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Advising Online Businesses: Privacy, Domain Issues, Liability, Tax, Contractual and E-Commerce Compliance

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 1.

WEDNESDAY, APRIL 22, 2020

Presenting a live 90-minute webinar with interactive Q&A

Harsh Arora, Partner, Kelley Kronenberg, Ft. Lauderdale, Fla.

Jim Chester, Partner, Klemchuk, Dallas

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FOR LIVE EVENT ONLY

HARSH ARORA ESQ. – PARTNER 754-200-7968

HARSH ARORA ESQ. – PARTNER 754-200-79684/17/2020 5 754-200-7968

HARSH ARORA ESQ. –PARTNER


Advising Online Businesses: Privacy, Domain Issues, Liability, Tax, Contractual, and E-

Commerce Compliance

WEDNESDAY, APRIL 22, 2020

1 PM EASTERN

HARSH ARORA, ESQ.

[email protected]




HARSH ARORA ESQ. – PARTNER 754-200-79686HARSH ARORA ESQ. – PARTNER 754-200-

7968HARSH ARORA ESQ. – PARTNER 754-200-

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Table of Contents

Terms and Conditions - HA◦ Governing law- HA◦ Dispute resolution- HA◦ Limitation of liability-HA◦ IP Issues – JC (DMCA for social sites/apps, IP ownership, unsolicited contributions, etc.)

Privacy issues- JC

Domain names- JC◦ Acquisition - JC◦ Domain squatting - JC◦ Other IP concerns - JC

Social media and advertising – JC- social media HA- advertising

Sales tax collection and submission- HA






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TERMS AND CONDITIONS ROADMAP

◦ Governing law - HA◦ Dispute resolution - HA◦ Limitation of liability - HA◦ IP Issues – JC (DMCA for social sites/apps, IP ownership, unsolicited

contributions, etc.)






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TERMS AND CONDITIONS (or Terms of Use)• Contract establishing rights, rules, responsibilities, and guidelines for use of website

• Governs transactions that take place

• Extremely Important 1. Legal Protection2. Saves Time and Money3. Builds Trust Between Business and Customer


HARSH ARORA ESQ. – PARTNER 754-200-79684/17/2020 9 754-200-HARSH ARORA ESQ. –

PARTNERHARSH ARORA ESQ. – PARTNER 754-200-79689

2 Types of T&C

Browse-wrap Click-wrap






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BROWSE-WRAP AGREEMENTS•T&C connected to site by hyperlink that takes user/customer to

complete T&C

•Only way a user would know of T&C existence is if he/she saw and clicked on the hyperlink

•Courts are far less likely to enforce because lack of some type of affirmative consent, UNLESS…






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BROWSE-WRAP NOT ENFORCED UNLESS…1.Is it obvious to users?

2. Are the “Clear and Conspicuous” legal requirements met?

◦ TEST = Likelihood of user seeing T&C?

3.Does it stand out from surrounding text?◦ Bold?◦ ALL CAPS?◦ Different Color?◦ Required to Scroll?






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CLICK-WRAP OR CLICK-THROUGH AGREEMENTS◦ Requires user to agree to T&C before use of services

◦ Legal contract created when accepted because user “signed” or clicked “I agree”

◦ Better method for online businesses◦ Greater probability seen as enforceable,

binding agreement by the courts






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T&C Must Be Well-Displayed

NoticeEasy-to-

Read Format

Scroll to the

bottom

User must be notified

of task they are

performing

Example of language for Enforceable T&C = Use a “Click to Agree” Box• Clicking the button confirms the reading of T&C• Enforceability hinges on “Reasonable Notice” and “Opportunity to Review”




READABILITY T&C

Easy-to-ReadFont Size

Sufficient Spacing

Easy-to-ReadFont Style

Clear & Obvious Headings






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PRACTICES TO AVOID1. BIG PARAGRAPHS

with small font

2. Inundated with “Legalese”

3. Font colors that blend intothe background






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ADDITIONAL IMPORTANT POINTS ON T&CCHANGING THE T&C◦ Must notify users when changes are made due to contractual relationship◦ Users must agree to updated T&C in order to bind user◦ Must explain updates to users and impacts on users

