AT&T’s Sealed Documents Exposed as Domestic Surveillance Controversy Heats Up

Wired News has waded into the middle of the controversial court case involving AT&T’s alleged participation in the National Security Agency’s domestic surveillance operations.

An anonymous source provided the news organization with a copy of documents pertaining to the case that the judge had ordered sealed.

However, Wired News determined that the ruling and gag order — made at AT&T’s request — only applied to Electronic Frontier Foundation, its representatives and its technical experts.

Wired News Editor-in-Chief Evan Hansen noted that the court explicitly rejected AT&T’s motion to include the EFF’s primary witness in the case, former AT&T employee Mark Klein, in the gag order. The court also declined AT&T’s request to compel the EFF to return the documents.

The documents include an affidavit by Klein, eight pages of AT&T documents marked “proprietary,” and several pages of news clippings and other public information related to government-surveillance issues.

From Trade Secrets to Espionage?

The EFF brought this suit against AT&T in January based on documents produced by Klein that showed AT&T cooperated with the government in its eavesdropping program, in violation of telecom laws requiring warrants or court orders for such data.

The documents were sealed because of their potential to reveal AT&T’s trade secrets — not because they were classified.

“We think that claim was very thin,” Hansen told the E-Commerce Times. “Given the level of scrutiny this case has received, we thought it was time to give the public a chance to review them.”

The claim marks a very important distinction between the AT&T case and other national security cases currently being litigated, in light of recent comments by Attorney General Alberto Gonzalez, who said on this past weekend’s round of talk shows that any reporter revealing classified information should be prosecuted. He also said there is justification for using telephone records to identify reporters’ sources.

“We went into a huddle after that,” Hansen reported. “We have determined, though, that his comments didn’t apply to us.”

State Secrets Privilege

The U.S. government still wants the suit dropped, not surprisingly. It has filed a motion to dismiss it on the grounds of State Secrets Privilege, a power the government can invoke to stop civil litigation that touches upon issues of national security.

“It has been used increasingly over the past decade to shut down cases,” Hansen noted. In recent years it has been extended very liberally, he said, to rope in or shut down sensitive proceedings.

Thefull text of the documents published by Wired News can be viewed online.

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CRM Buyer Channels

The Rise of Digital Ad Taxes Could Impact Online Marketplaces

For years, affiliate marketers, social media companies, online marketplace platforms, and search engines alike have enjoyed the seemingly ubiquitous tax-free landscape from their digital activities afforded to them by the United States’ Internet Tax Freedom Act of 1998. However, that could all be changing soon.

On the horizon, taxpayers should prepare themselves for the next evolution in state taxation: digital advertising taxes. As policymakers and tax practitioners eagerly look to Maryland spearheading the first-in-the-nation digital advertising tax (DAT), legal concerns have been raised about the validity of Maryland’s recently enacted tax.

Poised as a gross receipts tax on in-state digital advertising revenues, Maryland’s DAT takes aim at large technology companies that have benefited from years of digital advertising as the catalyst for generating insuperable amounts of wealth.

Maryland’s digital ad tax applies a graduated rate that escalates based on the taxpayer’s global annual revenues. The tax brackets are as follows:

  • 2.5 percent of the assessable base for persons with global annual gross revenues of US$100 million through $1 billion
  • 5 percent of the assessable base for persons with global annual gross revenues of more than $1 billion through $5 billion
  • 7.5 percent of the assessable base for persons with global annual gross revenues of more than $5 billion through $15 billion
  • 10 percent of the assessable base for persons with global annual gross revenues exceeding $15 billion

Currently, Maryland’s DAT applies to taxpayers with at least $1 million of annual gross revenues derived from digital advertising services within Maryland and taxpayers with global annual gross revenues of $100 million or more.

Taxpayers subject to the tax are expected to file an annual declaration of estimated tax and make quarterly estimated tax payments. Maryland’s first declaration of estimated tax is due April 15, 2022. In addition, taxpayers must maintain books and records of their digital advertising services provided in Maryland to validate the basis for their apportionment and, ultimately, the taxpayer’s calculated digital ad tax.

