Selling products online opens your business up to a world of potential customers but it can also create a number of legal and tax issues.
Because setting up and running an e–commerce site can involve a variety of laws and regulations, it’s a good idea to consult with a lawyer to make sure you are doing business in a legal manner and have included all the terms and conditions you need to help you avoid misunderstandings with customers.
If you’re required to collect sales tax, your customers will pay the tax when they make a purchase. You’re then responsible for sending the sales tax you’ve collected to the state. It sounds simple enough, but sales tax laws are complicated, and they vary by state and locality. Many e–commerce sites use software to help them handle the sales tax collection and payment process. Here are some basics.
In general, if you have a physical presence or "nexus" in a certain state – like a business office, employees, a warehouse, or a retail store – then you must collect sales tax from customers in your state if they buy online. For example, if you operate your ecommerce store from a warehouse in Florida, you must collect state and local sales tax from Florida residents who buy products from your website.
Over the past few years, most states have also enacted laws requiring ecommerce businesses to collect and pay sales tax to that state if they have a certain volume of sales to customers within the state. In many states, these "economic nexusb laws only apply to businesses that have at least $100,000 in sales or 200 transactions within the state. Economic nexus laws are relatively new. They vary by state, and they’re continuing to change and develop.
Some states exempt certain items from sales tax, such as clothing or groceries. Some require you to collect and pay local sales tax to the county where you made the sale, while others require you to pay tax to the county where the buyer is located. And a few states don’t have sales tax at all. See your attorney for specific advice about your situation.
An e–commerce site should detail your transaction conditions: Minimum purchase amounts, when credit cards will be charged (at time of order, when product ships, etc.), and how customer returns will be credited to customer accounts.
Payment options. Customers have come to expect a wide array of options when it comes to payment, including credit cards and online payment services like PayPal and Apple Pay. Be aware of the policies of the services you’re using, especially when it comes to issues like charge–backs and refunds.
Returns. When you sell products through e–commerce, always include clear notices about your returns policy. Set a standard for how long you will accept returns. Some companies require customers to obtain a return authorization before they will accept a return. (They ensure authorization has been granted by only receiving packages with a valid return authorization number.) Also, set conditions for returns. You may accept a return under any condition, or you may limit returns only to items that are damaged or defective. Also include your responsibilities in regard to shipping charges: Will you pay for the cost of shipping a return back to you, or will the customer? Set clear expectations and take time to think about – and cover – as many potential scenarios as possible.
Other E–Commerce Considerations
Electronic contracts. An electronic contract is an agreement created without using pen and paper. In e–commerce terms, having the user click a "Click to Agree to Terms and Conditions" button creates an enforceable legal contract. (That’s why software updates tend to include the "Click to Agree" button before the update is installed.) The "Click to Agree" button can also be used to ensure customers have a chance to review and agree to your terms and conditions for sale.
Advertising. Consumers are protected from fraudulent or misleading advertisements. Your slogans or advertising messages could be in violation of consumer protection laws – even if you in no way intended to mislead.
Employment. Operating an e–commerce site makes it possible for employees to perform work on your behalf from a range of locations: At work, at home, on the road, etc. As a result, your employment practices could violate overtime laws, safety guidelines, etc. Make sure your employment agreements and job descriptions cover any new duties (and work methods) created by e–commerce.
Disclaimers. The extent and nature of your responsibilities and potential liability should be clearly defined on your website, especially regarding the accuracy of information, any warranties offered or implied, and your responsibility in the event of errors or product defects. Failure to do so could open your business up to potential lawsuits or liability.
Security. Protecting the confidentiality of customer data and financial transactions is your responsibility. Be sure you are using an e–commerce platform with robust and up–to–date security features. Customer data should be encrypted and protected by layers of security. And you shouldn’t keep more data than you absolutely need. If you don’t have an IT staff, consider outsourcing security functions to a company that can also test your site for vulnerabilities and monitor suspicious activities.