Politics and Law

It's the age-old question. Where do our tax dollars go? Washington is using the Web to try to provide an answer, at least as it relates to information technology.

The IT Dashboard, a new tool from the USASpending.gov site, promises a behind-the-scenes look at how our tax dollars are spent on government IT. The site was unveiled Tuesday at the Personal Democracy Forum conference in New York by federal Chief Information Officer Vivek Kundra and White House Director of New Media Macon Phillips.

(Credit: USASpending.gov)

A promising idea. But the site, which is still in beta, appears to have a few kinks that need working out. When I tried to access the dashboard late Tuesday morning, I received frequent HTTP error messages telling me it was unable to contact the server. This happened both at the dashboard's home page and at its subpages.

I called the department in Washington responsible for the site. A representative told me the errors were being caused by high traffic on the site but that people were working on the problem. I'll follow up with more details on the site as soon as it's accessible.

Update at 12 p.m. PDT: The Dashboard appeared to be running smoothly after earlier hiccups due to heavy traffic, so I had the opportunity to check it out.

A YouTube video on the home page explains how the site works, which was quite helpful since I wasn't sure where to look at first.

Filled with news, statistics, and charts, the dashboard reveals IT spending across all the major federal agencies. Select any agency, and you can see its budget and spending pattern. For example, according to the site, the Department of Defense chews up the most tax dollars, with a 2009 IT budget of $33 billion.

Your federal IT dollars at work

(Credit: USASpending.gov)

An interactive data feed page lets you filter specific types of data by IT project, category, and department to see a spending snapshot. As an example, I retrieved a list of all 37 projects and cost centers for NASA, with descriptions and budgets for each one. An analysis page offers an interactive chart where you can track the rise in IT spending by agency and by year.

Certain facts are especially revealing. I discovered how much money was estimated for a given IT project vs. how much has actually been spent, providing an education in cost overruns.

Certainly, the dashboard is promising more transparency and accountability by publishing the facts and figures behind government IT spending. The site says it receives its data from agency reports on IT spending submitted to the Office of Management and Budget.

The dashboard does lapse into government-speak at times--it refers to IT project spending by agencies as "investments" and the overall amount of money spent as a "portfolio." The data feed page lists Exhibit 53 and Exhibit 300 as data sources, though most people outside the government would have no idea what those mean. (The site's FAQ does explain both terms.)

Also, the information takes a while to gather up and assimilate. I'm not sure how much time the average person would actually spend plowing through a site like this. But given the site's traffic congestion earlier on Tuesday, the dashboard may already be proving more popular than expected.

This was originally posted at Between the Lines. It was updated at 3:25 p.m. PDT with Amazon adding Hawaii to the list of states where it's pulled its Associates program.

Amazon.com is in a high-profile tax showdown with states over its Associates referral program and is likely to come out a winner either way.

Amazon has pulled its Associates program, which allows Web site operators to drive sales to the e-tailer in exchange for commissions of up to 15 percent, in North Carolina and Rhode Island. And on Tuesday, Amazon also added Hawaii to its hitlist, according to The Wall Street Journal.

States are hurting for revenue and are trying to force Amazon to collect sales taxes on its associates. Simply put, states are trying to treat associate Web sites as if they are physical assets of Amazon.

Amazon's response: Cut out associates in the states where tax bills are proceeding.

Providence Business News reported that Amazon cut its ties with business affiliates in Rhode Island over a bill that would force it to collect sales tax on referrals via authors or businesses in the state. Amazon had the same reaction to a similar tax-happy move by North Carolina. These battles will be fought state by state, depending on the return on Amazon's marketing dollars.

Bernstein Research analyst Jeffrey Lindsay summarizes the situation:

The issue is collection of sales taxes--several states are trying tactics developed by then-Gov. Eliot Spitzer in New York to try to force Amazon to collect sales taxes on online sales made in their states. In 2008, Spitzer argued (and the courts upheld his view) that if Amazon has affiliates in the state where sales were made, that counted as "in-state" presence, and sales taxes must be collected.

Amazon's response to the latest move by cash-strapped states hoping to follow New York's lead has been to terminate relationships with in-state affiliates in a rapidly escalating game of chicken. It is not clear where this game may end, but clearly, Amazon is prepared to tolerate some pain to maintain its sales tax collection exemption for the majority of states.

While loss of affiliates in some smaller states may not be an insurmountable problem, it now looks as if California may be next to impose the "affiliate rule," and this may be more difficult to circumvent. Even if the states prevail, however, we do not believe the impact upon Amazon will be large.

Given Amazon's response and states' desperation for tax revenue, it doesn't take a brain surgeon to figure this showdown will escalate. What would happen if Amazon just shut down its Associates program in all states?

