WATPA: Taxing the Internet, Quietly

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From: YTdave@AOL.COM
Date: Tue Jun 27 2000 - 16:36:24 EDT

I think one of the biggest "sleeper" issues of the recent Internet wars has
been localities taxing the Internet . . . with nobody protesting and none of
those mass e mails "to the ramparts."

The Internet is being taxed right now, by many municipalities under the
so-called "Franchise Fee," which by federal law is limited to 5% of the cable
operator's gross revenues generated within the municipality. So cable
companies, such as Time Warner / Adelphia, have been paying the fees based in
Internet access, without too much fuss. They just figure it's a cost of
doing business, and the price of getting a quick contract.

Locally, Cablevision refuses to pay franchise fees based on Internet access.
Since they are rolling out their Cable Modems in Westchester this month (1.5
megabits per second), they expect to make big bucks on Internet. Probably
more than on cable video programming.

Which raises the question, should localities tax the Internet, by insisting
on a Franchise Fee based not only on traditional video but also Internet
revenues? My own opinion is no. I would prefer to see the technology
flourish and evolve as quickly as possible. Taxing something isn't generally
the best way to encourage it to be provided on a widespread basis.

Local politicians, however, often see the additional revenues -- which could
easily amount to $100,000 per year for a town of 20,000 people -- as a great
way to generate "non-tax revenues." That means bring money into the
government without raising taxes.

Problem is, every dollar of the Franchise Fee is passed on to the consumer,
by federal law. Just look at your cable bill, and the little line item for
"franchise fee."

Legally, the issue has been in doubt for years. The law says franchise fees
may be collected on "cable services," but not "telecommunications." But what
the heck is the Internet? Who';s the famous judge who said he couldn't
define it, but he knew it when he saw it...

On June 22, 2000, the US Court of Appeals for the Ninth Circuit, in ATT v. Cit
y of Portland, answered the legal question. Local government cannot demand
franchise fees on Internet, since it is not a "cable service." I'll bet you
money, that case is going to the Supremes, and fast.

Any comments?

Dave Wright

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