RECORDKEEPING◦ Critical to keep record◦ Protection from Legal Disputes





GOVERNING LAW PROVISIONST&C CONTINUED…






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GOVERNING LAW PROVISIONS

Specifically states which jurisdiction’s law will govern theprovisions of the T&C◦ Not legally required◦ BUT – should ALWAYS be included◦ Allows parties to agree to a particular state or country’s laws for

interpretation of the T&C◦ Federal law governs interpretation and enforcement of forum selection

clauses, but state law governs contract formation and interpretation ofagreement’s terms◦ Subsidy Grp., LLC v. Fed. Int’l de Football Ass’n, 2104 WL 12631652, at *14 (C.D. Cal. June 9,

2014)






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Governing Law Ctd…Should be carefully drafted:◦ Should include the chosen jurisdiction’s

substantive and procedural law◦ Should be sufficiently broad to ensure

that ALL claims will be governed by the same law

SUBSTANTIVE LAW

PROCEDURAL LAW

Law governing the creation of a party’s rights

Law governing the enforcement of a party’s rights

No Governing Law Provision Included:• General rule = rights & duties of the

parties with respect to an issue incontract are determined by the locallaw of the state which has the mostsignificant relationship to thetransaction regarding the particularissue• Aruba Hotel Enterprises N.V. v.

Belfonti, 611 F. Supp. 2d 203 (D.Conn. 2009)




7 CONSIDERATIONS OF SECTION 6 RESTATEMENT (SECOND) OF CONFLICT OF LAWS TO DETERMINE SIGNIFICANT

RELATIONSHIP1 Needs of interstate & international systems

2 Relevant policies of forum

3 Relevant policies of other interested states and relative interests of those states in the determine of the particular issue

4 Protection of justified expectations

5 Basic policies underlying the particular field of law

6 Certainty, predictability, and uniformity of result

7 Ease in the determination and application of the law to be applied





IMPLICATIONS OF FOREIGN TRANSACTIONSTERMS & CONDITIONS: GOVERNING LAW PROVISIONS






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Governing Law & Foreign Transactions

Businesses may have a broader reachthan locally:◦ Customers in another country who feel

wronged have a right to file suit◦ Well-drafted provisions will allow desired

law to be applied instead of that of foreigncountry

◦ Businesses should consult with attorneysin foreign jurisdictions where they transact

◦ T&C must comply with the laws,regulations, and/or common practices inkey regions of the world

◦ T&C within the U.S. must not violate stateor federal consumer laws





DISPUTE RESOLUTIONTERMS AND CONDITIONS






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DISPUTE RESOLUTION

◦ Extremely important with profound implications

◦ Radically affect outcomes of disputes

◦ Works in tandem with governing law provision

◦ Should be CLEAR and UNAMBIGUOUS

◦ A fine line should be drawn distinguishing governing law clause & dispute resolution clause

COMPARISON

DISPUTERESOLUTION

GOVERNING LAW

Institutes the processes of how disputes are to be resolved, including

mediation, arbitration, and/or

litigation through the court system

Institutes the law governing the

agreement









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DISPUTE RESOLUTION

MANDATORY PRE-MEDIATION◦ Allows parties to attempt to resolve

disputes before involving neutral arbitrator or mediator or court system

◦ “Talk it out” approach

MANDATORY MEDIATION◦ By accepting T&C, agree to resolve dispute

through mandatory mediation if no agreement beforehand

◦ Some conditions that should be included in the provision:

i. How to initiate mediation process;ii. How to select mediator;iii. When mediation will occur;iv. How costs will be shared;v. Termination of mediation; andvi. Process in which it occurs and transition to

arbitration.






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DISPUTE RESOLUTION

MANDATORY ARBITRATION◦ When impasse at mediation◦ Requires parties to go through

arbitration process◦ Binding decision◦ Federal Arbitration Act does

not prohibit any types of disputes from resolution through arbitration

MAIN ARBITRATION TRIBUNALS

1 American Arbitration Association (AAA)

2 International Centre for Dispute Resolution (ICDR)

3 International Chamber of Commerce (ICC)

4 Institute for Conflict Prevention and Resolution (CPR)

5 JAMS




ARBITRATION LAWS IN THE UNITED STATES*CASE RELEVANT RULE/RESULT

Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct.1758 (2010)

Class action arbitration is permissible but only where parties clearly reachedagreement to arbitration with class of persons• After – increasingly drafted to expressly prohibit class action arbitrations (class action arbitration waiver)

