1. E-Business Tenth Edition
Chapter 8 E-Business Law and Taxation 1 1

2. Learning Objectives In this chapter, you will learn:
How the legal environment affects electronic commerce activities
What elements combine to form an online business contract
How copyright, patent, and trademark laws govern the use of intellectual property online
That the Internet has opened doors for online crime, terrorism, and warfare 2 2

3. Learning Objectives (cont’d.)
How ethics issues arise for companies conducting electronic commerce
Ways to resolve conflicts between companies’ desire to collect and use their customers’ data and the privacy rights of those customers
What taxes are levied on electronic commerce activities

4. The Legal Environment of Electronic Commerce
All businesses:
Must comply with the same laws and regulations
Face the same set of penalties
Web businesses face additional complicating factors
Web extends reach beyond traditional boundaries
Subject to more laws more quickly than brick-and-mortar business
More interactive and complex customer relationships
Due to increased communications speed and efficiency

5. The Legal Environment of Electronic Commerce (cont’d.)
Online communications
Facilitate strategic alliances and supply web relationships
Web creates network of customers
Significant levels of interaction (with each other)
Implications of violating law or breaching ethical standards
Web businesses face rapid, intense reactions from customers and stakeholders

6. Borders and Jurisdiction
Physical world of traditional commerce
Territorial borders clearly:
Mark range of culture
Mark reach of applicable laws
Physical travel across international borders
People made aware of transition through:
Formal document examination
Language and currency change

7. Geographic influences of area’s dominant culture
© Cengage Learning 2013
FIGURE 8-1 Culture helps determine laws and ethical standards
Geographic influences of area’s dominant culture
Limit acceptable ethical behavior and laws adopted
Culture affects laws directly and indirectly
Through its effect on ethical standards

8. Borders and Jurisdiction (cont’d.)
Geographic boundaries on culture
Historically defined by lack of distant travel
Today people travel easily between countries
Example: European Union citizen movement and use of common currency (the euro)
Relationship between geographic and legal boundaries
Defined by four elements
Power, effects, legitimacy, notice

9. Borders and Jurisdiction (cont’d.)
Power
Form of control over:
Physical space
People and objects residing in physical space
Defining characteristic of statehood
Effective laws require effective enforcement
Effective enforcement requires ability to:
Exercise physical control over residents
Impose sanctions on violators

10. Borders and Jurisdiction (cont’d.)
Government’s ability to exert control over a person or corporation
Physical world laws do not apply to people:
Not located in or not owning assets in geographic area that created laws
Asserted government power level
Limited by existing culture acceptance
Ideally
Geographic boundaries, cultural groupings, legal structures all coincide

11. Borders and Jurisdiction (cont’d.)
Effects
Physical world laws
Grounded in relationship between physical proximity and effects (impact) of person’s behavior
Diminish as geographic distance increases
Local culture’s acceptance or rejection of various kinds of effects:
Determines characteristics of laws
For online businesses:
Traditional measures, resulting laws do not work well
Example: online Nazi memorabilia sales

12. Borders and Jurisdiction (cont’d.)
Legitimacy
1970 United Nations resolution
Affirmed idea of governmental legitimacy
Idea that those subject to laws should have some role in formulating them
Countries and governments
Operate with varying levels of authority and autonomy
Example: China and Singapore versus Scandinavian countries

13. Borders and Jurisdiction (cont’d.)
Notice
Physical boundaries provide notice (when crossed)
One rule set replaced by different rule set
Expression of such a change in rules
Constructive notice
People informed of subjection to new laws and cultural norms: crossing international border
Ignorance of law: not sustainable defense
Creates problems for online businesses: unknown customers from another country accessing Web sites
Poor translation to online business

14. FIGURE 8-2 Physical geographic boundaries lead to legal boundaries
© Cengage Learning 2013
FIGURE 8-2 Physical geographic boundaries lead to legal boundaries

15. Jurisdiction on the Internet
Difficult
No geographic boundaries
Power, effects, legitimacy, and notice
Do not translate well to e-commerce
Governments enforcing Internet business conduct laws:
Must establish jurisdiction over conduct
Contract
Promise between two or more legal entities
Provides for exchange of value between them

16. Jurisdiction on the Internet (cont’d.)
Breach of contract
Occurs if either party does not comply with contract terms
Other party can sue (failure to comply)
Tort
Intentional (negligent) action taken by a legal entity
Causing harm to another legal entity
Other than breach of contract
Sufficient jurisdiction requires:
Subject-matter jurisdiction and personal jurisdiction

17. Jurisdiction on the Internet (cont’d.)
Subject-matter jurisdiction
Court’s authority to decide particular dispute type
United States examples
Federal courts: subject-matter jurisdiction over issues governed by federal laws
State courts: subject-matter jurisdiction over issues governed by state laws
Rules determining subject-matter jurisdiction
Clear and easy to apply (few disputes)

