Marketplace Fairness Act Aims To Allow States To Obtain Sales Tax From Large Internet Retailers

On February 14, 2013 a bipartisan group of Senators and Representatives introduced legislation that will supposedly level the playing field between local brick-and mortar retailers and out-of-state Internet retailers. The Marketplace Fairness Act of 2013 would allow states to require out-of-state online retailers to collect sales and use tax on in-state purchases. Businesses with less than $1 million in annual domestic sales would be exempt from the bill. Despite the optimism for the passing of the bill, critics question whether it will achieve its goal of leveling the playing field between local businesses and out-of-state online retailers without introducing a host of unintended consequences.

Currently, due to a 1992 Supreme Court decision, states have been unable to require out-of-state online retailers to collect sales taxes from in-state customers. See Quill Corp. v. North Dakota ex rel. Heitkamp, 504 U.S. 298, 313 (1992) (holding that although businesses did not need to have a physical in-state presence to permit the state to require the business to collect taxes from its in-state customers, physical presence within the state is required for the business to have a “substantial nexus” with the taxing state as required by the Commerce Clause). Customers who order products from online retailers from outside of the state are supposed to declare these purchases on their tax forms, but few customers do. Due to this outdated Supreme Court ruling the National Conference of State Legislature reports that, collectively, states miss out on approximately $23 billion in tax revenue annually. Furthermore, local business are at a disadvantage because consumers can walk into these local stores, try out the product that they are interested in, and go home and purchase the item from an out-of-state online retailer without paying the state sales tax.

The current version of the bill combines several proposals from the previous bill that failed to pass last year while incorporating revisions intended to make the bill more palatable to critics and opponents. In particular, the exemption threshold for businesses was raised from $500,000 to $1 million in out-of-state annual sales. The Marketplace Fairness Act of 2013 would empower states to compel out-of-state online retailers to collect sales and use taxes provided that the state simplifies its sales and use tax system. Several online retailers, including Amazon, have expressed their support for the bill.

Despite the optimism and support for the passing of this bill, it is not without critics. Some critics argue that given that one of the prerequisites for states to use this bill is that they must simplify their sales and use tax system, the bill may have the potential to create a complicated new tax system with differences in each state. Furthermore, the legislation may be difficult to enforce because determining whether a retailer is not collecting the taxes may be challenging and needs to be addressed. There are concerns that the bill has a potential to stifle Internet commerce. Large online retailers such as Wal-Mart and Amazon can easily deal with the increase reporting expenses and decreased revenues in out-of-state sales but the smaller online retailers may be forced to keep their sales within their state of operation or confined to states where they have their largest out-of-state sales revenues. The bill, if passed, will likely do the most good in terms of getting states sales revenues that they are already rightfully owed but are not being paid because customers fail to report their out-of state purchases. In this tough economy an infusion of sales revenue may be the much-needed resource that may allow state governments to keep their taxes steady and prevent the need for cuts in programs and services and this bill appears like it has the potential to help in this respect.

The Marketplace Fairness Act appears most misguided in its focus on putting local business on a level playing ground with out-of-state online retailers. The bill may just be slowing down the inevitable. The fact that residents have to pay taxes on goods bought in local business may not be the only reason for why customers are choosing to buy from out-of-state online retailers. The prices of the online retailers may still be significantly lower than the local business even after the passing of this bill because some online retailers are able to provide lower prices due to economies of scale and the fact that they do not have the expense of having locations or warehouses within the state. Therefore, the bill should be presented more as a way for states to obtain revenue that they are rightfully owed and less as a savior of local businesses.

Source: http://news.cnet.com/8301-13578_3-57569600-38/politicians-push-bill-to-help-states-collect-online-sales-tax/

Aaron Swartz: Internet Innovator and IP Advocate

On January 11, Aaron Swartz committed suicide. For those who don’t already know, Swartz was a programming genius, internet wizard, developer of RSS web-feed format, and a co-founder of Reddit. He was a legend in the internet programming world at age 14. At the time of his death, he was only 26.