Amazon could win. Think about it: If Amazon was really dependent on the Associates program for a huge portion of sales would it really just pull it that quickly? Amazon in its SEC filings doesn't break out revenue garnered from its referral program or its total expense.

However, Amazon does drop a few hints. In a blog post, Amazon says, "We pay out hundreds of millions of dollars per year to Web sites that advertise our products."

In other words, these commissions can add up:

Amazon.com commissions, or referral fees, can indeed add up.

(Credit: Amazon.com)

In Amazon's SEC filings, it explains that the Associates program falls under its marketing spending line. According to Amazon's annual report:

We direct customers to our Web sites primarily through a number of targeted online-marketing channels, such as our Associates program, sponsored search, portal advertising, e-mail campaigns, and other initiatives. Our marketing expenses are largely variable, based on growth in sales and changes in rates.

To the extent there is increased or decreased competition for these traffic sources, or to the extent our mix of these channels shifts, we would expect to see a corresponding change in our marketing expense or its effect.

Marketing costs increased in absolute dollars in 2008, compared to 2007 and 2006, due to increased spending in variable online-marketing channels, such as our Associates program and sponsored-search programs.

While costs associated with free shipping are not included in marketing expense, we view free-shipping offers and Amazon Prime as effective worldwide marketing tools, and intend to continue offering them indefinitely.

The big question is whether Amazon's referral program accounts for the bulk of the company's marketing expense. For the year ended December 31, 2008, Amazon reported marketing expenses of $482 million, up from $344 million in 2007 and $263 million in 2006.

It's hard to quantify the connection between referrals and Amazon's sales, but chances are good that the company has word of mouth, habits, and low prices at its back these days. Simply put, if Amazon cuts its Associates program in every state, its marketing expenses would fall dramatically and ultimately boost earnings. And Amazon would likely land the sale, anyway. Meanwhile, these small businesses that like Amazon's commissions will be screaming at their state legislators.

JPMorgan analyst Imran Khan writes in a research note:

Although the affiliate network changes could result in some lost sales, Amazon will have the ability to shift marketing spend into other arenas. We think the company can continue to focus its marketing on the areas that deliver the best (return on investment), mitigating the impact of losing some affiliates.

The state tax flap is an interesting showdown, but Amazon has done the math internally. The e-tailer appears confident that it can win a game of chicken.

Microsoft CEO Steven Ballmer offered an unwelcome economics lesson to the Obama administration this week: Higher taxes have consequences that Washington policy-makers may not especially like.

Ballmer said Wednesday that if Congress enacts President Obama's plans to impose higher corporate taxes, a sensible thing for Microsoft to do would be to move jobs offshore.

"It makes U.S. jobs more expensive," Ballmer said, according to Bloomberg News. "We're better off taking lots of people and moving them out of the U.S. as opposed to keeping them inside the U.S."

Last month, the president announced a plan to rewrite tax law by preventing U.S.-based multinational companies from "deferring" and keeping profits offshore, which can lower their tax bills.

The current U.S. corporate tax system is unusual because it taxes income that Microsoft and other companies make in other countries, even if they already paid foreign taxes on that income. That makes U.S.-based companies less competitive than, say, Irish firms that don't pay taxes on foreign income and aren't hit by double taxation; deferred taxation is a way to lessen the sting.

If deferred taxation is eliminated, it becomes more tempting for a company to move its headquarters from Seattle to Dublin. That's voting with your feet.

That's why business groups have opposed the president's plan. The U.S. Chamber of Commerce says it will "impede growth in the U.S. economy, (and) cause the loss of jobs." The National Foreign Trade Council called it "counterproductive."

Microsoft says it employs about 95,000 people worldwide, and about 56,500 in the United States.

As more government officials choose to publicly answer questions submitted by Internet users, they're encountering a new phenomenon: marijuana activists intent on forcing answers to the would-you-legalize-pot question.

In March, President Obama's first virtual town hall took a detour when questions about legalizing marijuana were voted to the top of the "financial stability," "jobs," "budget," and (of course) "green jobs" polls on WhiteHouse.gov

On Wednesday, it was California Gov. Arnold Schwarzenegger, a Republican, who was put on the spot. Digg.com users propelled a legalize-marijuana question to the No. 2 position (behind one asking about what he was thinking when photographed grimacing at President George W. Bush).

Earlier this month, Schwarzenegger said "it's time for debate" about legalizing marijuana. Read on for an excerpt from the CNN interview.

Q: What is your stance on the legalization, cultivation, and regulation of marijuana in the state of California?

A: I like the law that we have in place. And I don't believe in legalizing marijuana, but I'm always open for the debate because there are people that feel differently. And I said I'm always interested in debating any of these issues because there's always different ways of looking at it. And I think it would be interesting to see the information that is available, if there's any information available, of how well countries are doing that have legalized marijuana. But I don't think that information is available, and I'd want us to see that.

