Part 1: IT RegulationPart 2: Factors Affecting IT ImplementationPart 3: Evaluating IT Implementation

February 21, 2012

Taxation issues 2

Internet Tax Freedom Act, 1998 Moratorium on taxes on Internet access, not sales tax.

National Bellas Hess, Inc v. Department of Revenue of Illinois, 1967Case deals with mail orderCase established that a "seller whose only connection

with customers in the State is by common carrier or the United States mail" lacked the requisite minimum contacts with the State

Quill Corporation v. North Dakota (1992) Case ratified the Bellas Hess case principles to apply for

Internet purchase No tax on internet purchase of goods

E.g If you live in New York city, and purchase wine from New Jersey over internet, you will not pay tax; however, you will pay tax if you buy wine in person from New Jersey

Taxation issues 3

The “Entity Isolation” IssueIf an Internet firm has no presence in a state, it

is exempt from state taxes. “Entity isolation” refers to separation of a firm

with a physical stores in a state, but with separate Internet operations [e.g. Sears, Walmart]. Such firms have argued they are exempt from Internet taxation because their Internet sales operations are separate entities, not connected to physical store.

NexusNexus is the primary issue. Store must have

nexus in state to be subject to state tax. States cannot regulate interstate commerce and cannot require out-of-state vendors to collect and remit sales tax.

Contrast: European Union does not exempt internet trade from taxation

Taxation Issues 4

Is Internet a tool of sales tax avoidance?Hotel and reservation agencies are not paying tax on the

markup for online bookings (e.g. Expedia, etc.). They purchase bulk reservations at reduced rates and resell at higher rates. Local governments lose taxes due to this. Many local governments (Dade and Broward included) are suing online brokers for lost sales taxes.

Amazon.com filed suit against North Carolina against a demand for purchase transaction data, including names and addresses of customers, on the basis the demands violate privacy and first amendment rights of customers. 2002 decision ruled that First Amendment protects “an

individual’s fundamental right to purchase books anonymously, free from governmental interference.” 2007 federal case came to the same conclusion.

Video Privacy Protection Act – illegal for anyone selling movies to release customer information to anyone.

Taxation IssuesStreamlined Sales Tax Project

Designed to create a methodology for collecting sales tax due states on out of state sales

Main problems: Too many jurisdictions – 7,500 or so including local

Differing tax rates, tax base and exemptions Sourcing rules – how do you allocate to different

states? No standardization, even within states

Agreement requires a certain amount of standardization and simplification for participants

Most states have passed legislation, but process is still stalled Will still require Congressional action Florida passed enabling legislation but backed away

from taking the required steps to become member state

Taxation Issues

Streamlined Sales Tax Project (continued)Adoption not difficult for big companiesSmall companies would likely have to use a

“Certified Service Provider” utilizing a “Certified Automated System” Even with simplification, collecting sales tax from

so many jurisdictions could be overwhelming

Big Issue – not taxing Internet sales represents giving a competitive advantage to Internet companies over brick and mortar companies.

Regulatory issues: Domain names Domain names are alphabetical names given to IP addresses

Common extensions: .edu, .org, .com, .net, etc. Country extensions identify countries: .tw = Taiwan

Role of Internet Corporation for Assigned Names and Numbers (ICANN) ICANN is a non-profit based in USA It is under agreement with Department of Commerce to provide the

domain names [the Domain Name System, DNS] ICANN has retained many aspects of DNS in international context,

but there is increased pressure on ICANN from world agencies to relinquish the control to an international body (e.g. International Telecommunications Union)

ICANN resisted such efforts based on the argument that it is the predecessor, and ceding control to countries with stifling internet regulations (e.g. China) will hinder internet growth

World Summit on Information Society revealed fissures in the international governance of Domain names It set up the Internet Governance Forum (IGF) as a new forum

for multi-stakeholder policy dialogue on Internet Governance Still, ICANN has a dominating role within IGF See: http://www.itu.int/wsis/index.html

Regulatory issues: Pornography 8

Pornography is perhaps the largest business on the internetRepresents at least 8% of all emails, and 12% of all

websites.Three major legal statuses pertaining to

pornographyObscene materials – defined as violating community

standards and can be prohibited and censoredChild pornography – clearly illegal – pertains to sexual

acts or images of minorsObscene for minors – adults only have the rights to view

Filtering Software and Regulation Issues

Regulatory issues: Pornography Pornography and free speech

Free speech advocates claim pornography laws may violate free speech rights guaranteed by First Amendment of constitution Child pornography excluded from First Amendment protection However, Child Pornography Prevention Act of 1996 was struck down in

