7/2. The Internal Revenue Service (IRS) published a notice in the Federal Register which it identifies as an "advance notice of proposed rulemaking". This notice states that the IRS seeks comments on expanding the current three percent excise tax on telephone service to new "communications services" to "reflect changes in technology".

The vaguely worded and short notice does not put readers on notice of whether or not the IRS plans to promulgate a rule that expands the tax to include any or all voice over internet protocol (VOIP) services, applications, or technologies, or any other IP based communications. See, Federal Register, July 2, 2004, Vol. 69, No. 127, at Page 40345.

The IRS notice asserts that "Since 1965, numerous communications services have been developed and marketed, the methods of transmission have expanded, and the industry has been deregulated. As a result of these changes, questions have arisen concerning the application of section 4251 to certain communications services that were not available in 1965. In response to these questions, Treasury and the IRS are considering proposing regulations that would revise the existing regulations to reflect changes in technology."

The IRS's notice adds that the purpose of the notice is "to solicit information from the public on how present technology should be treated within the description of telephonic or telephonic quality communication in the definitions of local and toll telephone service under section 4252."

26 U.S.C. § 4251 provides that "There is hereby imposed on amounts paid for communications services a tax equal to ... 3 percent".

§ 4251(b) provides that the term ''communications services'' means "(A) local telephone service; (B) toll telephone service; and (C) teletypewriter exchange service".

26 U.S.C. § 4252 provides further definition of these three terms. It defines "local telephone service" as "(1) the access to a local telephone system, and the privilege of telephonic quality communication with substantially all persons having telephone or radio telephone stations constituting a part of such local telephone system, and (2) any facility or service provided in connection with a service described in paragraph (1)".

§ 4252 defines ''toll telephone service'' as "a telephonic quality communication for which ... there is a toll charge which varies in amount with the distance and elapsed transmission time of each individual communication ..."

The IRS notice asserts that "questions have arisen" regarding how to apply the statute to "communications services that were not available in 1965". The IRS notice does not disclose that the Congress has repeatedly amended § 4251 since 1965. Yet, the Congress has not expanded the scope of the tax in these revisions.

In contrast, when the Congress has amended various other statutory provisions affecting communications it has often amended the list of technologies covered by those provisions. For example, as new communications technologies have been deployed, the Congress has repeatedly amended the statutes regarding wiretapping, interception and surveillance, in such acts as the Wiretap Act, the Electronic Communications Privacy Act (ECPA), the Communications Assistance for Law Enforcement Act (CALEA), and most recently, in the USA PATRIOT Act.

The recent history of legislative consideration of the excise tax on telephones in different. The only question that the Congress has closely examined is whether or not to entirely repeal the tax.

There were substantial efforts in the 105th,106th and 107th Congresses to repeal this tax. See, for example, HR 3648 in the 105th Congress, HR 3916 in the 106th Congress, and HR 236 in the 107th Congress,  The House passed HR 3916 on a roll call vote of 420-2, on May 25, 2000. See, Roll Call No. 233. However, the full Senate did not pass the bill. HR 236 had 149 sponsors.

In the present Congress (108th), there is a bill to repeal the tax, HR 2957.

The IRS assertion that "questions have arisen concerning the application of section 4251 to certain communications services that were not available in 1965" is thus arguably inconsistent with the relevant legislative history. The IRS does not provide further elaboration on this point.

The IRS notice also states that "A tax on communications services has existed for over 100 years." Former House Majority Leader Dick Armey (R-TX) used to give speeches in which he stated that this tax was imposed to finance the Spanish American War. He would add that he had recently spoken with the Spanish Ambassador, who assured him that the war is over. Hence, Rep. Armey argued, the tax should now be repealed.

Senate Report 106-328 on HR 3916 states that "The first tax on telephone service was enacted in 1898 to help finance the Spanish-American War. That tax was repealed in 1902 and was not re-enacted until World War I required additional revenues. The World War I telephone tax was repealed in 1924 and was re-enacted in 1932. All of these initial telephone taxes applied only to toll (long distance) service. In 1941, with the advent of World War II, the tax was extended to general local service. An excise tax on telephone service has been in effect in every year since 1941, despite enactment of periodic legislation to repeal or phase-out the tax." (Parentheses in original. Footnotes omitted.)