But I believe in the law, the way the law is right now, and I think it's worked very well for the state of California. And I think it would be a mistake to just go and legalize something that we don't believe in just because it would produce an extra billion dollars in revenues. And I think we just have to learn how to live within our means rather than trying to do things we really don't want to do.

Q: New polls actually show that more than half of Californians support legalizing marijuana. So would that sway your stance on it whatsoever in this open debate that you're calling for? Would it sway your opinion?

A: Well, it could very well go on an initiative one day, where they ask the voters directly, that could very well be. And if the voters make that decision, that's fine. But I think it is very important for us to make certain decisions not just because they would bring in some extra money, and I think this is why people have been talking about that in California, to go in that direction, and to start debating that issue. Because it would produce, as they say, $1.3 billion, $1.4 billion extra revenues.

Thanks to a 1996 ballot measure, medical marijuana is already legal under California law, though local officials have substantial discretion. Although that conflicts with federal law, the Obama administration has chosen not to target California medical marijuana dispensaries.

State legislator Tom Ammiano, a San Francisco Democrat, introduced a bill in February to legalize recreational marijuana. Bill AB 390 would license "commercial cultivators of marijuana" and establish a complicated web of regulations and tax rules they and retailers must follow.

It could raise over $1.2 billion a year in new tax revenues, assuming a $50-an-ounce tax, according to an analysis by California NORML, an organization working to reform the state's marijuana laws.

A Field poll released on April 30 found that 56 percent of the state's registered voters support legalizing marijuana and taxing its sale.

Bassem Al Rousan, Jordan's Minister of Information and Communications Technology, in his office in Amman.

(Credit: Declan McCullagh)

AMMAN, Jordan--Even by the extremes of the Middle East, Jordan is an unusual place.

Unlike its neighbors to the south and east, it enjoys no vast oil wealth. It shares the region's longest border with Israel, about 150 miles, and signed a peace treaty with its neighbor in 1994. Although the northern third of the country benefits from a Mediterranean climate, the rest is largely desert.

That leaves outsourcing and other businesses as one obvious bright spot, and Jordan is hoping to enlist computer technology and the Internet to fight an unemployment rate that probably hovers around 30 percent, thanks in part to the hundreds of thousands of Iraqi and Palestinian refugees the country has taken in.

Embracing the Internet also means trying to reconcile its rollicking, unruly culture of free expression with a population that's about 92 percent Muslim and a society that's far from as strict as neighboring Saudi Arabia -- but nevertheless conservative enough to prompt most women to follow the dictates of the hijab by wearing head scarves.

Jordan has had flare-ups of offline and online censorship, including imprisoning a female member of Parliament (since pardoned by King Abdullah) and encouraging bloggers to self-censor. Reporters Without Borders says that even though a law providing for prison terms for press offenses was canceled, journalists remain under pressure.

Then there are the less expected obstacles, like a proposed tax earlier this year of about 1.5 cents per minute on wireless calls, with the proceeds going to the livestock industry to subsidize animal feed.

CNET News recently met with His Excellency Eng. Bassem Al Rousan, minister of information and communications technology of Jordan, in his offices in Amman, to talk about outsourcing, DVD piracy, Internet taxes, open source, and other topics.

Q: If a Jordanian company opens an office in Lebanon, it can't easily send Jordanian engineers to work there. And company in Lebanon can't easily send engineers here. Is there any interest in eliminating some of these legal barriers?
Al Rousan: In Jordan now the unemployment rate is about 12 percent... It is not difficult for technical jobs, marketing jobs. It's easy to come and work in Jordan.

I started working in the private sector in 1997. I saw very easy movement from Jordan to Egypt, Lebanon, Pakistan, the Gulf. Also Pakistanis coming to Jordan. It's easy because we consider those jobs vital for the development of businesses. The movement for skilled jobs is easy.

If Internet access is more expensive in Jordan than Europe in absolute terms, and far more expensive in relative terms, what's the best way to bring down the monthly cost? Does the government need to subsidize it, or encourage competition instead?
Al Rousan: To increase the penetration, there are some obstacles we have to overcome. One of those is the language and the content. Just last week we had a talk with Google about Jordan investing in Arabization for the content. (Editors' note: Al Rousan's aide said afterward that this involved sharing of knowledge and was not a financial investment.)

Another thing is the price of computers. We started in the government a new initiative, what we called a laptop for every university student. He can buy a laptop with no taxes on it. He can pay for this computer for four years, about 15 dollars a month.

When it comes to the Internet, we used to have a monopoly in the fixed network. Now we are working on this... Last week a company named Meta launched their services -- WiMax, based on Motorola. And the prices are OK now. Comparing the prices of 2007 and now, they're less than 50 percent of what they used to be. The government also reduced the sales tax on the Internet from 16 percent to 8 percent. I have a meeting with the minister of finance -- next week I will meet with him to try to get him to reduce it to zero. Also the tax on computers will be zero.

