legal and ethical issues; internet taxation risanuri hidayat, ir., m.sc

Legal and Ethical Issues; Legal and Ethical Issues; Internet TaxationInternet Taxation

Risanuri Hidayat, Ir., M.Sc.Risanuri Hidayat, Ir., M.Sc.

Chapter 6Chapter 6Outline6.1 Introduction6.2 Legal Issues: Privacy on the Internet

6.2.1 Right to Privacy6.2.2 Internet and the Right to Privacy6.2.3 Tracking Devices6.2.4 Cookies6.2.5 Employer and Employees6.2.6 Protecting Yourself as a User6.2.7 Protecting your Business: Privacy

Issues6.3 Legal Issues: Other Areas of Concern

6.3.1 Defamation6.3.2 Sexually Explicit Speech6.3.3 Children and the Internet6.3.5 Intellectual Property: Patents and

Copyright6.3.6 Trademark and Domain Name

Registration6.3.7 Unsolicited Commercial E-mail

(Spam)6.3.8 Online Auctions6.3.9 Online Contracts

Chapter 6Chapter 6

6.4 Social Issues: Online Communities6.4.1 Online Communities: Defining the Difference6.4.2 Online Activism 6.4.3 Disabilities and the Web

6.5 Global Issues 6.6 Internet Taxation

6.1 Introduction6.1 Introduction

Real spaceReal space Our physical environment consisting of temporal Our physical environment consisting of temporal

and geographic boundariesand geographic boundaries

CyberspaceCyberspace the realm of digital transmission not limited by the realm of digital transmission not limited by

geographygeography

6.2 Legal Issues: Privacy on the 6.2 Legal Issues: Privacy on the InternetInternet

Difficulty of applying traditional law to the Difficulty of applying traditional law to the InternetInternet

Technology and the issue of privacyTechnology and the issue of privacy

6.2.1 Right to Privacy6.2.1 Right to Privacy

Implicit in the First, Fourth, Ninth and Implicit in the First, Fourth, Ninth and Fourteenth AmendmentFourteenth Amendment

Olmstead vs. United StatesOlmstead vs. United States Telecommunication of alcohol sales during Telecommunication of alcohol sales during

Prohibition eraProhibition era New application of the Fourth AmendmentNew application of the Fourth Amendment

TranslationTranslation Interpreting the Constitution to protect the Interpreting the Constitution to protect the

greater goodgreater good

6.2.2 Internet and the Right to 6.2.2 Internet and the Right to PrivacyPrivacy

Self-regulated mediumSelf-regulated medium The Internet industry essentially governs itselfThe Internet industry essentially governs itself

Many Internet companies collect users’ personal informationMany Internet companies collect users’ personal information Privacy advocates argue that these efforts violate individuals’ Privacy advocates argue that these efforts violate individuals’

privacy rightsprivacy rights Online marketers and advertisers suggest that online companies can Online marketers and advertisers suggest that online companies can

better serve their users by recording the likes and dislikes of online better serve their users by recording the likes and dislikes of online consumers, consumers,

Financial Services Modernization Act of 1999Financial Services Modernization Act of 1999 Establishes a set of regulations concerning the management of Establishes a set of regulations concerning the management of

consumer informationconsumer information

6.2.3 Tracking Devices6.2.3 Tracking Devices

Tracking devicesTracking devices Identifies what activities and products are most popular Identifies what activities and products are most popular

among consumers among consumers

ID cardID card Enables information to be sent to computer from a Web siteEnables information to be sent to computer from a Web site

Click-through advertisementsClick-through advertisements Consumers can view the service or product by "clicking" on Consumers can view the service or product by "clicking" on

the advertisementthe advertisement

Web BugsWeb Bugs or or clear GIFsclear GIFs Embedded in an image on the screenEmbedded in an image on the screen