The Maryland Comptroller has issued proposed regulations to provide clarity on the calculation. The Comptroller proposes to calculate the numerator of the apportionment factor by determining whether the device showing the advertising is in Maryland. The denominator is the number of devices that have accessed the digital advertising services from any location. This fixes one of the issues with the statute in which the denominator was only devices in the U.S., but the revenues were worldwide revenues.

Constitutional Challenges

Expanding on the legality of Maryland’s digital ad tax, the law presents unique constitutional challenges at the federal level that will undoubtedly be an uphill legal battle for the state. Maryland’s DAT law creates a legal inequity, in that, the law unfairly targets online advertisers, while not applying the same rules to other forms of advertising in the state, such as, radio, television, and print.

The Internet Tax Freedom Act was created over twenty years ago to prevent this type of digital discrimination. However, similar to the surprising outcome for many tax practitioners in the Wayfair case, it’s entirely possible the federal law will evolve to service the ever-changing e-commerce landscape.

The legal battles include the complaint filed in federal district court by the U.S. Chamber of Commerce and various trade groups. Their complaint states that the new law violates the dormant Commerce Clause, the Fourteenth Amendment Due Process Clause, and the Internet Tax Freedom Act. They argue that the tax is discriminatory in that it favors in-state companies, and it punishes out-of-state activities as the tax base specifically includes gross receipts from outside the state of Maryland.

In addition, Comcast and Verizon have filed a separate complaint in state court. Their complaint challenges the tax on grounds similar to the federal district court case and on additional grounds that it violates the Supremacy Clause and the Declaration of Rights in the Maryland Constitution.

New York, Connecticut, Indiana, Montana, Nebraska, Oregon and Washington, have all drafted or proposed similar legislation for gross receipts consumption-based taxes on digital advertising services. In 2021 alone, twelve DATs or similar tax-type data bills were introduced in various states.

However, many of these bills have not been enacted because state legislators are waiting on how Maryland’s digital advertising tax will be implemented amidst the administrative, economic, and legal challenges.

Is California Next?

Maryland’s new law has put many California tech companies on notice. Moreover, the question is: “Will California enact its own DAT?” Admittedly, it’s too early to make any reasonable predictions. While it’s possible California could enact a DAT, or something similar, it’s unlikely to happen anytime soon.

First, the Internet Tax Freedom Act would need to be challenged by state lawmakers, adjudicated by the Supreme Court, and changed. This is no easy feat. Next, California would need to pass its own law either through California legislative and executive branches, or potentially through a state proposition.

Given that California is already seen as an unfriendly business state compared to Texas, Tennessee, and Florida, a California DAT could create more incentives for companies to leave the state or cease to do business in California altogether.

Additionally, tech is a prominent and influential business sector in California. The industry contributes to the state’s corporate income tax revenue, and it creates jobs, leading to an echo revenue stream generated by individual California resident taxpayers.

From a state sourcing perspective, determining where to source digital ad revenues can be problematic, especially, when an ad’s reach, impression location, and impact are unknown to the advertiser.

By California regulations standards, Section 25136-2 provides cascading rules on how to source services and intangibles, including digital ad revenue. In situations where either the benefit of the service or intangible is indeterminable, California allows taxpayers to use a reasonable approximation approach, whereby, sales are bifurcated by jurisdiction based on a common variable, such as census data population, ad impressions, unique user IDs, customer quantity, sales metrics, etc.

Furthermore, California’s sourcing regulations are soon changing. Proposed amendments to the sourcing of sales other than tangible personal property go into effect starting 2023.

What does the future hold for online advertisers? At this point, it’s unclear. Many of the DAT and sales of personal data laws currently proposed are targeting Big Tech, but there will certainly be a ripple effect amongst small businesses who use their services. Online marketplaces will need to adapt, and more importantly, stay educated on this constantly evolving issue.

Brandon Gillum

Brandon Gillum is a State and Local Tax Manager with accounting and advisory firm BPM. Email Brandon.

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OPINION

The Global Information Network

Let’s start a new meme/hashtag/acronym: Global Information Network, or GIN. I know there’s double entendre here, but we’re entitled to have a modicum of fun in life, no?