American Express Co. v.Italian Colors Restaurant,133 S. Ct. 2304 (2013)

Class action arbitration waivers in commercial contracts are enforceable in certaincircumstances to prevent class arbitrations, even if based on federal statute

DIRECTV, Inc. v. Imburgia,136 S.Ct. 463 (2015)

SC upheld validity of class action arbitration waivers in consumer agreements and overturned CA Court of Appeals

Citigroup, Inc. v. Abu DhabiInv. Auth., 778 F.3d 126 (2dCir. 2015)

The question of whether a federal judgment confirming a prior arbitral awardprecludes subsequent arbitration of claims is question reserved for arbitrators, not thecourts• Aff’d on appeal – Federal Arbitration Act’s policy favors arbitration

Katz v. Cellco P’Ship, 794F.3d 341, 343 (2d Cir. 2015)

2nd Cir. Clarified proper procedure a federal court is to employ following successfulmotion to compel arbitration• Concluded § 3 of FAA leaves district court with no discretion to dismiss case and instead,

it must stay trial of action during pendency of arbitration

*New York = center for commercial arbitration in the United States






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Arbitration: Important FL DecisionDoe v. Natt, No. 2D19-1383, 2020 WL 1486926 (Fla. 2d DCA 2020) – March 25, 2020

Issue = Arbitrability of claims included in the scope of arbitration provisionthat incorporates, by reference, commercial arbitration rules (e.g., AAA rules)◦ Most federal courts applying FAA have ruled only arbitrator decides – this case does not◦ Involves AirBnb’s Terms of Service – Click-wrap agreement

◦ Arbitration & governing law provisions were merged and provided that arbitration by AAA◦ Click-wrap agreement did not mention who decides issues of arbitrability

◦ Court looked to US Supreme Court for precedent – SC previously instructed that must beCLEAR & UNMISTAKEABLE evidence parties agreed to have arbitrator decide arbitrability

◦ Court held that contract’s arbitration provision’s reference to arbitration rule does NOT grantarbitrator authority to decide arbitrability (question is not WHAT but WHO)

◦ “Courts should not assume that the parties agreed to arbitrate arbitrarily unless there is‘clear and unmistakable’ evidence that they did so”◦ First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 945 (1995)






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BENEFITS OF ARBITRATION AND KEEPING ISSUES OUT OF THE COURT SYSTEM

Easier to Enforce Greater Flexibility/Freedom

Greater Privacy & Confidentiality Limited Discovery

Choose Decision-Maker

Theoretically Quicker

No Emotional Ties of a Jury

Greater Recovery of Fees & Costs






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DRAWBACKS TO ARBITRATION

Courts provide ability to bring in 3rd parties

Courts provide consistency in decisions

Arbitrations can be extremely expensive –don’t have to pay for judge’s timeCourt has more coercive power & may impose sanctions so the Court System is less free flowing






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ARBITRATION CLAUSES

PRACTICAL ASPECTS/CONSIDERATIONS FOR CLAUSES RELATED TO VENUE

◦ Convenience◦ Preferred Judicial System◦ Exclusive or Non-exclusive clause?

◦ Exclusive = one particular jurisdiction only◦ Non-exclusive = one particular jurisdiction but without

prejudice to right of any party to take to another appropriate jurisdiction

PRACTICAL ASPECTS/CONSIDERATIONS FOR ARBITRATION CLAUSESBASIC ELEMENTS TO INCLUDE:1. Reference to arbitration2. Incorporation of the rules governing arbitration3. Specify seat of arbitration (venue)4. If international business, choice of language

provision5. Preferred number of arbitrators

◦ 1 arbitrator or a tribunal of 3 arbitrators





LIMITATION OF LIABILITYTERMS AND CONDITIONS CTD…






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LIMITATION OF LIABILITY

Disclaimer in an agreement limiting conditions under which the disclaimingparty may be held liable for loss or damages and defines limits of damages◦ There could always be product losses, damages, or injuries resulting from products or services

provided◦ Provided in T&C covering loss, liability, damage, personal injury, or expense

IMPORTANT BECAUSE:1. Protects businesses2. Limits & caps potential damages

• Benefits both business and users/customers:

