The Best States for E-Commerce

The Best States for E-Commerce

Robert D. Atkinson and Thomas G. Wilhelm

Progressive Policy InstituteTechnology & New Economy Project

March 2002

“One person with a belief is a social power equal to ninety-nine who have only interests.”—John Stuart Mill

The mission of the Progressive Policy Institute is to define and promote a new progres-sive politics for America in the 21st century. Through its research, policies, and per-spectives, the Institute is fashioning a new governing philosophy and an agenda forpublic innovation geared to the Information Age.

This mission arises from the belief that America is ill-served by an obsolete left-rightdebate that is out of step with the powerful forces re-shaping our society and economy.The Institute advocates a philosophy that adapts the progressive tradition in Ameri-can politics to the realities of the Information Age and points to a “third way” beyondthe liberal impulse to defend the bureaucratic status quo and the conservative bid tosimply dismantle government. The Institute envisions government as society’s ser-vant, not its master—as a catalyst for a broader civic enterprise controlled by and re-sponsive to the needs of citizens and the communities where they live and work.

The Institute’s work rests on three ideals: equal opportunity, mutual responsibility,and self-governing citizens and communities. Building on these cornerstone principles,our work advances five key strategies to equip Americans to confront the challengesof the Information Age:

Restoring the American Dream by accelerating economic growth, expandingopportunity, and enhancing security.

Reconstructing our social order by strengthening families, attacking crime, andempowering the urban poor.

Renewing our democracy by challenging the special interests and returning power tocitizens and local institutions.

Defending our common civic ground by affirming the spirit of tolerance and the sharedprinciples that unite us as Americans.

Confronting global disorder by building enduring new international structures ofeconomic and political freedom.

The Progressive Policy Institute is a project of the Progressive Foundation. For furtherinformation about the Institute or to order publications, please call or write:

600 Pennsylvania Avenue, SE, Washington, DC 20002E-mail: [email protected] × WWW: http://www.ppionline.org/

Phone (202) 547-0001 × Fax (202) 544-5014

About the Progressive Policy Institute


Contents

Introduction and Overview 3

Overall Scores 8

Indicators 13

Appendix A: Methodology 26

Endnotes 29

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State governments can make a bigdifference in how easy it is for their citizens tofully take advantage of the Internet to buythings, engage in legally binding transactions,and interact with government. This reportmeasures how state laws, regulations, andadministrative actions support or hinderInternet use by Americans. We hope ourfindings encourage states to examine carefullytheir laws, particularly those designed toprotect incumbent bricks-and-mortarcompanies against e-commerce competitors,with an eye toward giving their citizens morechoices and options as Internet users.

Like past major waves of technologicalinnovation, today’s information technologyrevolution is changing the landscape ofvirtually all economic activities. A driving forcefor productivity and wage growth in the NewEconomy will be the pervasive use of digitaltechnologies to increase efficiency andproductivity, particularly in the heretofore low-technology service sector. This “digitization”in the 21st century promises to bring the kindsof economic benefits that mechanizationbrought in the 20th. Fostering the growth ofthe digital economy must be one of thefoundations of New Economy policy.

While in many areas, national and eveninternational policy will affect the growth of theInternet, state government policies can have asignificant positive or negative impact on thegrowth of the Internet in their states. Throughtheir regulations on individuals, industrysectors, or professions, states regulate the ease,and in some cases, the ability of Internet usersto buy certain goods and services online. Statescontrol tax rates on Internet access. Throughtheir own actions to digitize state government,they control how much and how easy it is forInternet users to conduct online transactionswith their government. And finally, they

Introduction and Overview

determine if state residents can engage inlegally binding online transactions by whetherthe state recognizes the legal validity of digitalsignatures. As a result of this widespreadinfluence of states on Internet use, the ability,ease, and cost of being online and conductingonline transactions differs significantlydepending on where you live. Some states levyhigh taxes on Internet access, some prohibit ormake it difficult for consumers to buy particulargoods and services online, and some haveprovided limited opportunities for citizens tointeract with government online. In contrast,other states go out of their way to be e-consumerfriendly.

Some may argue that with the so-called dot-com bust the Internet revolution was a flash inthe pan and that states don’t need to worryabout crafting policies that promote Internetuse. We could not disagree more; theinformation technology and Internet revolutionis only getting started. The online marketcontinues to grow at a robust pace, with moreand more of it done by traditional bricks-and-mortar companies. The Census Bureau reportsthat e-commerce retail sales were 13 percenthigher in the fourth quarter of 2001 than theprior year, with e-commerce retail sales growing2.5 times faster than all retail sales. E-commercesales are expected to reach $3.2 trillion by 2004.Advancing the Internet revolution is more thanever a key public policy goal.

As a result, in order to assess what are theeasiest and most difficult states for Internetusers, this report examines the 50 states and theDistrict of Columbia, identifying the extent towhich they impose industry-specificprotectionist laws, tax Internet access, enableInternet users to transact electronically withstate government, and recognize the legalvalidity of digital signatures. Each categorydirectly affects the environment Internet users

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encounter in their states, and each category issomething that is under direct control of stategovernment. Industry-specific protectionistlaws and regulations limit selection andincrease prices for online consumers. Forexample, we looked at whether consumerscould buy wine, cars, insurance, contact lenses,and number of other goods and services online.The more they could, the higher the state’sscore. Taxes on Internet access make reachingthe Web more expensive, and may, by raisingcost of access, even keep a modest number oflower income individuals from getting online.E-government makes it easier for citizens tointeract with government and obtaingovernment services. States where the stategovernment enables citizens to do a significantshare of their governmental transactions onlinegive people more online choices than states thatdo less. Digital signature laws make it possiblefor Internet users to “sign” documentselectronically, expanding the range oftransactions they can engage in. By combiningthese factors, we calculated a score for each statebased on its friendliness toward Internet users.

Based on all these factors, Oregon emergesas the state most friendly to Internet users. Thenext three states are Utah, Indiana, andLouisiana—all scoring above 14. As thenation’s best state for Internet users, Oregondoes not require consumers to pay access taxeson Internet usage. Oregonian Internet usershave the opportunity to purchase wine,mortgages, and prescription drugs with fewrestrictions. And the state is above average inproviding opportunities for its residents tointeract with their government online. Thisreport does not intend to imply that Oregon, orany other high-scoring state, does not haveroom for improvement, but does suggest thatrelative to other states, consumers in thesestates have more choices, and in many cases paylower costs to engage in e-commerce.

South Carolina and New Mexico score the

lowest of the 50 states. For example, SouthCarolina prohibits online wine sales. State lawsthere prohibit direct-to-customer interstatewine shipments via common carriers. The statealso restricts online contact lens sales and hasno laws giving citizens tools to address the issueof unsolicited commercial email.

While individual states differ in theirInternet friendliness, so do regions of the nation.The Pacific region (Alaska, Hawaii,Washington, Oregon, and California) and WestSouth Central states (Texas, Oklahoma,Arkansas, and Lousiana) are most friendly toe-consumers. The lowest ranking region is theSouth Atlantic (West Virginia, Maryland,District of Columbia, Virginia, North Carolina,South Carolina, Georgia, and Florida).

It should be understood that this ratingsystem is very different than that used in theProgressive Policy Institute’s (PPI) State NewEconomy Index. That report assessed how thestructure of state economies was in line withthe realities of the New Economy. This reportassesses how state policies affect the choices andopportunities Internet users in states have.Perhaps this is why there are only weak overallpatterns to the scores. For example, somewhatsurprisingly, states that score higher on PPI’sState New Economy Index receive only a slightlyhigher score than states that have been slowerto make the transition to the New Economy.While there are some states that scored near thetop on the State New Economy Index and on thisreport card, some do not. For example,California, New York, Texas, and Arizona, scorerelatively low for Internet friendliness. Theseare places that may be friendly to companiesdeveloping advanced technologies, but are notvery friendly to the consumers going online.In contrast, some states like Iowa, Louisiana,and Indiana scored near the bottom on theIndex, but have avoided passing many laws thatmake it difficult for their citizens to takeadvantage of these technologies.