6.2.4 Cookies6.2.4 Cookies

CookieCookie A text file stored by a Web site on an individual’s personal A text file stored by a Web site on an individual’s personal

computer that allows a site to track the actions of its visitors computer that allows a site to track the actions of its visitors Record passwords for returning visitorsRecord passwords for returning visitors Keeps track of shopping-cart materials and register Keeps track of shopping-cart materials and register

preferencespreferences Helps businesses by allowing them to address their target Helps businesses by allowing them to address their target

market with greater accuracymarket with greater accuracy

Consumer ProfileConsumer Profile A direct advertising network of sites, combining A direct advertising network of sites, combining

information about a particular consumerinformation about a particular consumer

DoubleClick: Marketing with DoubleClick: Marketing with Personal InformationPersonal Information

Regulation of the Internet could limit a company’s efforts Regulation of the Internet could limit a company’s efforts to buy and sell advertisingto buy and sell advertising

DoubleClick DoubleClick Advertising network of over 1,500 sites where banner Advertising network of over 1,500 sites where banner

advertisements for 11,000 of their clients appear advertisements for 11,000 of their clients appear

Abacus Direct CorpAbacus Direct Corp Names, addresses, telephone numbers, age, gender, income Names, addresses, telephone numbers, age, gender, income

levels and a history of purchases at retail, catalog and online levels and a history of purchases at retail, catalog and online stores stores

Digital redliningDigital redlining Skewing of an individual’s knowledge of available products by Skewing of an individual’s knowledge of available products by

basing the advertisements the user sees on past behavior basing the advertisements the user sees on past behavior

6.2.5 Employer and Employee6.2.5 Employer and Employee

Keystroke copsKeystroke cops Registers each keystroke before it appears on the screenRegisters each keystroke before it appears on the screen

Company time and company equipment versus the Company time and company equipment versus the rights of employeesrights of employees

Determining factorsDetermining factors Reasonable expectation of privacyReasonable expectation of privacy Legitimate business interestsLegitimate business interests

Reasons for surveillanceReasons for surveillance Slower transmission timesSlower transmission times Harassment suitsHarassment suits Low productivity Low productivity

Michael A. Smyth v. The Michael A. Smyth v. The Pillsbury CompanyPillsbury Company

Dismissed as regional operations managerDismissed as regional operations manager

Questionable material in e-mailQuestionable material in e-mail

Pennsylvania law Pennsylvania law ““an employer may discharge an employee with or without an employer may discharge an employee with or without

cause, at pleasure, unless restrained by some contract"cause, at pleasure, unless restrained by some contract"

Public policyPublic policy Reprimanding an employee called for jury dutyReprimanding an employee called for jury duty Denial of employment as a result of previous convictionsDenial of employment as a result of previous convictions

Verdict awarded to PillsburyVerdict awarded to Pillsbury No reasonable expectation of privacyNo reasonable expectation of privacy Legitimate business interestsLegitimate business interests

6.2.6 Protecting Yourself as a 6.2.6 Protecting Yourself as a UserUser

Anonimity and pseudonimityAnonimity and pseudonimity PrivacyX.comPrivacyX.com

Platform for Privacy Preferences Project (P3P)Platform for Privacy Preferences Project (P3P) Browser complies in accordance with users’ privacy preferences by Browser complies in accordance with users’ privacy preferences by

allowing them to interact in specific waysallowing them to interact in specific ways

Privacy services and softwarePrivacy services and software Junkbusters.comJunkbusters.com PrivacyChoices.orgPrivacyChoices.org Center for Democracy and TechnologyCenter for Democracy and Technology Electronic Frontier FoundationElectronic Frontier Foundation Electronic Privacy Information CenterElectronic Privacy Information Center PrivacyRights. orgPrivacyRights. org

6.2.7 Protecting Your Business: 6.2.7 Protecting Your Business: Privacy IssuesPrivacy Issues

Privacy policyPrivacy policy The stated policy regarding the collection and use of visitor’s personal The stated policy regarding the collection and use of visitor’s personal

informationinformation

Privacy policy services and softwarePrivacy policy services and software PrivacyBot.comPrivacyBot.com TRUSTeTRUSTe

