v. Illinois 386 U.S. 753 (1967)4 and Quill Corp. v. North Dakota 504 U.S. 298 (1992). Bellas Hess, supported by the Dormant Commerce clause of the U.S. Constitution, was the original case that protected mail order sellers from collecting and remitting state sales tax if the seller’s only physical ‘nexus’ with the state was solicitation of sales through catalogs and delivery of goods through the mail. In Quill, while the U.S. Supreme Court ruled that North Dakota had sufficient minimum contacts to impose a remote tax with respect to Due Process, it reaffirmed Bellas Hellas v. Illinois, in that retailers are exempt from collecting sales taxes in states where they have no ‘substantial nexus’. Although this case dealt with a catalogue mail company, the ruling has been applied to all remote sellers, including online retailers. This case clarified that the U.S. Congress has control over this matter of interstate commerce (advocates of the new legislation are hoping that Congress will exercise this control). 5
2009 County Business Patterns, 2009 Non‐employer statistics, U.S. Census Bureau. 6
McNicol, E., Oliff, P., and Johnson, N., “States continue to feel recession’s impact,” Center on Budget and Policy Priorities, March 21, 2012. 30 states have projected or have addressed shortfalls totaling $49 billion for fiscal year 2013. 7
Op. cit., U.S. Chamber of Commerce, June 21, 2011. 8
Mitchell, M., “State spending restraint: An analysis of the Path Not Taken,” Mercatus Center, George Mason University, August 2010. From 2000 to 2009, state and local spending grew at nearly twice the average annual rate as the private sector. 9
Representative Robert Goodlatte (R‐VI) raised this issue at the hearing on Constitutional Limitations on States’ Authority to Collect Sales Taxes in E‐Commerce, November 11, 2011. 10
This point was raised by Representative Ben Quayle (R‐AZ) at the aforementioned hearing, November 11, 2011. 11
Garver, A., “Valuations of Web‐Only Retailers Could Drop by 25%,” seekingalpha.com, October 9, 2011. 12
Byrne, Dr. Patrick, Chairman and CEO Overstock.com, Testimony to the hearing on Constitutional Limitations on States’ Authority to Collect Sales Taxes in E‐Commerce, November 30, 2011. Page 7 of 9 April 1, 2012 13
The National Retail Foundation and the Retail Industry Leaders Association often talk about ‘leveling the playing field’ and ‘closing the loophole’, but this is not in fact a loophole but a constitutional right: The dormant Commerce Clause prohibits states from regulating in ways that unduly burden interstate commerce (U.S. Constitution: Article I, Section 8, Clause 3). 14
Various numbers are quoted in terms of the total number of tax jurisdictions in the U.S., in reality these numbers are changing and approximately 200 new jurisdictions are added each year. The most recent reference to the number of local tax jurisdictions is 9,646, by attorney and policy analyst, Joe Henchman from the Tax Foundation. 9,746 tax jurisdictions were referenced by Dr. Byrne, Chairman & CEO of Overstock.com at the Judiciary hearing on November 30, 2011. 15
All states except Alaska, Delaware, Montana, New Hampshire and Oregon have state sales taxes and some jurisdictions in Alaska also have local sales taxes. 16
“Retail Sales Tax Compliance Costs: A National Estimate, Volume one: Main Report,” Prepared by Price Waterhouse Coopers for Joint Cost of Collection Study, National Economic Consulting, April 7, 2006. 17
Small retailers are companies with $150,000‐$1,000,000 annual sales, medium retailers with $1M‐$10M annual sales and large retailers with sales over $10M. Compliance costs for medium retailers were estimated at 5.20%, ibid. National Economic Consulting, April, 2006. 18
Byrne, Dr. P., op. cit., p. 4, November 30, 2011. 19
Other costs include: customer service relating to sales tax issues, sale tax‐related software and license fees, programming and servicing cash registers, dealing with sales tax audits and appeals and other compliance costs. In the same report, more detailed numbers provided by small businesses show that they spend 17 cents for every tax dollar collected for states. While SSUTA will cover some of the software costs to manage tax collection and reporting, this only represents 2 cents of every 17 cents. That leaves a 15% shortfall or cost burden on every dollar they collect. Ibid. National Economic Consulting, 2006. 20
