Holding Court On Y2K
    The Conference of Chief Justices (CCJ) has challenged the validity of key parts of federal Y2K liability limitation legislation stalled in Congress. In a letter sent Wednesday to U.S. Sen. Patrick Leahy, D-Vermont, the ranking minority member of the Judiciary Committee, the group says that S. 96 and H.R. 775 challenge federalism by replacing "established state class action suits in factor of removal to the Federal courts in most cases."
    Signed by CCJ President David A. Brock, chief justice of the New Hampshire Supreme Court, the letter indicates that the CCJ stands by its Congressional testimony that state legislatures provide an appropriate forum for state-law claims and the legislation would deprive state courts of appropriate power.
    "State and Federal courts have developed a complementary role in regard to our jurisprudence and these bills would radically alter this relationship. It is not enough to argue these bills affect only a segment of commerce, or that resolution of the problem on a state by state basis is inconvenient," Brock wrote. "It is a bad precedent that could have further ramifications."

Industry Seeks To Topple Taxes
    When a generous legislature approved $150 million worth of tax cuts this session, Iowa Gov. Tom Vilsack, D, was faced with the difficult decision of which ones to sign. One of the bills to be included in the scaled-down $42 million package signed Wednesday repeals the state tax on Internet access, much to the industry's relief.
    The Internet Alliance, as well as companies like AT&T and the Iowa Association of Business and Industry, waged a three-year battle for the legislation. John Cacciatore, the governor's policy director, said that all budget decisions are made in the context of keeping the state out of a deficit, but added that Vilsack is a supporter of information technology advances.
    "He believes the Internet is a growing tool used by many customers and is a growing industry," Cacciatore said. "He's interested in seeing policies pursued so that the Internet can grow and will grow in Iowa to give consumers more choices and opportunities."
    The issue of choice was crucial to the debate: the tax applied to only those Internet service providers who had nexus in the state of Iowa. Local ISPs were forced to tax their customers while larger, nationwide services could dodge the levy. AT&T's Leann Brunnette said that the old regulations put Iowa-based providers at a disadvantage and made the state appear unfriendly to e-commerce.
    The legislation, introduced by Majority Leader Rep. Christopher Rants, R, passed the state Senate days before the end of the session. Supporters had fought for the move ever since the Iowa Department of Revenue and Finance deemed Internet access charges taxable, leading Rants to object to the rules at an Administrative Rules Review Committee hearing.
    Opponents have said the exemption is unfair because the state also taxes utilities and phone services, arguing tax cuts should go to poorer residents and not those who can afford computer services.
    Now that the industry has effectively won the Iowa battle, they will continue to fight the nine additional states and the District of Columbia which charge the access tax.
    Paul Russinoff, state policy director of the Internet Alliance, said Connecticut is phasing out its tax over a three-year period and Wisconsin legislators have expressed interest in moving an exemption through in the summer. Since 1996, California, Florida, Georgia and Massachusetts have passed legislation exempting their Internet access from taxes, according to the National Conference of State Legislatures. Iowa now joins the list, and Texas may be close behind. A bill that passed the Texas state Senate in April and is poised to move through the House would exempt access charges under $25 a month from the tax.

Mayors Rate E-rate Well
    Twenty-three mayors penned a letter to FCC Chairman William Kennard Wednesday, urging expanded funding of the e-rate program. The system allocates subsidized wiring and Internet connections for local schools and libraries through the Universal Service Fund.
    Atlanta, Georgia, Mayor Bill Campbell joined U.S. Reps. Bobby Rush, D-Illinois, and James Clyburn, D-South Carolina, to encourage the FCC to fund the program at its cap of $2.25 billion next year, a rise from its $1.7 billion funding now.
    "In our cities, E-Rate provides a crucial platform for our most under-served schools to get online," the letter reads. "[It] helps bridge the gap between wealthy and poor in urban and rural communities, by providing the deepest discounts to those with the greatest need."
    The letter's signers include Mayor Deedee Corradini of Salt Lake City, Utah, who heads the U.S. Council of Mayors, and Dallas, Texas, Mayor Ron Kirk, a member of the Advisory Commission on Electronic Commerce.

PacBell Picks A Fight
    The California Public Utilities Commission may have two empty seats, because of a lack of appointments by Gov. Gray Davis, D, but it's ready to decide one of the state's most sensitive high-tech issues: how telephone companies compensate each other for calls their customers maker to Internet service providers.
    The board ruled on so-called reciprocal compensation last year in a 3-2 decision that classified calls to the Internet as local. But Thursday, the commission will revisit the issue, one that pits Pacific Bell against competitive local phone companies.
    PacBell wants the calls classified as long distance, arguing they eventually are routed to many servers across state boundaries. If the calls are ruled as interstate, then PacBell will no longer be required to pay the other local companies a fee to complete the calls. The competitive firms argue that if they lose the battle, they will be forced to raise rates for their customers — and hence likely cause those charges to be passed along to Internet users.
    The FCC has recently deemed Internet calls to be interstate, but has left the ultimate ruling up to the state utility boards.
    The possible vote flip can be traced to changes in the makeup of the commission. Two of the commissioners who voted with the majority left the California body at the end of the year. The remaining members are scheduled to vote on the issue, leaving the commission split 2-1 in favor of classifying the calls as interstate.
    The decision will take place in an arbitration proceeding between PacBell and competitor PacWest Telecomm of Stockton. Although the ruling would theoretically only apply to this case, it could set a precedent, said Karen Jones, a regulatory analyst for the commission. PacWest claims that because it carries Internet traffic for many ISPs in California, PacBell owes it $50 million for two years worth of reciprocal compensation.
—by Stephanie Lash