Copyright 1993, Middlesex News, Framingham, Mass. 
Middlesex News, Page 1, June 5, 1993. 

By Adam Gaffin 
NEWS STAFF WRITER 
     The state Department of Revenue may be attempting to apply an 
obscure section of the state tax code to bulletin-board systems and other 
providers of computer information services. 
     If successful, the effort to force such services to collect sales 
tax on fees charged to users for their modem time could reap significant 
new revenues for the state as the online information field expands. 
     But Brian Miller says it could wipe out his business and put a 
damper on one of the state's few growth industries. 
     Miller is co-owner of Channel 1, a Cambridge-based bulletin-board 
system that charges users for access to online conferences, databases and 
collections of computer programs. It is unrelated to the satellite school 
television service of the same name. 
     Recently, auditors from the revenue department spent two weeks going 
over Channel 1's books, under a section of the state tax code related to 
the provision of telecommunications services. 
     Companies that provide telecommunications services are supposed to 
collect a 5-percent tax from ``retail'' users, such as individuals. Until 
the Channel 1 audit, officials at computer information providers in 
Massachusetts thought the law applied only to telephone companies or 
facilities such as hotels that provide phone service to customers. Miller 
points to one section of the state tax code that says telephone access to 
computer databases is ``generally not taxable'' and to another section 
that states that ``information'' is not taxable. 
     A spokeswoman for the Department of Revenue declined comment, saying 
privacy concerns mean the department cannot talk about either individual 
actions or enforcement of laws against specific industries. 
     The tax was passed in 1990 as part of an overall effort to tax 
services in the state. Legislators quickly repealed taxes on 
professionals such as lawyers and accountants, but kept the 
telecommunications levy. 
     The telecommunications tax law states that the cost of 
``information'' is exempt only if providers give users bills that 
explicitly show the cost of information and the cost of its 
``transmission,'' which is taxable. 
     Like other online services, Channel 1 does not break down its bills 
this way. But Miller said he does not actually provide telecommunications 
services, anyway. All of his users communicate with the system by dialing 
up its number through their existing phone service. The company now has 
185 incoming phone lines to handle the 3,000 modem calls that come in 
every day from around the country. 
     Miller says that, according to his accountant, the audit could mean 
a tax bill and penalties of $100,000 dating back to 1990 - enough to 
destroy ``seven years of blood, sweat and tears'' by himself and his 
wife, Tess Heder. They built the system up from one phone line connected 
to a personal computer. 
     Channel 1 is one of the country's largest bulletin-board systems. 
But it is dwarfed by such companies as Prodigy and CompuServe. 
     ``It's a real boost to small business in Massachusetts,'' Miller 
said sarcastically. 
     The law specifically exempts broadcasters and cable-television 
companies. However, in coming years, experts foresee a growing industry 
supplying ``information'' such as movies on demand through computer and 
telephone networks. AT&T, for example, recently announced plans for a 
movies-on-demand service. Meanwhile, IBM and MCI have formed a joint 
venture to develop a developing computer networks that could provide 
similar services. 
     Yet at the same time, cable companies are beginning to move into 
fields once the domain of telephone companies and computer networks. 
Jerrold/General Instrument, which makes cable TV ``converter'' boxes, is 
now marketing a unit that will let viewers connect to computer services 
such as Prodigy. 
     The Channel 1 action worries Barry Shein, president of Software Tool 
and Die of Brookline, which provides access for a fee to the Internet 
network. 
     ``Can we retroactively bill customers for the last three years' 
service?'' Shein, who's already met with his accountant on the issue, 
asked. ``Will the DOR be willing to do that?'' 
     
