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The "Dial Tone" Of The Internet

Readers Report

The "Dial Tone" of the Internet

You are to be commended for reminding readers that, while the online transaction itself is changing the way much of our commerce is conducted, the principal beneficiaries of the Internet Age today are the companies involved in building the infrastructure for this "New Economy" ("The Info Tech 100," Special Report, June 21).

In describing the builders of the new economy, however, you neglected to highlight two of the Internet's central underlying truths. The first is the explosion in the sheer amount of data that is provided online. The second is people's growing realization that the constant availability of the information is as important to Internet-based businesses as the dial tone is to telephone-service providers.

These truths are among the reasons EMC Corp., as the leader in providing Net businesses with the hardware and software to store, protect, and manage all this information, was ranked No. 6 among the Info Tech 100. We have customers whose businesses didn't exist three years ago and that now store more information online than the largest banks in New York.

And every time a major E-commerce outage rears its ugly head and cuts a Web company's market capitalization by a third, more of these companies learn the lesson that a robust information infrastructure is an essential requirement for survival.

It's not just Cisco Systems Inc.'s pipes and Dell Computer Corp.'s nuts and bolts. At its core, the Internet phenomenon is about constant, uninterrupted access to information.

Michael C. Ruettgers

President and CEO

EMC Corp.

Hopkinton, Mass.

We at Comverse Technology Inc. were pleased to see our strong growth, financial performance, and shareholder return lead to a No. 16 ranking in your recent Info Tech 100 list. Your description of Comverse, however, relates to less than 10% of our business.

About 90% of our company's sales involve systems and software that enable more than 290 wireless and wireline telecommunications network operators to offer their customers revenue-generating enhanced services such as voice mail, messaging, and prepaid calling. Comverse is the world leader in this growing market.

Paul D. Baker


Comverse Technology Inc.

Woodbury, N.Y.Return to top

When Should Net Commerce Get Whacked by Taxes?

"Don't rush to tax E-commerce" (Editorials, June 21) is small comfort to municipal officials and even less comfort to the merchants on these communities' main streets and in their shopping centers.

You don't question the need to tax evenly and fairly. You suggested, however, that the Internet tax moratorium should be extended an additional three years, even though the advisory commission that is to recommend tax policy had yet to meet.

Your reasoning--that states could afford to wait because they are presently running large budget surpluses--is shortsighted. Furthermore, your assertion is illogical: that if sales-tax receipts wane, income-tax revenues can replace them. In the same issue, "A Web sales tax: Not if, but when" (Legal Affairs), points out that sales taxes account for about 49% of all state tax revenue--more than than individual and corporate taxes combined. Do you really believe that almost half of all state tax revenue could easily be replaced by income-tax revenue?

The Internet Tax Freedom Act mandates a three-year moratorium on "new" state and local taxes on Internet access and transactions. Purchases made over the Internet, however--like those made through catalogs--are subject to the existing state and local sales taxes. According to the latest U.S. Supreme Court ruling on the subject, if the seller has a physical "nexus" in a state (a store, a warehouse, and a distributor) then the seller must collect state and local sales taxes.

If the seller does not have a "nexus," then the purchaser is required to pay a use tax. Congress has the power to require all Internet and catalog retailers to collect and remit sales and use taxes in the same way brick-and mortar retailers do. It can and should do that now. Once done, reform of the overall system can then be undertaken without continuing to put brick-and mortar retailers at a disadvantage and municipal budgets at risk.

William H. McCabe Jr.


International Council

of Shopping Centers

New York

I read with interest Mike France's commentary on the crazy quilt of state sales-tax rules that could soon burden Web commerce. An examination of the burden various state laws place on interstate trade is long overdue, and it's also time to look at state income-based taxes.

The commonest complaint heard among U.S. businesspeople is that the federal income tax laws are incomprehensible and burdensome. But the varying state income-tax laws are just as daunting--and in some ways far less comprehensible.

Recently I tried to explain to a client with only $300,000 in gross receipts why the business had to file sales and income tax returns in five states, while Dell, with billions of dollars in annual sales, files in just four. The sad truth is that it is simpler from an income tax standpoint to do business overseas than across state lines.

But it doesn't have to be this way. Under the Commerce Clause in the U.S. Constitution, Congress has the power to simplify and clarify the taxation rules of interstate commerce. It did so once, back in the 1950s--preventing states from imposing an income tax on companies whose only business within a state was soliciting sales of tangible personal property.

Under current interpretations, solicitations of sales of intangible property such as software or sales of services do not enjoy any such protection. And that law exempts businesses only from a state income tax. But some states, most notably Michigan, impose, instead of an income tax, another type of tax (the single business tax) that is, to some extent, linked to income.

Let's be clear what we're talking about here. A congressionally imposed limitation on the states' power to impose tax on interstate business would not exempt any business from taxation--it would only limit the states that it would have to file with and pay tax to. It's time Congress acted to eliminate this excess burden and the attendant costs that make doing interstate business a nightmare.

Joel Weinstein

Torrington, Conn.

E-commerce is a new way of doing business. Instead of worrying about how governments are going to get their tax take, they should worry about a new way for them to do their business. All government groups should ask the following questions about every function they perform:

1. Is this function necessary today and will it be needed tomorrow?2. Can this function be performed by other individuals or organizations better or as well as it can be performed by government? Government needs to go back to its useful functions--protecting the rights of individuals and teaching a code of responsibilities--so it can do less and less itself.

Harlan A. Bentzinger

Edinburg, Tex.

The most important fact about the Internet and its daughter, the World Wide Web, is that it doesn't know anything about geography. I have a friend in San Antonio who designs E-commerce systems. Some of his clients are halfway around the world. He uses servers in North Carolina because they're cheaper than anYthing he has found in Texas. Try to impose sales taxes on him or his clients--and those servers will suddenly be in Mexico. Or Cuba. Or Pago Pago.

Politicians love the idea of sales taxes because they are easy to collect, they generate a steady revenue stream, and they are easily adjusted by adding or subtracting a few items, or by changing the rate by a few decimal points. But sales taxes are inherently regressive and irrational.

A better idea would be to eliminate the sales taxes at the consumer level. Value-added taxes are easier to collect, they generate a steady revenue stream, aNd they are easily adjustable. They're also regressive, but the world ain't perfect, is it?

Stuart M. DeLuca

Austin, TexReturn to top

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