IP: Domain Name fees Illegal Tax, Court says

[Dave Farber <farber () cis upenn edu>]

Date: Mon, 2 Feb 1998 21:36:36 -0800 (PST)
From: "Brock N. Meeks" <brock () well com>






Court: Domain fees appear illegal


Judge orders temporary freeze of funds, siding with plaintiffs in
suit that could result in millions in registration fee refunds 


By Brock N. Meeks
Chief Washington Correspondent 
MSNBC


WASHINGTON, Feb. 2--A federal court Monday issued a temporary
injunction barring the federal government from spending some $50
million it has collected from the registration of Internet domain
names. That money forms a pool of funds intended to be spent for
improving the Internet. On Monday, the court sided with the
plaintiffs in a lawsuit that claims those fees constitute an
illegal tax.


[snip]


In October, six domain-name holders filed suit in U.S. District
Court alleging that the National Science Foundation had no
authority to allow Network Solutions to collect any money in
excess of its cost of providing the registration service.
Further, the suit charged, the 30 percent set-aside amounts to an
unconstitutional tax.


Judge Thomas Hogan said Monday that the plaintiffs "have made a
significant showing that the (intellectual infrastructure fund)
is an illegal tax."


Hogan said there is "no litmus paper onto which the Court can
drop a regulatory assessment such as this one, hoping to see
whether the paper comes up blue for tax or pink for fee."


Justice Department lawyers had argued in court that the domain-name
registration fee was exactly that, a fee, because it was paid
voluntarily and therefore couldnUt be considered a tax.


But Hogan disagreed, writing that "there is no dispute that the
assessment (registration fee) is involuntary--it is
automatically charged to every domain registration."


[snip]


Because no plan had been developed to spend the fund money,
Congress rushed into the vacuum late last year and simply
appropriated some $23 million. Congress earmarked that money to
be spent on the Next Generation Internet project, which President
Bill Clinton highlighted in his recent State of the Union speech.


"Under federal law, no independent executive agency--such as the
National Science Foundation--can collect fees that exceed the
cost of providing the service they are administering," said
William Bode, attorney for the plaintiffs. "NSI, the agent of
NSF, spends less than $5 to register domain names, yet it charges
a registration fee of $100 and renewal fees of $50 per year," he
said.


Network Solutions did not return calls for comment.


Bode also argued that only Congress has the authority to tax and that no
such authorization has taken place. The Justice Department argued
that because Congress appropriated the $23 million from the
infrastructure fund, it had essentially ratified the tax.


Bode argued that ratification of a tax canUt take place in
authorization bills. Judge Hogan agreed, noting that ratification
is a legislative function and that "it is well known that
Congress does not normally legislate through appropriations
bills." Hogan added: "Congress may have intended to grant NSF the


authority to collect the assessment, but it has not effected a
legal ratification."


[snip]


The temporary injunction "paves the way for our motion, which
we'll file in two days, to require NSI to return all registration
renewal fees which exceed the cost of providing that service,"
attorney Bode said. "We think that cost [to NSI for the
registration process] is significantly less than $10, probably $2
to $3," he said, "which would mean that there would be a refund
of approximately $100 million in our judgment."


Full URL: http://www.msnbc.com/news/140967.asp