The WAVE Report
Issue #0136------------------8/10/01

The WAVE Report archive is available on


0136.1 Hot Topics

    Spectrum Management for Advanced Wireless Communication


    Discreet and Macromedia Bundle 3D Authoring and Web

      Design Tools

    Tut Systems, NTT-ME, Rikei, Toyo and Enreach Team to

      Offer VOD Services to Japanese MTUs

    WAVE Comments

0136.2 Story of the Issue

    Telecom Power Struggles

0136.3   3D

    Ascension 3D Cyber Host


    Virtue3D Developer Toolkit

    Fakespace Systems Announces $4.5 Million Visualization

      System Contract Award

0136.4 Semiconductor

    Silicon Integrated Systems Licenses Arm Core for PC Logic


    Philips Semiconductors Introduces Glue Chip 4 for PC

      Motherboard Market

    Toshiba to Reduce DRAM Fab Capacity at Its Yokkaichi

      Manufacturing Facility

0136.5 Wireless

    Iospan Wireless and Powerwave to Accelerate the

      Deployment of MIMO-OFDM Broadband Fixed Wireless


0136.6 Communications

    Veronis Suhler Releases Communications Industry Forecast

0136.7 Internet

    Internet Tax Moratorium - Testimony on the Hill


0136.1 Hot Topics

***Spectrum Management for Advanced Wireless Communication Services

(August 10)

By Amanda Rogos

Commercial mobile radio services have greatly increased in usage during the last few years. According to the FCC’s (Federal Communication Commission) Office of Engineering and Technology, in the 12 months ending December 2000, the mobile telephony sector had estimated revenues of $52.5 billion due to an increase in subscribership from 86 million to 110 million users. The WAVE Report has followed this industry’s development from analog to digital, and most recently through 3G standards debates (Issue 9094), high priced auctions (Issue 2033 and Issue 0116) and spectrum management proposals.

This last issue was the subject of discussion at recent FCC and Congressional hearings, both of which were an effort to hear industry comments on new allocations for 3G advanced communication services.


Initially, as a result of a Study Plan issued by Department of Commerce, the FCC and the NTIA (National Telecommunications and Information Administration) began to study the use of the 1710-1885Mhz band (used by the Department of Defense) and the 2500-2690Mhz band (used by ITFS (Instructional Television Fixed Services) and MMDS (Multichannel Multipoint Distribution Services)) for possible reallocation for 3G advanced wireless services. Both spectrum bands had previously been identified by the ITU (International Telecommunication Union) as candidates for worldwide 3G systems.

The reports, released by the FCC and NTIA in March of this year, summarized cost estimates, precautionary measures that would need to be taken, and the time frame needed for the transition of existing services to other spectrum bands.

Recent Events

The Senate’s Committee on Commerce, Science and Transportation recently heard testimony from industry representatives on spectrum management issues outlined in the reports. According to Robert Rini, from Rini, Coran & Lancellotta, the Senate’s hearing resulted in an, “Amazing agreement among all parties that government needs to move quickly then get out of the way.” Other testimonials worthy of mentioning, in Rini’s opinion were:

  A representative from Leap Wireless claimed that they in fact did not need any more spectrum for 3G services, but could instead institute technology that would allow them to use their existing spectrum more efficiently.

  CTIA’s Tom Wheeler testified that although more spectrum was needed, the timeframe was not a critical aspect, as previously thought. According to Wheeler, instead of developing plans to allocate the whole 200Mhz in one movement, the government should work with industry representatives to develop a comprehensive national spectrum policy that would allocate the spectrum in small pieces, as it became available.

  Members of the MMDS industry, including Arraycom and Nucentrix, testified at the hearing to ask Congress to remove the uncertainy about their spectrum bands, 2500-2690Mhz, which have just been given approval by the FCC for 2-way services. According to the companies, financial investment and technology development have been hindered as a result of the potential reallocation of the spectrum for 3G services.

At the subsequent FCC open meeting, the Commission spoke with industry representatives and various members of FCC offices to gather information in preparation for its Third Report on the Deployment of Advanced Telecommunications Capability to all Americans.