Moreover, 26 U.S.C. §§ 4251 and 4252 are drafted in contemplation of a circuit switched system in which common carriers bill their customers for local and long distance telephone services. The IRS notice provides no notice of how it might attempt to assess and collect excise taxes on these new "communications services" that "reflect changes in technology".

For example, the statute provides that "The tax imposed by this section shall be paid by the person paying for such services". That is, the carrier (or service provider) does not pay the tax. It collects the tax from its customers, on its monthly bills, as a percentage of taxable services provided, and forwards collections to the IRS. Thus, the carrier or service provider must first know who the user is. For example, an old fashioned telephone common carrier, or other service provider, may provide broadband internet access service to a customer, who then separately acquires and installs software on the customer computer that enables VOIP communication with other users of that VOIP technology. The carrier or service provider may not know who is using which applications. The IRS notice does not state how it would impose an excise tax in this situation.

Any efforts by the IRS to compel reporting or disclosure by users of new technologies would not only be burdensome on them, and inhibit adoption of new technologies, it would also raise issues of privacy and security. See, related stories: titled "Sen. Grassley Condemns IRS for 2,300 Missing Computers" in TLJ Daily E-Mail Alert No. 342, January 9, 2002; "IRS Loses More Computers, Jeopardizes Taxpayer Info" in TLJ Daily E-Mail Alert No. 493, August 16, 2002; "GAO Report Finds That Computer Weaknesses At IRS Put Taxpayer Data At Risk" in TLJ Daily E-Mail Alert No. 673, June 4, 2003; and "IRS Data Vulnerable" in TLJ Daily E-Mail Alert No. 145, March 16, 2001.

Also, IP based services would not fit the statute's definitions of either "local telephone service" (since they are neither local nor telephone), "toll telephone service" (since there is no "toll charge which varies in amount with the distance and elapsed transmission time of each individual communication"), or "teletypewriter exchange service". The IRS notice does not state what new communications services or technologies would be subject to taxation, or what rationale the IRS might offer for extending the excise tax to them.

The deadline for comments is September 30, 2004.

Four years ago the House voted 420-2 to repeal this tax. Federal agencies that take action that is contrary to the will of many members of Congress, and which are required by law to give public notice of their actions, sometimes publish their notices during Congressional recesses and major holidays. The IRS published this notice on July 2, during a recess of both the House and the Senate.

7/1. Presidents who are unable to obtain Senate confirmation of their nominees sometimes resort to recess appointments. President Bush used the July 4 recess to make recess appointments for two offices at the Department of Commerce.

The White House press office announced in a release that "The President intends to recess appoint Michael Gallagher, of Washington, to be Assistant Secretary of Commerce for Communications and Information. The President nominated Mr. Gallagher on October 14, 2003."

Mike Gallagher (at right) is the acting head of the National Telecommunications and Information Administration (NTIA), which has spectrum management responsibilities, and represents the position of the administration on telecommunications issues.

The White House press office also announced that "The President intends to recess appoint Theodore William Kassinger, of Maryland, to be Deputy Secretary of Commerce. The President nominated Mr. Kassinger on February 26, 2004."

The Constitution gives the President the authority to make recess appointments. It provides that "The President shall have Power to fill up all Vacancies that may happen during the Recess of the Senate, by granting Commissions which shall expire at the End of their next Session."

7/2. The Federal Trade Commission (FTC) published a notice in the Federal Register that describes and provides an effective date (August 2, 2004) for its final rule implementing the Fairness to Contact Lens Consumers Act. See, Federal Register, July 2, 2004, Vol. 69, No. 127, at Pages 40481 - 40511. See also, FTC release.

One of the consequences of this legislation and rule making is the removal of some barriers to the sale of contact lenses over the internet. For example, the statute requires that contact lens prescribers provide their patients with a copy of their contact lens prescriptions after a contact lens fitting and verify those prescriptions to any third party designated by a patient.