What we're doing is infrastructure, building a fiber-optic network that will reach all the schools. We will use it to provide Internet service to the villages. We will ask the ISP operator: Go to these schools and use it as a connection point that you can distribute to the houses in the village.

What's the status of 3G wireless, which has been delayed a few times?
Al Rousan: The regulatory body for telecommunications is conducting an auction for the spectrum, for 3G. Hopefully by the end of (April) they will finish this process and they will be able to distribute the spectrum for the operators. It could be new operators or existing operators using it.

We've also started talking to some techical companies, like Qualcomm, about a computer that costs less than $100, which connects to 3G wireless. You have a keyboard only and it connects to the television and you can be connected to the Internet. It's cloud computing -- subscribers can use it instead of having a sophisticated computer.

"Watchmen" and other pirated DVDs are on sale in Amman, Jordan, for a little over $1 each

(Credit: Declan McCullagh)

If I have my numbers right, Jordan's official goal is to have an Internet penetration rate of 50 percent by 2011. Are you on track?
Al Rousan: As of 2008, penetration of the internet is over 24 percent. Revenue in the sector is over $2 billion. The number of employees working in this sector is about 22,000.

I know you've attracted investment from companies like Microsoft, and as of 2005, at least, foreign direct investment was around $100 million. What's your plan to increase this?
Al Rousan: What we are doing actually is the cabinet agreed to have a new (free-trade zone) for the telecommunication and IT, which starts by next year. They're started to develop it. In Amman, we think that having such an area will be very attractive especially now if you're comparing Jordan to the other countries around us, in many aspects from manpower, education, security, the price of real estate, and so on. The other thing which is very important is that most of our engineers work outside Jordan in the Gulf area. Now our plan is to bring them back, and instead of sending them there, have business come to Jordan.

We are now focusing on more businesses like call centers, for instance, which will serve banks, insurance companies, in the whole area, in the Gulf.

Will these be in Arabic or English?
Al Rousan: Both. And in Spanish. One company has a section that serves the Spanish language.

One of the biggest advantages in Jordan is the accent. In English and Arabic, we have a neutral accent. Here, especially in the Gulf area, our accent is almost the same as their accent. The other area we focus on is technical support and maintenance, having a technical center here in Jordan that will support companies and products like Cisco, for instance. They have a tech center here that employs about 80 IT engineers supporting the Gulf area. And part of southern Europe.

I believe the U.S.-based Web site ArabTimes.com is blocked because of its political content. How do you reconcile this with a liberal approach to Internet regulation-- will sites like ArabTimes.com continue to be censored by the government?
Al Rousan: There is a new law for telecommunications and audio visual services. The two entities will be in one law. According to the law there will be no censoring of the Internet.

When will this take effect?
Al Rousan: It is already in the law that the Internet is not censored. I think most of the government knows they cannot block it. It's a waste of time and money. This is what our policy is, not to try to do this. The problem we are facing is to convince many of the families, many parents don't want the Internet because they're afraid for their children. They want to guide their children and to tell them what to do or not to do.

But tomorrow or the day after they will go to their friends or an Internet cafe. It's better to have it in the house. The family and the government, we cannot stop those things. We have to deal with it in a different way. If you're a family, you have to educate your children.

Now we have a political Web site where they write many things, much of it good, much of it bad, depending on rumors. Nothing solid. There is no law which will excuse them for publishing such things on the Web site. Should these journalists be prosecuted? There's a debate over whether the law should apply.

The Wall Street Journal and the Heritage Foundation publish an annual index of economic freedom. The survey says Jordan doesn't have a higher rank because it's too difficult to start a business, too difficult to close a business, the size of the government is too large, and there are restrictions on foreign investments over 50 percent in many sectors. Is this a reasonable criticism?
Al Rousan: The government tries to do their best to make this easier. There's a Parliament -- how do you deal with a Parliament that imposes taxes on telecommunications to support animal feed? They want to impose a tax on telecommunications to support animal feed. We managed to stop that. I'm trying to make you understand that Jordan is still a new country, historically. We're still not that educated about business and what it can do. So it's not always easy to make things happen.

You mentioned that foreign investors can't own more than 50 percent of a company. Yes, they can. They can go through the Cabinet. Every month we approve some. According to the law it's 50 percent unless the Cabinet approves, and we do that. The government is in favor of making things easier but the Parliament -- there are two forces opposing one another.

I agree with you, to start a business it's difficult. But once you're in the system it's smooth.

And this will be easier with the free zones, less regulation in general?
Al Rousan: Exactly. This will be used for industry, shielded from bureaucracy.