During the meeting, the FCC adopted a Memorandum Opinion and Order and Further Notice of Proposed Rulemaking (MO&O and FNPRM), FCC 01-224, that would explore additional frequency bands for 3G services, in addition to the ones already studied by the Commission and NTIA. The additional bands would include spectrum being used for Mobile Satellite Service (MSS), Unlicensed Personal Communications Service, and Amateur Radio Service.

The rulemakings specifically sought comments on the potential of the bands for commercial use, the advantages and disadvantages of using the bands, the effect of the allocation proposals on existing and prospective users of the bands, and the effect of allocations for global compatibility.

During the meeting, the FCC did not address the issue of the MMDS/ITFS spectrum as Nucentrix and Arraycom had requested. Commissioner Gloria Tristani expressed regret on this issue claiming that the FCC missed the chance “to lay to rest the uncertainty surrounding the ITFS and mulitpoint MDS operations.” According to Tristani, the Commission’s final report identified “significant hurdles” in allocating this band for 3G services. Chairman Powell indicated that this issue would be resolved in the next few weeks.

***Discreet and Macromedia Bundle 3D Authoring and Web Design Tools

(August 7)

Discreet and Macromedia have announced a strategic partnership to accelerate the deployment of interactive 3D content to the web by combining 3D authoring and web design tools. Under the agreement, the companies will bundle a version of Macromedia Director 8.5 with the standard priced version of the 3ds max 4 animation solution.

Macromedia Director 8.5 features 3D functionality jointly developed with Intel due to a 3D Web collaboration that launched more than a year ago. Director provides developers with an extensible 3D content creation and publishing solution. Director 8.5 can create simulated natural effects such as smoke, fire, water, dust, sparks, vapor, and explosions. In addition to 3D authoring capabilities, Macromedia Director 8.5 has support for Macromedia Flash 5 and streaming Real Media content.

Discreet 3ds max 4 is a 3D modeling, animation and rendering software. The 3ds max Shockwave exporter allows artists to preview their 3D-enhanced Shockwave content within 3ds max and supports Discreet’s character studio and reactor products for character animation and interactive physics. Macromedia’s Shockwave movie player sits on more than 200 million desktops, according to the company.

Full commercial versions of Discreet 3ds max 4 bundled with Macromedia Director 8.5 will be available in mid-August 2001 for a suggested retail price of US $3,495 in North America.

***Tut Systems, NTT-ME, Rikei, Toyo and Enreach Team to Offer VOD Services to Japanese MTUs

(August 8)

Tut Systems, a provider of full-service systems optimized for provisioning broadband services within multi-tenant unit properties (MTUs), has announced its partnership with NTT-ME, Rikei, Toyo Communications and EnReach Technology to offer an end-to-end video-on-demand (VOD) and high-speed Internet solution over an IP infrastructure in hotels and apartments throughout Japan.

NTT-ME Corporation, a Japanese service provider, will offer network connectivity and set-top box devices; Rikei, Tut's longtime partner in Japan, will offer system integration and distribution; Toyo Communications, an in-hotel pay TV operator, will offer VOD content; and Enreach Technology, a broadband infrastructure software provider, will offer its iTV middleware and software.

The VOD service will run on Tut's VDSL platform, IntelliPOP MTU, which will reside in a building's basement and enable IP video and Internet services at up to 26 Mbps over the existing copper wiring, compatible with Japan ISDN.

Initially targeted at the hospitality market with plans to expand to the apartment market, the VOD solution will utilize NTT's WakWak Station broadband set-top-box connected to the television and installed with minimal distribution to each guest room. The system will offer web browsing, e-mail, online shopping and e-commerce, VOD, and concierge portals for advertising and account services.

IntelliPOP MTU, powered by Tut's Signature Switch technology, is a solution that integrates multiple components of a network into one service gateway, simplifying and lowering the cost of the management, provisioning and installation process.

***WAVE Comments

This announcement is interesting for several reasons: VoD using IP, and the presence of an end-to-end solution for VoD. Targeting MTU and other high concentration locations offers the prospect of a viable business model, which has been hard in VoD. Not discussed in the announcement is the content, which is another factor which will determine the success of the business model.

