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Declan McCullagh

It’s been five years since Internet users had to worry about paying an extra $1 or so annual fee–akin to a tax–for each .com, .net or .org domain name they own.

Now the international organization that oversees domain names has rediscovered the idea. The Internet Corporation for Assigned Names and Numbers (ICANN) believes it needs a fatter budget funded by domain name fees–and plans to start charging domain name owners in a process that will begin next year.

Starting sometime in 2005, owners of .net domain names will have to pay a 75-cent additional annual fee to ICANN. There’s nothing stopping ICANN from upping the levy in the future, and its executives have indicated that other top-level domains will be targeted as well.

Before deciding to play tax collector, though, ICANN should consider what happened back in 1999 that caused it to concoct and then abandon the idea.

Worried about running out of money, ICANN’s board had proposed a $1 annual domain name fee that it insisted was justified by “the consensus of various Internet communities.”

ICANN’s position may be less defensible than it was last time around.

It wasn’t. Everyone from presidential perennial Ralph Nader to Republican insider Grover Norquist castigated ICANN for levying an “illegal tax” on domain name holders. A letter from Nader to ICANN Chair Esther Dyson (who now works for CNET, publisher of wondered whether ICANN had the authority and where all the money would go.

Norquist, a close ally of President Bush who runs Americans for Tax Reform was more direct. He testified before Congress that ICANN wanted to levy “the world’s first global tax” on unsuspecting Internet users.

“This is an arbitrary cost imposed on a business transaction that is used to fund regulators, administrators and bureaucrats mostly based in Europe–that sure sounds like a tax,” Norquist said at the time. “The idea that taxpayer dollars should be spent to host lavish receptions and secret board meetings in five-star hotels in Singapore, Berlin and Santiago for nine unelected and unaccountable ICANN board members is a travesty.”

Rep. Tom Bliley, R-Va., chairman of the House Commerce Committee, was just as critical. Bliley said ICANN’s proposals “likely exceed the authority” of an organization charged with ensuring the stability of the Internet.

Bliley said he was “greatly concerned” about the $1 per domain name fee and “the funding of a rather large $5.9 million ICANN budget through such a fee.” The next month, former president Bill Clinton’s Commerce Department wrote a letter to ICANN advising it against the $1 charge. Faced with that kind of united opposition, ICANN backed down.

Bliley has since retired, but his successors in the Republican Party are at least as skeptical of higher taxes as they were when Clinton inhabited the Oval Office. Consider two examples from this month: Bush flatly rejected the idea of tax hikes to pay the cost of fixing Social Security and signed a law restricting municipalities from levying taxes on Internet access.

If official Washington starts to pay attention–and some conservative groups already are raising an alarm–ICANN’s position may be less defensible than it was last time around. Between 2000 and 2003, ICANN’s budget totaled between $5 million and $7 million.

But for the fiscal year ending in June 2004, the budget zoomed upwards to $8.3 million. Then, for the current 2005 fiscal year, it nearly doubled to $15.8 million. ICANN’s current 75-cent levy would add millions more to that figure, and that’s not even counting extending the fee to .com, .org and newer suffixes.

Some practical advice
Any organization that oversees domain names must find a way to pay its bills, whether it’s ICANN or some inchoate process involving the United Nations’ International Telecommunications Union. Domain name holders probably will end up footing a large portion of that budget.

But ICANN’s current process could be improved:

First, ICANN could revise how it lets the public know about new fees. A prominent posting on’s home page would work. The 75-cent fee announcement was buried in a dense chunk of legalese on page 12 of a document titled a “draft RFP”–ICANN didn’t exactly draft a press release. Similarly, how many .com, .net and .org domain name owners know about ICANN’s 25-cent annual domain fee that snuck in earlier this year? Adding the 75-cent levy brings ICANN’s take to an even $1.

Second, how about considering more checks and balances? Neither VeriSign, a large registry, nor GoDaddy, a sizable registrar, objected to the 75-cent fee. Susan Crawford, a professor at Cardozo School of Law, correctly noted that “ICANN has enormous power” that is virtually unchecked when levying these sorts of fees.

Third, money that domain name holders are forced to cough up might be earmarked to pay for ICANN’s core functions. For example, ICANN wants to funnel one-third of the 75-cent fee to “developing country stakeholders.”

In practice, that means fees collected from .net owners are paying midlevel government bureaucrats in Africa and South America to show up at ICANN meetings held in posh retreats around the globe. No thanks. For that matter, how about line-by-line disclosure of ICANN’s own travel budget: Does its president really need a $115,547 annual expense account?

However it works out, ICANN has a clear incentive to adopt common-sense guidelines. Otherwise it risks reliving the backlash it suffered in 1999.