New Virginia Law Fuels E-Tax Controversy

The state of Virginia has enacted a controversial new Internet commerce law designed to affirm individual contracting parties’ rights to set their own rules for contractual electronic transactions.

The Uniform Computer Information Transaction Act (UCITA) is being heralded by Virginia Governor James Gilmore as nothing more than a clarification of Virginia’s current contract laws. The ensuing increase in electronic transactions, he predicts, will perpetuate the Internet revolution, promote e-commerce and foster the growth of Virginia’s technology and manufacturing economies.”

State legislators and the governor believe the new law could help America Online and the dozens of other technology companies that populate Washington, D.C.’s Northern Virginia suburbs — companies that have been vocal supporters of Gilmore in his forays into sales taxes and other Internet-related issues.

Gilmore is the outspoken head of the Advisory Commission on Electronic Commerce (ACEC), which the U.S. Congress commissioned to examine the pros and cons of taxing Internet sales. Despite his role as a facilitator of the panel’s research efforts, Gilmore has made no secret of the fact that he supports a tax-free zone on the Internet to help it continue its exponential growth.

Feds Versus States

The new law, however, seems to be adding to the already-raging debate over Internet taxes. The measure is essentially a preemptive move against any federal laws that could be passed to dictate how companies do business on the Internet, according to the National Conference of Commissioners on Uniform State Laws. The state law group drafted a blueprint of a Uniform Electronic Transactions Act for all states to consider and helped Virginia refine its own bill.

The state law group put the Uniform Electronic Transactions Act together in response to electronic signature law that each house of the U.S. Congress passed last fall before ending their legislative sessions for the year. The group claims that the bills, the “Electronic Signatures in Global and National Commerce Act” in the House and the “Millennium and Digital Commerce Act” in the Senate, are products of closed-door sessions between federal legislators and special-interest groups.

The bills “suggest a disturbing trend in state and federal relationships and a further erosion of constitutional separation of powers. These bills essentially impose rules of contract on top of the existing rules of contract found in state statutes and the common law,” the NCCUSL said in introducing its campaign for new state contract laws. “Since there is no federal common law and no general jurisdiction over the rules of contract, federal imposition of even limited rules of contract is likely to have profound impact on a host of side issues such as court jurisdiction and enforcement of these rules.”

Together and Apart

Ironically, the state law group says, the two federal bills borrow liberally from the language in the text of the Uniform Electronics Transactions Act. The problem is that the federal laws would trample states’ rights, the group argues.

The state bill, which the group hopes will be passed by all 50 states, “represents, so far, the only coherent national effort to address the real needs of electronic commerce. It is also a careful effort to do no harm while furthering electronic commerce. At this stage of electronic commerce and the law relating to it, the principle of doing no harm may be far more important than any rule of law proposed,” the group says.