0136.2 Story of the Issue

***Telecom Power Struggles

By James Sneeringer

Energy is in the news quite a bit lately: how much do we use, how much do we need, where will it come from, and how much will it cost, are all front page questions as Congress debates the president's energy proposal. An often-unaddressed question is how problems with the national energy network will affect the telecommunications industry, and vice versa. To address this question Shorecliff Communications has scheduled the First Annual Telecom Energy Consumption Conference for November 8 and 9. The WAVE Report recently spoke with Tim Downs, Executive Vice President of Shorecliff, for more information.

Why Cover This?

Problems with the national power supply are well covered in almost every news outlet -why are we writing about this now? Why is Shorecliff, a company heavily involved in the broadband industry, holding this conference? When posed this question, Downs gave a multipart answer:

- The power transmission network is as poorly suited to the developing needs of telecom as the public switched telephone network was to the Internet. The problem has more to do with transmission than with supply, he said. He stated that the problem is not one of 2001, but rather one that companies must plan for now. "With what we now know about the national power grid, we know it will continue to have problems," said Downs.

- Competitive local exchange carriers (CLECs) and other "competitive" portions of the industry, must share resources with the "incumbent" portions of the industry (established networks such as the Bells). As we will discuss later in the article, power utilities are now passing the cost of installing new large-scale systems on to the customer. If that customer is an incumbent such as a Bell, the costs are passed on to the CLECs, adding yet another competitive pressure against them.

- Shorecliff's conferences and shows revolve around the idea of outsourcing. As power cost reduction climbs its way up the priority list at telecom companies, as Downs believes it will, an obvious strategy would be outsourcing the development and management of assets such as central switching offices, with an eye on minimizing energy costs.

Distribute Supply, Reduce Demand

Downs stated that the goal of the conference is to explore ways to reduce power costs in the telecommunications industry, both ongoing and related to expansion. He emphasized this goal, and stated there were three ways to accomplish it: better planning, better operations, and/or better systems. Additionally, there are two sides of power costs to consider: the supply side, and the demand side.

One supply-side improvement he mentioned is distributed power generation. The traditional electric network in the US is centralized, in that power is produced in a few select locations, then distributed widely. Distributed power generation, in contrast, consists of on-site power production at the point of demand. In the telecommunications industry, this could take the form of natural gas generators, rechargeable batteries, fuel cells, or other means of producing electric power, housed at the central office or even on the tower installation. Note that these sources of energy would provide the primary power for the equipment, not just back-up. Since the supply is housed on site, it would not be subject to the vagaries of long-distance power transmission. Whether or not it is truly uninterruptible is a matter of debate however, and for now, prudent companies will still have backup power systems.

Reducing power costs from the demand side is most often a matter of reducing power consumption, either by the telecom equipment itself, or the heating and cooling (HVAC) systems that maintain an operating environment. According to Downs, improved architectural planning can have a positive effect, primarily by spacing equipment appropriately. The free air space that exists in an installation, and the distance between components, has a direct effect on the amount of heat that can build up. Larger, more spaciously designed building layouts can sometimes more than offset the increased square footage cost with savings in HVAC power requirements.

Another way to reduce power consumption is by using equipment that uses less power. Downs agreed that superconductor-based RF filters for wireless base stations are a good example of equipment that can decrease power requirements without degrading performance. (See WAVE #133, Story of the Issue) Recent breakthroughs in low-power chipsets have been driven by demand in the laptop and handheld market, but the technology could find applications in the telecom industry as well, especially as power costs continue to grow.

A New Wrinkle

While overall demand for data hosting and co-location is falling, specific or ongoing projects are still driving some development. Naturally as more equipment comes on line, power costs will rise in a one to one relationship. Recently, though, across the industry, the unit price of expansion has risen dramatically.

Downs stated that he found this to be the most interesting wrinkle in the current power market. As data hosting, collocation centers, and dot coms were being built, power companies were forced to make tremendous capital investments to keep up with demand, particularly since it often specified high-priority power (known as 0.999999 or "six nines") - power that comes with guarantees of uninterrupted service. As many of these businesses have folded, however, utilities have seen their ROI go up in smoke.

As a result, many utilities are now passing the cost of the power infrastructure installation on to new customers demanding 0.999999 power. Such customers can include everyone from a dot com start-up to one of the Bells. The result is massively increased power costs for new projects, and therefore fewer and smaller installations. Downs stated that unless this dilemma is solved, any bounce back in the data or telecom industries will come slowly if at all.

