e-commerce
Legal Management

How California Regulates E-Commerce

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California is one of the most actively regulated states for online businesses. If you are selling products or services over the internet to customers in the Golden State, there are several laws and regulations to be aware of. In this article, the San Diego business attorneys at Gehres Law Group, P.C. outline longstanding and newly enacted e-commerce laws in California.

Disclosures

As e-commerce was emerging in the late 1990s, the California legislature took steps in 1996 to help protectits consumers from online fraud. Lawmakers amended Section 17538 of the California Business and Professions Code to require internet businesses to disclose to buyers, on screen or in writing:

  • Refund and return policies
  • Business legal name
  • Business address and contact information

These disclosures seem standard today, but the bill was ahead of the curve and helped establish baseline transparency in online transactions.

Privacy Policy

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You may have recently heard of the European Union’s General Data Protection Regulation (GDPR), which went into effect on May 25, 2018. If not, it’s the reason you received many emails from companies asking you to consent to their updated Terms of Service and Privacy Policy. Described by the EU as “the most important change in data privacy regulation in 20 years,” GDPR centers on how companies capture, store and access consumer data online, granting greater protection and control to the consumer.

Long before GDPR, with the United States federal government under-delivering on U.S. data privacy regulations, California became one of the first states to pass its own data privacy law. The California Online Privacy Protection Act (CalOPPA) was enacted in 1994. CalOPPA requires companies operating commercial websites to include a link to a Privacy Policy on their website. The Privacy Policy must address:

  • The type of personal information collected
  • How users can request changes to data collected
  • How the operator will handle a “Do Not Track” request
  • Whether the data collected is accessible to any third parties
  • Effective date of the Privacy Policy
  • How users will be notified of changes to the Privacy Policy

Again, California’s emphasis on e-commerce regulation was pioneering for its time – especially considering its many similarities to the GDPR of 2018.

Internet Sales Tax

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Federal law states that businesses must collect sales tax for internet transactions involving the sale of most goods to customers where the business has a physical presence. California, however, requires larger e-commerce sellers to collect sales tax in California even if they do not have a presence in California. This regulation comes from the “Amazon Law,” named after the online giant and enacted in 2012.

Under the Amazon Law, an out-of-state retailer must collect sales tax from California customers if:

  • The retailer has an agreement with a person or persons located in California to pay for customer referrals obtained via a link on the California seller’s website (a click-through arrangement)
  • The retailer’s total cumulative sales to purchasers in California exceed $10,000 during the preceding 12 months, and
  • The retailer also has total cumulative sales to purchasers in California exceeding $1 million.

True to its trailblazing form, California was one of the first states to collect what is today known as an “Amazon tax.” In 2011, Amazon collected sales tax from five states; In 2017, the company began collecting sales tax nationwide. Items exempt from e-commerce sales tax in California include certain food products, e-books, software, applications and items for resale.

Physical Presence

The “physical presence” that determines whether an online retailer must collect sales tax can be somewhat confusing. Physical presence usually means an office, store, warehouse or employee. But remember, the Amazon Law in California overrides federal law, requiring large online retailers to collect sales tax regardless of whether they have a physical presence in the state.

Auto-Renewals

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Starting on July 1, 2018, California’s updated Auto-Renewal Law (ARL) will require online sellers to make their terms even clearer in transactions that involve an auto-renewal. In addition to obtaining consent for pricing that will later increase (such as a free gift or promotional offer followed by a subscription), sellers will have to allow buyers to cancel memberships or subscriptions online. Previously, they were able to require customers to cancel by mail or phone, which became the source of many consumer complaints. California laws concerning auto-renewals also include other requirements that online retailers should be aware of before implementing this type of program.

Ensuring Compliance

Because of California’s many unique regulations, potentially steep penalties for non-compliance and the likelihood of new laws in the coming years, it is recommended that any business selling products or services to California customers online consult an experienced California business attorney. Gehres Law Group keeps a thumb on the pulse of California e-commerce law as part of its complete business law services, which include business formation, contract law, trademarks, copyrights, litigation and more.

About the Author

Tina K Gehres is the President and founder of Gehres Law Group, P.C. in San Diego, California. Ms. Gehres holds more than two and a half decades of legal and business experience. Today, she uses her experience to provide legal services to small businesses and individuals and has positioned herself as a valuable asset to all of her clients.

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