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How States Can Improve TheirScores

All states, including those ranking high,have it in their power to become more Internetfriendly immediately. Because states hold manyof the tax and regulatory powers overcommerce (both e-commerce and regularcommerce), they are well positioned to make iteasier and cheaper for their citizens to engagein e-commerce and e-government. While statesreceiving low scores have much work to do,even the highest-ranking state can take stepsto become more Internet friendly. There are fiveareas in which states can take action:

� Avoid Protectionist Regulation

Regulations designed to protect middlemenartificially inflate prices for consumers and limittheir choices; and these regulations are not justminor annoyances or restrictions that raiseprices for consumers. They can mean thedifference between life and death for e-commerce competitors. For example, wine.comrecently went out of business (selling its nameand assets to e-vineyard). There may belegitimate business reasons for wine.com’sfailure, but the fact that state laws made it off-limits to over one-third of American consumers,no doubt contributed to its failure. Likewise,the restrictive nature of automobile franchisinglaws has contributed to the failure of someInternet auto sales companies. Of course thisis exactly what the incumbent bricks-and-mortar companies want when they lobby forpassage of these laws—relief from competition.

There is a reason why incumbentmiddlemen have been so successful in gettingstates to protect them. Siding with theinnovators against the status quo is oftendifficult politically, since the entrenchedopponents often have more political power thannew entrants to the market. For these reasons,policymakers need to act in the public interestand not give in to special interest pleadings andpressures. States should repeal laws

prohibiting, limiting, or hindering online salesby producers or e-commerce intermediaries inautos, wine, mortgages, contact lenses,prescription drugs, and any other industry withrestrictive laws. As a class of regulation,protectionist measures should be eliminated—competition is the driving force for innovationand government should not act as a constraint.This is not to say that states should abolishlegitimate consumer protection regulations.There is a public interest in industry regulation.For example, it is appropriate for state laws torequire that online wine sellers collect and remitsales taxes and use shippers that check foridentification. Likewise, it is appropriate thatprescriptions are required before dispensingdrugs or other medical devices. But theseregulations can and should be designed in away that protects consumers, not the bricks-and-mortar providers that e-commercecompanies are competing with. Such measuresshould not be used to unfairly limit consumerchoice.

� Promote Uniformity in LicensingRequirements Across State Borders

It’s time to recognize that the old way ofregulating commerce, which vested authorityin states to design their own state-specificregulations, no longer works. When commerceconsisted of consumers engaging in face-to-facetransactions with sellers in the same politicaljurisdiction, it made sense for states to craft lawsgoverning commerce. However, in an erawhere it’s increasingly likely that the buyer andseller are in different states and interactingelectronically, the old framework is a barrier tothe growth of e-commerce. Licensingrequirements for car dealers, insurance agents,mortgage brokers, doctors, pharmacies, andcontact lens providers are increasingly beingused by middlemen to protect themselves fromcompetition. Even when the laws do notdiscriminate against online providers, thesimple fact that a company choosing to sell to aconsumer in another state must be licensed inthat state is an added barrier to e-commerce

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companies seeking to sell to all Americans. Forexample, mortgage companies seeking to dobusiness with consumers in all states arerequired to file for licenses and post bonds witheach state individually—there is no reciprocityamong the states that require licensure.1 Thispatchwork of often conflicting state laws andmulti-state licensing schemes creates barriersto entry for new businesses and increases costsfor established businesses—both of whichrestrain competition, limit consumer choice,and increase the cost of products and servicesto consumers.

While we do not believe, as libertarians do,that professional and industry licensingrequirements should be abolished, there is anurgent need for uniformity or reciprocity. Thereare several models that could be considered.For example, the National Association ofInsurance Commissioners’ Producer LicensingModel Act (PLMA) provides for cross-borderreciprocity between state insurancecommissions and is a first step towarduniformity. In areas where states do not wantor cannot achieve uniformity, they shouldconsider reciprocity arrangements wherebycompanies or professionals licensed in one statecan do business or provide services in anotherstate. For example, given that all aspects ofmedical education, training, and certification inthe United States are national in scope, andlicensing requirements vary only slightlybetween states, reciprocity could be allowedwithout risks of inadequate care. A similararrangement could be done for onlinepharmacies. The National Association ofBoards of Pharmacy (NABP) has created theVerified Internet Pharmacy Practice Site (VIPPS)seal program to alert customers that thepharmacy from which they are purchasing hasbeen certified by the NABP as complying withstandardized rules regarding patient rights toprivacy, authentication, and security ofprescription orders, adherence to a recognizedquality assurance policy, and provision ofmeaningful consultation between patients andpharmacists.2 States could sign a multi-statecompact agreeing that online pharmacies that

are approved for the VIPPS seal areautomatically licensed in all 50 states.

However, if states demonstrate that they areunwilling or unable to rationalize expeditiouslytheir business and professional regulatoryframeworks, Congress should consider passinglegislation requiring uniform state laws. Thiswould follow the models Congress adoptedwhen it passed the national legislation layingout the legal framework governing theacceptance of digital signatures, or the FinancialServices Modernization Act. The Act givesstates four years to develop a uniform licensingrequirement or reciprocity for insurance, and ifthey don’t act, a federal system of insuranceregulation will be imposed.

In other cases, Congress could create anational license that companies selling productsor services nationally (e.g., banking, cars) couldapply for, while companies selling in just onestate could continue to be governed by a singlestate’s law. In some cases, the federalgovernment can act unilaterally. For example,with regard to contact lenses, the Federal TradeCommission should do what it did in 1979 foreyeglasses: simply say that prescriptions forcontact lenses must be given to consumers, whocan then choose where they want theprescriptions filled.

�Use Information Technologies toCreate Digital Government

All states, including those at the leadingedge of the digital government transition, havemuch more work to do to use informationtechnology to transform bureaucraticgovernment into customer-centeredgovernment. As we have proposed in a recentreport on digital government, states need todesign Websites to reflect citizen needs, notinternal bureaucratic imperatives; empower e-government advocates (e.g., Chief InformationOfficers or CIOs) to cut through bureaucraticbarriers; and invest adequate funds up-front fore-government, particularly for cross-agency(and cross-governmental) innovative,customer-focused e-government projects.3

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�Adopt the Uniform ElectronicTransactions Act to Enable the Use ofDigital Signatures

Congress passed the “E-Sign” bill in 2000,which among other things, threatened topreempt state laws unless they all passed theUniform Electronic Transactions Act (UETA),which was the product of several years of workby the National Conference of Commissionerson Uniform State Laws. All states need to passUETA, which gives full legal recognition todigital signatures.

�Eliminate Taxes on Internet Access

Access taxes are nuisance taxes that raiselittle revenue, but do serve to make it moreexpensive for people to get online. This is adisincentive for some people, particularly low-income people, to get Internet access. It is inthe public interest to try to get as manyAmericans using the Internet as possible.Higher taxes on Internet access will only slowoverall adoption rates.

Methodology

Scores for the states were calculated asfollows: The raw numerical score for each factorwas first either calculated (e.g., Internet accesstax rate) or assigned (e.g., laws). Assignedscores were based on our subjective numericalvaluations of state laws in each category (seeMethodology Appendix). Each state receivedbetween zero (for consumer unfriendly laws)and 10 points (for consumer friendly laws) ineach category.

