The Federalism Project

American Enterprise Institute

The Federalism Project
Electronic Commerce

Statement of Purpose

The Internet strains traditional notions of territorial jurisdiction.  The question of who can regulate what and whom in cyberspace has become a matter of intense academic and political controversy.

Cyberspace, it is often said, is a “world without borders.”  On the heels of that pronouncement typically comes the call for centralized (national and international) regulation, lest the New Economy descend into anarchy.  Centralized intervention, however, sounds like a lousy idea.  A Cyber-UN with teeth is the last thing we need. Equally unappealing is the notion of letting each local, state, or national government impose its own rules on Internet service providers across the globe. Such a system would effectively allow the most restrictive jurisdiction to determine the rules for the rest of us.

The Federalism Project is exploring institutional arrangements and legal rules for decentralized regulation without permitting local jurisdictions to export their rules to Internet providers and customers beyond their borders.

Greve on Internet sales taxation

Should online purchases be taxed based on the buyer's location or the seller's? In Sell Globally, Tax Locally, Michael S. Greve offers a provocative new approach to Internet sales taxation. Drawing upon his extensive background in federalism issues, Greve argues that an origin-based tax system would break the "tax cartel" and replace it with competition--giving states a motive to lower their sales taxes as a means of enticing companies to choose their state as a base of operations. More.

Greve on the Basics for E-Taxes: Efficiency, Equity, Federalism

In August of 2001, Michael Greve testified before the Senate Committee on Finance on the question of Internet sales taxation. His recommendation: all interstate sales (direct, catalogue, or Internet) should be subject to sales taxation at their point of origin (the seller’s home state) rather than on the basis of their destination (the customer’s home state). Any alternative form of joint state-federal taxation would eventually transform the states from autonomous actors into "supplicants and administrators of federal largesse." That result, he notes, "cannot be in anyone’s interest."

  • For a link to his testimony, click here

  • Elaboration in Federalist Outlook #8: "E Taxes: Between Cartel and Competition."

  • September 2003 AEI panel discussion: "The New World of E-Commerce Taxation," featuring Kevin Hassett, David Shaviro, Peter Merrill, and Michael Greve (video available).

Internet Privacy Roundtable

In January 2001, The Federalism Project sponsored a Roundtable on Internet Privacy Regulation.  Participants considered George Mason Law Professors Bruce Kobayashi and Larry Ribstein’s recent paper, "A State Recipe for Cookies:  State Regulation of Consumer Marketing Information."

Click here for coverage from Wired News 

Professors Kobayashi and Ribstein argue that on-line privacy protection should be a matter of state law and contractual choice, not uniform national regulation. Businesses and consumers should be able, by contract, to sort themselves into state privacy regimes of their liking.  A decentralized system facilitates diversity, experimentation, and competition among regulatory approaches.  The result, the authors argue, is beneficial to both buyers and sellers of information.  

A transcript of this discussion is available here.  

Commentary and Publications