I’ve been writing about the coming of an information utility for a while but even my visions don’t match what we’re watching unfold. Briefly, it occurred to me a while ago that information was becoming (and now is) so instrumental to life that it was commoditizing along with the infrastructure that supports it.

Products become commodities all the time when something turns out to be so essential that everyone needs it, not just a privileged few. When that happens something curious happens economically.

If you must sell to the lowest common denominator, there isn’t much room for profit. Competitors looking for a seat at the table, mercilessly cut prices until the only way to make a profit is to sell gazillions of the commodity for pennies of profit.

Commoditization of Information

That’s basically what the cloud computing revolution of this century has been about. We started with big rooms full of airconditioned gear that ran on relatively underpowered computers that delivered financial reports to the CFO.

Additional applications were hard to come by and were always at the discretion of the CFO. There was no CIO back then, only a director of MIS or Management Information Systems whose job was to support the CFO, hence the emphasis on reporting.

But commoditization opened all sorts of opportunities: departmental computing, PCs, email, the internet, and a lot more.

By the middle of the 1990s, Alan Greenspan, then chair of the Federal Reserve, was at a loss for explaining the rapid and significant expansion of American productivity and jobs growth with nary a whiff of inflation. Classical economics didn’t have an answer, but we all knew that the commoditization of information also led to its democratization, information for everybody. Productivity followed.

Cloud computing commoditized IT, and not a moment too soon. The late 90’s saw a horror show as the last-ever mass rip and replace movement hit the back-office scrambling to accommodate four-digit date formats. Never again was the silent refrain of those who lived through it.

In its place came cloud computing, or what became cloud computing, a commoditization that made hardware and data center labor irrelevant to the user. It was a simple and seductive promise: Just pay a monthly fee and your data and apps will be there.

Now approaching is the Global Information Network (GIN) which is commoditizing cloud computing just as sure as the cloud made the computer room a distant memory for most organizations.

Anywhere Strategies

To fully appreciate GIN consider how Microsoft Azure is partnering with Oracle and Salesforce as well as others. They’re well on the way of having one giant data store with each fluently converting to another on demand.

Then understand that Amazon Web Services (AWS) is in hot pursuit of any cloud provider that wants the convenience of extending its cloud geography without building or buying massive infrastructure.

Salesforce and others are building relationships to support store anywhere strategies. Also consider how some can move workloads among processors seeking the most convenient and lowest-cost bare metal.

One of the latest examples of cloud proliferation is Oracle’s recent announcement that it will deploy14 new cloud regions in the next year on top of the 22 already in place, with more on the horizon.

Oracle and the others have dreams of covering the world with commoditized information services and migrating their users wholesale from on-premises computing to their clouds — and they will, mostly, that’s the tenor of the times.

But we’re also entering a time of co-existence and greater integration, a time when who owns and manages the hardware is much less important than what gets done for the user. So don’t expect any IT operation to be exclusively in thrall to one vendor.

When PCs fully commoditized, it was because one vendor, IBM, set a standard for PC architecture and everyone from memory, to disk drive, to monitor maker supported the standard.

My Two Bits

That is what commoditization does. The major players such as Microsoft, Oracle, Salesforce and a few others grasp this commoditization moment and they understand that the winners will own a substantial part of the market — and a new kind of secret sauce — for the next fifty years. That’s what’s driving a strong interoperability movement.

There’s never been a better time to be a customer in the market for information services. But it’s also a perilous time to be a software startup because while the architectural standards might seem inviting, the market power of the majors will make it difficult to gain share without either being consumed by the biggies or co-opted.

That’s the potential downside of commoditization, it fosters mediocrity as it tamps down innovation.

The opinions expressed in this article are those of the author and do not necessarily reflect the views of ECT News Network.

Denis Pombriant

Denis Pombriant is a well-known CRM industry analyst, strategist, writer and speaker. His new book, You Can't Buy Customer Loyalty, But You Can Earn It, is now available on Amazon. His 2015 book, Solve for the Customer, is also available there. Email Denis.

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