Core Fair Information Practices Core Fair Information Practices Consumers should be made aware that personal information will be Consumers should be made aware that personal information will be

collectedcollected The consumer should have a say in how this information will be usedThe consumer should have a say in how this information will be used The consumer should have the ability to check the information The consumer should have the ability to check the information

collected to ensure that it is complete and accuratecollected to ensure that it is complete and accurate The information collected should be securedThe information collected should be secured The Web site should be responsible for seeing that these practices are The Web site should be responsible for seeing that these practices are

followedfollowed

6.3 Legal Issues: Other Areas of 6.3 Legal Issues: Other Areas of ConcernConcern

DefamationDefamation

Sexually explicit speechSexually explicit speech

Copyright and patentsCopyright and patents

TrademarksTrademarks

Unsolicited e-mailUnsolicited e-mail

First AmendmentFirst Amendment "Congress shall make no law respecting an establishment of "Congress shall make no law respecting an establishment of

religion, or prohibiting the free exercise thereof; or abridging religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people the freedom of speech, or of the press; or the right of the people peaceably to assemble and to petition the Government for a peaceably to assemble and to petition the Government for a redress of grievances."redress of grievances."

6.3.1 Defamation6.3.1 Defamation

DefamationDefamationThe act of injuring another’s reputation, honor or good name through false The act of injuring another’s reputation, honor or good name through false written or oral communicationwritten or oral communicationLibelLibel

Written or are spoken in a context in which they have longevity and Written or are spoken in a context in which they have longevity and pervasiveness that exceed slanderpervasiveness that exceed slander

SlanderSlander Spoken defamationSpoken defamation

Proving defamationProving defamation The statement must have been published, spoken or broadcastThe statement must have been published, spoken or broadcast There must be identification of the individual(s) through name or reasonable There must be identification of the individual(s) through name or reasonable

associationassociation The statement must, in fact, be defamatoryThe statement must, in fact, be defamatory There must be faultThere must be fault there must be evidence of injurythere must be evidence of injury

6.3.1 Defamation6.3.1 Defamation

Good Good Samaritan Samaritan provision, provision, Section 230 of the Section 230 of the Telecommunications ActTelecommunications Act Protects ISPs from defamation lawsuits in the Protects ISPs from defamation lawsuits in the

ISPs’ attempts to control potentially damaging ISPs’ attempts to control potentially damaging postingspostings

““obscene, lewd, lascivious, filthy, excessively obscene, lewd, lascivious, filthy, excessively violent, harassing or otherwise objectionable" violent, harassing or otherwise objectionable"

Cubby vs. Compuserve and Cubby vs. Compuserve and Stratton Oakmont vs. ProdigyStratton Oakmont vs. Prodigy

Cubby vs. CompuserveCubby vs. Compuserve Anonymous individual used a news service hosted by Anonymous individual used a news service hosted by

Compuserve to post an allegedly defamatory statementCompuserve to post an allegedly defamatory statement

DistributorDistributor vs. vs. publisherpublisher A distributor cannot be held liable for a defamatory statement A distributor cannot be held liable for a defamatory statement

unless the distributor has knowledge of the contentunless the distributor has knowledge of the content Compuserve was a distributor of contentCompuserve was a distributor of content

Stratton Oakmont vs. ProdigyStratton Oakmont vs. Prodigy Claimed responsibility to remove potentially defamatory or Claimed responsibility to remove potentially defamatory or

otherwise questionable materialotherwise questionable material Prodigy served as a publisher of the contentProdigy served as a publisher of the content

6.3.2 Sexually Explicit Speech6.3.2 Sexually Explicit Speech

Miller v. California (1973Miller v. California (1973)) The The Miller TestMiller Test identifies the criteria used to identifies the criteria used to

distinguish between obscenity and pornographydistinguish between obscenity and pornography AAppeal to the prurient interest, according to ppeal to the prurient interest, according to

contemporary community standardscontemporary community standards When taken as a whole, lack serious literary, When taken as a whole, lack serious literary,

artistic, political or scientific valueartistic, political or scientific value

Challenge of community standards in Challenge of community standards in cyberspacecyberspace

