Digital Commerce Bill Threatens State Rights

25 July 2001
Legislation currently before Congress could prove to be the downfall for state and territorial regulation of Internet gambling in the United States.

House Resolution 2421, also known as the "Jurisdictional Certainty Over Digital Commerce Act" would remove all state control over Internet transactions, leaving such regulation to the federal government. And while this leaves open the door for federal regulation and taxation of Internet gambling, Nevada and the U.S. Virgin Islands, two local governments that are prepared to lead the U.S. into the I-gaming world, would be cut out of the picture

As outlined in the text of the bill, the digital commerce jurisdiction bill gives "responsibility and authority to regulate digital commerce transactions" solely to the federal government. Sponsored by Rep Cliff Stearns, R-Fla., the bill also states, "No state or political subdivision thereof may enact or enforce any law, rule, regulation, standard, or other provision having the force or effect of law that regulates, or has the effect of regulating, digital commercial transactions."

By introducing this measure, Stearns primarily hoped to make the taxation of Internet transactions a federal issue. "It is important to inject jurisdictional certainly with respect to commercial transactions in digital goods and services," Stearns said in a press statement. "Having 50-plus separate, and at times incongruent, regulations governing interstate commercial transactions poses a substantial burden to interstate commerce in general, and to e-commerce specifically."

Stearns further explained, "The legislation would affect digital goods, such as music, computer programs and e-books; and digital services, such as securities transactions, online banking, and providing insurance policies."

According to the National Governors' Association, the effects of this bill go further. "This is one of the most extraordinary preemptions of state and local authority and existing revenues that I have seen in years," NGA spokesman Frank Schaffroth told CNET.

Schaffroth points out that the bill could cover a wide variety of services, including Internet gambling. Taking state control from states would then nullify Nevada's and the U.S. Virgin Islands' efforts to regulate Internet gambling. By the same token, state efforts to prohibit I-gaming would also be ineffective.

Nevada gaming attorney Anthony Cabot expressed amazement at the breadth of the bill. "I can't imagine this bill gaining much support," he said.

"The federal government doesn't give a damn about the Internet," Schaffroth told IGN. Instead, Schaffroth said that H.R. 2421 is really the result of a battle for supremacy over the Internet between the House's Commerce and Judiciary committees. Battle between the two powerful committees, in fact, has frequently aided the downfall of Internet gambling prohibition bills.

And while the NGA has nearly as many positions on the subject of Internet gambling as it has members, Schaffroth says the one thing the group wants to protect is Nevada's right to regulate the activity.

Click here to read H.R. 2421, the "Jurisdictional Certainty Over Digital Commerce Act."