• Business = avoids costly litigation• User/Customer = offered services and

goods at much lower cost due to lower risk of each transaction






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ENFORCEABILITY LIMITATION OF LIABILITY PROVISIONS

Enforceability differs depending on state’s contract laws and facts of each case◦ Some states take a common law-based approach & uphold provisions unless unconscionable

or violate public policy◦ Lucier v. Williams, 841 A.2d 907, 912 (N.J. Super. Ct. App. Div. 2004) – held a limitation of liability clause void as

against public policy

◦ Other states have statutory schemes in place addressing limitation of liability provisions in certain contexts◦ E.g., Va. Code Ann. § 54.1-411 – allows design professionals to use these provisions

◦ Other states use a hybrid approach and apply their anti-indemnity statutes for analysis◦ E.g., Alaska






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Generally – state law requires provision to be CLEAR and CONSPICUOUS◦ Sports Capital Holdings (St. Louis), LLC v. Schindler Elevator Corp. & Kone, 4:12CV1108 SNLJ, 2014

WL 1400159 (E.D. Mo. Apr. 10, 2014) (citations omitted); Earl Brace & Sons v. Ciba-Geigy Corp., 708 F.Supp. 708, 710 (W.D. Pa. 1989) (citing Hunter v. Texas Instruments, Inc., 798 F.2d 299 (8th Cir. 1986); Arkwright-Boston v. Westinghouse Electric Corp., 844 F.2d 1174 (5th Cir.1988); TransurfaceCarriers, Inc. v. Ford Motor Co., 738 F.2d 42 (1st Cir. 1984); Ford Motor Credit Co. v. Harper, 671 F.2d 1117 (8th Cir. 1982); Thermo King Corp. v. Strick Corp., 467 F. Supp. 75 (W.D.Pa.1979), aff'd, 609 F.2d 503 (3d Cir. 1979)

◦ E.g. where upheld – Ticketmaster’s Terms of Use enforceable and precluded liability for consequential damages (cancelled Rolling Stones Concert)◦ Druyan v. Jagger, 508 F.Supp.2d 228 (S.D. N.Y. 2007)

Use of Plain Language without “legalese”

Limitations must be Reasonable






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PRACTICAL CONSIDERATIONS:1. Business must understand the

courts and jurisdiction chosen to review the T&C◦ Must include key language of that court

2. Business must attempt to create “equal footing” between it and user/customer◦ Highlight language in agreement with

different:◦ Typeface◦ Bold print◦ Separate off rest of language◦ Anything else to make conspicuous

ENFORCEABILITY

STATE ENFORCEABLE? LEADING CASE

CA ENFORCEABLEMarkborough California, Inc. v. Superior Court, 227 Cal. App. 3d 705 (Cal. App. 1991), but compare Greenwood v. Murphy, 2008 WL 4946224 (Cal. App. 2008)

FL QUESTIONABLEWitt v. La Gorce Country Club, Inc., 35 So.3d 1033 (Fla. Ct. App. 2010)

NY ENFORCEABLESommer v. Federal Signal Corp., 583 N.Y.S.2d 957 (Ct. App. 1992), Long Island Lighting Co. v. Imo Delaval, Inc., 668 F. Supp. 237 (S.D.N.Y. 1987)

TX ENFORCEABLEMickens v. Longhorn DFW Moving, Inc., 264 S.W.3d 875 (Tex. App. 2008), CBI NA-CON, Inc. v. UOP Inc., 961 S.W.2d 336 (Tex. App. 1997)

ADVISING ONLINE BUSINESSES– APRIL 22, 2020

JIM CHESTER

[email protected]

38

Terms and conditions - HA

Governing law- HA

Dispute resolution- HA

Limitation of liability-HA

IP Issues – JC (DMCA for social sites/apps, IP ownership, unsolicited contributions, etc.)

Privacy issues- JC

Domain names- JC

Acquisition - JC

Domain squatting - JC

Other IP concerns - JC

Social media and advertising – JC- social media HA- advertising

Sales tax collection and submission- HA

39

TERMS OF USE: IP PROTECTION & ISSUES

40

INTELLECTUAL PROPERTY

COPYRIGHT

- Source Code

- Images created by code (GUI,etc.)

- Web design/Layout

- Web content, photos, graphics, text, etc.

