http://www.news.com/News/Item/0,4,21722,00.html?st.ne.ni.lh

Leni.

By Steven J. Allen
Special to CNET NEWS.COM
May 1, 1998, 1:45 p.m. PT 

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 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.