One possible solution he mentioned was third-party involvement. Contracting with third parties for network development and management is already proving popular with PCS providers, and he stated that outsourcing to a third party is a good way to lower costs. As cost-of-power management becomes more important, Downs believes a market of managed service providers will blossom for installations such as central switching offices, and the focus will be on power savings.

0136.3   3D

***Ascension 3D Cyber Host

(August 3)

“Angel,” Ascension Technology’s streaming 3D cyber host, is currently debuting on Ascension’s Web site. Angel is an online virtual character made possible through the combination of motion capture and streaming technologies. She was modeled and animated by 3Dclic using Ascension’s MotionStar tracking device. QEDSoft developed the streaming technology that overlays Angel’s movements.

Angel, or a virtual host like her, can interact with viewers on a website to help order goods, navigate the site, provide information or have fun. Animated web hosts can serve as mascots, corporate representatives or user avatars, serving purposes from advertising to entertainment.

Designed and built by Herve Tardif and the 3Dclic team, Angel’s modeling was done under Maya 3.0. Ascension’s MotionStar magnetic tracker captured the movements of a live human performer and transmitted the motion data to a host computer. The motions were then mapped onto Angel using FILMBOX 2.7. Lip synchronization was accomplished using LiPSEE, an automatic lip detection system developed by Tardif and the sound company Tapages.

QEDSoft made Angel’s display possible using QEDStream technology and QEDStudio. QEDStream works with multiple bandwidths and hardware devices, enabling real-time, full screen 3D web animation. QEDStudio converted Angel’s 3D animation files, so she could appear on the Internet over a 56KB connection using QEDPlayer, a 250KB plug-in.

Ascension Technology designs and manufactures tracking devices for animation, virtual reality, simulation, biomechanics and medicine. Ascension currently has four product lines and eleven tracking products using DC magnetic, inertial, infrared optical and laser technologies

To learn more about Motion Tracking go to:

***Virtue3D Developer Toolkit

(August 7)

Virtue3D has announced the release of the Virtue3D Developer Toolkit. The toolkit streamlines stages of the 3D content deployment cycle, allowing Web developers, 3D modelers and CAD designers to create and integrate 3D Web content that can be delivered over the Internet.

To date, sharing 3D content online has been difficult due to the large file size of 3D models and the complexities associated with integrating 3D content into Web pages. Virtue3D compression technology creates small 3D files for online viewing without losing image quality. For example, 3D CAD files can often be compressed to less than 1% of the original file size.

The Virtue3D Developer Toolkit includes four tools that speed online delivery of 3D content:

*Virtue3D Optimizer uses compression technology to transform 3D models into compact files (VTUs) that can be downloaded, sent by e-mail, or integrated into Web pages.

*Virtue3D Player is a browser plug-in that lets users manipulate VTU files. The Virtue3D Player,  at less than 500Kb, results in high-quality 3D content with any user regardless of connection speed.

*Virtue3D Max Plug-in lets modelers export a 3D Studio Max file into the Virtue3D Optimizer as a VRML file for compression. The result is a compact VTU file that preserves all of the original 3D Studio Max content and animated features.

*Virtue3D Dreamweaver Extension allows Web developers to embed the Virtue3D Player into Web pages to support interactive viewing of 3D VTU files.

A free download of the Virtue3D Developer Toolkit is available at Virtue3D’s Web site. After downloading the toolkit, users can create compressed Virtue3D-watermarked VTU files. Customers can remove this watermark by either submitting files to be validated by Virtue3D at a cost of $99 per file or by purchasing an annual publishing license for $1,495, which allows customers to publish any number of valid VTU files.

***Fakespace Systems Announces $4.5 Million Visualization System Contract Award

(August 7)

Fakespace Systems, a business unit of Electrohome Limited, has been awarded a $4.5 million contract by the U.S. Department of Energy (DOE). The contract calls for Fakespace Systems to design, build and install several custom visualization systems at Los Alamos National Laboratory (LANL).