2002 by the U.S. Supreme Court [Ashcroft v. Free Speech Coalition, 535 U.S. 234] as being overtly broad

Protection of Children from Sexual Predators Act of 1998 Penalties for

Use of interstate facilities (e.g. computer transmission) to transmit information about a minor

Transfer of obscene materials to minors Zero tolerance for possession of child pornography

Adam Walsh Child Protection and Safety Act, 2006 Established the national database of sex offenders and offenders

against children Public access to sex offender information through the Internet Access to national crime information databases by the National

Center for Missing and Exploited Children Cases against the law are on-going in some states

Regulatory issues: E-GamblingInternet gambling is a huge business - $15 -

$20 Billion industry in 2008E-gambling is a worldwide industry, making

regulation difficult if not impossibleFive policy options are considered worldwide:

Make online gambling illegal with jail time associated.

Make online gambling illegal with seizure of assets.Curtail gambling by forbidding financial institutions

from honoring credit card transactions associated with gambling.

Legalize and tax online gambling with associated regulation.

Legalize and establish state-run gambling concessions for revenue purposes.

Regulatory issues: E-GamblingConcerns with e-gambling

Unfair or illegal business practices of unregulated sites

Unfair or illegal player practicesGambling by prohibited groupsBridge to problem gambling habitDifficult to prohibit and not good policy to have

laws that cannot be enforced

Regulatory issues: Intellectual propertyIntellectual property theft is one of the most

important categories of computer crime Theft through hacking, reverse software engineering, or

simply stealing code Intellectual property may be placed in the public domain

but also may have restrictive legal status, such as a patents and copyrights

Purchase of intellectual property requires precise wording and contract documentation of ownership rights

“For Hire” projects – becomes property of the agencyThe Federal Acquisitions Regulation, Part 27 regulates

federal purchase of intellectual propertyFair Use Doctrine

Allows copying for the use of criticism, comment, reporting, teaching, scholarship, and research. Must not involve copying a substantial percentage of work and must not damage market value.

Regulatory issues: Open source Proprietary Software

Software for which source code is owned by the developer (e.g. Microsoft products)

Open Source [Free Libre Open source software (FLOSS)] Software for which source code is in the public domain (e.g. Linux) Follows GNU General Public Licence: Open Standards [

http://www.gnu.org/licenses/gpl.html] Software shared and distributed freely Software Licensed to allow use, modification and reproduction Software distributed on a non-discriminatory basis Subject to peer review and public consensus

Open source applications Gnome desktop; Linux; Apache server Open Document Format applications

OpenOffice.org, Google Docs and Spreadsheets, IBM Workplace, Lotus Symphony and Sun's StarOffice

mySQL databases See: Open Source Software Institute [

http://www.oss-institute.org/]

Regulatory issues: Open sourceAdvantages of Open Source for government

Availability of source code for modificationCommon interface standard (e.g. eXtensible Markup

Language, XML)Better for long term preservation of documents (e.g. for

historical archives) since proprietary software go out of dateDisadvantages of Open Source for government

Non availability of documentation, training, and supportSome legal issues concerning open source software

(although GNU has standardized legal basis)Yet, adaptation of Open Source growing

MA, TX, CA, MN in USAOutside USA: Brazil, European Union, India, Malaysia

Exercise: Try out one of the free open source software (e.g. Openoffice.org as an alternative to Microsoft products)

Chapter SummaryScope of government regulation underlies all

questions of taxation and regulation Regulation goes beyond government versus

businessMany strong advocates for regulation come

from the private sector, desiring stronger security and protection of intellectual property

The main political issues areTaxationInternational governance of domain namesRegulation of pornography and gamblingProtection of intellectual property rights

Part 2Factors Affecting IT Implementation

Factors that affect IT implementation Why Information Technology Projects Fail

Public sector IT failure is not rare Typical reasons for failure are:

1. Complexity – projects are too large and complex2. Commitment Failure – lack of commitment to the project

from stakeholders3. Planning Failure – creation of poor business plans4. Vision Failure – underling assumptions are unrealistic5. Inappropriate Methods – agency methods may not match

IT – bleeding edge tech not always the best answer6. Short Time Horizon – unrealistic schedules7. Turbulent Environments- rapid rates of change can

beget lack coordination and system failure – requires proactive, flexible leadership style

8. Failure to Support End Users – end users have no incentive to use the technology or are unable to use it

Factors that affect IT implementationProjects often late, over budget, do not

achieve functional objectives, or are cancelled. Happens in private sector, too, but public sector more concerned with accountability and less prone to risk-taking.Standish Group study – 80% IT projects late or

over budget, lacking functionality, or never delivered.