United States vs. ThomasUnited States vs. Thomas

ThomasThomas Internet business owner in California, owner of pornographic Internet business owner in California, owner of pornographic

Web site from which merchandise could be orderedWeb site from which merchandise could be ordered Accessible by passwordAccessible by password Acceptable by California community standardsAcceptable by California community standards Sold pornographic material to Tennessee resident Sold pornographic material to Tennessee resident

(opposing community standards)(opposing community standards)

Thomas found guiltyThomas found guilty

Non-content related meansNon-content related means Effort to control the audience rather than controlling the Effort to control the audience rather than controlling the

materialmaterial

6.3.3 Children and the Internet6.3.3 Children and the Internet

Accessibility to informationAccessibility to informationCommunications Decency Act of 1996 Communications Decency Act of 1996 (CDA) and (CDA) and Children’s Online Protection Act of 1998Children’s Online Protection Act of 1998 (COPA) (COPA) Designed to restrict pornography on the Internet, particularly in Designed to restrict pornography on the Internet, particularly in

the interest of childrenthe interest of children OverbroadOverbroad ““Patently offensive,” “indecent” and “harmful to minors”Patently offensive,” “indecent” and “harmful to minors”

Chilling effectChilling effect Limiting speech to avoid a lawsuitLimiting speech to avoid a lawsuit

Children’s Online Privacy Protection Act of 2000 (COPPA)Children’s Online Privacy Protection Act of 2000 (COPPA) Prohibits Web sites from collecting personal information from Prohibits Web sites from collecting personal information from

children under the age of 13children under the age of 13

6.3.4 Alternatives Methods of 6.3.4 Alternatives Methods of RegulationRegulation

Blocking and filteringBlocking and filtering Allows users to select what kinds of information can and cannot Allows users to select what kinds of information can and cannot

be received through their browsersbe received through their browsers

Blocking and filtering software and servicesBlocking and filtering software and services Surfwatch.comSurfwatch.com Cybersitter.comCybersitter.com NetNanny.comNetNanny.com

Infringement of First Amendment rightsInfringement of First Amendment rights

Parent’s counselParent’s counsel CyberAngels.comCyberAngels.com GetNetWise.comGetNetWise.com Parentsoup.comParentsoup.com

6.3.5 Intellectual Property: 6.3.5 Intellectual Property: Patents and CopyrightPatents and Copyright

CopyrightCopyright The protection given to the author of an original The protection given to the author of an original

piece, including “literary, dramatic, musical, piece, including “literary, dramatic, musical, artistic and certain other intellectual works”artistic and certain other intellectual works”

Whether the work has been published or notWhether the work has been published or not Protects only the expression or form of an idea and Protects only the expression or form of an idea and

not the idea itselfnot the idea itself Provides incentive to the creators of original material Provides incentive to the creators of original material Guaranteed for the life of the author plus seventy Guaranteed for the life of the author plus seventy

years years

MP3: Raising Copyright IssuesMP3: Raising Copyright Issues

MPEG-1 Audio Layer 3MPEG-1 Audio Layer 3 ( (MP3)MP3) A compression method used to substantially reduce the size A compression method used to substantially reduce the size

of audio files with no significant reduction in sound qualityof audio files with no significant reduction in sound quality Facilitates the exchange of audio files over the InternetFacilitates the exchange of audio files over the Internet

Napster Napster Uses central servers to help users locate MP3 files stored on Uses central servers to help users locate MP3 files stored on

other Napster users’ hard drivesother Napster users’ hard drives Napster members are then able to download these files to Napster members are then able to download these files to

their own hard drivestheir own hard drives The files are not stored on Napster’s serversThe files are not stored on Napster’s servers Napster.comNapster.com suggests it cannot control the use (or misuse) suggests it cannot control the use (or misuse)

of those files, and therefore it is not violating copyright laws of those files, and therefore it is not violating copyright laws

MP3: Raising Copyright IssuesMP3: Raising Copyright Issues

MP3.comMP3.com Instant ListeningInstant ListeningTMTM service allows users to service allows users to

immediately begin listening to music from CDs immediately begin listening to music from CDs they have purchased onlinethey have purchased online

