What could be easier than setting up an online sales business? People do it all of the time, right? However, while you may not need to spend money on expensive commercial space and all that is associated with that kind of business model, you still need to comply with laws governing your business’ operations; and there may be many more laws to deal with than you think.
For some answers about the variety of federal and state laws that may require compliance, visit the official website of the U.S. Small Business Administration (SBA) http://www.business.gov/business-law/online-business/. This site provides useful general information about legal requirements which could affect your Internet business operations such as: intellectual property protection, tax collections, truth in advertising and privacy.
One area not addressed on the SBA site, but which could have profound repercussions, was the subject of a recent U.S. Court of Appeals Seventh Circuit case entitled, Illinois v. Hemi Group, LLC. The question asked and answered by the Circuit Court was whether an Illinois court could assert personal jurisdiction over an Internet business located in New Mexico. Based on the facts in this case, the answer was “yes.”
In summary, Hemi Group, LLC, (Hemi) sold discount cigarettes through its website. It paid federal sale taxes and notified its customers that they should check with their home state to find out if they needed to pay state tax. Apparently Hemi was unaware that Illinois law not only required the customer to pay the applicable state tax for purchases over the Internet, but also required such businesses to file monthly reports of cigarette sales to Illinois residents. Unfortunately for Hemi, not only did it sell cigarettes to the Illinois Department of Revenue, (I guess this was some kind of sting operation,) but it also failed to notify Illinois of the sales. Ouch!
You may think, “Why should Hemi have to defend itself in Illinois? Doesn’t that violate the due process clause of the U.S. Constitution?” Well, the Circuit Court concluded that Hemi had sufficient contacts with Illinois to require the company to answer to complaints brought against it by the State of Illinois.
Thus, while it may appear to be relatively easy and profitable to conduct an e-business that is national in scope, you need to learn about and comply with the particular laws of each state in which you make your sales. Keep in mind, given our troubled economy, state governments are hungry for money and, like Illinois, they may be willing to invest in this kind of aggressive enforcement effort.