But unlike the stereotypical internet entrepreneur, he was not in it for the money. His innovations afforded him plenty of cash, but he freely spent it on what became his overarching purpose: freedom of information on the internet. Swartz became an activist, and was a key figure in the defeat of SOPA and PIPA. He was a Robin Hood of the web, a rebel with a very timely cause.

In 2008, Swartz decided to take on PACER, a website run by the U.S. federal court system. PACER charges users a per-page fee to access court records, briefs, decisions, and other documents. Swartz reasoned that public money pays the courts’ operating costs, and that such documents should be freely available. After writing a program to download the documents, he spent a significant sum of his money amassing millions of them and making them publicly available. He was investigated, but not charged.

His next target was JSTOR, an internet hub for the distribution of scholarly articles. Swartz was a fellow at Harvard, and used his JSTOR login to access and download millions of articles that he intended to distribute freely to the public. After his activity was detected and cut off, he trespassed into an MIT closet and began directly downloading them into his laptop.Again, he was guided by principle. Swartz was bothered for two reasons. First, authors who write for scholarly journals receive no portion of JSTOR’s fees. Second, the expense of the database was preventing average Americans from ever benefitting from the research and writing of our higher education system.

This time, however, Swartz was caught red-handed. He was arrested in 2011. Since his legitimate access to JSTOR gave him permission to download the files, his only crime against JSTOR was his intent to distribute them. But he never distributed them. When he was arrested, he promised that he never would. JSTOR settled with him and stated they did not wish to see him prosecuted.

The Justice Department saw things differently. U.S. attorney Carmen Ortiz decided to come down heavily on Swartz, and vowed to see him serve time for his crimes. His trial was scheduled for this April. Swartz had struggled with depression for a long time, but, in an official statement his family laid some of the blame for his death on the Justice Department: “Aaron’s death is not simply a personal tragedy. It is the product of a criminal justice system rife with intimidation and prosecutorial overreach. Decisions made by officials in the Massacusetts U.S. Attorney’s office…contributed to his death.”

Some writers have suggested that Swartz was facing decades of jail time and so took his own life. Some have cautioned the media and blogosphere against such hyperbole, noting that maximum allowable sentences are almost never related to actual imposed sentences.

Following his death, Ortiz issued a statement insisting that she was only seeking to imprison him for six months. But Ortiz is now being slammed in Congress for her overzealous prosecution of what ultimately was a mere trespass case.

The big question is why the Justice Department decided to pursue this so zealously. In a terrific tribute to Swartz in The Guardian, Glenn Greenwald suggests that Swartz was engaged in “the war over how the internet is used and who controls the information that flows on it - and that was his real crime in the eyes of the US government: challenging its authority and those of corporate factions to maintain a stranglehold on that information.”

Widespread use of the internet is only fifteen years old. All three branches of government (which tends to move at a glacial pace), are still trying to put together the puzzle of how and if it will be legislated, regulated, and interpreted. Swartz became the straw that stirs the drink for the progressive side of this issue. Although he tragically died young, Swartz was an example of civil disobedience of the highest order.

Piracy in the Caribbean: WTO Approval of Antigua and Barbuda Piracy Site

The World Trade Organization (WTO) has taken a controversial step in an effort to settle the score between the United States (US) and Antigua and Barbuda: authorizing the suspension of US copyrights in Antigua and Barbuda. This move in essence allows the islands to give away US copyrighted material without compensation to the copyright holders. While actual implementation of a government-powered website that freely distributes US copyrighted material might be a distant reality, this WTO action could ignite a disastrous ripple effect and is being highly scrutinized by member countries who are wondering if these retaliatory legal measures are in line with the spirit of the WTO.

