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Power, War, and Organized Crime

Baltic President is labeling the cyber attacks on his country as part of an organized crime effort in an interview he conducted with Radio Free Europe.  He also inferred the geopolitical implications this will create if another country was the perpetrator behind the denial of service attacks.


The Arkansas Attorney General ruled that ChoicePoint has agreed to pay $500,000 to settle an action brought by 44 states, including Arkansas, over a data security breach. The personal information of 163,000 people was sold to identity thieves in the incident.


Internet taxes could be coming soon due to political groups urging lawmakers to enact law allowing states and cities to collect taxes on purchases made on the internet despite origin or destination of sale.


Realtors are beginning to embrace the Internet because of its reach, according to the
Peoria Journal Star.

Some encouraging news from Texas

The Texas House has passed and sent on to the Senate HB 2010, a bill that would allow Texas businesses to seek declaratory judgments in state court to block tax collectors in other states from harassing them to collect local sales taxes. Similar bills have already passed in Virginia and Iowa.


Local officials have set their sights on e-commerce as a tempting new source of sales tax revenue. They want every online business, no matter where it might be located, to collect local sales taxes on anything it sells anywhere. But there are at least 7500 different sales tax systems in this country, and it would be an impossible burden for businesses, especially small businesses, to comply with them all.


For the time being, at least, federal law offers online businesses some measure of protection. A 1992 Supreme Court ruling, Quill v.North Dakota, found that local tax systems are so complicated that out-of-state retailers can’t be required to collect sales tax for states in which they have no physical presence. Nevertheless, state officials still keep trying, sometimes even hauling far away businesses into unsympathetic local courts in an attempt to force compliance.


Even with the law firmly on their side, it is enormously expensive for small businesses to defend themselves against this sort of harassment by out-of-state tax collectors. HB2010 would give Texas businesses important new legal protection by allowing them to go to their local Texas courts to have out-of-state sales tax grabs declared unconstitutional.


Meanwhile, proponents of the so-called Simplified Sales Tax Project are still seeking support for an end run around the Supreme Court. But local officials are starting to realize that simplifying local sales taxes is anything but simple. So far only 15 states have joined the SSTP. The rest are quickly figuring out that "simplifying" their sales tax systems to comply with SSTP requirements would end up actually costing them revenue.


Sensing that they are losing ground at the state level, SSTP supporters are now pushing for a federal law that would get around the Supreme Court by requiring local sales tax simplification nationwide. By the time Congress works through all the exceptions, qualifications, trade offs, add-ons, and concessions required to actually pass a bill, however, any "simplified sales tax" system would end up being just as complicated as what we have now. Complicated and expensive for online retailers, especially small businesses, and even for the local jurisdictions who have convinced themselves that uncollected online sales taxes are a pot of gold at the end of the rainbow.


So, while the debate over simplified sales tax schemes drags on, Texas and other states should be encouraged to do whatever they can to protect their locally based online businesses from unconstitutional harassment by out-of-state tax collectors by enacting declaratory judgment bills like HB2010.

Beware of access tax deals

In their latest story about uncertain prospects for renewal of the ban on Internet access taxes CNET includes my warning that a deal may be in the works to tie renewal of the access tax ban to passage of the so-called Simplified Sales Tax.

The Wall Street Journal (subscription required) reports that Ticketmaster is suing eBay and its  StubHub subsidiary in an effort to prevent StubHub from reselling tickets to exclusive Ticketmaster tours and events.


Information Week has a new warning about online scams that try to take advantage of big news events like this week’s shootings at Virginia Tech.

Don't Make the Tax Gap into a Privacy Protection Gap

The notion that the IRS could soon have too much information on consumer transactions is gaining traction. An article by Declan McCullagh and Anne Broache (Selling stuff online? Here comes the IRS) includes some good points about why we don’t want the IRS to morph into an Information Reporting System.

In their article, McCullagh and Broache describe how Nina Olson, the National Taxpayer Advocate, told Congress that:

[Congress] should require information reporting on gross proceeds from sales conducted on Internet auction sites. "One recent study found that 700,000 Americans reported that eBay sales constitute their primary or secondary source of income. The IRS must have the tools needed to address underreporting of this income," she said.

In the case of e-commerce, the tools that Olson refers to is information. And the burden of collecting and reporting such information falls onto e-commerce marketplace websites and their users. But the real burden is harder to quantify, and is even more important.

The mass collection of information by private companies for governments is an unwieldy and heavy burden on privacy.

Readers of Matt Stinchcomb’s statement in the article may miss this broader privacy implication when he says "Our goal as a company is to allow people to make a living making things, and this is just another impediment to that."

Not entirely. Those making a living selling stuff on the ‘Net are already paying their taxes (or better be!). As a practical matter, this is a hardship to those that don’t make a living selling items on e-commerce marketplaces, and will now be forced to compute their profits and losses each year using IRS Schedule C.

