Writing is on the wall for systems security and Net taxes

Shawn P. McCarthy

There's a lesson here somewhere.
The General Accounting Office has said the Commerce Department's computer networks are unsafe, with compromised security at several levels [GCN, Aug. 13, Page 9].

The basic issue is the way the network is structured. 'The configuration of Commerce operating systems exposed excessive amounts of system information to anyone, without the need for authentication, allowing potential attackers to collect systems information that could be used to circumvent security controls and gain unauthorized access,' according to GAO's report.

For its part, Commerce is reportedly restructuring its information technology department and appointing a task force to tackle rapid repairs.

Grandstanding aside, any manager of a federal Web site would do well to read GAO's recent testimony before the House Energy and Commerce Subcommittee on Oversight and Investigations.

The scathing report can be found at You'll need an Adobe Acrobat reader to view it.

Although the report specifically identifies security problems in Commerce networks, the observations could apply to many other federal networks that handle information on citizens and companies. GAO investigators pointed out flaws that could allow hackers into the system, where they could delete or modify data, or shut down the network entirely.

The reality is that GAO is making an example of Commerce, specifically targeting its systems because they store so much competitive business information. Wise government network administrators will learn from this example and scan their own networks for the specific weaknesses GAO discovered before someone else finds them.

An Internet sales tax is bound to happen sooner or later, and many of the nation's governors seem to believe the sooner the better.

The federal ban on states taxing electronic-commerce transactions is set to expire in October, and many state officials feel it's now time to allow state Net taxes.

Despite the fact that HR 1552, a bill to extend the ban, was passed by the House Judiciary Committee in early August, a Net sales tax was still the hot topic at the recent meeting of the National Governors Association in Providence, R.I.

Wyoming Gov. Jim Geringer even gave a speech in which he claimed states could lose annual revenues of $30 billion by 2003 because people are buying online instead of at local stores.

Such online taxes could be a nightmare. Whose state taxes should apply? Should it be the state where the buyer or the seller lives? What if a third party at a different place is involved? What about international sales?

The governors' position is that a simplified system should be developed that sets and collects state taxes in a unified way, so that e-commerce sites only need to establish a single tax mechanism. But even that's sure to be complicated. Distribution of collected taxes could be a huge logistical challenge.

Don't expect to see state Internet transaction fees as early as October, although technically, states could start taxing if the deadline is not officially extended. But with governors pushing for the right to tax, could it happen in the next 12 months?

President Bush doesn't support Net taxes, but states are clamoring for more money, and this could be a way to appease them without raising federal taxes.

More information on the association's position can be found at,1169,C_POLICY_POSITION^D_489,00.html.

A paper outlining what the position means can be found at,1169,C_LOBBY_ISSUE^D_782,00.html.

Details of the bill extending the Internet tax moratorium can be found at

Shawn P. McCarthy designs products for a Web search engine provider. E-mail him at [email protected].

About the Author

Shawn McCarthy, a former writer for GCN, is senior analyst and program manager for government IT opportunities at IDC.


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