Can the regulation of cars tell us something about proposed Internet laws? Can the approval process for new biotech drugs help us to understand copyright law? Does legal analysis share common attributes when faced with situations involving technological change? Is it worth studying technology change and its broad interplay with law? If a tree falls in the forest does it make a sound? The hope is that working toward a law and technology theory could help us to answer at least some of these questions (although the last one is tricky).
As mentioned in my last post, it is possible to identify the three following themes in scholarly works that deal with law and technology matters: (1) an understanding of the complex and non-linear relationship between law and technology; (2) an exploration of the ways that laws could shape technological developments to protect legal interests; and (3) an awareness of different ways that law could respond to technology change that threatens legal interests. I also said that a critical examination of these matters might bear fruit in the sense that it will encourage a fuller exploration of the legal interests at stake to promote more sound policy outcomes. Today’s post will try to show how this categorization process could help scholars in different technology law areas enter into a conversation with each other to provoke a deeper understanding of their own fields of research.
I’d like to take up these themes in the context of technology change and tax policy (a strange obsession of mine for which I am considering seeking counseling). More specifically, I’ll focus the discussion on challenges to traditional tax law jurisdiction by enhanced cross-border consumer sales promoted over the Internet.
Here is the basic issue: The last few decades have witnessed increased amounts of cross-border consumer sales of goods and services in part as a result of tech developments like enhanced mail-order sales. The policy issue became more pressing since the mid-1990s as a result of an increase in cross-border consumer sales over the Internet (e.g., book sales via Amazon.com to foreign consumers). The problem is that many subnational governments (i.e., state, provincial or local governments) as well federal governments have a tough time enforcing their tax systems outside of their borders. I’ll address the problem by discussing the three themes noted previously.
Complex relationship: Technology scholars often assert that there is generally not a linear relationship between legal and technological developments—Marshall McCluhan, for instance, proposed four ‘laws’ to help understand how media and technologies interact with culture (He asked: What does the technology extend? What does it make obsolete? What is retrieved? What does the technology reverse into if it is over-extended?). As an explanatory device, I’ve analogized the Internet with a digital biosphere to help show how the law, network, real world values, cyberspace values all interact in a dynamic and interdependent, almost organic, relationship. The Internet promotes cross-border sales but a likely unintended use of the medium is it would also permit automated tax collection that could help tax authorities collect taxes from international transactions. Such automated tracking and tax collection, that could identify the Internet consumer’s geographic location and purchasing habits, runs up against privacy concerns. Could the automated collection system be used by the state in the war on terror and inhibit freedom of expression as folks won’t purchases certain books if records were kept? The lesson here is to tread carefully where laws and policies surrounding technology could have a substantive impact on society apart from the technology’s intended use.
Technology is Law: Under the technology is law approach, governments should consider regulating the development of technology to promote other goals such as their ability to collect taxes. Consistent with this view (aka 'code is law'), some governments are seeking to extend their tax jurisdiction over remote sales with the help from an automatic online tax collection system. For example, U.S. state tax authorities are worried that they are losing roughly $15 billion a year because they can’t collect sales (and use) taxes on sales to consumers living outside of their state borders. As a result, they are sponsoring something called the Streamlined Sales Tax Project whereby they have agreed to adopt a common tax base for sales and use taxes for state and, gulp, over 7,000 local governments (this is actually a radical reconception of U.S. fiscal federalism as many state governments have agreed to give up significant fiscal sovereignty because they used to be able to design their state sales tax systems as they saw fit). To promote tax compliance, the state tax authorities are immunizing businesses from liability for uncollected sales taxes—as long as these businesses ‘voluntarily’ sign on to the new regime. Privacy protections are also being built into the design of the online collection system. Some of the researchers who write in this area, like Walter Hellerstein and Charles McLure Jr., suggest the states have reacted properly by designing laws to preserve existing values (i.e., their ability to collect taxes on consumer sales). In this case, a radical legal change is thought to be needed to confront the challenges posed by technology change—state governments were prepared to sacrifice one set of values (fiscal sovereignty) to salvage another (the desire to inhibit tax revenue losses) via a technology is law approach.
Law is Technology: Under the law is technology approach, an attempt is made to see what legal response, if any, is necessary to address tech change that subverts legal interests. In contrast to the U.S. state tax authorities, governments have done a poor job at addressing the international income tax jurisdiction challenges promoted by the Internet. After years of deliberation, governments with the Organization for Co-operation and Development (OECD) have agreed that they won’t tax profits from foreign Internet businesses unless these businesses sell goods or services through a computer server (i.e., a computer that has been networked to the Internet) located in the consumer’s country (more technically, the OECD model tax treaty Commentaries were amended to reflect this new rule). This was, to put it charitably, an unhelpful policy change as it will promote aggressive tax planning and, more importantly, not ensure a fair sharing of tax revenues between countries—there are now tens of millions of servers around the world that could serve as nexus for international income tax purposes. In most other tax areas, the OECD did a good job, but this experience shows that, when a legal response is needed, regulators need to take care not to over-reach or develop rules that will not effectively protect existing values.
So really all I’ve done above is to group the interests into three categories that, it was claimed, are broadly shared with other law and technology analysis: the categories are fuzzy and fairly obvious (self-evident?) so that their usage could permit a conversation among lawyers and researchers in different tech law field; a tax lawyer could learn from a patent lawyer and vice versa (Gaia’s posts discussed some of the problems associated with this approach). I’ve also said that law and technology analysts should try to take a more critical examination of the legal issues within the three categories. In my last post this week, I’ll discuss how a ‘synthetic theory’ that combines instrumental and substantive theories of technology could inform this analysis. Not exactly a cliffhanger ending, I know . . . .
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