John A. Quayle blueoval at SGI.NET
Tue Jan 11 10:00:36 MST 2000

Inside Stories


The Free Congress Commentary
Two Things Certain in North Carolina: Death and E-Commerce Taxes
by Paul M. Weyrich  (From the "Endangered Liberties" Television Program)

        America has always been such a great nation because it was possible to
seize the moment and push the envelope with any new invention. The Internet
is such a perfect example of what America can do. It was hardly heard of a
decade ago, and now 60,000 people are being added each day. People I never
thought would be online are, and they are having a great time with the

        The Internet is the engine that has been driving the enormous creation of
wealth which has taken place during the past decade. Five years of double
digit increases in the stock market. NASDAQ, the home of most Internet and
high-tech related stocks, grew by 84% in 1999 alone.

        One of the reasons for the growth of the Internet has been that it has
largely been free of government taxation and regulation.  Most of the
politicians weren't really tuned in during these past few years when the
Internet has really taken off.  But now it is occurring to many of them
that this is a great opportunity to increase revenues. Never mind that in
every single state, due to economic growth, revenues are at an all time high.

        Never mind that most states have a surplus that is enabling governors and
legislators to fund all sorts of special projects. In a few states,
governors are actually proposing tax reduction. Well not in North Carolina.
Residents of that state elected a liberal Democrat governor in 1998,
largely because he proposed a state lottery to
help fund higher education. Now they will find out what other plans the
governor has in mind for them. In 1990 the state passed a "use tax" which
has largely been ignored until now.

        Surprise, surprise - now North Carolina is going to begin taxing what has
become known as e-commerce. From now on,
if a North Carolina resident purchases something from out of state either
by catalog or from the Internet, they will have to keep track of those
purchases and will have to declare how much tax they owe on a separate line
item on the 1999 state income tax form. If folks fail to keep their
receipts, then the state has nicely prepared a table which calculates how
much tax is due.

        This is a completely new concept in taxation. Requiring that taxpayers
estimate what they have spent to be taxed accordingly. So how is the state
going to enforce this law? After all, if a taxpayer declares that he has
made zero purchases during the year then that same taxpayer would owe
nothing under this scheme. Well, North Carolina is setting up its own
little IRS to do random audits of credit card statements, bank withdrawals
and a number of other methods.  Perhaps they will get warrants to enter
homes to inspect for possible purchases. If North Carolina gets hold of
your credit card information, and it indicates you made an Internet
purchase of an expensive television set costing $3,000 from a dealer in
Nevada, the state will see whether or not this purchase shows up in your
income tax form. If it doesn't, the state will come after you.

        In addition to ending all privacy respecting our purchases, this scheme is
certainly going to put a damper on e-commerce. Obviously if North Carolina
manages to pull this off successfully, other states will follow. Even
though Congress passed a moratorium of new Internet taxes for three years,
North Carolina is exempt from that stricture because its law has been on
the books since 1990.
The state is taking a very hard line attitude about this. If a North
Carolina resident is physically in Virginia when he makes the purchase, he
will still be liable for the tax. Little Brother here is going to see how
much it can gouge from the taxpayer, and if Little Brother makes this work,
Big Brother won't be far behind. Already a number of governors in both
parties are pushing for an end to the moratorium on Internet taxation. They
also have their allies in Congress who see vast new sums flowing to the
U.S. treasury.

        It will be very interesting to see how many North Carolinians protest this
unjust law aimed at punishing the honest taxpayer. If virtually everyone in
North Carolina were to ignore this scheme, the state simply could not
enforce it. It would take too many people too much time for too little
revenue to make it work. On the other hand if North Carolinians take the
view that e-commerce taxes are as certain as death then we can be assured
that most every other state will adopt the same laws and Congress, perhaps
with at least one house
controlled by the Democrats, will follow suit. E-commerce is working. It is
expanding the economy. State coffers are richer because of it. These
politicians just can't leave something that is running extremely well
alone. Let's see whether North Carolina taxpayers have any fight left in them.

For media inquiries, contact Robert McFarland   202.546.3000 /
rmcfarland at freecongress.org
For other questions or comments, contact Angie Wheeler
awheeler at freecongress.org

"Endangered Liberties" Program Excerpts:

Taxing the Internet

        "What the [governors and mayors] want to do is set up a system whereby
basically any product that you order, you are going to be taxed no matter
where you order it from.  So, even if you order it from a lower tax state
or a tax-free haven, it doesn't make a difference - they want to try to
impose a tax on that company, even though that company is not based within
that state. So this raises this constitutional problem...of how are we
going to allow states to tax, or localities, to tax companies that do not
reside within their territory?  In my personal opinion, that poses some
very serious constitutional and economic problems," stated Adam Thierer, a
fellow in Economic Policy at the Heritage Foundation, a guest on
"Endangered Liberties."

