TAX NEWS - June 2010

FCC: Taxation and regulation of the Internet and other media services

Forces are at work to clamp down on the FCC's ability to regulate and tax the Internet. After putting up with no less than three revisions to how it can tax and control the domestic Internet, Congressmen Jim DeMint, from South Carolina, said he would soon introduce a bill that would reform the FCC and guard against unnecessary taxation and regulation of the Internet and other media services.

The "Consumer Choice Act" is based on a bill introduced in 2005, which would "reform the FCC into a market-based, antitrust-style framework, using an 'unfair competition' standard". It would essentially model the FCC after the FTC and take away the commission's ability to make longstanding "law" - instead limiting any regulations to 5 years with option for renewal.

This is in response to recent moves by the FCC to function an unelected taxing authority with the capability to bring new regulations and costs to consumers - particularly with respect to interstate trade laws and Internet sales. What prompted this resurgence of interest in bringing down the FCC's power grab was the commission's "third way" plan, proposed by Chairman Julius Genachowski in early May, which would reclassify the transmission of data as a telecommunications service, opening the floodgates to regulation and taxation.

The FCC's pursuit of regulatory, and thus taxation, power comes from an interpretation of the Communications Act of 1934 that gave them limited authority to regulate broadband services. To exercise this, in 2008, the FCC attempted to ban Comcast from blocking peer-to-peer sites like BitTorrent - something that was smacked down by the D.C. Circuit Court earlier this year.

Next week, the Commerce Committees of both houses will hold a series of sessions about communications policies, chiefly concerning broadband regulation and the authority of the FCC. While later meetings will touch on spectrum policy and ways to expand broadband adoption as well as capacity, this first part is what has a lot of retailers concerned - and wondering how much power the FCC will be able to nab before it is stopped. According to the 16th Amendment to the constitution:

The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

We don't see anything in there about the FCC... The significance of Jim DeMint's efforts lie in that his is the first to react to the FCC's broadband plans with legislation. Given their proclivity to continue pursuing legislation on these regulatory matters (they've been at it for over 2 years now) this may be the only way to clearly define their abilities and shut them down from further encroaching into these areas.