Garver, A., “Valuations of Web‐Only Retailers Could Drop by 25%,” seekingalpha.com, October 9, 2011. 21
Ellison, G. and Ellison, S. F., “Tax Sensitivity and Home State Preferences in Internet Purchasing,” MIT, August 2008. 22
“DMA expresses disappointment with introduction of the ‘Marketplace Fairness Act,” statement from the Direct Marketing Association (DMA), November 9, 2011. 23
“Supporting the preservation of Internet entrepreneurs and small businesses,” H.R. 95, introduced by Rep. Dan Lungren (R‐CA) and Rep. Zoe Lofgren (D‐CA), February 16, 2011. An identical resolution was introduced in the senate: “Supporting the preservation of Internet entrepreneurs and small businesses,” S.R. 309 on November 3, 2011 by Senators Ron Wyden (D‐OR) and Kelly Ayotte (R‐NH) and a bi‐partisan group of senators. 24
Mount, I., Transactional Records Access Clearinghouse at Syracuse University referenced in “IRS small‐business audits increase,” CNN Money, June 3, 2008. 25
Ibid. Mount, I., June 3, 2008. Quotation from Congressman Lloyd Doggett (D‐TX) who sits on the House Committee on Ways and Means which oversees the IRS. 26
Henchman, Joseph, Testimony before the U.S. House Committee on the Judiciary, Subcommittee on Commercial and Administrative Law‐ Hearing on the Impact of Congressional Legislation on State and Local Government Revenues, April 15, 2010. 27
“Methodology to Identify Small Businesses and Their Owners,” Office of Tax Analysis, Department of the Treasury, Technical Paper 4, August 2011. 28
“U.S. Small Business Administration Table of Small Business Size Standards,” November 5, 2010. “Electronic shopping” NAICS code: 454111. Electronic auctions (NAICS 454112) is $35.5 million and mail‐order houses (NAICS: 454113) is $35.5 million in total annual receipts. 29
Cohen, Tod, VP and Deputy General Counsel, Government Relations, eBay Inc. Testimony at the Hearing on Constitutional Limitations on States’ Authority to Collect Sales Taxes in E‐Commerce before the Committee on the Judiciary, U.S. House of Representatives, November 30, 2011. 30
Cohen, Tod, ibid., November 30, 2011. 31
Brynjolfsson, E. and Smith, M., “Frictionless Commerce? A Comparison of Internet and Conventional Retailers,” Management Science, Vol. 46, No. 4, MIT Sloan School of Management, April 2000. 32
“State of the U.S. Online Retail Economy in Q4 2011,” p. 40, comScore, February 2012. Page 8 of 9 April 1, 2012 33
Cohen, Tod, p.4, November 30, 2011. Cohen, T., ibid. “US eCommerce share by retailer size, 2008 to 2010” chart, p.6., 2011. 35
Cohen, T., ibid. p. 4., 2011. 36
Eisenach, J. and Litan, R. “Uncollected sales taxes on electronic commerce: A reality check,” Empiris LLC, February, 2010. 37
Garver, A., op. cit., October 9, 2011. 38
Henchman, J., “Assessing Federal Action on State Efforts to Collect Sales and Use Taxes on Internet Commerce,” testimony at the Hearing on Constitutional Limitations on States’ Authority to Collect Sales Taxes in E‐Commerce before the Committee on the Judiciary, U.S. House of Representatives, November 30, 2011. 39
Comments made by Representative Robert Goodlatte (R‐VI) at the Hearing on Constitutional Limitations on States’ Authority to Collect Sales Taxes in E‐Commerce before the Committee on the Judiciary, U.S. House of Representatives, November 30, 2011. 40
Garver, A., op. cit., October 9, 2011. 41
The Dormant Commerce Clause of the U.S. Constitution (Article I, Section 8, Clause 3): The U.S. Congress shall have power “To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.” By negative inference, a state may not unduly burden interstate commerce. 42
Clement, Paul D., “Constitutional Difficulties of Proposed Streamlined Sales Tax Legislation,” November, 2011. 43
Reference art. I s. 10 cl. 3 of the U.S. Constitution. 44
Reference art. II, s. 2, cl.2 of the U.S. Constitution. 34
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