When a user purchases a CD from a select When a user purchases a CD from a select online retailer, all of the songs from the online retailer, all of the songs from the purchased CDs are added to the user’s purchased CDs are added to the user’s account on account on MyMP3.comMyMP3.com

MP3.comMP3.com did not have the rights to the musicdid not have the rights to the music

United States vs. LamacchiaUnited States vs. Lamacchia

Changed the face of copyright protectionChanged the face of copyright protection (1994) (1994)

Posting of copyrighted materialPosting of copyrighted material

Not guilty under the Copyright Act of 1976Not guilty under the Copyright Act of 1976 The violation must have been conducted "willfully The violation must have been conducted "willfully

and for purposes of commercial advantage or private and for purposes of commercial advantage or private financial gain”financial gain”

LaMachhia did not profit from the copyright LaMachhia did not profit from the copyright violationsviolations

LaMacchia was not convicted for his actionsLaMacchia was not convicted for his actions

6.3.5 Intellectual Property: 6.3.5 Intellectual Property: Patents and CopyrightsPatents and Copyrights

Digital Millennium Copyright Act of 1998 Digital Millennium Copyright Act of 1998 (DMCA) (DMCA) Represents the rights of creative bodies to protect Represents the rights of creative bodies to protect

their work as well as the rights of educators and their work as well as the rights of educators and resource providers to receive access to this workresource providers to receive access to this work

Makes it illegal to delete or otherwise alter the Makes it illegal to delete or otherwise alter the identifying information of the copyright owner. identifying information of the copyright owner.

Prevents the circumvention of protection Prevents the circumvention of protection mechanisms and/or the sale of such circumvention mechanisms and/or the sale of such circumvention mechanismsmechanisms

Protects the fair use of copyrighted materialProtects the fair use of copyrighted material


Fair useFair use The use of a copyrighted work for education, The use of a copyrighted work for education,

research, criticism, etc. research, criticism, etc. The purpose of the copyrighted work is examined The purpose of the copyrighted work is examined The nature of the copyrighted work is taken into The nature of the copyrighted work is taken into

accountaccount The amount of the material that has been The amount of the material that has been

reproduced is reviewedreproduced is reviewed The effect is taken into considerationThe effect is taken into consideration


PatentPatent Grants the Grants the creator sole rights to the use of a new discoverycreator sole rights to the use of a new discovery Protection for 20 yearsProtection for 20 years

Opposing the length of a patentOpposing the length of a patent Does not foster the creation of new materialDoes not foster the creation of new material

Includes “methods of doing business” since 1998Includes “methods of doing business” since 1998 Idea must be new and not obvious to a skilled personIdea must be new and not obvious to a skilled person

Amazon’s 1-Click patentAmazon’s 1-Click patent September, 1999September, 1999 Huge advantage over competitors, as 65% of shopping carts are Huge advantage over competitors, as 65% of shopping carts are

abandoned before purchase is completeabandoned before purchase is complete Refused Refused barnesandnoble.combarnesandnoble.com Express Lane Express Lane

6.3.6 Trademark and Domain 6.3.6 Trademark and Domain Name RegistrationName Registration

ParasiteParasite Selects a domain name based on common typos made when Selects a domain name based on common typos made when

entering a popular domain nameentering a popular domain name

CybersquatterCybersquatter Buys an assortment of domain names that are obvious Buys an assortment of domain names that are obvious

representations of a brick-and-mortar companyrepresentations of a brick-and-mortar company