Scott Weber’s quote drives home the privacy concern of entrusting companies with personal information when he says that

"I’m pretty much a one-horse operation here," Weber said. "I do everything myself. I’d have to hire a whole bunch of people. I’d have to hire someone full-time to do this. You’d need to track people all over the country, and you’d have to get their SSNs."

Again, this is a hardship on companies. But it will also force sellers to provide more information to companies. That’s where the real hardship lies, because it is the information of users of e-commerce marketplaces that the IRS wants.

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A Privacy Hit & Run – IRS Information Reporting & E-commerce Brokers

The IRS wants to expand the definition of a broker to include e-commerce marketplaces, like Amazon.com and eBay.  A plan being pushed by the federal government right now would require marketplace platforms to track details of all sales and “near-sales” transactions, and report directly to the IRS for tax purposes. As Hance Haney says in a post over at the Tech Liberation Front, this data collection, retention and reporting would raise significant privacy issues that should concern all Americans:

This is really another giant surveillance program, like the trial balloon the administration has previously floated to require internet service providers to retain customer data to combat crimes committed against children (as I’ve discussed here and here). In both cases, the government is trying to harness the unique capacity of the Internet to identify and document conduct in ways that were never feasible nor possible before — in this case ordinary commercial transactions that just happen to be conducted online.

Is the only criteria going to be whether the government could save money from imposing surveillance mandates on the private sector (which would operate indiscriminately against the innocent and the guilty alike) versus spending more for law enforcement (which must respect basic civil liberties) or other government programs? There might be little cause for worry if innocence were it’s “own shield” (but it isn’t), or if the government could be trusted to safeguard personal information (but it can’t). Not only do government agents falsely accuse people, but they lose their laptops every day.

If the IRS can get even more detailed data on more kinds of online transactions, don’t expect the federal government to start showing any discipline or respect for your privacy. Expect more data collection mandates in the future.

The SSTP Train(wreck)

Last month, I described a Hill briefing I gave, where I saw some of the confusion surrounding the Streamlined Sales Tax Project (SSTP).

Today, libertarian champion Adam Thierer commented over at Tech Liberation Front. I am relieved to have Adam re-engage in the SSTP debate, although I don’t think it’s right to assume that the Quill decision is acting as a brake on the trainwreck that is SSTP.  (Gosh how I wish it were true)

In his post, Adam suggested that:

the only thing that’s held back state and local efforts to impose such sales tax collection burdens on Internet vendors so far is an old 1992 Supreme Court decision, Quill Corp. v. North Dakota

Basically the court was just restating the old “No taxation without representation” motto upon which our country was founded.

“Taxation without representation” was a factor in Quill, but the ruling held that North Dakota broke no "due process" rules in attempting to regulate a retailer (Quill) who choose to ship products into North Dakota.  It’s going to take more than that to stop a tax collector. 

The good news is that Quill also held that that the present patchwork system of 7,500 taxing jurisdictions with contradictory rules and multiple filing requirements constituted an unreasonable burden on interstate commerce.  That’s the only reason North Dakota wasn’t allowed to force Quill to collect & remit sales tax on shipments to residents of the state.

Quill essentially left the states with two options:

1. Simplify their sales tax systems and come back to the Court to show it’s no longer an unreasonable burden on interstate commerce; or

2. Since Congress has the power to regulate interstate commerce, ask them to force sellers to collect remote sales taxes (whether they’re simple or not!)

A handful of states are pursuing option 2, and they’re making dangerous progress.  Particularly when you give them a Democratic majority.  And you have to worry that SSTP proponents will try using the internet access tax moratorium bill as a locomotive to pull their train through Congress this year.

I’m reluctant to disagree with an ally like Adam, but I think we all need to wake up to the real threat that SSTP could impose new burdens on e-commerce retailers.  I can hear that train a-coming…

A not so simple sales tax

I recently did a Capitol Hill briefing for Congressional staffers on the arcane subject of Internet sales tax, including the so-called Streamlined Sales Tax Project (SSTP).


Before diving into the indecipherable details of the SSTP, I shared with audience an analysis of my own online shopping experience this past holiday season.


I bought at 14 different websites, ranging from Amazon to L.L.Bean to RestorationHardware.com.  And 12 of these 14 web retailers automatically collected my Virginia sales tax, covering 95 percent of my online purchases.


That shouldn’t be a big surprise, since current law already requires websites and catalog retailers to collect sales taxes for any state where the business has a physical presence.   But, in fact, my experience did turn out to be quite surprising to some in the audience (and to one of my fellow panelists!) They thought that all Internet purchases were somehow exempt from state and local sales tax. They assumed that the federal moratorium on Internet access taxes also covers sales tax on purchases made online. But Internet access taxes and online sales taxes are two entirely different things.


