What they're promising is an information highway with a fast lane into the future. What they're neglecting to add is that it's going to be a tollroad. Sure, there's the off chance that Clinton and Gore hadn't thought that far ahead when they sketched out their plans for an "information superhighway" a few months ago, but revenue-starved state and municipal governments who heard opportunity knocking and cash registers jingling have started jumping like a duck after a june bug on the revenue potential of electronic information exchange.
Around the country, public coffers are bare and the traditional income streams from taxes have dried up. Consequently, creative revenuers are scampering for new ways of getting your money into their pockets. In my neighborhood, for instance, home owners are being hit with special "assessments" (not "taxes") for everything from street repairs to tree trimming because there isn't enough money for essential services and municipal-employee sensitivity retreats in Palm Springs. Taxation of online services is an obvious Band-Aid.
Electronic information exchange is an easy tax target because it's used by those who can afford it--people and businesses with computers, modems, and the knowledge, desire, and need to transfer data and share information. Anyone who's popped for a 486/66 and 9600-baud modem isn't likely to squeal over a few nickels and dimes here and there.
In particular, states such as Massachusetts, Florida, and Pennsylvania are charging ahead with taxes for electronic exchanges. Their efforts are for the most part haphazard and exploratory, but a project just getting underway at the Washington-based Multistate Tax Commission may change that. The Commission will eventually propose a nationwide uniform model for the taxation of electronic exchanges via telecommunication services.
But even tax supporters admit there are a passel of issues to be addressed, the least of which is jurisdiction. If you live in one state, for instance, and download a file from a computer in another state, who gets the benefit of your hard-earned dollars? And, for that matter, will you be taxed twice, since you're already paying federal excise and other taxes for the phone call? For that matter, what kind of tax should be levied? States can't agree. Some are going after sales, others gross-revenue, and still others after value-added and use taxes.
On the local level, Chicago is leading the way with a recent amendment to its Transaction Tax Ordinance. Under the redefined ordinance, individuals and businesses pay a 6 percent tax on the sale of information from one computer to another. The ordinance justifies this, Chicago tax attorney Rich Lieberman tells us, by broadly lumping the concept of computer "timesharing" with the taxable realities of equipment "lease" and "rental." In other words, if you pay to log onto a remote computer, you're leasing equipment--and that's taxable. This tax applies to systems that are flat rate (such as Lexis/Nexis) and hourly (most commercial BBSs).
But there's more than money at stake here.
The real promise of the information highway is that it's a great equalizer: No matter where we live or what we do, we have equal access to information and the opportunities it offers. By upping the entry cost, the emerging category of taxes are preventing equal access. The end result is another step towards an information-age society of information have and have-nots.
In their short-sighted grabs for tax dollars, state and local governments may be killing a golden goose before it hatches from its electronic egg. Instead of prematurely taxing new business opportunities, government should be nurturing them. For a report from the tax trenches, talk to the folks at Channel 1, a Cambridge, Massachusetts BBS service. They were recently slammed with a $150,000 state tax bill that may result in curtains for the two-person company.
On a broader level, the precedents being set by computer-to-computer telecommunication taxes raise even more questions. Check-verification systems, for example, involve one computer exchanging information with another. Will users of these systems be charged taxes that will be passed on to you? If you order an item via fax, should you be taxed for the commercial use of the telecommunication system? Will the company where you work pay extra taxes for processing payroll over phone lines? Or are you prepared to pay more taxes for sending commercially related e-mail message over the Internet? What if as part of your purchase of a software package you download a patch from the vendor's technical-support BBS or ask a question regarding the use of a program? Will you end up paying more taxes for these clearly commercial transactions? And, for that matter, does wireless communication change any of this?
For the most part, revenuers justify these taxes by making the distinction between "taxable transmission services" and "nontaxable information services." But if we're serious about having a society dedicated to equal opportunity, you can't separate the two. Any barrier to the access to information is a barrier to the information itself.
Jonathan Erickson
editor-in-chief
Copyright © 1993, Dr. Dobb's Journal