- Databases

PATENT

- Systems/Methods

- Hardware

TRADEMARK

- Company Name /Logo

- Product/ Service Brand/Logo

- Slogans

TRADE SECRETS- Confidential graphics - Source & Object code

- Algorithms - Programs or other Technical Descriptions

- Data & Logic flow charts

- User Manuals- Data Structures- Database Contents

- User data

41

State & Federal U.S.

-TM, SM, trade dress – USPTO/State

-Patents – USPTO

- Copyrights – US Library of Congress

- Trade Secrets (no registration)

International

-Treaties: WIPO/PCT (Patent); Madrid Protocol (TMs)

-Berne Convention (Copyright)

-Foreign Gov’ts

SECURING IP RIGHTS - INDIRECTLY

42

• NDA’s/Confidentiality Agreements

• “Work for Hire” and development agreements

• Terms of Use

• IP Ownership

• License grant

• Unsolicited contributions

SECURING IP RIGHTS - DIRECTLY

43

DIGITAL MILLENNIUM COPYRIGHT ACT (DMCA)

Safe Harbor - Limits Liability of Internet Service Providers• Under the DMCA, an ISP is not liable for copyright infringement by its customer unless the

ISP is aware of the subscriber’s violation.

• An ISP may be held liable only if it fails to take action to shut down the subscriber after learning of the violation.

44

PRIVACY

45

PRIVACY

Privacy Policies

Governed by an array of state, local, foreign laws

CCPA

GDPR

COPPA

Special rules may apply (HIPAA, PCI, etc.)

46

DATA PRIVACY: COMPARING CCPA & GDPR

Source: PwC

47

PRIVACY

Privacy Policies - Common Pitfalls

Cut and Paste

Not following PP terms

Stale/out of date

48

DOMAINS

49

DOMAIN NAMES

• Domain name – The series of letters and symbols used to identify a site operator on the Internet; an Internet “address.”

Structure of Domain Names

• Every domain name ends with a top-level domain (TLD), which is the part of the name to the right of the period and indicates the type of entity that operates the site.

• Examples: “com” is an abbreviation for commercial; “edu” is short for education.

• The second-level domain (SLD)—the part of the name to the left of the period—is chosen by the business entity or individual registering the domain name.

• Example: in www.MyOnlineStore.com, “MyOnlineStore” is the SLD.

• By using an identical or similar domain name, parties have attempted to profit from a competitor’s goodwill.

• Goodwill – In the business context, the valuable reputation of a business viewed as an intangible asset.

50

DOMAIN ACQUISITION

New Domain Names• Commercial services & web hosts

• GoDaddy, Siteground, wix, verio, etc.• Can add-on domain privacy

Aftermarket Domain Names• Domain brokers • Auction sites • Individual owners of target domain

• Brokers and auction sites add some much-needed security and accountability to the process, protecting both customer and the domain vendor from fraud

• If direct, may want escrow service (e.g., escrow.com)

51

CYBERSQUATTING

• Cybersquatting – Registering a domain name that is the same as, or confusingly similar to, the trademark of another and then offering to sell that domain name back to the trademark owner.

Anticybersquatting Legislation

• The Anticybersquatting Consumer Protection Act (ACPA) makes cybersquatting illegal when both of the following are true:

1. The domain name is identical or confusingly similar to the trademark of another.

2. The one registering, trafficking in, or using the domain name has a “bad faith intent” to profit from that trademark.

Frequent Changes in Domain Name Ownership Facilitate Cybersquatting

• The speed at which domain names change hands and the difficulty in tracking mass automated registrations have created an environment in which cybersquatting can flourish.

52

CYBERSQUATTING

Typosquatting• Typosquatting – A form of cybersquatting that relies on mistakes, such as typographical errors, made by

Internet users when inputting information into a Web browser.• Examples: “tessla.com”; “dallacowboy.com”

• Web pages using misspelled names receive a lot of traffic, and more traffic generally means increased profits (advertisers often pay websites based on the number of unique visits).

• Typosquatting adds costs for businesses, as companies must attempt to register not only legitimate variations of their domain names but also potential misspellings.