The Act was HR 3140 in the 108th Congress. HR 3140 follows HR 2221, also titled the "Fairness to Contact Lens Consumers Act". It was introduced on May 22, 2003 by Rep. Richard Burr (R-NC), Rep. Billy Tauzin (R-LA), Rep. James Sensenbrenner (R-WI), and Rep. Jim Matheson (D-UT). See, story titled "Bill Would Facilitate Internet Sale of Replacement Contact Lenses" in TLJ Daily E-Mail Alert No. 669, May 29, 2003.

The House passed HR 3140 on November 19, 2003 by a vote of 406-12. See, Roll Call No. 644. See, story titled "House Passes Contact Lens Bill" in TLJ Daily E-Mail Alert No. 783, November 20, 2003. The Senate passed the bill by unanimous consent on November 20. President Bush signed it on December 6, 2003. See, story titled "Bush Signs Bill to Promote E-Commerce in Contact Lens Sales" in TLJ Daily E-Mail Alert No. 794, December 8, 2003. It became Public Law No. 108-164. It is now codified at 15 U.S.C. § 7601, et seq.

7/1. The Federal Communications Commission's (FCC) Wireline Competition Bureau's (WCB) Industry Analysis & Technology Division released the 2004 edition of its annual report [63 pages in PDF] titled "Reference Book of Rates, Price Indices, and Household Expenditures for Telephone Service". The report focuses on domestic trends in rates, price indices, and expenditures for telephone service. See also, FCC release [1 pages in PDF].

7/2. The Federal Communications Commission (FCC) released a report [53 pages in PDF] titled "Trends in the International Telecommunications Industry". The report was prepared by the FCC's International Bureau's (IB) Strategic Analysis and Negotiations Division and the Wireline Competition Bureau's (WCB) Industry Analysis and Technology Division. See also, FCC release [2 pages in PDF].

7/2. The Federal Communications Commission announced "that licensees that are required to pay annual regulatory fees must make their FY 2004 payments by 11:59 PM on August 19, 2004." See, notice [PDF].

7/1. Hewitt Pate, the Assistant Attorney General in charge of the Department of Justice's Antitrust Division, stated in a release at the conclusion of the evidentiary phase of the trial in USA v. Oracle that ""The government sued to block Oracle's acquisition of PeopleSoft because it would harm competition. Now that the evidence is in, we look forward to presenting the court with our Findings of Fact, Conclusions of Law, post-trial brief, and to closing arguments as we enter the final phase of the trial." Proposed Findings of Fact and Proposed Conclusions of Law are due by July 8. Post trial briefs are due by July 12. Closing arguments are scheduled for July 20. This case is USA v. Oracle, U.S. District Court for the Northern District of California, San Francisco Division, D.C. No. C 04-0807 VRW, Judge Vaughn Walker presiding.

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7/1. The Federal Communications Commission's (FCC) released the agenda [PDF] for its meeting of July 8, 2004. The FCC will consider a R&O on the § 251 Unbundling Obligations of ILECs, a R&O on unlicensed RF devices, smart Antennas and WISPs, and a R&O and NPRM on secondary markets for spectrum rights.

The FCC will also consider an item regarding "reconfiguring the 800 MHz band to abate interference being encountered by public safety communications systems and other 800 MHz systems that do not employ cellular architecture", and a R&O and FNPRM regarding the deployment of wireless services in rural areas. And, the FCC will hear a report from its Consumer & Governmental Affairs Bureau on rural connectivity.

The meeting will be held a 9:30 AM on Thursday, July 9 in the FCC's Commission Meeting Room, at 445 12th Street, SW. The meeting is open to the public, and will be webcast by the FCC.

§ 251 Unbundling Obligations of ILECs. The agenda states, without elaboration, that the FCC will consider a Second Report and Order (R&O) in its "Review of the Section 251 Unbundling Obligations of Incumbent Local Exchange Carriers". This is CC Docket No. 01-338. This is the proceeding often referred to as the "triennial review order" proceeding.

