Columns Archive

Tax Holiday Expiring, Regulators Aspiring on the Web

link to html archive

The Internet in the summer of 1997 enjoyed a sense of seemingly unlimited potential and limited controls. While businesses and individuals flocked online, government ran away from regulating the Internet, adhering to a self-regulatory philosophy that dictated a hands-off approach.


For example, rather than using governments and international organizations to administer the domain name system, the U.S. government created the Internet Corporation for Assigned Names and Numbers (ICANN), a California non-profit corporation that was tasked with the responsibility.

On matters of Internet taxation, the U.S. enacted the Internet Tax Freedom Act, which established a moratorium on new Internet taxes. In fact, even when the U.S. Congress sought to regulate obscenity on the Internet through the Communications Decency Act, the U.S. Supreme Court struck down the law as unconstitutional.

Fast-forward to the summer of 2003 and it becomes clear just how much Internet law has changed. Governments are no longer content to sit on the sidelines on Internet governance matters, Internet taxation is here, and the U.S. Supreme Court last week upheld a law that mandates software filters for publicly-funded libraries in an effort to curb children's access to online pornography.

Internet governance issues took centre stage last week in Montreal as the global domain name community gathered for the first ICANN meeting held in North America in several years. With over 500 delegates from around the world, all stakeholder interests were present including domain name registrars, country-code domain names such as the host Canadian Internet Registration Authority, business interests, the intellectual property community, and Internet users.

In the emerging hierarchy of interests, the group that sits at the top is government. Governments participate in Internet governance matters through the Governmental Advisory Committee (GAC), a committee originally established to provide governments with an avenue to provide feedback and advice to ICANN.

The Montreal meeting featured a newly aggressive GAC as representatives questioned ICANN on its implementation of recent World Intellectual Property Organization recommendations on dealing with disputes involving country name domains (such as Rather than asking ICANN where the policy sits, the GAC inquired why it wasn't yet implemented. This approach heralds a new dynamic in Internet governance where government moves from merely providing advice to actively proposing and defining policy.

The change in approach is similarly in evidence on the Internet taxation front. Starting tomorrow, the European Union will require non-E.U. firms selling digital products into the E.U. via the Internet to collect Value Added Tax (VAT) on behalf of E.U. member countries.

While U.S. interests have argued strongly against the measure, the E.U. points to simple tax fairness, noting that the current tax-free position enjoyed by non-E.U. companies places them at a competitive advantage over their European counterparts. In response to the requirement, large U.S. e-commerce companies such as eBay have instituted new mechanisms to collect the applicable taxes.

With the E.U. in the lead, it appears likely that other countries will soon follow. Dozens of U.S. states have been working toward a unified system of sales tax collection that will allow for the collection of sales taxes on Internet-based sales and the Canadian government will presumably engage in similar efforts to apply the GST to online sales sometime soon.

The gradual change in approach to Internet law is best illustrated by last week's U.S. Supreme Court case. In its 1997 Communications Decency Act decision, the court unanimously struck down provisions found in the statute that dealt with online obscenity. The message at that time was clear — it would not support overbroad legislation that could severely impinge free speech and access to content on the Internet.

While last week's decision involved a far more sophisticated and limited piece of legislation, the Children's Internet Protection Act was struck down earlier by a trial court and appellate court on constitutional grounds. A divided Supreme Court reversed those decisions by upholding the law, subject to the condition that libraries provide adult patrons with unfiltered Internet access should they request it.

The most telling aspect of the decision was how the majority of the court thought that requiring libraries to filter Internet content was completely unremarkable. The majority pointed out that the U.S. Congress has established other programs that tie library support to particular policies and it saw little difference between those programs and the Internet filtering requirement. The majority was not troubled by fears of filters "overblocking" content, a frequent criticism of software filter programs that are often unable to distinguish between pornographic or hate sites and those devoted to sexual education or anti-racism.

The U.S. decision caught many observers by surprise, since they have been lulled into the sense that the Web was somehow beyond traditional regulation. The past week's events in Montreal, Europe, and Washington suggest that that is no longer the case as governmental regulation of Internet is actually becoming increasingly the rule, rather than the exception.

Comments are closed.