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March 16, 1999

INSIDE TECHNOLOGY

E-COMMERCE vs. THE FEDERAL GOVERNMENT

by Tracy Blair

E-Commerce, or business done over the Internet, is an exploding market. Companies such as Amazon.com are making headlines with sales and stock prices, and the future may hold even greater yields for on-line companies. Market research is predicting that as the number of Internet users increases, so will the number of companies looking to cash in on the benefits. What will this bumper crop of sales mean to the consumer?

Frank Gens, a senior Internet analyst at International Data Corporation who has been studying this trend, predicts that taxation by the U.S. government on Internet commerce is inevitable. While it is no secret that the government has been debating this issue, it could come as a surprise to many that other types of taxation are also being hotly debated. In a commerce and sales environment that has been predicted to reach $900 billion by the year 2003, it seems that the government itself may be looking to grab a piece of the pie.

California Congressman Christopher Cox is actively opposed to taxes on Internet access. His Internet Tax Freedom web page, http://cox.house.gov/nettax/ showcases many of the issues Cox is fighting, along with his past successes. In a letter to one of his constituents, Cox wrote, "I [also] oppose plans by the Federal Communications Commission to impose special per- minute telephone taxes on Internet users," indicating that the FCC has taxation proposals in the works. There are various other Internet taxation issues noted on the site:

In what has been described as "the most important tech issue" of the 105th Congress, the Internet Tax Freedom Act established an Advisory Commission on Electronic Commerce. Many counties and cities, however, are filing a federal lawsuit to block the panel from meeting. In a March 3 article in the New York Times, Jeri Clausing took a closer look at this issue, noting that the National Conference of State Legislatures has threatened similar action against the Advisory Commission, which has been unable to meet because of the dispute. Other such articles are springing up in quick succession as this debate heats up. "Counties Demand Net Taxes," "Net Tax Commission in Limbo," and "Net Tax Food Fight" are just a few of the many headlines.

The Internet Tax Freedom Act, approved by Congress on October 20, 1998, addresses the threat that "the Net is inherently susceptible to multiple and discriminatory taxation in a way that commerce conducted in a more traditional way is not." It points out that the design of the Internet itself would lend to "several States and perhaps dozens of localities [attempting] to tax a single Internet transaction." A full summary of this Act can be found at http://cox.house.gov/nettax/lawsums.html; this site also has a link to a section-by-section analysis of the law.

Certainly one of the more important issues of our time, this debate could affect the way that we use and conduct business on-line. Just where the debate will end is anyone's guess, but we can expect some type of new taxation to affect Internet use in the very near future. What that will be, and in what manifestation, remains to be seen.


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