On August 21, 2003, the FCC released its triennial review order [576 pages in PDF], which addresses the unbundling requirements of incumbent local exchange carriers (ILECs) under 47 U.S.C. § 251.

On March 2, 2004, the U.S. Court of Appeals (DCCir) issued its opinion [62 pages in PDF] in USTA v. FCC overturning key provisions of the FCC's triennial review order. This case is also known as USTA II.

In particular, the Appeals Court wrote that "We therefore vacate, as an unlawful subdelegation of the Commission's § 251(d)(2) responsibilities, those portions of the Order that delegate to state commissions the authority to determine whether CLECs are impaired without access to network elements, and in particular we vacate the Commission’s scheme for subdelegating mass market switching determinations." See also, story titled "Appeals Court Overturns Key Provisions of FCC Triennial Review Order" in TLJ Daily E-Mail Alert No. 848, March 3, 2004.

On June 9, 2004, the FCC stated in a release [PDF] that "The Office of the Solicitor General has informed the Commission that it has decided not to appeal the D.C. Circuit decision vacating the Commission's local telephone unbundling rules." See, story titled "Solicitor General Will Not Seek Supreme Court Review in USTA II" in TLJ Daily E-Mail Alert No. 915, June 10, 2004.

Unlicensed RF Devices, Smart Antennas and WISPs. The FCC will consider a R&O concerning changes to several technical rules for unlicensed radiofrequency devices contained in Parts 0, 2, and 15 of its rules for unlicensed devices and equipment. This is ET Docket No. 03-201.

The FCC adopted its NPRM on September 10, 2003. See, FCC release [PDF]. See also, story titled "FCC Announces NPRM Regarding Unlicensed Devices" in TLJ Daily E-Mail Alert No. 739, September 15, 2003. The FCC released the NPRM [35 pages in PDF] on September 17, 2003.

This NPRM is FCC 03-223. See also, story titled "FCC Announces Deadlines for Comments on Unlicensed Devices NPRM" in TLJ Daily E-Mail Alert No. 800, December 16, 2003.

Last September, the FCC stated that these proposed rules would "permit operators, including wireless internet service providers (WISPs), and device manufacturers to more readily modify or substitute technically equivalent parts".

The FCC also stated that the FCC "proposes to amend its rules to specifically provide for the use of sectorized and phased array antenna systems. Often called ``smart antennas,´´ these antenna systems focus their radio transmissions according to the geographic locations of their users. Use of these advanced antenna technologies will increase spectrum efficiency because they allow for greater re-use of the same radio frequencies and may permit increased spectrum sharing among multiple wireless networks."

The FCC added that it proposes "rule modifications that would facilitate deployment of next-generation Bluetooth devices".

Secondary Markets for Spectrum Rights. The FCC will consider a Second R&O, Order on Reconsideration, and Second Further Notice of Proposed Rulemaking "concerning policies and procedures to promote the development of secondary markets in wireless radio spectrum usage rights". This is WT Docket No. 00-230.

WT Docket No. 00-230 was opened in 2000. The FCC adopted its original NPRM [61 pages in PDF] on November 9, 2000. See, TLJ story titled "FCC Discusses Secondary Markets for Wireless Spectrum", and TLJ news analysis titled "Mobile Internet Access Devices and the Internet", both dated November 10, 2000.

On May 15, 2003 the FCC announced that it adopted a R&O and a Further Notice of Proposed Rulemaking (FNPRM) which allows certain FCC spectrum licensees to enter into leasing arrangements with third parties. See, FCC release [4 pages in PDF] and story titled "FCC Adopts Order Allowing Some Secondary Leasing of Spectrum" in TLJ Daily E-Mail Alert No. 663, May 16, 2003. However, the FCC did not release this R&O and FNPRM [198 pages in PDF] until October 7, 2003. See, story titled "FCC Finally Releases R&O and FNPRM in Secondary Spectrum Markets Proceeding" in TLJ Daily E-Mail Alert No. 755, October 8, 2003.