Applicability and Sanctions of the ACPA• The ACPA applies to all domain name registrations of trademarks.• Successful plaintiffs in suits brought under the act can elect to either:

• Collect actual damages and profits

• Receive statutory damages ranging from $1,000 to $100,000

53

DOMAIN NAME DISPUTES• The Internet Corporation for Assigned Names and Numbers (ICANN), a nonprofit

corporation, oversees the distribution of domain names and operates an online arbitration system: Uniform Domain Name Dispute Resolution Policy (UDRP)

• Due to numerous complaints, ICANN overhauled the domain name distribution system in 2012 by selling new generic top-level domain names (gTLDs) (e.g., .biz, .com, .info, .mobi, .name, .net, .org).• Because gTLDs have greatly increased the potential number of domain names, domain name

registrars have proliferated.

• One of the goals of the new gTLD system was to address the problem of cybersquatting.

• ICANNs UDRP Policy sets out the legal framework for the resolution of disputes between a domain name registrant and a third party (i.e., a party other than the registrar) over the abusive registration and use of an Internet domain name

54

META TAGS

• Meta tags are key words that give Internet browsers specific information about a Web page.

• Meta tags can be used to increase the likelihood that a site will be included in search engine results, even if the site has nothing to do with the key words.

• Using another’s trademark in a meta tag without the owner’s permission can constitute trademark infringement.

55

TRADEMARK DILUTION IN THE ONLINE WORLD

• Trademark dilution occurs when a trademark is used, without authorization, in a way that diminishes the distinctive quality of the mark.• Unlike trademark infringement, a claim of dilution does not require proof that

consumers are likely to be confused by a connection between the unauthorized use and the mark.

56

SOCIAL MEDIA

57

SOCIAL MEDIA

Reviews

Fake reviews/bots

Dealing with bad reviews

Influencers Endorsements

If paid and/or received free items, relationship must be disclosed.

Contests

Governed by state and national laws

Comply with social media portal terms

58





ADVERTISING FOR ONLINE BUSINESSESSOCIAL MEDIA & ADVERTISING






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ADVERTISINGFederal Trade Commission (FTC) implements advertising laws at the federal level in the U.S.◦ FTC strictly enforces deceptive advertising practices online to protect

consumers◦ FTC Act prohibits “unfair or deceptive acts or practices”◦ FTC holds vast power in U.S.◦ FTC issues rules & guides for certain industries or subject areas:

◦ Rules prohibit specific acts or practices that FTC found unfair or deceptive◦ Guides help businesses comply with laws (16 C.F.R. ¶ 1.5 defines “Guides”)

Each state has consumer protection agency enforcing state laws






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ADVERTISING

Lanham Act (41 U.S.C. § 1125(a)(1)) –allows business competitors to privately sue advertisers for false advertising

Lanham Act Elements for Competitor to Prevail:1. False or misleading statement of fact2. Use in commercial advertisement or

promotion3. Deceives or likely to deceive in material way4. Interstate commerce5. Caused or likely to cause competitive or

commercial injury

FTC Act prohibits unfair or deceptive advertising◦ Must be CLEAR and CONSPICUOUS◦ § 5 of FTC Act provides definition of

deceptive (likely to mislead customers & affect behavior or decisions about product or service)

◦ Basic Principles of Advertising Law:1. Truthful & not misleading2. Substantiation3. Not unfair (defined in 15 U.S.C. § 45(n)

and FTC’s unfairness policy)






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ADVERTISINGRecent FTC Guidance = “.com Disclosures: How to make effective disclosures in digital advertising”

◦ https://www.ftc.gov/system/files/documents/plain-language/bus41-dot-com-disclosures-information-about-online-advertising.pdf

◦ Disclosures must be CLEAR and CONSPICUOUS◦ Clear and Conspicuous standard is measured by

performance – how consumers perceive & understand disclosure

◦ Requires less distractors◦ Requires drawing more attention to disclosure






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ADVERTISING

NON-COMPLIANCE -Punishments

1 Orders to cease and desist with fines up to $43,280/violation

2 Injunctions by federal district courts

3 Violations of some Commission rules could result in civil penalties of up to $40,654/violation

4 Sometimes – mandated to refund consumers for actual damages in civil lawsuits

Children’s Online Privacy

Protection Act

(COPPA)

Children’s Online Privacy

Protection Act

(COPPA)

Additional protections and streamlines procedures

Provides step-by-step plan

Additional protections and streamlines procedures

Provides step-by-step plan

If covered – must contain certain info in privacy policy & obtain parental consent before collecting from kids under 13