The final score is based on the sum of thestandard deviations for each category. Themean score for each state on each indicator wascalculated, as was each score’s deviation fromthe mean. Standard deviations account not justfor the rank, but for the relative differencebetween scores, giving more weight, forexample, to a state that scored significantlyabove others, as compared to one that is onlymarginally above others. The overall scores arethen calculated by adding the scores in eachindicator. So that no score was negative, tenpoints was added to each score.

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Overall Scores

Overall Scores by Rank

Oregon 16.6 Utah 14.7 Indiana 14.3 Louisiana 14.2 Iowa 13.9 Alaska 13.4 Hawaii 12.8 Idaho 12.8 Michigan 12.6 Colorado 12.4 Kentucky 12.0 Kansas 11.8 Maryland 11.7 Wyoming 11.6 Washington 11.4 Pennsylvania 11.4 District of Columbia 11.3 Massachusetts 11.1 Oklahoma 11.1 Maine 10.9 Nevada 10.9 Mississippi 10.9 Connecticut 10.6 Minnesota 10.5 Missouri 10.5 Virginia 10.4

Arkansas 10.3 Rhode Island 9.8 West Virginia 9.6 New Jersey 9.6 Texas 9.4 Nebraska 9.4 Vermont 9.3 Montana 9.2 North Dakota 8.7 Wisconsin 8.5 Arizona 8.4 South Dakota 8.3 Florida 8.2 Georgia 8.0 Illinois 7.8 New Hampshire 7.8 Tennessee 7.3 New York 7.0 Delaware 6.9 Ohio 6.4 North Carolina 6.2 California 5.8 Alabama 5.4 New Mexico 3.7 South Carolina 3.1

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Overall Scores in Alphabetical Order

Alabama 5.4 Alaska 13.4 Arizona 8.4 Arkansas 10.3 California 5.8 Colorado 12.4 Connecticut 10.6 District of Columbia 11.3 Delaware 6.9 Florida 8.2 Georgia 8.0 Hawaii 12.8 Idaho 12.8 Illinois 7.8 Indiana 14.3 Iowa 13.9 Kansas 11.8 Kentucky 12.0 Louisiana 14.2 Maine 10.9 Maryland 11.7 Massachusetts 11.1 Michigan 12.6 Minnesota 10.5 Mississippi 10.9 Missouri 10.5

Montana 9.2 Nebraska 9.4 Nevada 10.9 New Hampshire 7.8 New Jersey 9.6 New Mexico 3.7 New York 7.0 North Carolina 6.2 North Dakota 8.7 Ohio 6.4 Oklahoma 11.1 Oregon 16.6 Pennsylvania 11.4 Rhode Island 9.8 South Carolina 3.1 South Dakota 8.3 Tennessee 7.3 Texas 9.4 Utah 14.7 Vermont 9.3 Virginia 10.4 Washington 11.4 West Virginia 9.6 Wisconsin 8.5 Wyoming 11.6

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Overall Scores by Subject

Alabama 5.4 0.0 7.0 0 0 10Alaska 13.4 5.6 7.0 7 5 8Arizona 8.4 4.0 10.0 2 0 8Arkansas 10.3 0.0 7.0 5 10 10California 5.8 5.5 7.0 0 0 3Colorado 12.4 5.5 7.0 5 10 10Connecticut 10.6 5.0 7.0 5 10 8DC 11.3 5.0 3.0 7 10 7Delaware 6.9 0.0 0.0 7 10 8Florida 8.2 6.5 7.0 2 10 3Georgia 8.0 0.0 3.0 5 7 8Hawaii 12.8 5.5 3.5 10 0 8Idaho 12.8 5.5 0.0 2 10 8Illinois 7.8 3.5 7.0 5 10 8Indiana 14.3 4.5 7.0 5 10 10Iowa 13.9 7.2 7.0 2 10 10Kansas 11.8 5.0 7.0 0 10 10Kentucky 12.0 5.0 7.0 7 10 8Louisiana 14.2 6.2 7.0 7 10 10Maine 10.9 8.5 0.0 2 10 10Maryland 11.7 6.5 0.0 7 10 10Massachusetts 11.1 5.0 10.0 7 10 5Michigan 12.6 5.0 7.0 7 10 8Minnesota 10.5 0.0 7.0 7 3 8Mississippi 10.9 0.0 7.0 0 10 8Missouri 10.5 5.0 7.0 7 0 10Montana 9.2 0.0 7.0 5 10 8Nebraska 9.4 6.3 0.0 0 10 10Nevada 10.9 5.0 7.0 6 0 10New Hampshire 7.8 6.2 10.0 5 10 8New Jersey 9.6 6.2 3.0 7 0 8New Mexico 3.7 0.0 0.0 7 3 3New York 7.0 5.0 7.0 2 10 5North Carolina 6.2 0.0 7.0 5 10 10North Dakota 8.7 0.0 7.0 10 10 10Ohio 6.4 7.5 7.0 2 0 7Oklahoma 11.1 5.0 7.0 5 10 10Oregon 16.6 5.4 7.0 10 10 10Pennsylvania 11.4 5.0 10.0 7 3 7Rhode Island 9.8 0.0 7.0 7 10 8South Carolina 3.1 0.0 7.0 7 0 3South Dakota 8.3 5.0 0.0 5 10 10Tennessee 7.3 5.0 7.0 5 0 3Texas 9.4 5.4 7.0 5 0 8Utah 14.7 9.5 7.0 5 10 10Vermont 9.3 6.5 10.0 7 10 3Virginia 10.4 5.5 7.0 2 10 8Washington 11.4 0.0 7.0 7 7 8West Virginia 9.6 0.0 7.0 6 10 3Wisconsin 8.5 0.0 6.5 7 5 8Wyoming 11.6 5.5 0.0 5 10 10

US Average 10.0 4.0 5.9 5.1 7.1 7.9

InsuranceMortgages

Tele-

medicineRx Drugs

Contact

LensesFinal

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Alabama 4 0 10 10 3.5 8Alaska 2 8 10 10 8.4 0Arizona 0 0 10 10 6.8 8Arkansas 0 0 10 10 6.0 10California 4 8 10 10 5.0 0Colorado 0 8 10 10 6.5 0Connecticut 4 0 10 10 6.2 0DC 0 5 10 10 6.3 8Delaware 0 0 10 10 5.5 8Florida 0 0 10 10 6.3 8Georgia 4 0 10 10 7.9 0Hawaii 8 8 10 4 5.0 8Idaho 4 8 10 10 7.0 10Illinois 0 8 0 10 8.2 0Indiana 4 3 10 10 6.3 8Iowa 0 8 10 10 6.6 8Kansas 0 0 10 10 8.9 8Kentucky 0 0 10 10 6.1 10Louisiana 0 3 10 10 6.8 8Maine 4 0 10 10 5.7 8Maryland 0 0 10 10 7.7 8Massachusetts 4 0 10 10 6.2 0Michigan 0 0 10 10 7.6 8Minnesota 0 8 10 10 5.6 10Mississippi 8 0 10 10 5.6 10Missouri 0 8 10 10 6.4 0Montana 0 0 10 10 5.7 10Nebraska 0 3 10 10 7.0 8Nevada 0 3 10 10 6.6 8New Hampshire 0 3 0 9 5.1 8New Jersey 0 0 10 10 7.9 8New Mexico 0 8 10 6 4.0 10New York 2 0 10 10 5.8 0North Carolina 0 3 0 10 5.7 8North Dakota 0 3 10 1 4.1 8Ohio 0 0 10 5 6.1 8Oklahoma 0 0 10 10 4.7 10Oregon 0 8 10 10 6.3 10Pennsylvania 0 0 10 10 7.3 8Rhode Island 4 0 10 10 3.1 10South Carolina 0 0 10 10 6.0 0South Dakota 0 0 10 2 7.0 10Tennessee 4 0 10 8 5.1 10Texas 0 0 10 9 7.6 8Utah 0 0 10 10 8.0 8Vermont 4 0 10 10 4.2 0Virginia 0 0 10 10 6.9 8Washington 0 8 10 9 9.3 0West Virginia 0 8 10 10 6.3 8Wisconsin 0 8 10 5 7.7 0Wyoming 4 3 10 10 4.7 10

US Average 1.3 2.8 9.4 9.2 6.3 6.5

UETA

Digital

Govt.

