By Nick Patience
Even though the practice of siphoning off 30% of all domain name registration fees to pay for the development of the internet’s infrastructure ceased in April 1998, the battle over what to do with $60m or so that had been raised since fees were introduced in 1995 rages on. Last week the House of Representative’s Science Committee’s subcommittee on basic research held a hearing into the Home Page Tax Repeal Act, a bill introduced in February by Representative Lee Terry of Nebraska that aims to repeal the section of a bill signed into law last year that authorized the collection of 30% of the fees for spending on the Next Generation Internet (NGI) project and other areas as directed by the federal National Science Foundation (NSF). If it becomes law, Terry’s bill will likely mean that an attempt will be made to refund the money every person and company that has registered a domain name has paid – a procedure that could cost more than the small amount each registrant would receive. This is despite the fact that the majority of the money has already been allocated to projects, and a fair amount of it has already been spent. Any balance would probably have to be made up by the NSF, which authorized the earlier spending.
NSI got permission from the NSF to start charging a registration fee for registrations in September 1995 and within two years that fund, called the Intellectual Infrastructure Fund (IIF) had grown to $35m, including interest. When collection of the extra 30% ceased last year, federal contractor Network Solutions Inc (NSI) reduced its price to $70 per name for two year’s of registration, from $100 previously. In a 1998 appropriations bill, Congress directed the NSF to transfer $23m of that to invest in the NGI project providing high speeds links between universities for broadband and other applications, which it did in October 1997. Soon after a class action suit was filed in Washington by lawyer William Bode on behalf of a few internet users alleging that the fee amounted to an unconstitutional tax because its collection had not been authorized by an act of Congress.
Judge Thomas Hogan ruled in April 1998 that it was indeed a tax and therefore unconstitutional and the money – all $62m of it – could be refunded to registrants (04/10/98), minus the cut for Bode, who stood to gain about $20m for his work. Bode could not be reached for comment. However, Judge Hogan also suggested that if Congress could retroactively ratify the collection of the ‘tax’, its collection would be constitutional. So, Congress introduced the Supplemental Appropriations and Rescissions Act in May 1998, section 8003 of which authorized the case and in September Judge Hogan consequently reversed his earlier ruling, meaning the fund was constitutional after all (09/04/98). Representative Terry and others disapproved of the decision and he introduced the Home Page Tax Repeal Act.
The hearing last week gathered together Terry, the NSF and other interested parties to give evidence. The bill must be signed into law by April 30 as Judge Hogan set a six-month limit on Congress reversing its decision to ratify the tax. House Science Committee chairman James Sensenbrenner is a co-sponsor of the bill. The Internet Tax Moratorium Act also looms large in the background, which mandated that there should be no new state or local taxes related to the internet for three years when it became law last year, and Terry says his bill would bring federal practice into line with that act.
NSF general counsel, Larry Rudolph was alone among the four witnesses before the subcommittee in wholeheartedly opposing Terry’s repeal act, because he says it would take the situation back to the point 12 months ago when Judge Hogan ruled the fund illegal, but this time the legal repercussions of future litigation would not be clear as the law would not conclude the current litigation. The fund, Rudolph argues is not a tax because taxes have two principal characteristics that this fund does not share: they are received by the government and they may be used for any public purpose, he said quoting case law. The funds of the IIF on the other hand, are program income a separate category of funds received by entities that receive federal financial assistance and use the money for purposes for which the federal entity was established. And, says Rudolph, Congress urged NSF to use the funds for the NGI in the 1998 appropriations bill. Should the NSF be required to make up the shortfall, it would be forced to cancel many of its NGI projects and cut its budgets in other areas, he said – all to refund a few dollars to each domain name registrant.
David McClure, executive director of the Association of Online Professionals spoke ostensibly in support of Terry’s bill in the hearing, but was slightly more pragmatic when we spoke to him last week. His general reason for speaking up was to try and insure that the internet is not subject to any new unnecessary taxes either by the various layers of government or their agencies. He accepts that ISPs and others in the internet business have to pay something to the government for use of essential services that it provides, but that is where it should stop. He notes that the NSF never spent anything it was not told to spend by Congress, but AOP’s focus is one the wider issue of taxation. He said that when last year’s emergency bill was passed into law, few members of Congress were aware of the policy that was being set and Terry’s bill is an effort to set the record straight, McClure told the subcommittee, adding that it is crucial that we not establish the precedent for taxation without representation.
The other two speakers were Terry and Dan Troy, a partner at the law firm of Wiley, Rein & Fielding and member of a right-wing think tank, the American Enterprise Institute, who both supported the bill. Democratic committee staff member Jim Wilson says the fund never looked like a tax, and even if it was, Congress ratified it last year anyhow. The Republican staff member did not return calls. The Republicans, as the largest party in Congress, have the majority position on all committees. The bill now goes to a vote.
