In the past, states have taxed different kinds of communications companies in different ways: cable firms were assessed on their market value. But as these companies broaden their services to compete with one another and as new types of telecommunications industries spring up, the distinctions blur and the question of how to tax them arises.

Thus the dynamics of telecommunications is making a hash out of state efforts to label these firms and put them into neat little boxes for tax purposes.

• Phone firms are starting to offer television services, while cable firms want to go into two-way communications.

• Congress has just said that utilities could offer telecommunications services.

• Wireless cable firms object to having to pay a franchise fee for use of public rights of way -- as competing conventional cable firms must -- since they don't use the rights of way.

The latest hot issue is how to treat Internet-access firms. Are they in the information business, or telecommunications or something else?

• This is important because states tax telecommunications at higher rates than information.

• Representatives of some Internet providers argue that they are users rather than vendors of telecommunications services and shouldn't be subjected to special taxes charged to phone firms.

But these may be minor issues compared to the big question: how to tax the purchases of goods and services over the Internet.

• Last year, $500 million in goods and services was purchased over the Internet.

• That figure is expected to grow to $6.6 billion by 2000.

While it is relatively simple to assign a value to an object, how does one value intangibles such as information in a computer?

Source: Charles Oliver, "How Do You Tax the Internet?" Investor's Business Daily, December 13, 1996.