3 of 4 late with budget overruns of 200%2 of 3 ended without implementing originally

scheduled features or functions3 in 10 cancelled

Factors that affect IT implementationSuccess rates:

Retail 59%Financial sector 32%Manufacturing 27%Government 18%

Factors that affect IT implementation What conditions favor success of IT Projects?

Common conditions of management success are:1. Management Support – active involvement of top

management2. Stakeholder Motivation – typical resistance to change

must be overcome by convincing stakeholders of the benefits

3. Goal Clarity – project scope must be clear4. Support for Organization Culture – the more change, the

more resistance5. Participatory Implementation – employee resistance factor6. User Friendliness – a way to increase stakeholder

motivation7. Adequate Budget and Time Horizon8. Phased Implementation – extension of goal clarity –

milestones as clear, measurable targets; testing, piloting9. Process and Software Engineering – dealing with legacy

systems10.Project Management – professional is better

Factors that affect IT implementation

What conditions favor success of IT Projects?Training is an important component for success of

IT projects There is a direct correlation between the amount of

attention and resources devoted to training and the success of implementing IT

The main aim of training is to make staff feel competent using new IT

Training requires time that is almost always taken from other tasks – this requires the support of management and contingency for handling work displaced

Timing is important in training – too early or too late can affect success

Development of a supportive culture for training and development is essential

Factors that affect IT implementationWhat conditions favor success of IT Projects?

There are external factors of success too. In this, The agency’s environment can be a major determinant of IT success. These factors include: Partnerships with Vendors and Other Strategic Partners

Partnering can often tap into knowledge bases unavailable inhouse. Partnering can be short term or long term.

Creating Independence from Vendors Project implementation is more likely to be successful if the

agency is not dependent on the vendor. Agencies should avoid allowing contracts to deplete the in-

house staff to a point where in-house expertise to evaluate contracts is either limited or even eliminated

Accountability to the Political Layer IT projects will be more successful if long-term funding is

secure and the benefits made clear to the political funders

SummaryEight factors for failure of projectsTen factors for success of projects

Training is an important aspect for successExternal environmental factors could affect the

success of projects

Part 3Evaluating IT Implementation

Evaluating IT implementationTo evaluate an IT project, we typically

undertake:Cost Benefit AnalysisReturn on Investment

Benefit and Cost AnalysisIdentify the benefits of the IT Project

Identify criteria for evaluating benefits Identify Tangible benefits: Identify the potential

material benefits (e.g. labor costs saved, materials saved, time saved) due to IT project

Identify Intangible benefits: Identify the potential non-measurable benefits (e.g. long term value, simplification of procedures, reputation) due to IT project

Evaluating IT implementation

Benefit and Cost Analysis [continued]Identify the Costs of the IT Project

Identify all tangible costs [labor, material, hardware and software, training]

Identify depreciation of facilities, equipment, and software

Identify any lock-in effects to vendor (i.e. alternatives if the vendor fails)

Life Cycle Costing is an important aspect of cost evaluation. This includes taking into account ownership costs such as operations, maintenance, and disposition.

Evaluating IT implementation

Cost measurement – total cost versus marginal costs Marginal costs means consideration of only

those costs in excess of existing costs. For example, if your total IT staff is 10 people

at $60,000 each, total cost is $600,000. If the new project requires only 1 additional IT

staff, your total cost will be $660,000 but marginal cost related to staffing is only $60,000, the cost of the 1 additional staff member required.

Evaluating IT implementationReturn on Investment (ROI)

ROI typically focuses on tangible benefits. ROI calculation focuses on quantitative indicators.

If we invest $1, what return would we get? If we get $1 back, no benefits or costs If we get less than $1 back, there are more costs

than benefits (hence project may not be carried out) If we get more than $1 back, there are more

benefits than costs (hence the project is likely to succeed)

However, calculating the above is often difficult in the public sector due to accounting for intangibles.

In the public sector, intangible benefits of IT can be as important as the tangible ones. These would include such items as client and citizen

awareness, participation and satisfaction, upholding democratic accountability and transparency, policy consistency, more effective targeting of services, staff morale and improving citizen choices.

SummaryEvaluating IT projects

Benefit and Cost AnalysisReturn on Investment