        Thierer continued,  "...Governors and mayors for years have been trying to
do this with mail order and have not been able to. As a result, the mail
order business has skyrocketed. A lot of us don't like it when we get all
those catalogs in our mailbox when we come home, but let's face it, that is
a shopping alternative that we have access to, largely because we have kept
it free of burdensome Interstate taxes. The same issue now applies to the
Internet - are we going to allow states and localities to tax in
extraterritorial fashion? Or are we going to place some parameters around
how they can tax and who they can tax - which is the way I think it should

        Host Paul Weyrich noted, "America Online says that just between
Thanksgiving and Christmas of 1999, there were $2 billion worth of goods
and services purchased just on their system alone.... I suppose it's just
too tempting for some of the politicians to leave their hands off." Thierer
responded, "Well, that's right. There's a reason it's called the
'information revolution' - there's been an explosion in information
services in the Internet in recent years; and a lot of this has prompted
our nation's governors and mayors to begin considering ways to tax the
Internet, or at least sales over the Internet.  And that's what led really
to the Internet Tax Freedom Act of 1988 when this all began."

         Weyrich asked, "What is the difference between purchasing something, for
example, in catalog? ...Is this purely a matter of states enacting
individual taxation and, therefore, we don't have a uniform policy with
respect to the whole country?"

        Thierer explained, "Well, the governors would like there to be a uniform
policy so that they can start imposing taxes on sales that take place over
the Internet; the same way they would like to have some change in national
policy regarding mail order or catalog sales.  For many years, probably
about three decades in fact, the states and the localities of America have
been trying to get at the mail order industry, the catalog sales industry,
but...when you make a purchase through a catalog, you always see, if you
are in this state or that state you pay sales taxes, but others you do not.
Why is that? It's because those are the states where that company that is
selling you the good has a substantial physical presence, or a taxable
nexus - now those are technical terms. What it basically means is that that
company is in the state or locality who's attempting to impose a tax.

        That company can be taxed under the Constitution. But if a company has no
physical presence within a state or locality, then to tax it on an
out-of-state basis would be an unconstitutional violation of our commerce
clause - in other words, violating the free flow of interstate commerce.
That's why you only pay in certain states."

        Weyrich mentioned that some small businesses are complaining these
Internet purchases are harming their business.  Thierer commented, "There's
[an important] point to remember here - the small companies that fear that
they're being hurt by tax-free Internet sales need to ask themselves,
'what's the real problem?' Is it the fact that some of these interstate
companies are not taxed, or is...the problem here that state and local
sales taxes are already way too high and need to be cut or reformed? That's
the real nature of this problem - the fact that we have a crazy quilt of
sales tax policies - over 7,500 jurisdictions currently assessing different
taxes in America, out of a possible 30,000 tax jurisdictions that exist out
there - so there could be many more. And it's not just different tax rates,
it's different exemption policies, certain foods are exempted. [For
example], is a granola bar a food or is it candy? In California this is a
debate as to how to tax it - if it's a food it's not taxed, if it's candy,
it is. So it's a crazy quilt of tax policies across America; to then bring
that tax regime and impose it on mail order and then the Internet could
create quite an economic problem, and of course, a constitutional problem."

Contact:  Heritage Foundation  202.546.4400  / info at heritage.org
Visit their website at http://www.heritage.org

Coalition for Constitutional Liberties
Brought to you by the Center for Technology Policy of the Free Congress
Foundation - Lisa S. Dean, Vice President for Technology Policy
(mailto:lsdean at freecongress.org); Julie Malone, Coalition Coordinator
(mailto:jmalone at freecongress.org); phone: (202) 546-3000; fax: (202) 544-2819

        The following are excerpts from the Coalition for Constitutional
Liberties' weekly report. To see the full report contact Julie Malone at
(mailto:jmalone at freecongress.org)

CfCL stories in today's Notable New Now:

* FBI Project Megiddo

* FCC Overstepping First Amendment with Religious Broadcasters

        CfCL stories included in the full report, not appearing in today's Notable
News Now:

* FTC Planning to Create a Privacy Advisory Committee

* Airports X-ray Scans Invade Privacy

* An Arrest for a $10 Fine Already Paid

* North Carolina Adds an Internet Tax

* North Carolina Tracking Race

* United Kingdom Plans to Control How Fast Citizens Drive

FBI Project Megiddo - FBI Project Targeted Christians for No Reason
FCF's Dean Cites Unwarranted Surveillance, Calls for Hearings

WASHINGTON, DC - The FBI's project to counter domestic terrorism around New
Year celebrations from "right wing" organizations has not publicly produced
any evidence that it prevented any terrorist acts from occurring.