US intellectual property rights, specifically copyright laws, prevent anyone but the copyright owner or someone they authorize from distributing or otherwise utilizing the copyrighted material - music, film, books, games, software, and photographs. The WTO has each member country agree to honor every other member country’s intellectual property laws. Respecting other member country’s laws is imperative in maintaining the harmonious spirit of the WTO and promoting free trade, and this protection can sometimes be a driving force behind a country’s decision to join the WTO. The WTO has the authority to issue decisions that are binding and punitive on member countries, which the countries must agree to comply with when joining the organization.

In 2007, the US and Antigua and Barbuda’s disagreement over online gambling services was brought to the WTO’s Dispute Settlement body, the highest trade body in the world. The US claimed they had inadvertently agreed to place no restrictions on the ability of foreign countries to provide online gambling services to US citizens. Antigua and Barbuda had invested millions of dollars in furnishing such services to US citizens under the belief that the US government was allowing this to happen, and when the US government later attempted to stop these services, Antigua and Barbuda lost money and many of their citizens lost jobs, creating a crisis for the islands. The WTO ruled that although the US’ agreement to no restrictions may have been unintended, the government had acted carelessly in outlining their restrictions and the agreement was binding because other countries had relied on it. The WTO ruled that the US must follow through with removing the restrictions on foreign online gambling services, or alternatively, compensate affected countries for their losses.

But since the ruling in 2007, the US has dragged its feet in following through with the WTO’s orders. On Monday, January 28, 2013, the WTO gave Antigua and Barbuda the final authorization to suspend US copyrights and implement a government-run website that can freely distribute US copyrighted materials, worth up to the sum of $21 million dollars a year, for as long as the US continues to refuse to comply with the WTO order. This measure is categorized as a retaliatory compensatory measure, typically implemented when a member country does not comply with a WTO ruling to the harm of another member country. The harmed member country is then allowed to retaliate in a proportionate manner to the non-compliant member country.

The WTO may have gone too far with this ruling, however. The suspension of intellectual property rights does not seem to have a clear ending point; once one song, for example, if freely distributed, copies can be made over and over again, creating an aggregate loss of much more than $21 million, the set limit imposed by the ruling. Suspension of copyright laws is not a defined enough penalty to be proportionate to the losses Antigua and Barbuda felt by the US’ actions, and the US could end up losing much more than the islands ever had.

It also seems that this sort of authorized retaliatory ruling is not within the spirit of the WTO, whose mission is to promote harmonious free trade throughout the countries of the world. US Trade Representatives have already expressed concern over the ruling, suggesting that this move would further spoil business relations between the countries involved. Imposing this harsh of a penalty on a country that claims to have inadvertently entered into this mess sets a precedent for other countries that they need to be afraid and tedious in their agreements, or else they may find themselves retaliated against, with the retaliation sanctioned by the WTO. This discourages blossoming countries from entering into the WTO, and encourages existing members to be as withholding as possible in their agreements to what services they allow foreign countries to provide. All of these effects are in direct conflict with what the WTO was designed to accomplish.

For now the world must wait to see if the US and Antigua and Barbuda can come to some alternative agreement before the drastic measures of the government-sponsored piracy site are taken. If the piracy website is realized, the WTO should brace itself for the severe backlash from not only the US, but all other countries who fear the extent of the retaliatory measures the WTO is comfortable with authorizing.

Twitter Answers U.S. Government's Request for User Data 69% of the Time

As technology advances and social media websites continue to develop into a hub for global communication, governments have started to seek user information from these sites. Whether this is unreasonable government surveillance or effective resource management is debatable. Either way, it is inevitable that the government will request information from social media users and it is foreseeable, provided the correct documentation, that social media sites will disclose the information.

Twitter has created a transparency report that unveils to the public and its users the number of times the government is requesting information in order to maintain transparency between its users and the company. Twitter’s second transparency report provided that in the beginning of 2013 they received 1,009 requests for user account information from the government between July to December 2012 and 1858 requests for all of 2012. These numbers convey a sixteen percent increase from the first half of the year to the second half of the year. With eighty-one percent of the requests coming from the United States, there is reason to establish awareness. Approximately sixty percent of the data requested by the U.S. government was via subpoenas versus warrants. Since January 1, 2012 there have also been forty-eight removal requests that the government deemed illegal and 6,646 copyright violations found by the government.