Store in Amman offering just-over-$1 pirated DVDs for sale.

(Credit: Declan McCullagh)

In downtown Amman yesterday, I found pirated DVDs of movies such as the Watchmen on sale in storefronts for 1 Jordan dinar (about US$1.41). My relatives here in Jordan told me I overpaid and could have found them elsewhere for about half a dinar. What's the government's view on commercial sale of pirated videos?
Al Rousan: You can read in the newspaper there's a raid, that they've confiscated these products. We signed an agreement with Microsoft, signed an agreement with Oracle...

What about not software licensing inside government agencies, but enforcement of copyright laws in general?
Al Rousan: Not just in the government, but outside as well. Now we're trying to establish an IT industry here. This is very important for us also. The law is very strict on these things. One way or another you cannot stop people from importing these...

Are you talking about imports from Syria?
Al Rousan: Syria and other places. You can also download them over the Internet. But the government is very strict: we get hundreds of millions of aid every year from the United States.

Under Jordanian law, is there a difference between pirated software and pirated DVDs?
Al Rousan: No, it's the same. It protects both. It's like the drug trade. You can try to stop it, but you cannot do it. There's always a way to get around it.

Is Jordan planning to adopt open-source software in government agencies?
Al Rousan: It will cost you more, by the way. We are working in the hospital sector, using open source. I think that in the beginning, the cost will be higher. In the long run it could be better.

You have to develop software to interface with the open source, which will cost you more. A country like Jordan cannot afford such things.

Any last thoughts?
Al Rousan: I think here in Jordan, the seeds are here. It needs somebody who can use it to get to harvest. A company whose operations in an area are very expensive, they can come to Jordan and find everything they need. In jordan, we have more than 6,000 graduates a year in information technology. Jordan doesn't have natural resources, so we depend on people. Software is one of the things that can succeed in Jordan.

Editors' note: This is a guest post. See Michael Songer's bio below.

Throughout the 1990s and 2000s, we have seen a number of well-known legal disputes: legality of peer-to-peer services such as Napster and Grokster, cybersquatting, laws (trying) to regulate porn, even "veejay" Adam Curry trying to use the MTV domain name.

As we head into 2010 and beyond, here are some legal issues that are likely to careen through cyberspace in the next few years.

1. Lawsuits related to stupid/silly conduct shown on the Internet.
The assimilation of broadband brought with it those "viral videos": Star Wars Kid, Numa Numa Dance, Aleksey "Impossible is Nothing" Vayner, and the like. The latest fad seems to be taking videos of crude behavior and posting it for all to see--think of the two girls bathing in the Kentucky Fried Chicken kitchen, or the Domino's employees creating a "special" meal for a customer.

Someone will be offended, someone will sue. In some cases, the lawsuits make sense (violating health codes for the KFC and Domino's videos); in other cases, they don't (Star Wars Kid sued, and Aleksey Varner threatened a suit, though the legal basis for these is shaky).

Expect to see a rise in these types of lawsuits related to conduct shown on the Internet and calls for Congress to do something. What, exactly, can be done is less clear; it's hard for the legal system to regulate conduct that, while not breaking the law, is merely stupid. But that won't stop people from trying and lawyers from garnering headlines.

2. Lawsuits related to social media.
The last few years have seen a number of lawsuits brought against Facebook and MySpace for conduct occurring on those sites--think of the Megan Meier case (Megan Meier was the teenager who committed suicide after a woman pretended to be her friend, and then turned on her).

The government prosecuted the offender in that case, though the legal basis for the prosecution is less than clear, and an appeal is under way. And there have been calls for regulating what you can and cannot do (no sock puppets!) on these sites.

These are likely to continue for the simple reason that more and more people are using these new technologies. With that increased use comes the increase in libelous statements, crude conduct, even illegal activity (think prostitutes using Craigslist to advertise their services).

I'm sure--if it hasn't already happened--that someone will sue over some "tweet" in the next year. Expect more of these lawsuits.

3. The next battle in the copyright wars.
The $1 billion battle between Google's YouTube and Viacom is churning away, with no end in sight. At issue is the liability of sites like YouTube for hosting content posted by others.

Like the earlier Napster decision, this case has major ramifications for content on the Internet. However, just as Napster begat legal file sharing (iTunes), consumer demand might work out a solution faster than the courts.

YouTube recently announced a deal with Sony to stream movies, with television shows on the horizon. But whatever the final outcome of the YouTube lawsuit, nagging copyright issues associated with liability and fair use of content uploaded into social sites will not go away.

Recently, the Associated Press threatened to sue aggregators and clamp down on the use of their articles, and others are sure to follow this path. Expect more content owners to use copyright lawsuits to shape what we view and read on the Internet.

