The Internet, "net" or "Web," has changed, and continues to change, the way business gets done. Big and small businesses are on nearly a level playing field selling everything under the sun. Consumers use the net to research products and services, compare the best products and find the most reasonable prices. The days of leafing through a telephone book and hoping to pick a reliable and affordable service or product are coming to an end.
By taking your small business online, you can now compete with much larger businesses and often do it better since you can easily target your customers. Plus, sometimes it's easier to have an online business than a "bricks and mortar" one.
But, don't dive online headfirst. Aside from the business aspects of doing business on the net, such as advertising strategies and market share, there are special legal issues for online businesses, such as:
- Collecting and paying sales taxes
- Using e-signatures and e-contracts
- Marketing tactics, commonly known as "spamming"
Cyberlaw, the law that refers to the use of computers and related activities, is young and still evolving. There are a lot of legal gray areas about online businesses. So, before taking your business online, research the matter thoroughly, or get some help from an experienced business law attorney.
Taxes & the Net
Taxes and net-based sales is the stickiest legal issue online businesses face. States want to encourage business within their boundaries and want the money to go into their treasuries, but for the most part, Internet sales are and continue to be tax free.
The current solution is that you can collect state sales tax from your customers if you:
- Have a shop or office in a state, and
- Sell goods or services to residents in that state
Customers also have responsibilities. Some states require sales tax on goods bought online where the business is located outside the state. This is called a "use tax." In addition, in some states, such as Florida, New York and Ohio, just to name a few, customers have to report these purchases on their state income tax returns and calculate the tax they owe.
For example: Your business is located in Texas and someone in Ohio purchases a product online. You don't collect sales tax from them at that time. At the end of the year, the customer reports the purchase on their state tax return and calculates the tax owed in Ohio.
E-Signatures and E-Contracts
The Electronic Signatures in Global and National Commerce Act ('E-Sign Act') gives electronically signed documents the same legal validity as paper documents. E-signatures are not actually on-line signatures, but use digital certificate - a type of digital ID card that can be stored in the owner's computer or ''smart card" - that lets a consumer confirm the validity of his or her individual digital signature.
The E-Sign Act has led to an explosion in online business transactions because it eliminates "needless" and time-consuming paperwork typically involved in buying things like cars and homes, as well in contracts between businesses that supply other business with goods or services. But, some documents still need to be in writing, such as:
- Product recalls
- Cancellation of utility services, like water, heat or electric
- Home foreclosures
- Wills and trusts
Marketing and Direct Mail Issues
The meaning of "spam" has changed with the advent of the Internet. Marketing is now easier, yet it has also created a lot of unwanted and unsolicited e-mail marketing campaigns that fill consumer in-boxes. Under the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (CANSPAM), you can be fined up to $11,000 for violating CANSPAM laws.
Acceptable e-mail messages have to identify the consumer accurately, contain a return e-mail address and let the user "opt-out" of future messages. Things that are illegal are:
- Using e-mail messages to advertise your products or services without the user first "opting in"
- "Harvesting" e-mail addresses from Web sites or Web services that have published a notice prohibiting the transfer of e-mail addresses for the purpose of sending promotional e-mail
- Using scripts or other means to register for multiple e-mail accounts to send commercial e-mail
Additional criminal penalties apply to actions like:
- Using another computer without authorization and sending commercial e-mail messages from it
- Using a computer to relay or retransmit multiple commercial e-mail messages to deceive or mislead recipients about from where the message originated
- Falsifying header information in multiple e-mail messages and sending them
Many states have their own anti-spamming laws. You can find many companies that specialize in creating, sending and tracking these campaigns so they're done correctly and comply with the CANSPAM act.
Questions for Your Attorney
- Will I be responsible if an in-state customer uses an out-of-state address to avoid sales tax?
- What steps can I take to verify my customers' addresses?
- Are there legal requirements for setting up a Web site