Online
businesses entered a modern-day renaissance due to the COVID pandemic and have
since maintained their popularity with the ever-increasing property price,
commercial interest rates, and ongoing health concerns.
For those
interested in operating their own online business, it’s important to note there
are nuances to consider when running an online business as opposed to a
traditional brick-and-mortar business.
Sales Tax
If you’re
starting an online business, chances are you’re selling a good or product,
probably in multiple areas. If this applies to you, you should ensure that you
collect the appropriate sales taxes when selling any product. It’s up to you to
collect and report sales tax payments. Failure to have accurate records may
result in penalties and skewed revenue figures and projections. However, you
usually need a sales tax license to collect sales tax.
Use online sales tax calculators to estimate how much you should
collect. Be mindful that you are generally required to collect sales taxes in
(1) the state where you operate your business, (2) the state where your product
is shipping to, and (3) states where you make a large amount of sales.
Please note
that the above applies only to businesses selling goods or products. Usually,
services do not require a sales tax, but some states have started to change
that.
Legal Entity Location
Online
businesses, because they typically do business in multiple areas, usually
choose to incorporate in a “business-friendly” state (e.g., Delaware and
Nevada) for their beneficial laws and lower tax rates. You may want to do this
if you are forming a multi-state business. However, if you plan to only operate
in the state where you live, incorporating within your home state may make the
most sense because you’ll still need to pay the required taxes in that state
anyway.
Regardless
of where you incorporate, you’ll need to register within every state you do
business in by filing a “foreign qualification.” Failure to do so may result in
fines, fees, and/or back taxes.
Licensure and Permit Requirements
While some
of the below are not mandatory, it may be worth exploring to avoid
complications in the future:
●
Business Operation License: Virtually every business will need
this to operate. Contact your local Secretary of State or City Hall for more
information.
●
Seller’s Permit: Most states require a seller’s permit or an
equivalent if you plan on selling goods or services. Contact your local
Licensing Office or Department of Revenue.
●
Home Occupation Permit: You may need to apply for a Home
Occupation permit if you plan on operating your business from your home.
Compliance with E-Commerce Statues
and Regulations
Below we will
bring your attention to just a few laws and regulations that affect online
businesses which you should be aware of.
CAN-SPAM
CAN-SPAM
established the U.S.’ first national standards for sending commercial e-mail.
In short, if your business plans to send commercial messages (defined as “any
electronic mail message the primary purpose of which is the commercial
advertisement or promotion of a commercial product or service”), then you must
ensure the message:
●
Does not use false or misleading header information
●
Does not use deceptive subject lines
●
Identifies itself as an advertisement
●
States where the business is physically located
●
Has an option of opting out of receiving future e-mails from you
(and you must honor those requests promptly)
While these
requirements may seem relatively minuscule, failure to comply with CAN-SPAM may
result in penalties of over $46,000 for each non-compliant e-mail, so make sure
to take these requirements seriously.
Customer Data Privacy Rights
Over the
past few years, consumers have seen a significant increase in laws and
regulations protecting their personal data and privacy. For the most part,
businesses that own or operate an e-commerce website must comply with the
privacy laws where the online shoppers live. Most privacy laws also
require a Privacy Policy. The main intention of privacy laws is to ensure a
business is transparent about the data they are using and collecting and, in
many cases, to allow a consumer to dictate what happens to their data.
To cover
your bases, your Privacy Policy should explain what data your website collects,
why you collect it, how you collect it, and how you use it. If you plan to
operate in California or the EU, consider conducting additional research, as
those locations have stricter laws.
PCI Compliance
Personal
Card Industry (PCI) Compliance applies to all entities that store, process,
and/or transmit (credit or debit) cardholder data. PCI regulations apply to you
if you plan to accept or process payment cards. That said, most businesses use
third-party vendors like Square, Venmo, or CashApp to accept card payments.
Luckily, these vendors usually have their own PCI Compliance programs. To the
extent you are a business that plans to store credit card data, you should be
aware that there are certain rules and restrictions around the storage and
security of that information.
Third-Party Online Stores
Using
services like Amazon and Etsy does help small business owners get off the
ground by providing accounting, advertising, and commercial services, as well
as some of the requirements discussed in this article (e.g., CAN-SPAM, sales
tax collection). Please keep in mind, however, that even though these sites may
not require some of the things mentioned in this article for you to use their
services, that does not mean they are not required. For example, while Etsy
does not require a business license, your state may still require one for you
to operate legally.
By: Richard Cantoral