4. Blogger liability for the comment section.
Currently, bloggers cannot be sued for libelous statements posted in the comment section of their blogs. Something called "section 230" (after the particular legal code) immunizes bloggers from legal harm caused by another's comments (bloggers, however, can be sued for libelous statements that they post).

This immunity was enacted in the mid-'90s and was designed to protect the "publishers" on the Internet at that time: the AOLs, CompuServes, and ISPs that enabled Internet access. The law never contemplated the explosion of bloggers, MySpace authors, and other "social publishers." And the law never contemplated the accompanying (usually anonymous) comments to those posts, as well as the ill will associated with the all-too-common flame wars.

Several courts have expressed dissatisfaction with the blogger immunity--particularly when the blogger knows that the comments are defamatory or wrong. Expect more challenges to this immunity, and perhaps calls for Congress to roll back section 230.

5. The taxman cometh.
Anyone who has read a phone bill has seen a dizzying array of taxes, assessments, and special charges. Your Internet access is free from such taxes until at least 2014, due to Congress and the Internet Tax Freedom Act. The law, passed in 1998 and extended by the Bush administration, prohibits federal, state, and local governments from taxing access to the Internet, and it bans "Internet-only" taxes such as bandwidth or e-mail taxes.

States remain free to tax sales on the Internet.) Of course, that was before the current economic crisis, and the general rise in taxes on everything from mobile phones to cigarettes. A bill has been introduced to make the tax ban permanent, but nothing is "forever" with Congress. Expect to see calls for Congress to tax these areas before 2014.

Of course, given a steady pace of new Internet technologies that allow different ways for humans to interact with one another, more unique, complex, and downright strange events will occur that give rise to legal disputes. (Think "upskirt" cams.)

The legal system is flexible and has dealt with much over the last 10 years, in many instances driving Internet growth in ways both good and bad. The next 10 years promise much of the same.

Tax protester at San Francisco "tea party" gathering on April 15 holds up sign saying "IRS: We take $$$$$$ from working people to pay for big government."

(Credit: Declan McCullagh/CNET)

If a little-known but influential alliance of state politicians, large retailers, and tax collectors have their way, the days of tax-free Internet shopping may be nearly over.

A bill expected to be introduced in the U.S. Congress as early as Monday would rewrite the ground rules for mail order and Internet sales by eliminating what its supporters view as a "loophole" that, in many cases, allows Americans to shop over the Internet without paying sales taxes.

Currently, Americans who shop over the Internet from out-of-state vendors aren't always required to pay sales taxes at the time of purchase. Californians buying books from Amazon.com or cameras from Manhattan's B&H Photo, for example, won't pay sales taxes at checkout time that they would if shopping at a local mall.

"We will have the bill ready for introduction by next Monday," said Neal Osten of the National Conference of State Legislatures. "We finalized the language and now we're working out the remaining issues and adding some new provisions at the request of various stakeholders."

This is hardly a new debate: pro-tax officials and state governments have been pressing Congress to enact such a law for at least seven years. They argue that reduced sales tax revenue threatens budgets for schools and police, and say that, as a matter of fairness, online retailers should be forced to collect the same taxes that brick-and-mortar retailers do.

Even though those arguments have been unsuccessful so far, the National Conference of State Legislatures and its allies believe the recession has sliced into sales tax revenue so much that Congress will have to act. A report this week from the Rockefeller Institute says that sales taxes have declined by 6.1 percent, the largest decline in half a century.

"One of the big things the states have learned in the recession is they have declining revenues," said Scott Peterson, executive director of the Streamlined Sales Tax Project, which counts state politicians and tax collectors on its governing board. "We're very optimistic about Congress this year. We think we are within a day or two of finalizing the legislation."

The final legislation is expected to be introduced by Sen. Mike Enzi, a Wyoming Republican, and Rep. Bill Delahunt, a Massachusetts Democrat, who have championed similar proposals in the past. Delahunt's office on Wednesday confirmed he was interested; Enzi's did not respond.

On the other side are the Direct Marketing Association, the Electronic Retailing Association, and companies including eBay, L.L. Bean, and Overstock.com. One of their biggest objections to the idea of collecting sales taxes on out-of-state shipments is the dizzying complexity of state laws.

Take candy, which would seem to be a straightforward item to tax. It isn't. During a 2003 discussion of tax policy, a representative of Indiana, James Turner, noted that a proposed definition of candy would have taxed the Milky Way Midnight candy bar but not the original Milky Way bar.

But further investigation showed that Turner's counter-proposal would have treated "certain flavors of Pop Tarts" and Cookies and Twix Crunchy Cookie Bars as candy--but not Cookies and Snickers Crunchy Cookie Bars. Peanut butter Girl Scout cookies would be candy, but Thin Mints or Caramel deLites would be classified as food.