Access

TaxesAuctionsWineAutos

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Overall Scores (State-to-State Comparison)

Quintiles

1st (5)2nd (12)3rd (18)4th (13)5th (3)

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Indicators

The most important phenomenon that iscaptured here is protectionism—the laws andregulations states have passed that intentionallyor unintentionally make it more difficult, if notcompletely illegal, for e-commerce competitorsto compete against in-state bricks-and-mortarcompanies. As a result, most of the indicatorsfocus on these laws and regulations. However,the report also examines a number of otherfactors that can make it easier or more difficultfor Internet users to surf the Web and conductthe business they want to conduct.

Protectionism

A central aspect of the e-commerce revolutionis economic “dis intermediat ion.” Dis-intermediation can be defined as the reductionor elimination of the role of retailers,distributors, brokers, and other middlemen intransactions between the producer and thecustomer. Notwithstanding the currentshakeout, e-commerce is expected to continueto grow as more and more Americans get onlineand show a greater propensity to conductcommerce over the Internet.4 As a result,disintermediation of middle men is occurringin a wide range of industries and professions,including distributors and retailers of physicalgoods (e.g., wine and beer wholesalers, autodealers, music stores); providers oftransactional services (e.g., travel agents, stocksand bonds salesmen and traders, banks, realestate agents, and auctioneers); and evenproviders of professional services (e.g., lawyers,radiologists, college professors).

In these cases, those threatened with

disintermediation are not sitting by idly. Theyare using all the judicial, regulatory, andlegislative means at their disposal to thwartcompetitors who would like to use the Net tosell a product or service. And they have beenparticularly active in working to pass state lawsmaking it harder for consumers to bypass themand purchase goods and services directlyonline. Such efforts appear to be increasing ascompetition heats up. For example, in 1970 onlytwo states had restrictive automobilefranchising laws. By this year, car dealers hadsucceeded in obtaining the passage of laws inall 50 states to prevent auto manufacturers fromselling cars online.

PPI estimates that American consumers paya minimum of $15 billion annually more forgoods and services as a result of such e-commerce protectionism by middlemen.5 Butit’s important to note that anti-consumerprotectionism is not confined to the off-line vs.online world. It also occurs between off-lineproducers. For example, in order to protect gasstation owners from competition, 15 states havepassed laws preventing stores like Wal-Martfrom selling gas below a certain price. Similarly,a host of states have passed laws restricting thepower of wine and spirits producers to choosethe wholesaler they want, or even to sell directto retail establishments.

In order to assess how much choiceconsumers have to conduct business online, thisreport examines laws and regulationsgoverning eight industries. The bottom line isthat it matters what state consumers live in.Some states allow consumers considerablymore choice than others.

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Buying contact lenses online can provideconsumers with substantial savings.6 Inaddition, purchasing lenses online appears topose no health risks, and in fact in some cases,may improve health since patients may replaceolder lenses more often.7 However, dependingon the statein which they live, consumers mayfind it very easy or virtually impossible to buycontact lenses online.

Under the guise of patient protection,optometrists and other contact lens providershave successfully lobbied in many states forlaws that limit online competition. Fifteenstates effectively prohibit competition fromonline lens providers.8 For example, Georgiarequires contact lenses to be dispensed througha face-to-face transaction.9 Texas’ lawessentially prohibits purchasing contact lensesover the phone or through the Internet.10

Similarly, New Mexico requires that only a NewMexico licensed physician or optometrist cansell and dispense contact lenses.11 Other stateshave less overtly protectionist laws that stilleffectively hinder consumer choice. Illinois, forexample, requires eye care providers to releasethe prescription upon patient request, butrequires the patient to request the release inwriting.12 Other states have laws that limit thenumber of lenses that may be dispensed duringthe duration of a prescription. Such regulationsput a prospective Internet seller in a precariouslegal position because it would be virtuallyimpossible for them to know upon receipt of aprescription how many lenses have beendispensed during the prescription’s lifetime. Incontrast, seven states have laws explicitlyrecognizing the legality of purchasing lensesonline.

Contact Lenses

Scores

8 to 10.0 (2)6 to 7.9 (9)4 to 5.9 (24)2 to 3.9 (1)0 to 1.9 (15)

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Online prescription drug purchases couldbring lower prices to patients (and health in-surers) in the same way that online and mail-order contact lenses have brought lower pricesto contact lens wearers. Moreover, because U.S.-based online pharmacies are regulated and li-censed and prescribe drugs only after receivinga valid prescription, concerns about increasedpatient risk are not valid. In fact, e-prescrip-tions have the potential to improve the qualityof the prescription drug system. Because doc-tor-filed e-prescriptions could be instantlychecked for possible adverse drug interactions,and could be transferred without error to thepatient’s pharmacy of choice (online or off-line),prescription errors would likely go down.13

However, claiming they better protect pa-tient health, bricks-and-mortar pharmacies havefought back and sought to pass state laws ei-ther prohibiting online pharmaceutical pur-chases or limiting any price advantage theymight have. Since buying online is often

cheaper, health insurers often give consumersincentives to buy online by passing some of thesavings back to them in the form of lower co-pay amounts. But when health insurers in Colo-rado proposed to do this, bricks-and-mortarpharmacies, recognizing that they would losebusiness, fought unsuccessfully for legislationto limit the ability of prescription drug benefitpackages to give members a lower co-pay ifthey purchased drugs online.14

Pharmacies, however, have been more suc-cessful in other states. Thirteen states have lawsor regulations that specifically prohibit elec-tronic prescription transmission.15 Even whenthere is not an outright ban, the lack of reci-procity between state pharmaceutical licensingboards makes it more difficult for online phar-macies. National online pharmacies mustmaintain licenses in multiple states, as only ninestates do not require non-resident pharmacieslicensed in another state to maintain a licensewith the home state.16

Prescription Drugs

Scores

8 to 10.0 (5)6 to 7.9 (34)2 to 3.9 (4)0 to 1.9 (8)

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Telemedicine

Telemedicine holds significant promise forAmericans. Telemedicine could bring portablemedical equipment and digital imagingtechnology to patients either too elderly orinfirm to easily visit a hospital, or to thosepatients in rural areas hours from a full-servicehospital. In addition, new digital technologyallows X-rays and other types of medicalimaging to be transmitted and read at a distanceby specialists around the nation.