Although governments are continually requesting user information, it is not always granted. Of the 1,009 requests, accounting for 1,433 user’s accounts, Twitter released user information sixty-nine percent of the time. Japan requested the second most, sixty-two times regarding seventy-five users, however Twitter only complied five percent of the time. The U.S. government requested information in three primary forms; subpoenas - sixty percent of the time, court orders - eleven percent of the time, and warrants - nineteen percent of the time. Twitter disclosed that the majority of the subpoenas requested basic subscriber information, such as e-mail address associated to the account and IP logs. Search warrants are typically requesting more detailed disclosure, including tweets and direct messages.

As social media continues to grow, Twitter finds it imperative that it is transparent to users about the government’s requests to attain user information. As the number of inquires continue to grow, it is vital users are cognitive of the government’s actions and aware of the information they are disclosing to internet services in order to act accordingly and properly protect themselves. Although information is being disclosed by Twitter, the transparency report displays that the social media site is clearly doing its due diligence regarding the process. Additionally, it is important that social media users understand that Twitter, as well as other social media websites, have a responsibility to provide its user’s information when presented with official documentation like subpoenas and court orders. As a citizen of the United States, we are fortunate to live in a democracy where we maintain a freedom of speech and expectation of privacy, however if you are participating in suspicious activity take note that social media websites like Twitter and the government will work together in order to establish justice.

Rethinking the Cost and Benefits of Behavioral Targeting

Online behavioral targeting, also known as behavioral advertisement, involves tracking an individual’s online activities for the purpose of delivering tailored services or advertisement to a user. During the 2012 elections, it was revealed that even politicians used behavioral targeting in their campaigns. Online behavioral tracking has been proven to be extremely valuable because not only does it allow interested parties to align their advertisement with what the individual is likely to purchase, it also enables useful features to Internet users such as saving customized personal preferences and settings on the web.

Behavioral targeting has generated a form of service providers called network advertisers, companies that compile and classify expensive consumer profiles and deliver appropriate advertisements to participating websites across their network. Companies generally use “cookies”, amongst other tracking methods, to track consumer activities by associating those activities with a particular computer or electronic device.

Despite the Federal Trade Commission's efforts in setting self-regulatory principles, there is currently no law in the U.S that expressly addresses behavioral targeting. Typically, data that network advertisers collect does not fall under any existing privacy regulations because it does not include any personal identifying information, such as the user’s real name or other identifying information that can tie the user to his/her real identity.

Those who oppose to such act of data collection argue that behavioral targeting constitutes a breach of privacy because it implicates some form of personal information and more importantly, it invades an individual’s “inner identity”. A complete consumer data profile is, in a way, an attempt to replicate the individual’s personality in order to create customized advertisements. Such exploration can be more private and valuable than some aspects of external identity. For instance, the delivery of advertisements may reveal private browsing history such as religious beliefs or sexual orientation to other users of the same electronic device because cookies track the online activities of a device, not of a particular person. In other words, behavioral targeting may lead to not only identify thefts, but also embarrassment, inconvenience, and unfairness.

While many consumers in the U.S remain unaware that their online activities are being tracked, the European Union has heavily promoted Internet privacy awareness. Amongst other regulations, the e-Privacy Directive requires each member of the European Union to legislate the collection, use, and disclosure of personal information. Furthermore, the Directive requires all Internet firms and any other business that process data to obtain informed consent from data protection authority, as well as individuals, before commencing any data collection and processing.

There is an urgent need for the Legislature to find a way to balance data utility and privacy. Don’t you think it is about time that pair of shoes you checked out last week stops following you everywhere?