"Project Megiddo did nothing to prevent terrorism, but it has done much to
besmirch the innocence of law-abiding citizens," said Lisa S. Dean, Vice
President for Technology Policy at the Free Congress Foundation.  "Since
many of the cults that the FBI targeted for potential acts of violence
believe, according to Scripture, that this world will someday end and Jesus
Christ will come again, the FBI used the Y2K situation to confuse the
Religious Right, who also share those beliefs, with those religious cults
whom they consider dangerous."

The FBI released the report to state and local law enforcement agencies,
warning that certain "fanatical Christian groups" and the "right wing
movement" may commit acts of terrorism in trying to hasten the Second Coming
of Jesus Christ at the turn of the century or to protest the UN's agenda on
gun-control and other issues influencing US policies.  The Bureau's report
stated that law enforcement had to be prepared to combat these groups to
ensure the welfare and safety of Americans.

Citing the FBI's mindset of linking those who terrorize with those who
criticize, a group of participants in the Free Congress Foundation's
Coalition for Constitutional Liberties in November petitioned the House of
Representatives Leadership to investigate the FBI's Project Megiddo.

"Considering that the FBI's report considers half the population in the US
'extremist,' one has to wonder just what faction in America that agency is
representing," said Dean.  "The FBI, a once well-respected law enforcement
agency, has now been so heavily politicized that it's high time Congress
take a careful and close look into the matter, and hold hearings, similar to
those held on the IRS a couple of years ago, to determine the extent to
which this agency can no longer objectively carry out its duties to the
American public."
Contact: Robert McFarland 202 546-300 x434
E-mail: rmcfarland at freecongress.org

The following is from The Washington Post:

Compiled from reports by staff writer Hanna Rosin, the Associated Press and
Thursday, January 6, 2000; Page A09

"Christian Right Groups Protest FBI's Warnings"

"With no sign yet of domestic millennial terrorism, a coalition of
conservative Christian groups yesterday called for Congress to investigate
what it considers the FBI's overblown pre-New Year's warnings about the
threat of Christian extremists.

Echoing a complaint frequently made by the Arab Americans, 32 religious
right groups claim an October report by the FBI's domestic terrorism unit
paints millennial Christians--which includes most evangelicals--as

The coalition first raised concerns in a November letter to House Republican
leaders, after contents of 'Project Megiddo" were revealed.

FBI spokesman John Collingwood yesterday defended Project Megiddo, saying it
was not intended to target any individual or group or 'besmirch' anyone's
reputation.  He said it was designed to alert the law enforcement community
to potential threats linked to the millennium."
Article at The Washington Post Web site:

FCC Overstepping First Amendment with Religious Broadcasters

The following is from CNS News:

FCC Ruling May Jeopardize Religious Broadcasting
By Justin Torres
CNS Senior Staff Writer
05 January, 2000

(CNSNews.com)  - More than 125 noncommercial television broadcasters may be
forced to drop religious programming after the Federal Communications
Commission (FCC) ruled that broadcasts "primarily devoted to religious
exhortation, proselytizing or statements of personally-held religious views
or beliefs" are prohibited under the agency's educational programming

The decision, released December 29, 1999, allows PBS station WQED in
Pittsburgh, Penn., to swap one of its two stations for religious broadcaster
Cornerstone television's WPCB in Greensburg, Penn., in anticipation of that
station's sale to Paxson Communications.

The ruling also goes on to provide broadcasters with "additional guidance"
in determining what can be considered "educational programming" on reserved
noncommercial broadcasting channels.

The new guidelines require broadcasters operating on noncommercial
educational licenses to devote at least one-half of their programming hours
to topics that serve the "educational, instructional or cultural needs of
the community."  To qualify, the Commission continued, that programming must
not be "primarily devoted to religious exhortation, proselytizing, or
statements of personally-held religious views and beliefs."

Examples of religious broadcasting that are deemed educational include
programs "analyzing the role of religion in connection with historical or
current  events, various cultures, or the development of the arts"; programs
"exploring the connection between religious belief religious belief and
physical or mental health"; programs "examining the apparent dichotomy
between science, technology and religious tenets"; and programs "studying
religious texts from a historical or religious perspective."

However, church services, emotional appeals to religious faith, or any form
of proselytizing would not be allowed.

"What the Commission has done is made it impossible for a broadcaster to
walk this line they've created between 'exhortation,' which is prohibited,
and 'religious education,' which is allowed," Karl stoll, spokesperson for
National Religious Broadcasters, told CNSNews.com.

Read more Wired News "Churches Curse Broadcast Ruling" by Declan McCullagh
at: http://www.wired.com/news/politics/0,1283,33479,00.html

Visit Our Website at http://www.FreeCongress.org

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