However, no state expressly allowstelemedicine practitioners to treat or diagnosispatients across state borders without beinglicensed in the patient’s state. Such laws reducetelemedicine’s benefits. For example, should apatient wish to consult a physician in a differentstate who is trying a new form of treatment orwho is an expert in a particular field, currentlaw would prevent that physician from usingdigital imagery (as well as email delivery of

records) to consult with the patient. Somestates, however, have even more restrictivelegislation specifically limiting telemedicine,17

requiring physicians who treat patients to belicensed by the state in which the patient lives.18

Additionally, 13 states have enacted or areconsidering legislation that requires physiciansto conduct a physical examination beforeprescribing medication.19 While well-intentioned, legislation requiring a physicalexamination may obviate many of the benefitsof telemedicine technology because doctorsexamining a patient at a distance throughdigital imagery would be precluded fromwriting a prescription. However, Hawaii,North Dakota, and Oregon have enacted rulesthat allow an out-of-state telemedicinepractitioner to consult with a physician who isthe primary caregiver for an in-state patientwithout obtaining a license.20

Scores

8 to 10.0 (3)6 to 7.9 (20)4 to 5.9 (15)2 to 3.9 (8)0 to 1.9 (5)

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Mortgages

Because online mortgage companies do nothave to pay for expensive bricks-and-mortarinfrastructure and because they have lowertransaction costs, they have the potential to offerlower rates and/or fees to consumers.However, existing bricks-and-mortar mortgagebrokers have sought to limit competition bysuccessfully lobbying state legislatures forrestrictive licensing laws. This has led, in mostcases, to online mortgage companies having aphysical presence in states.

Forty-five states and the District ofColumbia license or otherwise regulatemortgage brokers and brokerages, requiringonline mortgage brokers and bankers to getlicenses in their state. Only Alabama, Alaska,Colorado, Montana, and Wyoming do notregulate mortgage brokers. More onerous,however, are the brick-and-mortarrequirements imposed by 17 states. These forcefirms wishing to broker a mortgage to hireresidents of the state and to have a physicaloffice there. For example, a mortgage brokerdoing business with a South Carolina residentmust:

...maintain a sufficient physical presence inthis State and his records must be

maintained at the licensed location in thisState. At a minimum, the brokers shallmaintain an official place of business openduring regular business hours, staffed byone or more employees who have theauthority to contract on behalf of the brokerand to accept service on behalf of the broker.If the official place of business is not openfor business within the hours of 8:30 a.m.until 5:00 p.m., Monday through Friday, thebroker shall notify the department inwriting...21

However well-intentioned these lawssometimes are, the multi-state licensing systemand brick-and-mortar requirements mean thatonly national mortgage firms which alreadyhave physical offices in all states can sell onlinein all states. As a result, many online mortgageservices are no more than either referral servicesor affiliates of locally licensed mortgage brokerhouses and national lending companies alreadylicensed in the states. While this “clicks-and-mortar” model increases convenience forconsumers, it limits competition from cyber-only mortgage brokers that could charge lowerrates by taking advantage of new efficiencies.

Scores

8 to 10.0 (33)6 to 7.9 (2)4 to 5.9 (2)2 to 3.9 (3)0 to 1.9 (11)

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Insurance

Like mortgages, purchasing insuranceonline can save consumers money.Unfortunately, the burdensome and paper-intensive process to obtain a required licensein every state makes it more expensive to sellinsurance online. However, the NationalAssociation of Insurance Commissioners(NAIC) is taking the lead to create uniforminsurance producer licensing.22 The passage ofthe Gramm-Leach-Bliley Financial ServicesModernization Act (GLB) by Congress in 1999added incentives to pursue either reciprocal oruniform licensing.23

To make the changes to non-residentinsurance producer licensing required by GLB,the NAIC has drafted a model act that providesfor cross-border reciprocity between stateinsurance commissions. Additionally, theNAIC’s Uniform Regulation Through

Technology (URTT) initiative pledges to usetechnology and automation to “reduce multi-state licensing and approval barriers; increasethe uniformity and consistency of processingand regulation across state boundaries.”24

To date, 38 states have enacted the NAIC’sModel Act; the Act awaits gubernatorialsignature in one state.25 As of December 19,2001, four states and the District of Columbiawere considering it in their legislative sessions(Wisconsin plans to introduce the Act throughregulation), but three states have yet to take thatpreliminary step.26 In addition, legislativesessions in five states ended in 2001 withoutpassage of the PLMA.27 Only 21 states and theDistrict of Columbia are fully compliant withURTT, while 15 states are partially compliant.28

Nineteen states are PLMA and URTTcompliant.

Scores

8 to 10.0 (39)6 to 7.9 (3)4 to 5.9 (2)2 to 3.9 (7)

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Autos

If consumers could use the Net to choosethe car and the components they want (asconsumers can do now when buying a personalcomputer) and purchase the car directly fromthe manufacturer, the industry couldsignificantly cut costs related to inventory andsales and the consumer could save thousandsof dollars.29 But even when customers buy fromintermediary online car dealers, they can savesubstantial sums. One study found that theaverage customer using an online service to buyan auto pays approximately two percent lessthan someone buying in person from a dealer.30

Not surprisingly, car dealers and their tradeassociations have tried to limit suchcompetition, successfully lobbying statelegislatures to pass laws protecting theirfranchises. Perhaps more than any otherindustry, automobile dealers have succeeded inusing public policy to limit competition. Fromrelevant market area laws, to restrictions onwarranty repair work, to prohibitions on

automobile manufacturers selling carsthemselves, car dealers epitomize anti-consumer protectionism. Dealers use a numberof spurious arguments to defend theirprotectionist claims, principally that theyprotect consumers from manufacturers. Yetthere is no evidence of this, particularly withexisting federal regulations regardingwarrantees and recalls. There is, however,ample evidence that such laws raise prices forconsumers.31 Direct sales of automobiles byboth manufacturers and online car dealerswithout a franchise presence are prohibited inevery state.32 Manufacturers are prohibitedfrom owning auto dealerships in 34 states, andin 14 of these manufacturers are prohibited fromselling cars in the same relevant market area asan existing dealer carrying the same brand. Butcar dealers in several states, including Texas,have sought successfully to toughen statefranchise laws even more, to make it virtuallyimpossible for manufacturers to sell cars

Scores

8 to 10.0 (2)4 to 5.9 (12)2 to 3.9 (2)0 to 1.9 (35)

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directly—over the Internet—rather thanthrough locally franchised dealers. However,Arizona may take the prize for having the mostprotectionist auto franchise laws. After activelobbying by the state’s auto dealers, Arizonapassed restrictive franchise laws that prohibitmanufacturers from offering other auto-relatedservices to consumers, including financing,

insurance, and parts. Some states have actuallyenforced laws with the perverse effect of raisingprices of cars for consumers. For example, inthe guise of fairness, California ruled thatForddirect.com must make any price availableon its Web site available to all customers. Theresult is that customers must send an email tothe dealer requesting a lower price.

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Wine

Purchasing wine over the Internet can letcustomers expand their selection from thechoices offered by local retail wine outlets tohundreds, if not thousands, of vineyards.Because consumers can buy direct, avoiding themarkups charged by wholesalers and retailers,direct shipments can also be cheaper.

However, in response to pressure by winedistributors, many states prohibit direct salesof wine from vineyards to consumers.Distributors make two claims to defend thelaws: that direct shipments unfairly bypass taxcollection and that they contribute to underagedrinking. Both have been addressed by statelaws permitting direct shipments, where sellersmust register and remit taxes to the state inwhich the consumer is located, and must useshipping companies that verify the recipient isabove the legal drinking age.

