Domain tax approved

Congress retroactively approves a tax on the registration of Net domain names, in spite of ongoing debate over taxing ISPs and e-commerce.

Congress last night retroactively approved a tax on the registration of Internet domain names--a tax that had been struck down by a federal judge three weeks earlier.

Because the tax is not currently being collected, there will be no immediate effect on people registering new domain names. But those who registered during the period the tax was imposed won't be getting the refunds many of them expected.

Approximately $56 million had been collected from the tax, according to Network Solutions (NSI), which is charged with registering domain names under a government contract.

"Late last night, the U.S. Congress voted for the first Internet tax in history," said Howard Sartori, president of the American Internet Registrants Association, which filed the lawsuit that temporarily overturned the tax.

Congress and states Dueling domains have been locked in a debate over instituting taxes targeted specifically at Net access and online services. The Internet Tax Freedom Act, endorsed by President Clinton, would place a "time out" from three to six years on applying new taxes on e-commerce or online services. However, some states already collect utility levies from ISPs, for example.

But the infrastructure fund could be seen as the first tax collected specifically to upgrade the Net.

Sartori said the ratification provision was inserted at the request of the Clinton administration.

Under an agreement with the National Science Foundation (NSF), NSI. is responsible for doling out addresses in the popular ".com," ".org," ".edu," and ".net" top-level domains.

Since 1995, Network Solutions has collected $50 per year for each registration--$35 for the registration itself, plus $15 that was designated for a fund to improve the workings of the Internet. Those registering new domain names pay for the first two years.

U.S. District Judge Thomas Hogan ruled on April 9 that the $15 fee constituted a tax. Hogan said the tax was illegal because NSF lacked the authority to impose it.

"This provision allows [Network Solutions] to collect it at least until September, when Network Solutions' agreement with NSF expires," Sartori said.

"It is incomprehensible that the Congress would ratify an unconstitutional tax and authorize Internet taxes retroactively," he added. "This is doubly so when the administration has just asked Congress to place a moratorium on all Internet taxes."

But Network Solutions spokeswoman Nancy Ward Huddleston said, "They'll just be able to use the money that was already collected. But the money is no longer going to be collected for that fund."

One of the key arguments against the tax was that it violated the Constitution because it had never been passed by Congress, or even "ratified" retroactively.

Last night, the Senate approved a "conference report"--a compromise agreement between the House and Senate--on the Emergency Supplemental Appropriations Bill (H.R.3579). Among its many provisions, such as $2.86 billion for defense and $2.6 billion for disaster assistance, was the retroactive approval of the domain name registration tax. The Senate vote was 88 to 11. The measure had previously been approved by the House.

"I don't know of one senator who even saw the language imposing the tax or even knew about it," Sartori said. He suggested that the provision was actually inserted by congressional staffers without telling their bosses--something that occasionally happens in Washington.

William Bode, the attorney for opponents of the tax, said he will review the legislative provision carefully to determine whether it satisfies "the strict standards for ratification."

"As a general matter, Congress can only ratify unconstitutional bills through general bills, not appropriation bills," Bode said.

Network Solutions stopped collecting the fee on April 1.

In February, Judge Hogan prohibited NSF from spending the $56 million that had accumulated in the fund, which is known as the Internet Infrastructure Fund.

Congress last year allocated $23 million to the Next Generation Internet project, an effort to build a higher-speed network for scientists and academics. The Next Generation project was begun by a consortium of universities and research organizations and has been championed by the Clinton administration.

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