Both FCC Chairman Michael Powell and Commissioner Jonathan Adelstein gave speeches in May in which they addressed secondary markets. Adelstein stated in a speech [3 pages in PDF] on May 25 that "We have to be more creative with a term I have coined ``spectrum facilitation.´´ That means stripping away barriers, regulatory or economic, to get spectrum into the hands of operators serving consumers at the most local levels. That is why I supported new guidelines to facilitate a more robust secondary market. We removed significant obstacles and provided a framework for allowing licensees to lease spectrum more easily."

Powell stated in a speech [4 pages in PDF] on May 19 that "We have promoted the use of secondary markets for people that have more commercial flexibility in obtaining spectrum and allocating spectrum. Further, our spectrum leasing initiative will make spectrum more easily accessible to wireless operators interested in serving niche markets."

Other Agenda Items. The Commission will consider a R&O, Fifth R&O, Memorandum Opinion and Order, and Order regarding "reconfiguring the 800 MHz band to abate interference being encountered by public safety communications systems and other 800 MHz systems that do not employ cellular architecture". The FCC agenda adds that "Related orders implement changes in other bands made necessary to facilitate 800 MHz band reconfiguration."

The FCC will consider a R&O and Further NPRM regarding the deployment of wireless services in rural areas. This is titled "Facilitating the Provision of Spectrum-Based Services to Rural Areas and Promoting Opportunities for Rural Telephone Companies to Provide Spectrum-Based Services (WT Docket No. 02-381); 2000 Biennial Regulatory Review Spectrum Aggregation Limits for Commercial Mobile Radio Services (WT Docket No. 01-14); and Increasing Flexibility to Promote Access to and the Efficient and Intensive Use of Spectrum and the Widespread Deployment of Wireless Services, and to Facilitate Capital Formation (WT Docket No. 03-202)."

The FCC's Consumer & Governmental Affairs Bureau (CGAB) will present a report on the FCC's program titled "Lands of Opportunity: Building Rural Connectivity". The CGAB announced this program in August of 2003. Chairman Powell addressed it in a speech [3 pages in PDF] on November 7, 2003.

The House will return from its Independence Day recess at 2:00 PM. It will consider several non-technology related items under suspension of the rules. Votes will be postponed until 6:30 PM. See, Republican Whip notice.

The Senate will return from its Independence Day recess at 9:45 AM. It will consider the nomination of Leon Holmes to be a U.S. District Judge for the Eastern District of Arkansas. It will then begin consideration of S 2062, the "Class Action Fairness Act of 2004".

10:00 AM. The U.S. Court of Appeals (FedCir) will hear oral argument in Sony Electronics v. Soundview Technologies. Location: Courtroom 402, 717 Madison Place, NW.

10:00 AM. The House Ways and Means Committee will hold a hearing titled "Implementation of the United States-Morocco Free Trade Agreement". Location: Room 1100, Longworth Building.

The House will meet at 10:00 AM. It may consider HR 4218, the "High-Performance Computing Revitalization Act of 2004", and HR 4516, "Department of Energy High-End Computing Revitalization Act of 2004". See, Republican Whip notice.

10:00 AM. The Senate Judiciary Committee will hold a hearing on judicial nominees. Press contact: Margarita Tapia (Hatch) at 202 224-5225 or David Carle (Leahy) at 202 224-4242. See, notice. Location: Room 226, Dirksen Building.

10:00 AM. The House Commerce Committee's Subcommittee on Telecommunications and the Internet will hold a hearing titled "Voice Over Internet Protocol Services: Will the Technology Disrupt the Industry or Will Regulation Disrupt the Technology?". The hearing will be webcast. Press contact: Jon Tripp (Barton) at 202 225-5735, or Sean Bonyun at 202-225-3761. Location: Room 2123, Rayburn Building.

12:15 - 1:45 PM. The New America Foundation (NAF) will host a brown bag lunch titled "Cyberterrorism: How Modern Terrorism Uses the Internet". The speakers be Gabriel Weimann (Haifa University) and James Fallows (Atlantic Monthly). RSVP to Jennifer Buntman at 202 986-4901 or buntman@newamerica.net. Location: NAF, 1630 Connecticut Ave, NW, 7th Floor.