The large-scale visualization systems will include high-brightness, stereoscopic digital projection technology. Multiple Mirage 2000 graphics projection systems, from Christie Digital Systems, will be tiled into a large format WorkWall display system for viewing large computer data sets in high-resolution detail. Capable of displaying 31 million pixels, the full system is expected to be the largest display of its type ever built.

Fakespace previously installed large-scale visualization systems for the DOE at LANL in 1999 and 2000, with the goal of providing better ways for scientists to understand nuclear weapons phenomena through immersive visualization. The future WorkWall systems will be used to display some of the world’s largest and most complex simulations, which were developed for the DOE's Accelerated Strategic Computing Initiative (ASCI). As a part of the DOE's stockpile stewardship program, ASCI uses experimental programs and computer simulation to maintain the safety and reliability of the U.S. nuclear stockpile without underground testing.

The visualization systems will be installed in the Strategic Computing Complex (SCC), a simulation and computing facility. The SCC will house more than 200 nuclear weapons scientists, engineers, and designers, and will provide large-scale visualization laboratories as well as a visualization theater. The SCC also features an uninterrupted computer floor the size of a football field, and will house the largest supercomputer in the world. Called “Q,” this system, built by Compaq, will be capable of performing calculations at 30 trillion operations per second (teraOPS).

Deliveries against the $4.5 million order are scheduled to occur during fiscal 2001 (ending September 30, 2001) and fiscal 2002.

0136.4 Semiconductor

***Silicon Integrated Systems Licenses Arm Core for PC Logic Applications

(August 6)

SiS and ARM announced that SiS has licensed the ARM7TDMI microprocessor core for use in its product range of integrated chipsets for PCs. SiS currently offers core logic products integrating network and 3D graphics for both Intel and AMD processors and will soon offer a system-on-chip (SoC) solution. This agreement will allow SiS to integrate ARM intellectual property (IP) into future core logic products for PCs. SiS also plans to use the ARM7TDMI core to develop networking and communication products.

SiS plans to make products based on the ARM7TDMI core available in Q4, 2002.

***Philips Semiconductors Introduces Glue Chip 4 for PC Motherboard Market

(August 8)

Philips Semiconductors has announced the availability of the Glue Chip 4, PCA9504A, an integrated ASIC that reduces logic part count, overall component cost and board space requirements for PC designers and manufacturers. The Glue Chip 4 supports the latest generation of high-volume platforms based on Intel processors and chipsets that require additional external circuitry in order to function properly. Some of these functionalities include meeting timing specifications, buffering signals and switching between power wells.

The PCA9504A Glue Chip 4 integrates miscellaneous motherboard logic and analog functions into a single, small footprint 56-pin TSSOP (plastic thin shrink small outline package) device. The Glue Chip 4 typically resides on the motherboard close to the I/O controller Hub. This single chip solution has been designed to integrate various logic features including: dual strapping, selectable feature sets; audio-disable/mute circuit; power supply turn-on circuitry; extra general-purpose logic gates; and tri-state buffers for test.

The PCA9504A Glue Chip 4 is in high volume production with buffer inventory and is priced at $0.90 each in quantities of 100,000.

***Toshiba to Reduce DRAM Fab Capacity at Its Yokkaichi Manufacturing Facility

(August 8)

Toshiba America Electronic Components (TAEC) and its parent company Toshiba have announced the realignment of its memory production strategy. In response to continued excess supply, weak market demand and related pressures on pricing, Toshiba will close production at its Yokkaichi Operations fabrication line number 1 (Fab 1). Yokkaichi Operations Fab 2 will remain open. The majority of Toshiba's 300 employees working on the Fab 1 line will be transferred to a different line.

Yokkaichi currently produces approximately 70,000 8-inch wafers a month. Fab 1 contributes to about half of this output. Current production details for Fab 1 are approximately seven million pieces per month of DRAM (measured in 64 megabit equivalents) at 0.20 micron and one million pieces per month of SRAM (measured in 4Mb equivalents) at 0.40 micron. Fab 2 will continue to produce memories at 0.175 micron and lower process technologies. Toshiba is concentrating its DRAM efforts on bringing to production 0.13-micron 512Mb devices in Q4, 2001.

TAEC is an independent operating company owned by Toshiba America, a subsidiary of the $54 billion Toshiba Corp., the second largest semiconductor company worldwide in terms of global sales for the year 2000.

