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The 'Net as fantasy island

By Scott Bradner

As usual the press did not get it quite right. At the end of February some of the press reported that the President of the U.S. said that the Internet should be a tax-fee zone. If you take a look at the speech itself (available from it does not quite say that. In the speech, given to a San Francisco technology conference, President Clinton calls for a "moratorium on discriminatory taxation" on the Internet. In particular he said he supported H.R. 1054 and S. 442, the "Internet Tax Freedom Act" now being considered by the U.S. House of Representatives and the Senate. ( The text of the proposed laws are available from The bills (the House and Senate versions are the same) deals with two semi-related issues, taxes and regulations.

The legislation calls for treating commerce done over the Internet the same as all commerce executed remotely, for example, by telephone or mail order. This means that just because you buy a microwave oven through the 'Net you are not protected from whatever taxes would be imposed if you bought the same microwave oven from a mail order catalog. It also specifically would outlaw taxes or fees imposed, directly or indirectly, on interactive computer services or the Internet or on the use of the Internet or interactive computer services. Finally, it calls on the President to try and make sure the rest of the world exercises the same restraint about taxing the Internet.

Somewhat orthogonally, the legislation also would remove from the FCC or any State regulatory commission all authority to regulate the prices or subscriber fees charged by interactive computer services or information services delivered through the Internet except in the cases where the purchaser is a rural health care provider, a school or a library. Note that this does not extend to Internet service providers themselves so, in theory, the FCC could determine what access fee UUNET charged its customers even if it could not regulate what AOL charged.

This is good stuff but it falls way short of what some of the press stories implied and what many Internet fans would like to see--a tax free Internet--an Internet in which you would not have to pay sales tax for that microwave oven. That just ain't gonna happen - not with estimates like the President's of more than $300 billion in electronic commerce by 2002 floating around. But the idea still is very attractive to many people. They cite the difficulty of dealing with the 30,000 separate authorities with the power to impose taxes in the U.S. alone. It is also reasonable to note that taxing mail-order sales has been less than universally successful. But despite these problems there is no way that these taxing authorities can afford to see their revenues cut as commerce moves to the Internet.

The misunderstanding of these proposals does fit right into an all too common view of the Internet as being on some plane disconnected from the real world, a plane that can avoid the power of governments. Maybe that is the plane that Tattoo saw at the beginning of each episode of Fantasy Island.

disclaimer: Harvard does not have a clinical psychology program so this study of fantasy is my own.