Tax the Net!...continued....
page 4: A Gathering of Loopholes
The sales tax exemption is but one of the remarkable tax breaks that
have nurtured the Net. Most important is the exemption from local access
charges, which came from a 1983 Federal Communications Commission ruling
that protected the Net as an "infant industry." As a result, Internet
service providers (ISPs) have never had to pay local phone companies to
use their switching gear. In marked contrast, long-distance firms have
forked over $20 billion to $30 billion annually to use switching gear on
a metered basis. America Online Inc. of Dulles, Va., and other ISPs
have been able to offer unlimited $19.95-a-month Net access for years
because the FCC, under its techno-friendly former chairman Reed Hundt,
allowed the continued exemption of ISPs from metered charges. (Hundt is
now a venture partner at VC firm Benchmark Capital, Menlo Park, Calif.)
Washington, it should be noted, has been heavily lobbied on this issue
by the Internet Access Coalition and its member firms, which include IBM
Corp. of Armonk, N.Y., and Intel Corp. of Santa Clara, Calif. Few would
consider today's Internet an "infant industry." But its continued
exemption from access charges, while long-distance carriers pay tens of
billions of dollars annually, has clearly been a factor in the Web's
wondrous growth. Exempt from metered charges, some Net users--unlike
phone callers--can stay on the line as long as they want. All those
unmetered hours on the Web translate directly into eyeballs, hits and
advertising audiences for e-commerce players. Meanwhile, long-distance
phone callers have essentially subsidized the capital outlays local
phone companies have made to handle all that data traffic. As if this
wasn't enough of a break, tech industry lobbyists still managed to
convince Congress--ever on the lookout for campaign sugar daddies--to
pass the Internet Tax Freedom Act last year. This bill basically
prohibited new Net taxes, including levies applied to Internet access or
so-called "bit taxes" based on Internet bandwidth use. So now Internet
users don't have to worry about paying the kinds of state taxes that
other telecom service users often must pay. Hardly content with their
exemption from Internet access taxes, sales taxes and other levies,
industry lobbyists are already massing forces for the next round of
battles. AOL, IBM and more than 20 other companies recently formed the
Global Business Dialogue on E-commerce, an international coalition that
hopes to shape policy decisions on privacy and global tariffs as well as
taxation. IBM VP of Governmental Programs Chris Caine concedes, however,
that the focus for now will not be on taxes, since the industry has
already secured most of what it wants. "We've done pretty well," allows
Caine. In future showdowns with tech's Masters of the Universe, who
would dare bet on the local tax man? Already outflanked in the passage
of the Internet Tax Freedom Act, brick-and-mortar businesses and state
and local governments have also fared poorly in the political jockeying
to implement the new law.
Tax the Net!
page 5: Stacking the Deck
The bill established the Advisory Commission on Electronic Commerce to
make proposals on what should be done once the three-year tax moratorium
expires. The commission was to be staffed with equal numbers of business
and government representatives, with at least one representative of a
retail or Main Street-type business. But the congressional leaders in
charge of putting the commission together actually chose nine business
representatives--not one from a small Main Street business or retail
chain--and just seven state and local government representatives. And
this 9-7 business advantage is more overwhelming than it seems. While
the government appointees hold a wide range of views, the business
contingent represents a pretty narrow band of the self-interested.
Business appointees come from companies with obvious stakes in the Net,
including AOL, MCI WorldCom Inc. and The Charles Schwab Corp. Former
House Speaker Newt Gingrich, for example, chose five members, selecting
a mix of outspoken anti-tax advocates and industry representatives. His
primary government appointee? Gov. James Gilmore of Virginia, whose
state hosts Internet powerhouses like AOL, UUNet Worldcom (a unit of MCI
WorldCom) and PSINet Inc. With the deck stacked against local
authorities and Main Street businesses, the National Conference of State
Legislatures (NCSL) petitioned congressional leaders for redress. "The
failure to meet statutory requirements regarding the commission's
membership has already raised a cloud over the commission's legitimacy,"
NCSL representatives stated in a Dec. 11, 1998, letter to Senate
Majority Leader Trent Lott and Minority Leader Tom Daschle. Referring
to the advisory commission, Ohio Senate President Finan declares: "It's
dominated by industry. I think it's illegal." This issue could well
wind up in court. Both the NCSL and the National Association of Counties
are prepared to take legal action if the composition of the commission
is not adjusted to meet statutory requirements. The handling of the
advisory commission issue has, at the least, shown opponents of Web tax
privilege just what they're up against. "I remain hopeful that there'll
be a solution. But I think the way this has started out is not very
positive," says Utah Gov. Leavitt.
continued.... |