If covered – must contain certain info in privacy policy & obtain parental consent before collecting from kids under 13

https://www.ftc.gov/tips-advice/business-center/guidance/childrens-online-privacy-protection-rule-six-step-compliance

https://www.ftc.gov/tips-advice/business-center/guidance/childrens-online-privacy-protection-rule-six-step-compliance





SALES TAXCOLLECTION AND SUBMISSION






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SALES TAX – Collection & Submission

Typically – business in “sales tax” state collects and remits sales tax with state – add to customer’s total bill◦ Sales Tax = Consumption Tax (consumers pay

on taxable items bought in retail)

Are online businesses obligated to collect and remit sales taxes online?◦ The Rules have updated throughout the years◦ Originally – basic rule was:

i. Physical presence or “nexus” in state, then obligation exists

ii. If no physical presence, then no obligation






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SALES TAX – Collection & Submission

PHYSICAL PRESENCE:◦ Business has facility in state (any business operation)

NEXUS:◦ Connection sellers must have with particular area ◦ States have different definitions but common theme

is if store or office in state, then sufficient nexus◦ Different ways to establish a “Nexus”:

i. Location ii. Personneliii. Storing inventoryiv. Having affiliatesv. Drop-shipping relationship with 3rd partyvi. Selling at trade show or event

EXAMPLES OF RELEVANT TAX LAW IN STATES

STATE CODE/SECTION

CA Section 6203 of CA Revenue & Tax Code

FL FL Code Section 212.06 – calls sellers with a nexus “dealers” and defines “dealer”

NY NY Code Section 1101(b)(8) – defines “vendors” as having sales tax nexus and further defines

“vendor”

TX TX Code Section 151.107 – defines for “engaged in business”






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SALES TAX – Matching Law with TechnologySouth Dakota v. Wayfair, 138 S. Ct. 2080, 201 L. Ed. 2d 403 (2018)

Challenged South Dakota’s application of its sales tax to internet retailers whosell in South Dakota but have no property or employees in the state◦ Challenged and overturned prior case: Quill Corp. v. N. Dakota By & Through Heitkamp,

504 U.S. 298, 112 S. Ct. 1904, 119 L. Ed. 2d 91 (1992)◦ Quill set property or employees standard for sales taxes using Court’s Dormant Commerce Clause power to restrict

taxation of interstate commerce

◦ Determined South Dakota’s law is no burden to interstate commerce◦ Determined South Dakota tax system includes several features designed to prevent

discrimination against or undue burdens upon interstate commerce◦ Held = Physical presence rule of Quill is unsound & incorrect

◦ Quill rule gives out of state sellers advantage and leads to revenue loss◦ Quill rule created tax shelter for businesses limiting physical presence in a state◦ Quill treats identical actors differently for arbitrary reasons◦ Physical presence rule in Quill does not align with modern e-commerce and ignores connections to state




POST-WAYFAIR RESOURCE CHECKLIST FOR ONLINE BUSINESSES

ACCOUNTING SOFTWARE• To effectively sort sales by jurisdiction (zip code & state)

POINT OF SALE SOFTWARE• Ability to apply the correct taxability determinations and accurately calculate sales tax

SALES TAX SOFTWARE• To automate collection and remittance process

STAFFING/EXTERNAL RESOURCES• Determine whether current staffing arrangements have capacity to take on nexus analysis, and

outsource , if necessary

Businesses need to take proactive action to have the proper resources in place to navigate the post-Wayfairworld of expanded tax obligations






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INTERNATIONAL SALES TAX COLLECTION & REMITTANCE

International trend of governments charging tax based on location of purchaser of product – “destination sales tax”

EUROPEAN UNION:◦ Value-Added Tax (VAT) system = consumption tax applying to all goods & services, whether physical

or digital◦ 27 individual governments of EU each with various tax rates, ranging from 17-27%*

◦ EU Country List = https://europa.eu/european-union/about-eu/countries_en#28members◦ EU Country Tax Rates = https://europa.eu/youreurope/business/taxation/vat/vat-rules-

rates/index_en.htm◦ European governments want to ensure receive taxes on all goods and services consumed by their

citizens and to ensure not to disadvantage EU-based businesses*Tax Rates cannot be less than 15%





THANK YOU FOR YOUR TIMEJIM CHESTER & HARSH ARORA

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