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.
Will your customers have to pay state sales tax? The answer: It depends on where they live.
In general, if you have a physical presence in a certain state – like a business office, a warehouse, or especially a retail store – then you must collect sales tax from customers in your state if they buy online. (In other words, if you operate a retail store in Virginia and you also sell products via the Internet, you must collect state sales tax from Virginia residents who buy products from your website.)
If you do not have a physical presence in a certain state, then you are generally not required to collect state sales tax from customers in that state. However, some states are considering or have passed legislation enabling them to collect sales tax from some online retailers that do not have a physical presence in their state.
Sales tax laws can be complicated and they're different in every state. Many e–commerce sites use software to help them handle the sales tax collection and payment process. 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. Credit cards, debit cards, and online payment services like PayPal are convenient but can also raise legal issues in the event of charge–backs or refunds. Banking laws are sometimes complicated; an experienced attorney can help you determine which types of payment systems to use (and what to watch out for).
Returns. When you sell products through e–commerce, always include clear notices about your returns policy. Set a clear 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&rsqou; button creates an enforceable legal contract. (That's why software updates tend to include the ’Click to Agree&rsqou; button before the update is installed.) The ’Click to Agree&rsqou; 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. The confidentiality of business communications can also be an issue; for example, your employees should know that their e–commerce communication is not confidential and is in no way private. Ensuring the security of financial transactions is critical – so is being aware of your rights and responsibilities if that security is in some way breached or compromised.