Notwithstanding the fact that laws can becrafted to address these legitimate concerns,many states prohibit or limit direct shipments.Georgia’s permit law is a particularly goodexample of an overt wholesaler-industry

protection scheme. Georgia allows directshipment only from wineries that are notrepresented by a wholesaler in the state. Otherthan protecting the wholesaler fromcompetition, it’s not clear why some kinds ofwine are allowed and others are not.33 In anumber of states, including Florida, Georgia,Kentucky, Maryland, and Tennessee, direct-to-customer wine shipments are not onlyprohibited, but are a felony. Twenty-one stateshave laws that effectively preclude directshipments but do not impose felony penalties.34

Fourteen states allow limited direct shipmentbut only from other states that allow it.35 Fourstates allow consumers to receive direct wineshipments from any state, but cap the amountthat can be received at lower amounts than doreciprocity states.36 However, two of thesestates (Rhode Island and Connecticut) imposerestrictions that preclude nearly all Internet ortelephone sales. Eight states require wineriesto obtain permits to ship limited amounts, andsix of these require the winery to charge andremit applicable state taxes.37

Scores

8 to 10.0 (14)4 to 5.9 (1)2 to 3.9 (8)0 to 1.9 (28)

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Auctioneering

The Internet has modernized the ever-popular garage sale by allowing people all overthe world to participate in online auctions ofeverything from baseball cards to furniture toconcert tickets. Millions of Americans use sitessuch as Ebay and Yahoo!Auctions to buy and sellgoods in auction-like format.

Professional auctioneers, however, havebegun to lobby for laws to prevent everydaycitizens and small-time merchants from sellingonline. The North Carolina Auctioneer

Licensing Board was the first regulatoryauthority to act. The Board considers peoplewho sell goods other than their own personalproperty on online sites to be auctioneers, andis seeking to require them to be licensed by thestate or face misdemeanor charges and a $2,000fine. Fortunately, a wave of adverse publicityconvinced the Board not to enforce the rulingand the matter is still under review. NewHampshire and Illinois, however, have passedsimilar laws.

Scores

8 to 10.0 (48)0 to 1.9 (3)

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Internet Access Taxes

Access charges add a tax to the feesconsumers pay to their Internet serviceproviders, such as AOL, for Web access. Whileaccess taxes were specifically outlawed in the1996 Internet Tax Freedom Act, a grandfatherclause allows states that had previously enactedInternet access taxes to retain their laws.

Access taxes are not applied uniformly fromstate to state and do not conform to easyinterpretation. For example, Texas exempts the

first $25 of service while Ohio taxes Internetaccess for businesses as it would an electronicinformation service.38 Because of this, scoresare determined by dividing the number ofhouseholds online in a state by the total dollarscollected from a state’s Internet access tax in1998 to obtain a per-Internet household figure.Using this method, the Dakotas and Texas havethe highest Internet access taxes, while 42 statesdo not levy taxes.

Scores

8 to 10.0 (45)6 to 7.9 (1)4 to 5.9 (3)2 to 3.9 (1)0 to 1.9 (1)

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Digital Government

E-government lets citizens interact withtheir government more directly in many ways,from getting information on basic governmentservices to transacting online applications (e.g.,filling out electronic forms). Once a large shareof citizens are using the Web for self-serviceinteractions with government, more expensivepaper, voice, and face-to-face transactions arelikely to shrink, lowering the cost of providingservices, as has already atarted to occur in theprivate sector.

While reducing costs, e-government alsomakes interacting with government moreconvenient. Tasks that previously required avisit to a government office or a telephone callduring office hours could be performed by userswhenever and wherever they please. E-

government is likely to be a particular benefitto those who work long hours or shift work,the elderly, and those with mobility problems.Yet the really significant benefits of e-government come from re-engineeringgovernment to take advantage of the Web—creating a fundamentally different sort ofgovernment that provides much more value tocitizens. 39

According to data collected by the Progressand Freedom Foundation,40 states differconsiderably in the extent to which they haveembraced e-government. States likeWashington and Kansas have madeconsiderable strides in letting citizens interactwith government electronically. However,many states have moved considerably less far.

Scores

8 to 10.0 (5)6 to 7.9 (28)4 to 5.9 (16)2 to 3.9 (2)

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Uniform Electronic Transactions Act

For e-commerce to fully realize its potential,consumers must be able to submit and “sign”electronic documents. Without this ability, andwithout laws that recognize digital signaturesas legally binding, consumers will be preventedfrom engaging in a host of e-commerceapplications that require the submission oflegally binding documents (e.g., applying forinsurance online).

However, prior to 2000, only a few stateshad passed digital signature laws, andconflicting laws made it difficult for consumersin one state to electronically sign documentswith companies in another. As a result,Congress passed the “E-Sign” bill in 2000 that,among other things, threatened to preempt statelaws unless they all passed the UniformElectronic Transactions Act (UETA), which wasthe product of several years of work by theNational Conference of Commissioners onUniform State Laws. The Act’s goal was that arecord, signature, or contract will not be denied

legal effect or enforceability solely because it isin or incorporates an electronic form. The UETAalso states that if existing law requires a writtenrecord or signature, an electronic signature issatisfactory.41

To date, 38 states have enacted either UETAor substantially similar legislation. Of these,13 have enacted in it in a “pure” form fullyconsistent with the model legislation developedby NCCUSL.42 There is some question as towhether state e-sign laws that differ from themodel legislation would be preempted underthe federal E-Sign Act, and if they are not,whether the company that complies with thefederal E-Sign Act would be in compliance ifthey accepted a signature from a person in sucha state.43 Finally, the Act has been introducedbut not enacted in several others. Currently,Alaska, Georgia, New York, South Carolina, andWashington have neither enacted norintroduced UETA or UETA-compliantlegislation.

Scores

8 to 10.0 (38)0 to 1.9 (13)

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Appendix A: Methodology

Assigning numerical valuations to statelaws is complex and inherently subjective. Thissection discusses how the final scores for eachcategory were developed. For all indicatorsexcept telecommunications taxes and accesstaxes (which used the tax rate or amount), thetotal possible score was 10 points.

Contact LensesContact lens scores are based on five

categories of laws and regulations: prescriptionrelease, prescription duration, prescriptionrequirements, authorization of mail order/Internet sales, and prescription verificationprocedures. Each state’s applicable laws in thefive categories received a score based upon theireffect on a potential Internet contact lensdispenser’s ability to operate.

Scores were totaled along the five categoriesand divided by five, so that final scores wereon a zero to 10 scale. However, states with lawsin any category that effectively prohibit theInternet sale of contact lenses received zeropoints. (Laws that prohibit the Internet sale ofcontact lenses need not specifically prohibitsuch sales; other requirements, such as the face-to-face transaction regulation referenced in thetext, can have the same prohibitive effects.)

Prescription DrugsScores were determined according to two

factors: electronic prescription transmissionlaws and licensing laws. States with laws thatprohibit electronic prescription transmissionreceived zero points. States without such lawsreceived 3.5 points for laws that allowtransmission from an out-of-state prescribercomputer to an in-state pharmacy, andadditional 3.5 points for transmission from anin-state prescriber computer to an in-statepharmacy. To reflect the relative importance ofelectronic prescription transmission, states thatdo not require pharmacies licensed out-of-state

to re-license in the home state received threepoints. States that do require re-licensurereceived zero points. For more information, seethe National Association of Boards of Pharmacy,1999-2000 Survey of Pharmacy Law or the NABP’s“NABPLaw” CD-Rom (http://www.nabp.org).

TelemedicineThe telemedicine scores are based on two

factors: telemedicine-specific laws and lawsrequiring a physician to physically examine apatient before treating. First, states that havepassed laws that specifically require licensure—or an equivalent such as special-purposelicensure or registration—for out-of-statetelemedicine practitioners received zero points.States that have made specific allowances fortelemedicine practice by a physician licensedout-of-state after referral from a physicianlicensed in state received five points. Stateswhose laws do not speak to the issue, but ratherapply regulatory provisions that requirephysicians to be licensed in state to treat an in-state patient received two points. (Nevada andWest Virginia each received one point for lawsthat specifically outlaw general telemedicinepractice but allow for limited referraltelemedicine practice). Such states received twopoints only because states that have not passedany specific anti-telemedicine laws shouldreceive more points than those that havespecifically called for licensure of out-of-statetelemedicine practitioners. Additionally,enforcement of these regulations is uneven.