The House will meet at 10:00 AM. See, Republican Whip notice.

9:30 AM. The Federal Communications Commission (FCC) will hold a meeting. See, agenda [PDF]. The event will be webcast. Location: FCC, 445 12th Street, SW, Room TW-C05 (Commission Meeting Room).

9:30 AM. The Senate Judiciary Committee will hold an executive business meeting. Press contact: Margarita Tapia (Hatch) at 202 224-5225 or David Carle (Leahy) at 202 224-4242. See, notice. Location: Room 226, Dirksen Building.

10:00 AM. The U.S. Court of Appeals (FedCir) will hear oral argument in Business Objects v. MicroStrategy, No. 04-1009. Location: Courtroom 203, 717 Madison Place, NW.

The Department of Commerce's (DOC) Bureau of Industry and Security will hold a seminar titled "Essentials of Export Controls". The price to attend is $75. For more information, contact Yvette Springer at 202 482-6031. Location: Ronald Reagan Trade Center, Washington DC.

Deadline to submit comments to the Federal Communications Commission (FCC) in response to its notice of proposed rulemaking (NPRM) regarding a national one call notification system. The FCC adopted this NPRM on May 13, 2004, and released the text [34 pages in PDF] on May 14, 2004. See, story titled "FCC Adopts NPRM Regarding One Call Notification System" in TLJ Daily E-Mail Alert No. 899, May 17, 2004. This NPRM is FCC 04-111 in CC Docket No. 92-105. See, notice in the Federal Register, June 8, 2004, Vol. 69, No. 110, at Pages 31930 - 31939.

The House is scheduled to meet at 9:00 AM. See, Republican Whip notice.

10:00 AM. The U.S. Court of Appeals (FedCir) will hear oral argument in Chamberlain Group v. Skylink Technologies, No. 04-1118. Location: Courtroom 402, 717 Madison Place, NW.

The Department of Commerce's (DOC) Bureau of Industry and Security will hold a seminar titled "Export Management Systems". The price to attend is $100. For more information, contact Yvette Springer at 202 482-6031. Location: Ronald Reagan Trade Center, Washington DC.

Extended deadline to submit comments to the Federal Trade Commission (FTC) for its June 21, 2004 workshop on the uses, efficiencies, and implications for consumers associated with radio frequency identification (RFID) technology. See, original notice in the Federal Register, April 15, 2004, Vol. 69, No. 73, at Pages 20523 - 20525, and notice [PDF] in the Federal Register (May 24, 2004, Vol. 69, No. 100, at Pages 29540 - 29541) extending the deadline to July 9. See also, FTC web page for this workshop.

10:00 AM. The Heritage Foundation will host two panel discussions titled "Scholars & Scribes Review the Rulings: The Supreme Court's 2003-2004 Term". See, notice and registration page. Location: 214 Massachusetts Ave., NE.

6:00 - 8:15 PM. The DC Bar Association's Intellectual Property Law Section, and other sections, will host a continuing legal education (CLE) program titled "Trade Secrets: The Next Level". The speaker will be Milton Babirak of the law firm of Babirak Vangellow & Carr. Prices vary. See, notice. For more information, contact 202-626-3488. Location: D.C. Bar Conference Center, B-1 Level, 1250 H Street, NW.

6:30 PM. The U.S. Telecom Association (USTA) and the Cellular Telecommunications and Internet Association (CTIA) will host an event titled "Communications Good Scout Award Dinner". The dinner will honor Rep. Fred Upton (R-MI), the Chairman of the Subcommittee on Telecommunications and the Internet. The price to attend ranges from $250 to $20,000. Proceeds will go to the National Capital Area Council of the Boy Scouts of America. Location: Renaissance Washington Hotel, 999 9th Street, NW.

Deadline to submit comments to the Federal Communications Commission (FCC) in response to its further notice of proposed rulemaking (FNPRM) regarding Aviation Radio Service. This FNPRM is FCC 03-238 in WT Docket No. 01-289. See, notice in the Federal Register, April 12, 2004, Vol. 69, No. 70, at Pages 19140 - 19147.