0136.5 Wireless

***Iospan Wireless and Powerwave to Accelerate the Deployment of MIMO-OFDM Broadband Fixed Wireless Access Technology

(August 6)

Iospan Wireless, a provider of fixed wireless broadband multiple antenna technology, and Powerwave Technologies, a supplier of radio-frequency power amplifiers for use in wireless telecommunications networks, announced they have entered into a memorandum of agreement for the joint development of AirBurst-compatible broadband power amplifiers that will optimize the performance of Iospan’s MIMO-OFDM-enabled AirBurst technology.

The AirBurst technology is designed to allow service providers to deploy broadband wireless services for both residential and business applications. As part of the agreement, Powerwave will supply Iospan with broadband power amplifiers for use in trials with a U.S. carrier using Iospan’s AirBurst technology. Tighter coupling of AirBurst and Powerwave’s technologies is aimed at improving system efficiencies and reducing the costs and footprint of the system.

To find additional information on MIMO-OFDM go to:

0136.6 Communications

***Veronis Suhler Releases Communications Industry Forecast

(August 6)

Veronis Suhler has released their 15th annual Communications Industry Forecast. The report predicts overall industry growth at an annual rate of 5.6% from 2001-2005, outpacing the 5% growth rate of the Gross Domestic Product and reaching $738 billion in total spending by 2005.

Industry highlights include:

Cable and satellite TV – spending on cable and satellite advertising jumped 18.5% to $13.8 billion in 2000. Spending is expected to increase at a compound annual rate of 11.6% between 2001-2005, reaching $23.8 billion in 2005.

End user spending in this category (subscriptions) is forecast to rise 7.4% to $207 billion in 2001, up from $192.8 billion in 2000. Spending will grow at a rate of 7.5% in 2002 to $222.7 billion, then slow to 6.6% in 2003 and 5.9% in both 2004 and 2005.

Broadcast television – advertising spending in this category rose 11.1% in 2000, compared to a 4.4% rise in 1999, reaching $44.4 billion (compared to $40 billion in 1999). Both television networks and individual stations benefited from the presidential election coverage, however the absence of political and Olympic-related advertising, along with the evaporation of promotions related to the new millennium, total spending is forecast to drop 2.5% to $43.3 billion in 2001.

Consumer Internet – Veronis projects that by 2005, 68.4 million households will be online, or 88% of all computer households (63% of all American homes). The compound annual growth rate of Internet households will slow to 6.9% during this time though, down from 39.1% during the 1995-2000 period.

Consumers spent $11.6 billion on Internet access in 2000 compared with $9.4 billion in 1999, an increase of 23.6%. Projections of the average annual spending per household for dial-up by 2005 are $243. Access via cable modem and DSL will total $300 and $420 per year, per household, respectively.

Advertising spending is expected to increase to $9.9 billion by 2005, increasing at a 3.8% compound annual rate. By 2005, total Internet spending is expected to reach $28.3 billion.

For more information about Veronis Suhler’s Communications Industry Forecast go to:

0136.7 Internet

***Internet Tax Moratorium - Testimony on the Hill

By Amanda Rogos

(August 9)

When Congress passed the Internet Tax Freedom Act in 1998, it authorized a National Advisory Commission to study the issues involving Internet taxation and e-commerce. The committee met in April 2000, but was unable to come to a conclusive agreement on the future of taxation. Therefore Congress faces the Act’s October 21st deadline with no clear solution. At a recent hearing of the Senate Finance Committee, chaired by Senator Max Baucus (D-Mont.), Congress reviewed the testimony of members of the retail industry, local and state governments, and tax experts to plan a course of action.

The Internet Freedom Act of 1998 imposed a moratorium on multiple and discriminatory taxes on the Internet, and on Internet access taxes. It did not however, address the problem of how states should collect sales taxes on interstate e-commerce, or how international taxation issues would be handled. These issues were brought to the forefront during this hearing due to state concerns over the effect of taxes on their constituents/businesses, and an announcement by several European countries that a value-added tax may be levied on digital products, sold by US companies on the Internet.