Bizarre distinctions like this, coupled with the existence of more than 7,000 different tax agencies, are why the U.S. Supreme Court ruled that out-of-state retailers generally couldn't be obligated to collect sales taxes unless Congress changes the law. The justices noted in a 1992 case called Quill v. North Dakota: "Congress is now free to decide whether, when, and to what extent the States may burden interstate mail order concerns with a duty to collect use taxes."

One exception to that rule is a legal concept called "nexus," which means a company can be forced to collect sales taxes if it has a sufficient business presence. If Amazon had an office in California, it already would be collecting sales tax for Golden State residents. (Another exception is the sale of cigarettes, which is covered by the Jenkins Act.)

In response to complexity concerns, the pro-tax forces have offered a proposal that they hope Congress can be persuaded to adopt. The concept is called the Streamlined Sales Tax Agreement, invented in 2002 by state tax officials hoping to straighten out some of sales tax laws' most notorious convolutions.

Since 2003, more than 20 states have signed on, either wholly or partially, to the agreement, meaning they agree to simplify their tax codes and make them uniform. If enough states participate, proponents believe it will be easier to convince Congress to make sales collection mandatory for out-of-state retailers.

"You'll see governors from states who are active participants pushing the Hill to move the issue forward--Kansas has been a long-standing leader. North Dakota, Iowa, Oklahoma, those are some with members on the governing board," said David Quam, director of the office of federal regulations at the National Governors Association. "The states have done the heavy lifting of coming up with a voluntary system that makes sense. Now it's Congress' turn to grant states the authority to collect this."

Representatives of the Streamlined Sales Tax Project are gathering in Washington, D.C. next month for a three-day governing board meeting, including a "lobbying day" that's scheduled for May 13.

Under existing law, the caveat is that online purchases from sites like Amazon and eBay only seem to arrive tax-free. Legally, however, purchasers are required to pay their own state's sales tax rate--the concept is called a "use tax"--and then voluntarily report the amount owed at tax time.

California residents, for instance, are now burdened with a sales and use tax of at least 8.25 percent. State law is strict: if Californians travel to a state with a 5 percent tax and shop there, the law requires them to cough up the 3.25 percent difference when they return. Online purchases are taxed as well.

But compliance is spotty at best. California's Board of Equalization estimates the state lost $1.34 billion in 2003 because residents aren't paying use taxes--and attributes $208 million of that to online purchases.

"There's no member of NRF that does not support" the forthcoming legislation, said Maureen Riehl, vice president of government relations at the National Retail Federation. "The sooner we can get it done the better, as far as retailers are concerned."

Online retailers tend to disagree. If the Streamlined Sales Tax Project (SSTP) were actually simple and easy for a shipper to work with, they might be more willing to compromise, but that may not be the case.

"The states are desperate for new revenue and I think they realize they're straying far from the simplification they originally promised," said Steve DelBianco, executive director of NetChoice, which counts as members AOL, eBay, NewsCorp, Oracle, Verisign, and Yahoo. "That creates an urgency on their part--to get the federal mandate before it becomes clear they have no intention to simplify."

"They have no real intention of simplifying or compensating sellers for the burdens of collecting," DelBianco said. "It's a shell game."

Among his complaints: That states are unwilling to compensate sellers for the burden of sales tax collection; that small businesses with minimal sales should be exempt; that only one state (as opposed to all states) should be able to audit a business; that participating states are not paying attention to the idea of simplification and are actually making definitions more complex.

"There has to be some oversight," DelBianco said. "These guys have demonstrated--the streamlined states have demonstrated -- an inability to stick to the streamlined promise. Only the U.S. Congress is going to be able to protect sellers from unreasonable burdens."

CNET's Stephanie Condon contributed to this report.

Because of quirks in many state laws, sales taxes may be levied on CDs sold in storefronts but not on iTunes and other digital downloads. It's a situation that recession-weary, tax-hungry politicians are hoping to change.

A growing number of states are considering laws to tax digital goods, such as iTunes songs, Amazon MP3s, or electronic books. Yet at a time when governments say they want to encourage broadband adoption and the development of a low-carbon economy, opponents say taxing digital goods sends exactly the wrong message.

Mississippi is one of the latest states to write into law a tax on digital products. The measure, which was adopted mid-March and goes into effect July 1, imposes a sale and use tax on specified digital products--including digital audio-visual works such as movies, digital audio works such as ringtones, and digital books.

Republican Gov. Haley Barbour endorsed the legislation via Twitter. "On HB 1461, I support this bill and here's why: This bill will treat Internet sales like catalog sales making it a level playing field," he said on March 11.

Including Mississippi, at least 18 states claim they have the authority to collect taxes on digital goods, and more are likely to join them.

