I’m From the Government…

Hacker attacks, the 2000 campaign, and the growing merger of commerce and e-commerce are all conspiring to bring the government deeply into our lives, whether we want it there or not.

That’s not all bad. Today at 10:30 a.m. EST you’ll see happy bureaucrats smiling for the cameras at the Federal Trade Commission offices in Washington, announcing a big crackdown on Internet auction fraud.

Along with Jodie Bernstein, who directs the FTC’s Bureau of Consumer Protection, you’re due to see an assistant U.S. attorney from California, an inspector from the U.S. Postal Inspection Service, the attorney general of Ohio, and Susan Grant, director of the National Consumer League’s Internet Fraud Watch.

It’s not like the cops have been asleep until now, either. Back in November, Robert Guest of Blue Jay, Calif., got a 14-month sentence for defrauding eBay users. But the FTC says it has logged over 10,000 complaints of auction fraud in the last year, so it’s launching a big federal-state public-private whoop-de-do to tackle the problem.

One man’s evil regulator is another man’s cop on the beat, but the fact remains that while eBay tries to rely on “social controls” against fraud, rivals like eDeal aggressively pass complaints to police.

The problem for commerce sites is all fraud complaints have to be investigated, whether or not a site is aggressive in soliciting them, and cops cost money. (The SEC alone wants $150 million.)

Now, knowing that cops are needed, do you think industry is going to pay for them out of profits? Of course not! Cops are a cost of doing business to be passed on to consumers in the form of taxes. That’s why many of the more politically savvy companies in this space, like AOL, Gateway, and Schwab, are getting behind a “compromise” on taxing e-commerce, slightly modifying a plan pushed by Utah’s Republican governor Michael Levitt.

The plan is we’ll pay taxes on all Internet sales if the states create a simpler system for everyone and eliminate the current three percent federal excise tax on phone calls. (That last one gets the powerful MCI and AT&T lobbyists on board.)

More importantly, the definition of where taxes are owed will change under this proposal. Right now, you pay taxes based on the location of the store. In the future, you’ll pay taxes based on your location as a buyer – at the store if you buy there, from your home if you buy there.

The states would have to do some heavy lifting to take this deal, simplifying their rules by October 2004, but if “big Internet” gets on board with big government (and big businesses like Wal-Mart, which already support Internet sales taxes), ordinary citizens won’t have a chance.

That’s the lesson tying the two stories together. Big sales means big crime, big businesses, big deals and big government. Welcome to the big time.

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