Second, this factor considers laws andregulations that require a doctor to physicallyexamine a patient before writing a prescription.States with physical examination requirementsreceived no points. States without suchrequirements received five points.

For further information, see the U.S.Department of Health and Human ServicesOffice for the Advancement of Telehealth and

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the Office’s 2001 Report to Congress onTelemedicine (http://telehealth.hrsa.gov/pubs/report2001/main.htm) or the Center forTelemedicine Law’s State Regulations AffectingTelehealth Licensure Update (http://www.ctl.org).

MortgagesStates with widely applicable physical

presence licensure requirements (those thatapply to persons or companies that conductmortgage broker activities of any size or scale)received zero points. States without such lawsreceived 10 points. Several states have laws thatapply only to mortgage brokering activities ofa particular size or scope. Depending upon thescope of the law in question, states with suchlaws received valuations between three andseven points. For example, Alaska requireslenders that make loans of $25,000 or less tomake the loan at the location specified in thelicense (Alaska received five points). Georgiaonly imposes a physical place of businessrequirement if the broker’s home state imposessuch a requirement. (Georgia received sevenpoints.) For more information, contact theElectronic Financial Services Council (http://www.efscouncil.org).

WineReciprocity states (a reciprocity state allows

wine shipments only from states that allowshipments without permits or similarhindrances from wineries in its state) receivedeight points. States that allow limited interstateshipments without permits received five points.However, because in two of these four states(Rhode Island and Connecticut), regulatoryschemes effectively preclude direct shipmentsresulting from Internet orders, both statesreceived zero points. Additionally, Alaskaallows individuals to receive a “reasonableamount” via direct shipment. Such a vaguelimit, in effect, makes direct shipment de factolegal in Alaska; Alaska received an eight-pointvaluation. Therefore, only Washington, D.C.received a five-point valuation. States thatrequire shippers to obtain permits receivedthree points. States that prohibit direct-to-customer interstate wine shipments via

common carriers (Federal Express and UPS, forexample) were awarded zero points. States thatimpose felony penalties on wineries forviolations of direct shipping prohibitions orlicensure requirements did not receive anyfurther negative consideration. Noconsideration was given to states that allowintrastate wine shipments, because the valueof such a law varies considerably dependingupon the state in which a consumer resides. Forexample, a law that prohibited interstateshipment but allowed intrastate shipmentwould have much more value to a consumer inCalifornia (where there are numerous wineries)than would a similar law to a consumer inNebraska or Alabama (where there are few, ifany, wineries). For more information see theWine Institute’s “Direct Shipment Laws by Statefor Wineries” at http://www.wineinstitute.org/shipwine/analysis/map_us.htm.

AuctioneeringStates that have either passed laws or

interpreted existing law negatively receivedzero points. States that have not done soreceived 10 points. That a state has or has notenforced a negative law was not considered; theexistence of the negative law or a previousnegative ruling (indicating a future desire orpropensity toward regulation of online auctionsites) resulted in a zero-point valuation.

InsuranceThe score is based on state progress in

passing the Producer Licensing Model Act(PLMA) and becoming Uniform RegulationThrough Technology (URTT) compliant. Statesthat have enacted the PLMA received fivepoints. States that have passed the PLMA, butwhose governors are yet to sign the bill,received four points. States slated to considerthe legislation this term received two points.States in which the Act is not slated forintroduction, or in which the legislative sessionended without passing the Act, received zeropoints. States that are URTT compliant receivedfive points. States that are partially compliantreceived three points. (Information on passageof the PLMA is current to January 8, 2002, and

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that information on URTT compliance is currentto October 10, 2001.) For more information, seethe National Association of InsuranceCommissioners, Producer Licensing Model ActImplementation, last updated January 8, 2002;and 100% URTT Compliant States, last updatedOctober 10, 2001, at (http://www.naic.org).

AutomobilesAll states have laws that prevent the direct

Internet sale of automobiles. Nonetheless,states do differ on how strictly they regulatemanufacturers selling cars and how much theyprotect auto dealers. States that do not prohibitmanufacturer-owned dealers received eightpoints. States that prohibit competition bydealers in the same relevant market areareceived only four points. States that prohibitcompetition by dealers in the entire statereceived no points. States with laws pendingcovering the entire state received two points.

Access TaxesAccess taxes do not easily lend themselves

to comparison based on tax rate. Therefore, wedivided each state’s total access tax dollarscollected (as estimated by the states andreported to the Federation of TaxAdministrators) by the number of households

online. For more information see the InternetTax Freedom Act; compiled by the Federationof Tax Administrators.

E-GovernmentScores in this category are taken directly

from the Progress and Freedom Foundation’sreport, The Digital State 2000: How StateGovernments Are Using Digital Technology. Statesreceived scores according to performance ineight categories: electronic commerce,taxation/revenue, social services, lawenforcement/courts, digital democracy,management/administration, higher educationand K-12 education. The valuations reflectscores from the Progress and FreedomFoundation’s report standardized to a 10-pointscale. See “e-commerce” heading at http://www.pff.org/pff_publications.htm.

Uniform Electronic Transactions ActStates that have enacted the Uniform

Electronic Transactions Act (UETA) orsubstantially similar legislation received 10points. States that are yet to enact UETAreceived zero points. For more information, seeBaker & McKenzie LLP, “Uniform ElectronicTransactions Act, State-by-State ComparisonTable” at http://www.bmck.com/legis-t.htm.

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Endnotes1 John P. Kromer, Goodwin, Procter & Hoar LLP, State Licensing Issues for Internet Mortgage Originators, Presentedto Online Mortgage Forum, April 14, 2001. Forty-five states and the District of Columbia license or otherwiseregulate mortgage brokers and brokerages; only Alabama, Alaska, Colorado, Montana, and Wyoming donot require the regulation of mortgage brokers.

2 National Association of Boards of Pharmacy, “VIPPS,” at http://www.nabp.org.

3 Rob Atkinson and Andrew Leigh, Breaking Down Bureaucratic Barriers: The Next Phase of Digital Government,Washington, DC: Progressive Policy Institute, October 2001.

4 It should come as no surprise that a large number of dot.com companies are in trouble. Much of theirinvestment made in the last few years was focused on attempts to become the market leader, beating out alltheir competitors. There are compelling historical parallels. The 1930s saw the bankruptcy of scores ofautomobile companies, but it was the takeoff point for the explosive growth of the auto industry. There is noreason to suspect that the current situation in e-commerce is any different. Moreover, the winners in e-commerce may not be the pure-play dot.coms, but instead might be the “clicks and mortar” companies thatuse the Net to sell directly to consumers. In this case, pure-play dot.coms might not grow significantly, bute-commerce will.

5 Robert D. Atkinson, Revenge of the Disintermediated, Washington, DC: Progressive Policy Institute, January2001, at http://www.ppionline.org.

6 Optometrists and other eye care providers, working with contact lens manufacturers, have been able tolimit consumer choice as to where they may purchase replacement contact lenses due the fact that contactlens prescriptions written by eye care providers are brand-specific (unlike prescription drugs). Internet (andmail order) companies are effectively squeezed out of the market when an optometrist and a lens manufacturerconspire to control supply and demand. This is accomplished when manufacturers agree not to sell to mail-order companies in exchange for eye care provider’s loyally prescribing the manufacturer’s brand. Indeed,a lawsuit brought by 32 state attorneys general addressing collusion and anti-competitive practices is still tobe finally resolved. However, settlement agreements entered into by contact lens makers show that themanufacturers tacitly acknowledged that their business practices are unfairly hindering consumer choice.(In re Disposable Contact Lens Antitrust Litigation, United States District Court Middle District of Florida,Jacksonville Division, Preliminary Settlement Agreement, 2001).