On March 12, a bill was introduced in the North Carolina general assembly "to modernize the sales and use tax statutes by treating music, movies, books, and computer software that are delivered electronically the same as those that are purchased in a tangible medium."

A digital goods tax measure was also introduced in the Minnesota House of Representatives in late March. The bill could raise the state more than $8.2 million in 2010 through 2013, according to the Minnesota Department of Revenue (PDF).

States such as Washington and Vermont are also considering such measures, according to Stephen Kranz, an attorney at the Sutherland law firm who represents companies in the digital media industry.

The idea isn't popular everywhere. A proposal to tax digital goods in New York died this month when it was left it out of the state budget.

Rob Atkinson, the president of the Information Technology and Innovation Foundation, said that policy makers should distinguish between digital goods and digital services in their tax laws.

"A service would be someone designing your Web site for you," Atkinson said. "Whether they design it from a thousand miles away or in your office is irrelevant. On the other hand, if someone is buying (music online), it should be treated in the same way as a physical analog in the economy."

"I don't think most policy makers think about it that way," he added.

The Washington state bill would clearly tax digital services as well as what's typically considered digital goods, Kranz said. The Streamlined Sales Tax Project, a multistate effort to develop uniform standards for taxation, adopted in 2007 a specific definition of digital products, along with procedures for how they should be taxed.

Location, location, location
A uniform definition across states would make the taxes less burdensome to merchants, Atkinson said.

"There has to be some easy to use plug-in software...so each seller doesn't have to go through this accounting nightmare," of determining the taxes due in each state, he said.

However, some proposed laws such as Minnesota's would not apply to online merchants based outside the state, Kranz said. That's because under the legal concept of "nexus," a state generally may only tax a company that has a physical business presence within the state's borders--though a state may apply a "use tax" for goods coming into the state from elsewhere.

Those states that are not including a use tax in their proposals are "'discriminating against their own digital community," Kranz said. "If I'm a consumer and I have a choice between two Web sites and one charges tax and one doesn't, which one do you think I'm going to purchase from?"

In fact, North Dakota Gov. John Hoeven on March 19 signed into law a measure to explicitly exempt digital goods from taxes for that reason.

"I think it's important we send a message to the world of digital products that this is a state that's favorable to their interests," Dwight Cook, the state senator who introduced the tax exemption bill, told CNET News in January.

The tech industry has also been advocating for the government to promote the use of information and communications technology as a means of creating a more energy efficient economy--a goal that may be undermined by digital goods taxes, according to some.

"The digital economy is growing fast, and the tiny carbon footprint of downloads is something that benefits all of us," said Steve DelBianco, executive director of NetChoice. "Digital downloads are the most environmentally responsible way to get movies, music and software, and tax policy is one the ways we promote environmentally sound decisions."

Digital goods taxes may be particularly unappealing to consumers on April 15, DelBianco said.

"Writing a fat tax check is particularly painful when your home (value) and savings have declined so deeply, and the idea of facing new taxes on digital goods makes that pain last all year long," he said.

A freeway overpass connecting two parts of Microsoft's Redmond headquarters has become a well-traveled road for critics of how the federal government is spending its stimulus dollars.

The "Microsoft Bridge," as it has been dubbed, is slated to receive $11 million in stimulus dollars--money that critics say is a waste, but local and state officials have praised as a prudent use of transportation dollars.

The overpass indeed connects two parts of Microsoft's campus. But as proponents point out, it also connects two parts of Redmond's business community with each other and with the local freeway--State Route 520. For its part, Microsoft has pledged to spend $17.5 million, or roughly half of the project's estimated tab.

Plans for the connector are not new. The project has been an on-again, off-again item on the local agenda for more than a decade. It rose back up the list in 2005, after Microsoft agreed to contribute the millions of dollars as part of an expansion plan in the area.

"This overpass has been part of the Bellevue-Redmond transportation agenda since at least 1999," Microsoft General Counsel Brad Smith said in a blog post, defending the overpass. "It was then, and is now, a long-overdue link to reduce congestion in this rapidly growing urban center, which supports over 44,000 jobs, 600 companies, including major employers like Honeywell, Siemens, Nintendo, and Sears, and over 5,000 homes. "

In announcing 138 state projects due to get federal funding, Washington Gov. Chris Gregoire noted that the project met all of the criteria for such projects and would significantly help a growing traffic problem in the area.

"It isn't about Microsoft," she said. "It's about reducing congestion."

For her full response to a question about the project, check out the video, embedded below.

<a href="http://video.msn.com/?mkt=en-US&playlist=videoByUuids:uuids:4482261b-7d99-4e7c-bff9-eb58d22a83b0&showPlaylist=true&from=msnvideo" target="_new" title="Gov. Gregoire Discusses the 520 Overpass">Video: Gov. Gregoire Discusses the 520 Overpass</a>