And why didn’t those other two sites collect my Virginia sales tax?  Because back in 1992, before e-commerce had even been invented, the Supreme Court ruled that state sales tax systems are so complicated that they represent an unconstitutional burden on interstate commerce. Thanks to that ruling, states can’t force catalog sellers and e-commerce sites to collect local sales taxes unless the seller has a physical presence in the state.


State and local officials, always hungry for new sources of revenue and imagining a huge pot of gold at the end of the Internet rainbow, are now trying to get around that Supreme Court ruling by creating the SSTP in an effort to standardize and simplify their sales tax systems.


But simplifying local sales taxes is turning out to be anything but a simple process. So far, only 15 states have implemented the changes. The rest are figuring out that "simplifying" their sales taxes can’t possibly generate enough new revenue to justify the complicated changes and increased cost of collection required by the SSTP.


Seeing what’s been going on around the country, SSTP proponents are getting anxious. They want Congress to step in and require that sellers everywhere (even those in states that don’t even have a sales tax) start collecting sales tax for any state that meets the SSTP standards.  But, in addition to being complicated for the states to implement, the "simplified" SSTP system will be enormously burdensome and expensive for online retailers, especially small businesses trying to reach larger markets through e-commerce.


And what about that five percent of my holiday purchases on which the online retailer didn’t collect my sales tax?  Well, it may surprise you to learn that state law says that when I buy something from a website or catalog that isn’t required to collect local sales tax, I’m supposed to pay what’s called a "use tax" instead.  Not to worry. That also came as a big surprise to many in the Hill audience. I guess they haven’t been volunteering to pay their use taxes either!


I expect that a lot of people will be just as surprised as those folks on Capitol Hill when they figure out just how complicated it really would be to “simplify” sales tax collection.


I hope  those Congressional staffers were listening carefully.
 

VoIP in Virginia

Some encouraging regulatory news from Richmond, Virginia.

Legislation that would limit state regulation of VoIP service was just recommended by a Virginia General Assembly committee by a vote of 21-0. The bill (HB 1885) would close a loophole in the current Virginia law that allows the state to regulate any VoIP service that is not interconnected with public switched telephone networks.

By making it clear to state regulators that they should keep their hands off VoIP this bill reduces uncertainty for Virginia businesses and consumers and helps ensure a more predictable regulatory climate that will encourage innovation and investment in new communications services.

Other states that might be tempted to regulate innovative Internet services like VoIP should follow this new view from the Old Dominion.

Relax. The United Nations is here to help

Relax. The United Nations is here to save the Internet I’m in Athens (Greece) for the first meeting of the Internet Governance Forum (IGF), a United Nations initiative to increase international oversight and capacity for governing the Internet. Makes you wonder how the private sector managed to invest a trillion dollars to serve a billion people on the Internet thus far, without the benefit of UN “governance”. But something as big as the Internet just begs to be governed, so here we are.

To be sure, the IGF crowd is gathered here to talk about some very worthy goals for the Internet: openness, security, diversity, and access—all focused on the needs of developing nations. But whenever the UN convenes a meeting about the Internet, thoughts turn to taking over the role of ICANN (Internet Corporation for Assigned Names and Numbers), even though ICANN has only a limited technical role in managing the domain name system.

That’s why I’ve come to Athens—to provide a kind of firewall to shield ICANN from having its job usurped or expanded by the UN, governments, and civil society advocates. So far, the ICANN firewall is holding up under an expected and relatively mild assault.

Yesterday, Iran’s Dr. Riazi insisted that IGF focus on stripping root server oversight away from the U.S. government. Although the moderator called this issue “the elephant in the room,” none of the panelists has yet to suggest that root server oversight is a concern or that it plays any role in achieving the goals of the IGF.

Yin Chen of China’s Ministry of Information Industry warned that his nation would not allow the Internet to threaten national security or influence the psychological development of China’s youth. Kids in China can’t be too happy about that, and I shudder to think of China and Iran marshalling their allies to enlist ICANN in blocking offending websites.

Today, The Diplo Foundation questioned whether market forces can be trusted to preserve free flow of information on the internet. Those same market forces helped create an explosion of freedom and diversity in information and communications on the Internet, and the private sector continues to be the driving force at ICANN.

Privacy advocates took some shots at ICANN for its Whois service, a tool used in consumer protection investigations and to help trademark owners find cybersquatters. While some want to limit use of Whois data, a wise man from Japan’s IT industry said ICANN should enhance Whois to help track-down sources of spam and security threats.

Tomorrow’s forums will focus on improving access and diversity. Expect ICANN to be called on the carpet for failing to implement multilingual characters in top level domains, a responsibility that rightly belongs with ICANN. And we’re likely to hear calls for getting ICANN into the access business—perhaps a domain name tax to fund infrastructure in developing nations? Stay tuned.