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AppRising delivers insight into new broadband applications, exploring their impact on networks and their implications for public policy.

AppRising is written by Geoff Daily, who covers broadband applications and the business of online video. Based in Washington, DC, Geoff regularly advises applications developers, network operators, community leaders, and public officials on how to maximize adoption and use of the Internet.

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November 14, 2007 11:10 AM

State Legislatures Attempt to Tackle the Internet Economy

While federal Internet legislation gets all the attention, state legislatures are also struggling with determining how best to regulate the silo-breaking nature of broadband. And in their attempts to cram this brave new world into the existing structure of modern society they may be inadvertently dissuading the use of broadband.

In New York state, for example, the government has recently determined that because of programs like Amazon Associates--where anyone can link to Amazon products from their websites and earn referral fees--some online retailers should have to collect state sales tax because they now have a physical presence selling their products in the form of this virtual salesforce. Historically, online retailers have skirted this because by and large they don't have physical presences in states marketing or selling products, ie no bricks-and-mortar stores.

For a more detailed rundown of what's happening, check out this article.

I'm not going to argue against the legality of this push, but I do wonder about the efficacy of it and how the details regarding enforcement will be hashed out.

For example, does this mean Amazon must now collect New York state sales tax from anyone with a New York address, or only those people who found a product through a New York-based member of Amazon Associates?

Also, what happens if this new enforcement of existing law forces Amazon's hand to decide it's not worth supporting Amazon Associates in New York because they don't want to have to collect state sales tax? This might be an extreme notion, but it doesn't seem totally unrealistic and if it were to happen I don't see how taking away revenue-generating opportunities from New York citizens is a good thing.

Another example of state government in action is in Massachusetts, where a bill authorizing three new casinos contains a provision banning online gaming.

Beyond the obvious concerns about whether or not this provision is trying to protect established interests, I also wonder about how one makes online gambling illegal.

You can't stop anyone from making a bet online. Most online gambling entities are off-shore so you can't go directly after them. I'd be shocked if they tried talking ISPs into blocking those sites, except possibly for the most egregiously gambling oriented, but even then there are ways around those safeguards.

It's just remarkable to me how government continues to try and legislate human behavior, and I think the wrongheadedness of trying to do so is heightened in an online world, where it's hard if not impossible to stop people from doing something they really want to do.

Not only that, but I think we need to step back for a moment and more seriously consider why we're attempting to discourage these behaviors. Is New York really all that worried about the bite online retail is taking out of the local tax coffers? Does massachusetts really think online gambling is such a horrible thing relative to physically sitting in a casino and throwing money away?

If it's an issue of online dollars subverting traditional local economies and leaving for other areas, well I'd argue the focus should be less on punishing behavior online and moreso on trying to attract players in these spaces to your state. Encourage people to explore new business opportunities where they can generate revenue and add to the state coffers. Bring in the companies that house the data centers that make online gambling possible, likely creating higher quality jobs using less resources.

Change isn't something we should fear but embrace. And we must work diligently to see that the endless possibilities of broadband aren't squashed by the regulatory limitations of the 20th century.


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