Among those who testified was G. Thomas Woodward, Assistant Director for Tax Analysis from the CBO (Congressional Budget Office). According to Woodward, forty-five states and the District of Columbia impose a sale tax on purchases made within their borders, a fee which amounts to 33% of their total tax revenue. Most states also impose a “use” tax on out-of-state purchases. These include purchases made on the Internet, telephone or by mail. Unlike traditional sales tax though, the use tax is collected directly from consumers, not paid to retailers. This makes collection a difficult and expensive task for state and local governments.

Most states would like to change the structure for the use tax, and develop a structure similar to the one that exists for sales tax. Under this structure, consumers would be subject to a sales tax, which would be transferred from the retailer to the consumers’ local or state government. The Supreme Court however, has ruled that this puts “undue burden on interstate commerce,” and therefore it has not been instituted. It did however, give Congress permission to impose this type of system if and when it saw fit. Congress has not yet taken action on this issue, and asked for comments from the day’s speakers.

This is an important issue to states because according to the General Accounting Office, remote retail sales were $92 billion in 1999, with 17% of the total coming from e-commerce. This number is somewhat misleading, due to the fact that it includes business-to-business transactions, which are exempt from sales tax. Yet the premise remains, that this is a large amount of lost revenue. In fact, the GAO estimates that in 2003 revenue loss from remote sales tax will be between $2.5 billion and $20.4 billion.

Woodward claimed that funds are also lost in the process of collecting and remitting these use taxes. He suggested that the system could be simplified by using computer technology to streamline tax collection through the appropriate jurisdictions. Another option is the harmonization of state sales tax regimes among states that impose Internet taxes.

Most speakers agreed with Woodward that something had to be done, but like Congress’ National Advisory Commission, there was not a consensus on the strategy going forward. For instance, Frank Shafroth, Director of the Office of State Federal Relations, National Governors Association, expressed reservations about Federal involvement at all, stating that Congress had already over-stepped its boundaries by preempting states’ rights and enacting the Internet Tax Freedom Act. He expressed regret at the fact that the Act had established a tax-free precedent for remote retailers over the Internet, which would be hard to correct.

In Shafroth’s opinion, states are responsible for their own policies, and he said they were working to develop responsible Internet taxation guidelines on their own. At the 2001 NGA Winter Meeting, state and local governments worked on Policy EC-12, Streamlining Sales Tax Systems, which outlines a simplified sales tax system including streamlined audit requirements, administration, and common definitions of the by giving incentives to states that simplified their tax structure. Shafroth did admit that this would first require Congress’s vote to allow remote sellers to charge sales tax. North Carolina, Wisconsin, Michigan and Kansas have begun pilot testing of tax collection software that would follow these guidelines.

Although David Bullington, Vice President of Taxation for Wal-Mart, and The Honorable Steven Rauschenberger from the National Conference of State Legislatures, differed in their view of Federal involvement, they also testified in agreement that a simplified plan to collect sales and use taxes would be beneficial for states and local government alike.

Frank Julian, Vice President and Tax Counsel, of the Federated Department Stores, testified on behalf of the Direct Marketing Association. The DMA takes the position that the tax moratorium on new and discriminatory taxes on the Internet should be extended and the moratorium on taxation on Internet access should be permanent. As clarification though, the DMA said it believes in the “neutral tax treatment” of the Internet, not a tax-free zone. Therefore, they believe that if sales and use tax guidelines are simplified, there is no need to change Federal regulations.

Dr. Michael Grieve and John Searle Scholar, from the American Enterprise Institute, proposed another solution. They suggested that taxation could be simplified by developing an interstate tax structure that taxes products at the point of origin, as opposed to the current system that taxes products by their destination (the location of the buyer). The speakers claimed that Federal regulation would be needed in this regard, but would result in a more efficient and equitable system.

The meeting concluded with a consensus on only one thing; the current taxation structure must be changed in order to find an equitable balance between in-state and remote purchases. The details remained uncertain, which is not surprising - and will provide an interesting fall season within Congress. Bills corresponding to this issue include:

S.512 and HR.1410 Internet Tax Moratorium and Equity Act

S.777 and HR.1675 Internet Tax Nondiscrimination Act

HR.1552 Internet Tax Nondiscrimination Act

S.288 Internet Tax Nondiscrimination Act

HR.2526 Internet Tax Fairness Act of 2001



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