Anticybersquatting Consumer Protection Act of 1999 Anticybersquatting Consumer Protection Act of 1999 (ACPA) (ACPA) Protects traditional trademarking in cyberspaceProtects traditional trademarking in cyberspace Protects trademarks belonging to a person or entity other than the Protects trademarks belonging to a person or entity other than the

person or entity registering or using the domain nameperson or entity registering or using the domain name Persons registering domain names are protected from prosecution Persons registering domain names are protected from prosecution

if they have a legitimate claim to the domain name if they have a legitimate claim to the domain name Domain names cannot be registered with the intention of resale to Domain names cannot be registered with the intention of resale to

the rightful trademark owner the rightful trademark owner

6.3.7 Unsolicited Commercial E-6.3.7 Unsolicited Commercial E-mail (Spam)mail (Spam)

Cost is primarily incurred by the receiver and the Cost is primarily incurred by the receiver and the ISPISP

Organizations distributing spamOrganizations distributing spam Maintain anonymity and receivers cannot request to be Maintain anonymity and receivers cannot request to be

taken off the organization’s mailing listtaken off the organization’s mailing list Present themselves as a legitimate company and Present themselves as a legitimate company and

damage the legitimate companies reputationdamage the legitimate companies reputation

Unsolicited Electronic Mail ActUnsolicited Electronic Mail Act Mandates that the nature of the e-mail be made clear Mandates that the nature of the e-mail be made clear In effect, this would require online marketers to know the In effect, this would require online marketers to know the

policy of every ISP they encounter on the Webpolicy of every ISP they encounter on the Web

6.3.8 Online Auctions6.3.8 Online Auctions

Question of government regulationQuestion of government regulation

International regulation of auctionsInternational regulation of auctions

Copyright infringement and auction aggregation Copyright infringement and auction aggregation servicesservices

The Collections of Information Antipiracy Act The Collections of Information Antipiracy Act (CIAA)(CIAA) Makes it easier to prosecute any group which takes Makes it easier to prosecute any group which takes

listings from one organization and, in doing so, harms the listings from one organization and, in doing so, harms the original businessoriginal business

Shill biddingShill bidding Sellers bid for their own items in order to increase the bid priceSellers bid for their own items in order to increase the bid price

6.3.9 Online Contracts6.3.9 Online Contracts

Electronic Signatures in Global and National Electronic Signatures in Global and National Commerce Act of 2000 Commerce Act of 2000 (E-Sign bill) (E-Sign bill) Designed to promote online commerce by Designed to promote online commerce by

legitimizing online contractual agreements. legitimizing online contractual agreements. Digital agreements will receive the same level of Digital agreements will receive the same level of

validity as hard-copy counterpartsvalidity as hard-copy counterparts Allows cooperating parties to establish their own Allows cooperating parties to establish their own

contractscontracts

6.4 Social Issues: Online 6.4 Social Issues: Online CommunitiesCommunities

The Web allows larger and more diverse The Web allows larger and more diverse groups to communicate, share information and groups to communicate, share information and exchange opinionsexchange opinions

Web sites are being created to Web sites are being created to accommodate a variety of individuals with accommodate a variety of individuals with different backgrounds, interests and ideasdifferent backgrounds, interests and ideas

6.4.1 Online Communities: 6.4.1 Online Communities: Defining the DifferenceDefining the Difference

Online users can move about the Web, not Online users can move about the Web, not limited by glimited by gender, race, creed, age and sexual ender, race, creed, age and sexual orientationorientation

Virtual communitiesVirtual communities Oxygen.comOxygen.com Pleiades-net.comPleiades-net.com PlanetOut.comPlanetOut.com YouthPride.comYouthPride.com Match.comMatch.com Singles.comSingles.com

6.4.2 Online Activism6.4.2 Online Activism

Social and political action on the WebSocial and political action on the Web

Online activism groupsOnline activism groups Institute for Global CommunicationsInstitute for Global Communications Student Environmental Action CoalitionStudent Environmental Action Coalition Amnesty InternationalAmnesty International Peace CorpsPeace Corps

6.4.3 Disabilities and the Web6.4.3 Disabilities and the Web

Enables disabled individuals to work in many Enables disabled individuals to work in many new fieldsnew fields Voice activation, visual enhancers and auditory aidsVoice activation, visual enhancers and auditory aids