7 In the suit described in note 6, the Attorneys General clearly state that there are no health risks to online lenspurchasing.

8 Eye care professionals have not been content just to make it difficult for consumers to buy contact lensonline, they have sought to use regulations so people have to get more eye exams. For example, in Virginia,ophthalmologists lobbied against a bill that would let people renew their driver’s licenses online, claiming itwould lead to more accidents since people wouldn’t have to get an eye exam each time.

9 Georgia Ann. Code § 31-12-12.

10 Laws of Texas Relating to Optometrists and the Practice of Optometry, Article 1, et seq.

11 New Mexico Stat. Ann. § 61-2-2.

12 225 Illinois Compiled Statutes 80/24.

13 A new company called RxHub is going to be the first large-scale entrant into the e-prescription business.

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14 See Colorado Legislature, 2001 session, HB01-1320.

15 National Association of Boards of Pharmacy, 1999-2000 Survey of Pharmacy Law Chicago, IL: NationalAssociation of Boards of Pharmacy, 2000.

16 Ibid.

17 Ibid. Additionally, Montana’s “certificate” and California’s “registration” programs are substantiallysimilar to licensure requirements in other states.

18 Carolyn Hutcherson, Center for Telemedicine Law, personal interview, July, 2001. Laws in 22 of thesestates specifically require telemedicine practitioners to apply for either a full medical license or a “specialpurpose” license (practically, the difference is negligible) to treat a resident patient.

19 United States Department of Health and Human Services, 2001 Report to Congress on Telemedicine.

20 Ibid.

21 South Carolina Code Ann. § 40-58-10 et seq.

22 Unlike several other industries, however, the regulators themselves�individual state insurancecommissions and commissioners�recognize the changes that their industry is undergoing, particularly withthe advent of Internet commerce. In the National Association of Insurance Commissioners’ Statement ofIntent: The Future of Insurance Regulation, the organization pledges to “work cooperatively with . . . governors,state legislators, federal officials, consumers, companies, agents and other interested parties . . . to facilitateand enhance this new and evolving marketplace as we begin the 21st Century.” NAIC goes on to state that“The insurance-buying public and industry must be allowed to benefit from the broad range of opportunitiesthat e-commerce offers.” National Association of Insurance Commissioners, “Statement of Intent: The Futureof Insurance Regulation,” at http://www.naic.org/GLBA/Final_Statement_of_Intent.pdf.

23 GLB requires state-level insurance regulators to establish uniform or reciprocal licensure laws. The billwent so far as to threaten to create a new body (the National Association of Registered Agents and Brokers)to impose such regulations should the NAIC fail to accomplish reciprocal or uniform licensure throughoutall 50 states and the District of Columbia by November 2002.

24 National Association of Insurance Commissioners, Uniform Regulation Through Technology Initiative, athttp://www.naic.org.

25 National Association of Insurance Commissioners, NARAB Working Group, Producer Licensing Model ActImplementation, at http://www.naic.org.

26 Ibid.

27 Ibid.

28 National Association of Insurance Commissioners, Uniform Regulation Through Technology Initiative,100% URTT Compliant States, last updated July 19, 2001.

29 In fact, at least one car maker, General Motors, is developing a vehicle configuration that will allow customersto “build” the car or light truck they desire, selecting options, paint color, etc.

30 Fiona Scott Morton, Florian Zettelmeyer, and Jorge Silva Risso, Internet Car Retailing, working paper, Schoolof Management, Yale University, New Haven, CT, September 2000.

31 Review of the Automobile Manufacturing Licensing Program, Office of Program Policy Analysis and GovernmentAccountability, Florida Legislature, February 29, 1996. Mark Cooper, A Roadblock on the Information

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Superhighway: Anticompetitive Restrictions on Automotive Markets, Washington, DC: Consumer Federation ofAmerica, 2001.

32 No state received a score of 10 because no state allows online sales of autos from the manufacturer.

33 The Wine Institute, “Direct Shipment Laws by State for Wineries,” last updated July 2001, at http://www.wineinstitute.org/shipwine/analysis/map_us.htm.

34 Even reciprocity states, however, impose limits on how much wine consumers can receive via directshipment.

35 Ibid.

36 The Wine Institute, “Analysis of State Laws,” at http://www.wineinstitute.org/shipwine/analysis/state_analysis.htm.

37 Ibid.

38 Ohio Rev. Code Ann. §§5739.01 (B) (e).

39 Rob Atkinson and Andrew Leigh, Breaking Down Bureaucratic Barriers: The Next Phase of Digital Government,Washington, DC: Progressive Policy Institute, October 2001.

40 Jeffrey A. Eisenach and Thomas M. Lenard, The Digital State 2000, September 2000; http://www.pff.org/pff_publications.htm

41 Uniform Electronic Transactions Act, 1999; at http://www.law.upenn.edu/bll/ulc/fnact99/1990s/ueta99.htm.

42 http://www.alston.com/docs/Advisories/199709/UETA_July_Update.DOC.

43 Thomas E. Crocker, “The E-Sign Act: One Year Later”, Electronic Banking Law and Commerce Report, Vol. 6,No. 4, September 2001. pp. 11-14.

About the Authors

Acknowledgements

Robert D. Atkinson is vice president of PPI and director of its Technology & New Economy Project.Previously Dr. Atkinson served as executive director of the Rhode Island Economic Policy Counciland as a senior analyst and project director at the former Congressional Office of Technology Assess-ment (OTA). While at OTA, he directed The Technological Reshaping of Metropolitan America, a reportexamining the impact of the information technology revolution on America’s urban areas. Dr. Atkinsonhas a Ph.D. in city and regional planning from the University of North Carolina at Chapel Hill.

Thomas G. Wilhelm is a PPI research associate. Previously he was employed in the executive officeof California Attorney General Bill Lockyer in Los Angeles. Mr. Wilhelm attended the University ofCalifornia at Los Angeles where he studied political science. He now attends the University of Michi-gan Law School.

We would like to thank our colleagues at the Progressive Policy Institute for their insight and edito-rial guidance, particularly Will Marshall, Chuck Alston, Shane Ham, Rick Coduri, and Andrew Leigh.

We would also like to thank those who provided background information for the report, includingJohn Bauer, National Association of Insurance Commissioners; Deborah Bierbaum, AT&T; Clint Bolick,Institute for Justice; Anabelle Canning, Verizon Communications; Mickey Chandler, Spamfree.org;Larry Good, Electronic Commerce Association; Emily Hackett, Internet Alliance; Brad Handler, eBay;Carolyn Hutchinson, Center for Telemedicine Law; Jim Johnston, Esq.; John Kromer, Electronic Fi-nancial Services Council and Goodwin, Proctor & Hoar LLP; John Logan, Commerce Clearinghouse;John Magee, Ford Motor Company; Neil Osten, National Conference of State Legislatures; DennisReynolds, Entrust, Inc.; Paul Rusinoff, AOL-Time Warner; Mary Dale Walters, Commerce Clearing-house.

Finally, we wish to express our appreciation and gratitude to those who served as outside reviewers;John Bauer, National Association of Insurance Commissioners; Clint Bolick, Institute for Justice;Anabelle Canning, Verizon Communications; John Kromer, Electronic Financial Services Council andGoodwin, Proctor & Hoar LLP; Steve Gross, The Wine Institute; Carolyn Hutchinson, Center forTelemedicine Law; and Joe Zeidner, 1800CONTACTS.

The Best States for E-Commerce

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