In many ways, doing business on the Internet is no different than doing business face-to-face. You'll need to decide on an appropriate corporate structure for your company, you'll need to name your company and you'll need to decide whether to work out of your home or operate from an off-site location. There are, however, additional legal concerns that are unique to Internet businesses and e-commerce.

Licensing and Sales Taxes

Many of our local, state and national laws were written in the pre-Internet days, and never anticipated that buyers and sellers would meet in a virtual marketplace. Consequently, the laws are still evolving, and interpretation can change frequently.

For example, most states, as well as some cities and counties, require companies to obtain a business license. Traditionally, a business license is needed in the states in which a company does business. But what does this mean to an e-commerce company that has an office in one state but has customers across the country? Most lawyers would advise the company to obtain a business license in the state or states where the company maintains an office.

However, if you are a licensed professional, such as a doctor or lawyer, professional regulations typically require you to be licensed in each state in which you are practicing. Can a licensed professional in New York consult with a client in California? Ultimately, the rules will vary from profession to profession. If you work in a licensed profession, you should contact your state and national licensing authorities to learn how they're addressing the issue.

You'll also need to sort through sales tax laws if you're operating an e-commerce business. The general rule of thumb: If your business is physically located in the same state as a customer, then you must collect the appropriate sales tax. This is true even if the order is processed by an office in a different state, or ships from an out-of-state warehouse.

Laws to Know

Several laws have been passed in recent years that specifically address issues of e-commerce and commercial business on the Internet. Those include:

The Internet Tax Freedom Act:

  • Intended to clarify sales tax issues on sales via the Internet
  • If the buyer and seller are physically located in the same state (for example, both in New York), then the seller charges New York sales tax and remits it to New York tax authorities
  • If the seller is physically headquartered in one state (for example, New York) and the buyer is located in another state (for example, Illinois) in which the seller also has a physical location, then the seller charges the Illinois sales tax and remits it to Illinois tax authorities
  • If the seller is physically located in one state and the buyer is physically located in another state, then the buyer is responsible for submitted the applicable sales tax to his state's tax authority

    • The Children's Online Privacy Protection Act of 1998 (also known as COPPA):

    • Addresses the collection of personal information from children younger than 13
    • Requires Web sites to get parental permission before collecting information from these children
    • Requires Web sites to post prominent notices explaining how the collected information will be used
    • Allow parents to review stored information about a child and request that the information be deleted from a Web site's database

    It's important for businesses operating online to understand and adhere to COPPA, since several major retailers have been charged with violating the law and have paid large fines

    Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (also known as CAN SPAM):

    • Applies to commercial e-mail messages that advertise a commercial product or service
    • Requires mailers to provide an opt-out mechanism and to take no more than 10 days to honor those requests
    • Forbids mailers from sending e-mail messages with misleading subject lines and sender names
    • Forbids e-mail messages sent through open relay, the harvesting of e-mail address and messages containing false headers

    Questions for Your Attorney

    Before creating an Internet-based business, it pays to talk to an attorney who has prior experience dealing with e-commerce issues. Among the questions to consider asking your attorney:

    • How familiar are you with e-commerce legal issues?
    • What laws will apply to my business?
    • Have there been recent changes to any e-commerce laws?