Date : 06-12-93 at 09:08 Message 64 of 93 To : ALL Number: 20981 From : LES REEVES Status: Active Subject : DUMB LAWS HIT CHANNEL 1 Ref. : 0 Conference : 41 ūLEGAL Rec'vd: Yes -------------------------------------------------------------------------------- The section of the state law is 830 CMR 64H.1.6 should anybody care to look it up. Adam Middlesex News, Framingham, Mass., 6/5/93, page 1 By Adam Gaffin NEWS STAFF WRITER The state Department of Revenue may be attempting to apply an obscure section of the state tax code to bulletin-board systems and other providers of computer information services. If successful, the effort to force such services to collect sales tax on fees charged to users for their modem time could reap significant new revenues for the state as the online information field expands. But Brian Miller says it could wipe out his business and put a damper on one of the state's few growth industries. Miller is co-owner of Channel 1, a Cambridge-based bulletin-board system that charges users for access to online conferences, databases and collections of computer programs. It is unrelated to the satellite school television service of the same name. Recently, auditors from the revenue department spent two weeks going over Channel 1's books, under a section of the state tax code related to the provision of telecommunications services. Companies that provide telecommunications services are supposed to collect a five percent tax from "retail" users, such as individuals. Until the Channel 1 audit, officials at computer information providers in Massachusetts thought the law applied only to telephone companies or facilities such as hotels that provide phone service to customers. Miller points to one section of the state tax code that says telephone access to computer databases is "generally not taxable" and to another section that states that "information" is not taxable. A spokeswoman for the Department of Revenue declined comment, saying privacy concerns mean the department cannot talk about either individual actions or enforcement of laws against specific industries. The tax was passed in 1990 as part of an overall effort to tax services in the state. Legislators quickly repealed taxes on professionals such as lawyers and accountants, but kept the telecommunications levy. The telecommunications tax law states that the cost of "information" is exempt only if providers give users bills that explicitly show the cost of information and the cost of its "transmission," which is taxable. Like other online services, Channel 1 does not break down its bills this way. But Miller said he does not actually provide telecommun- ications services, anyway. All of his users communicate with the system by dialing up its number through their existing phone service. The company now has 185 incoming phone lines to handle the 3,000 modem calls that come in every day from around the country. Miller says that, according to his accountant, the audit could mean a tax bill and penalties of $100,000 dating back to 1990 -- enough to destroy "seven years of blood, sweat and tears" by himself and his wife, Tess Heder. They built the system up from one phone line connected to a personal computer. Channel 1 is one of the country's largest bulletin-board systems. But it is dwarfed by such companies as Prodigy and CompuServe. "It's a real boost to small business in Massachusetts," Miller said sarcastically. The law specifically exempts broadcasters and cable-television companies. However, in coming years, experts foresee a growing industry supplying "information" such as movies on demand through computer and telephone networks. AT&T, for example, recently announced plans for a movies-on-demand service. Meanwhile, IBM and MCI have formed a joint venture to develop a developing computer networks that could provide similar services. Yet at the same time, cable companies are beginning to move into fields once the domain of telephone companies and computer networks. Jerrold/General Instrument, which makes cable TV "converter" boxes, is now marketing a unit that will let viewers connect to computer services such as Prodigy. The Channel 1 action worries Barry Shein, president of Software Tool and Die of Brookline, which provides access for a fee to the Internet network. "C an we retroactively bill customers for the last three years' service?" Shein, who's already met with his accountant on the issue, asked. "Will the DOR be willing to do that?" Adam Gaffin Middlesex News, Framingham, Mass. adamg@world.std.com Voice: (508) 626-3968. Fred the Middlesex News Computer: (508) 872-8461. --- * ShareWare South Atlanta, GA (404) 370-0736 * PostLink(tm) v1.05 SWS (#1015) : RelayNet(tm) PCRelay:DCINFO -> #16 MetroLink International Network 4.10 DC Info Exchange MetroLink International Hub