Americans with Disabilities ActAmericans with Disabilities Act (ADA) (ADA) Protects the employment rights of Americans with Protects the employment rights of Americans with

disabilitiesdisabilities

Legal requirements of meeting the needs of Legal requirements of meeting the needs of people with disabilitiespeople with disabilities Sites that are heavily laden with graphic images Sites that are heavily laden with graphic images

might have to simplify (or modify) their appearancemight have to simplify (or modify) their appearance

6.5 Global Issues6.5 Global Issues

The Internet poses challenges to a world comprised The Internet poses challenges to a world comprised of different cultures, attitudes, languages, codes of of different cultures, attitudes, languages, codes of conduct and government authoritiesconduct and government authorities

Various reactions to privacy, personalization and Various reactions to privacy, personalization and copyrightcopyright

Felix SommFelix Somm Held accountable under German law for providing Held accountable under German law for providing

German subscribers access to sexually explicit materialGerman subscribers access to sexually explicit material Compuserve was an internationally operating ISP, Compuserve was an internationally operating ISP,

material posted in the United States was also accessible material posted in the United States was also accessible to Compuserve’s international membersto Compuserve’s international members

6.5 Global Issues6.5 Global Issues

European Union Directive on Data ProtectionEuropean Union Directive on Data Protection Agreement among its members on the Agreement among its members on the

regulations that apply to information exchange regulations that apply to information exchange Mandates that personal information be kept Mandates that personal information be kept

current and used in a lawful manner for its current and used in a lawful manner for its designated purpose designated purpose

Compiled list of American Web sites that meet Compiled list of American Web sites that meet the criteria designated by the Directive the criteria designated by the Directive

In the case of a violation of the directive, the In the case of a violation of the directive, the case will be tried in the United States case will be tried in the United States

6.6 Internet Taxation6.6 Internet Taxation

The opposing argumentsThe opposing arguments Permanent ban on Internet taxationPermanent ban on Internet taxation Fair taxation of Internet salesFair taxation of Internet sales

Taxation methodsTaxation methods If both a vendor and a consumer are located in the If both a vendor and a consumer are located in the

same statesame state If the vendor and the consumer are not located in the If the vendor and the consumer are not located in the

same state, then the sale is subject to a use tax same state, then the sale is subject to a use tax If the vendor has a physical presence, or nexus, then it If the vendor has a physical presence, or nexus, then it

is required to collect the tax; otherwise the vendor must is required to collect the tax; otherwise the vendor must assess the tax and pay it directly to the stateassess the tax and pay it directly to the state


Problems with Internet taxationProblems with Internet taxation The definition of physical presence (The definition of physical presence (location of the ISP, the location of the ISP, the

location of the server or the location of the home pagelocation of the server or the location of the home page)) States vary according to what transactions are subject to States vary according to what transactions are subject to

taxationtaxation Sales tax revenues are the largest single source of a state’s Sales tax revenues are the largest single source of a state’s

revenue and are used to fund government-subsidized revenue and are used to fund government-subsidized programs, including the fire department, the police and the programs, including the fire department, the police and the public education systemspublic education systems

State and local governments further argue that removing State and local governments further argue that removing taxation methods from their jurisdiction infringes upon state taxation methods from their jurisdiction infringes upon state sovereignty, an element of the checks-and-balances system sovereignty, an element of the checks-and-balances system maintained by the United States Constitutionmaintained by the United States Constitution


Problems with Internet taxationProblems with Internet taxation To appropriately meet the taxation requirements of all To appropriately meet the taxation requirements of all

parties in online transactions, e-businesses would be parties in online transactions, e-businesses would be required to know and understand all these methodsrequired to know and understand all these methods

Internet Tax CommissionInternet Tax Commission Reviewed the issue of Internet taxation Reviewed the issue of Internet taxation Revision of state and local taxes to make taxing a Revision of state and local taxes to make taxing a

feasible process for Internet businessesfeasible process for Internet businesses Establish clearer definitions on the meaning of Establish clearer definitions on the meaning of

"physical presence“"physical presence“ Define universal taxation exemptionsDefine universal taxation exemptions

legal and ethical issues; internet taxation risanuri hidayat, ir., m.sc

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