Federal, state and local governments are doing what they do best by trying to find new ways to tax the overtaxed taxpayer. Now they are trying to find ways to tax Internet transactions and connections.

Electronic commerce, whether conducted on the Internet or other online services, creates fundamental changes in the way we conduct business transactions. As time goes on, goods will be purchased, shipped, and invoiced electronically. Face -to -face transactions will become obsolete, along with the requirement of a business to maintain a physical presence. This has forced many taxing jurisdictions to confront the issue of a shrinking tax base by creating what are new and confusing tax laws and regulations. Up till now, the ability of states to impose taxes on out-of-state companies has been limited by three factors:

1.The Due Process Clause of the U.S. Constitution which requires that a business have some minimal connection with the taxing jurisdiction

2. The Commerce Clause of the U.S. Constitution which demands substantial physical presence in a state to establish nexus (jurisdiction to impose tax); and

3. Public Law 86-272, which bars states from collecting income taxes on companies that solicit the sale of tangible personal property (such as selling a product through a distributor, wholesaler or retailer), where the property is shipped into the state from an out-of-state location. The result is an expansion in nexus claims by states.

Alabama, South Carolina, Louisiana, Tennessee, Illinois, New York, Ohio, Texas and West Virginia all reported imposing taxes on one or more electronic, computer-based services. New Jersey, Wisconsin, Iowa, Washington, Florida, Colorado and Connecticut are attempting to do the same.

In Texas, posting web pages on a server is a taxable data processing service; providing access to the Internet is a telecommunications service and subject to tax if subscribers access the system by calling a Texas number or by calling (from inside Texas) an 800 number; creating graphics or logos using a drawing program for a client's home page is a taxable graphic art; providing access to the information (data bases maintained by the seller of the service) on the Internet is a taxable information service.

States are also attempting to expand current definitions of telecommunications services in order to apply taxes to a wider range of information services. This move into the digital world poses several problems. For instance, some or all of these services might be taxed in one state but not in a second state. In one state, a web site might be considered a data processing service; in a second state, the web site might not be taxed at all.

Clearly, taxing authorities are testing new strategies to prevent the loss of tax revenue in cyberspace. In some cases, it may be redundant if you do business in more than one state, or country, which is almost inevitable on the Internet. The result can only mean increased costs to customers.

We ask that you write your state and federal representatives urging them to oppose all form of taxation of online services and transactions, and support the repeal of the Communications Decency Act. Freedom of speech and freedom of association must not be comprised by an overzealous polity. You can find your state and federal representatives addresses at the Freethought web site
http://freethought.com.

Another good place to start electronically would be at the Electronic Frontier Foundation at http://www.eff.org

 

Censorship on the Internet
Communications Decency Act

A blow to freedom of speech came when Congress passed the Communications Decency Act (CDA) last year. However, the ACLU and the American Library Association successfully won a preliminary injunction barring

enforcement of the law last June. A 3-judge panel sitting in the U.S. District Court in Philadelphia granted the injunction preventing the federal government from enforcing the Communications Decency Act. The panel wrote in its decision that "as the most participatory form of mass speech yet developed, the Internet deserves the highest level of protection from government intrusion."

U.S. Sen. Russ Feingold applauded the Court's decision giving computer network communications the same level of protection from government censorship enjoyed by print media. "This is welcome news for all of us who not only support free speech, but who also want to see this new, dynamic communications technology develop safely from the threat of censorship," Feingold said. "I have always argued that legislation attempting to restrict the content of computer transmissions is both unnecessary and unconstitutional."

Several other organizations (11 in all) joined in the battle including Playboy and the National Association of Broadcasters. Despite the government's failure to introduce evidence, the Department of Justice attempted to convince the Federal District Court that users are scared away by indecent material. The Association of National Advertisers says that parents, not government, should decide what children may and may not see adding that "today, would-be regulators of speech routinely attempt to dress up censorship in the cloak of protection of children." We agree with their assessment.

Playboy's brief stated that its magazine "has never been found obscene, indecent, pornographic or harmful to minors by any court," yet its Internet site, under the new law, would be criminalized.

The question we must ask: Is regulating indecency a function of the federal government? We say the feds have no business regulating indecency in the first place; that wasn't the purpose of the Constitution's 'commerce clause' according to legal experts. The Supreme Court is due to rule on this issue later this year. Let's hope the justices are in a rational frame of mind.