High Tech Legislative Update
 
July 19, 2001
 
James E. "Ted" Long- Boston

To some degree, legislation regarding the high-tech industry appears to have cooled along with the Nasdaq. However, the change of control in the U.S. Senate does alter the political landscape for several pieces of legislation that would impact the high-tech industry.

One priority shared by the industry and several members of Congress has been to make permanent the current ban regarding the ability of federal, state and local governments to tax access to and transactions on the Internet. However, early last month, Republican Members of the House and Senate, Representative Cox (R-CA) and Senator Allen (R-VA), respectively, proposed a simple extension of the ban on Internet access taxes (the Internet Tax Freedom Act of 1998). While some legislators had sought a ban on the imposition of all taxes, including sales taxes, the most recent bill is viewed as confirmation of the difficulty of moving the broader bill. While President Bush has indicated that he supports an extension of a ban regarding taxes on Internet access, the President has never signaled his position regarding sales taxes. As a former governor, his silence has been viewed by industry as an indication of a pro-state-rights approach to the issue.

Currently, officials of 27 states have endorsed a proposal by which states would be allowed to tax Internet transactions under a simplified and uniform taxation system (see www.geocities.com/streamlined2000/ for more information). Prior to taking majority control of the U.S. Senate the Senate Democratic Policy Council, on April 5, 2001, issued an "E-Strategy" designed to spur innovation, design and economic growth (see www.democrats.senate.gov for full agenda). Part of that policy agenda included an endorsement of the permanent codification of the Internet Tax Freedom Act while also stating support for the right of states to tax Internet transactions under a simplified system. Senator John Kerry (D-MA), a Democratic leader on technology issues, has stated publicly a belief that sales taxes will be imposed. Currently, Senators Dorgan (D-ND) and Wyden (D-OR), other pro-industry members of the Democratic caucus, have been meeting to work out a comprise on their sales tax simplification bills, which could soon get an airing from soon-to-be Chairman Hollings (D-SC), another former governor, who now chairs the Senate Commerce Committee. Thus, it appears extremely likely that, while the moratorium on access taxes will be passed this Congress, the sales tax issue, given the fact that, as estimated by the National Taxpayers Union, almost 7,500 jurisdictions impose some type of sales tax on brick and mortar transactions, is far from resolved.

Another issue that may be affected by the change of control in the U.S. Senate concerns bankruptcy legislation. Currently, a bankruptcy reform proposal has passed each body of Congress and awaits finalization in Conference prior to being sent to the President for his signature (House passed bill is H.R. 333, the Senate passed S. 420). There is a privacy provision in the Senate legislation now stalled in Conference. Specifically, Section 231 of S. 420 contains language that would allow personally identifiable information of a debtor (i.e. customer list of a bankrupt dot-com) to be sold in a bankruptcy proceeding only if the practice, i.e. disclosure to third parties, was "permitted" by the debtor's privacy policy in existence at the time of the bankruptcy filing. While, if enacted, this position would impose significant hurdles on Web site operators that collect personally identifiable information on children under 13 years of age, the impact on sites that only collect information on adults is less clear given the Federal Trade Commission's more limited authority to regulate privacy protection for adults.

With regard to Internet privacy policy, new Federal Trade Commission Chairman Tim Muris made his first public remarks as chair of the FTC and did not mention Internet privacy (concentrating instead on online fraud and his view that the FTC should be less aggressive in challenging large corporate mergers on anti-trust grounds.) While Senate Democrats have signaled some intention to make privacy an issue in the medical records context, their willingness and ability to take on the issue in the online context may be less clear (although key Democratic Senators Kerry and Leahy (D-VT) have previously endorsed legislation on this topic in the past, and Kerry and Senator McCain (R-AZ), last Congress, introduced legislation requiring Web site operators to inform visitors of their data collection and sharing practices).

One area for potential bipartisan legislation in the extremely high-profile area of education. Senators Leahy and Hatch (R-UT) have introduced the TEACH Act, S. 487, to amend the copyright law in ways to protect copyright owners while also encouraging distance education. This bill recently passed the Senate and is now under consideration in the House of Representatives.

All legislation referred to, and the bill's current status, can be accessed at http://www.senate.gov/.

For more information, please contact Ted Long at 1-888-688-8500 or at tedlong@hklaw.com.