18. Jurisdiction on the Internet (cont’d.)
Personal jurisdiction
Determined by residence of parties
If defendant is a state resident where court located
Straightforward determination
An out-of-state person or corporation can voluntarily submit to a state court jurisdiction
Forum selection clause
Statement included in a signed contract
Indicates contract enforced according to particular state laws 18

19. FIGURE 8-3 A typical forum selection clause

20. Jurisdiction on the Internet (cont’d.)
Long-arm statutes: state laws creating personal jurisdiction (details vary)
Create personal jurisdiction over nonresidents committing tortious acts
Businesses conducting e-commerce over state and international lines
Be aware of jurisdictional considerations
Extent to which these laws apply: unclear
Procedural laws written prior to electronic commerce
Continue to evolve as electronic commerce disputes arise

21. Jurisdiction on the Internet (cont’d.)
Tortious acts
Represent exceptions to general rule determining personal jurisdiction
Committed by selling product causing harm to buyer
Negligent tort
Seller unintentionally provides a harmful product
Intentional tort
Seller knowingly or recklessly causes injury to buyer

22. Jurisdiction on the Internet (cont’d.)
Most common business-related intentional torts
Defamation, misrepresentation, fraud, trade secret theft
Long-arm statutes
Invoked more readily for tortious acts compared to breach of contract 22

23. Jurisdiction on the Internet (cont’d.)
Jurisdiction in international commerce
Governed by treaties between countries
U.S. determines personal jurisdiction for foreigners
Same manner as in domestic long-arm statutes
Non-U.S. corporations and individuals
Can be sued in U.S. courts
Foreign courts can enforce U.S. court system decisions against U.S. corporations, individuals
Judicial comity
Voluntarily enforce other countries’ laws out of sense of comity (friendly civility)

24. Jurisdiction on the Internet (cont’d.)
Courts reluctant to serve as forums for international disputes
Not designed for diplomacy, cost-benefit evaluations
Prefer government executive branch to negotiate international agreements, resolve international disputes
Examples: eBay and Google in China
Some assert Chinese government involved in failures
Online resources
Berkman Center for Internet & Society
UCLA Online Institute for Cyberspace Law and Policy

25. Conflict of Laws Business governed by various laws Conflict of laws
Federal laws, state laws, local laws
Conflict of laws
When laws address same issues in different ways
Online businesses span many localities, states
Look to federal laws for guidance
May lead to problems with state and local laws
Example: direct wine sales industry
More information: Free the Grapes
Web site of a wine industry trade association

26. Contracting and Contract Enforcement in Electronic Commerce
Three essential contract elements
An offer, an acceptance, consideration
Contract formed when one party accepts offer of another party
Offer
Commitment with certain terms made to another party
Can be revoked
Acceptance
Expression of willingness to take offer including all stated terms

27. Contracting and Contract Enforcement in Electronic Commerce (cont’d.)
Consideration
Agreed-upon exchange of something valuable
Money, property, and future services
Implied contract
Formed by two or more parties acting as if contract exists
Even if no written and signed contract

28. Contracting and Contract Enforcement in Electronic Commerce (cont’d.)
Creating contracts: offers and acceptances
Contract
Exists for every kind of agreement or exchange between parties (no matter how simple)
Example: consumer buying an item at the supermarket
Key element of traditional and Internet business
Internet communication offers and acceptances
Occur by exchanging , engaging in EDI, and filling out Web page forms
Can be combined with traditional methods

29. Contracting and Contract Enforcement in Electronic Commerce (cont’d.)
Creating contracts: offers and acceptances (cont’d.)
Consumer’s contract to buy goods
Same basic elements: in-person and online
Resource
Cornell Law School Web site
Contains Contracts Uniform Commercial Code (UCC) 29

30. FIGURE 8-4 Contracting process in an online sale
© Cengage Learning 2013
FIGURE 8-4 Contracting process in an online sale

31. Contracting and Contract Enforcement in Electronic Commerce (cont’d.)
Click-wrap and Web-wrap contract acceptances
End-user license agreements (EULAs)
Contract user must accept before installing software
Shrink-wrap acceptance
Accepting a contract by removing plastic shrink wrap
Click-wrap acceptance
Agree to site’s EULA or its terms and conditions by clicking a button on the Web site
Web-wrap acceptance or browser-wrap acceptance
Accept by simply using the Web site 31

32. Contracting and Contract Enforcement in Electronic Commerce (cont’d.)
Creating written contracts on the Web
Contracts valid even if not in writing or signed
May not be enforceable in certain categories
Statute of Frauds (state laws)
Categories of contracts not enforceable unless terms put into writing and signed
Applies to sale of goods worth more than $500
Requires that actions not completed within one year must be created by a signed writing 32

33. Contracting and Contract Enforcement in Electronic Commerce (cont’d.)
Creating written contracts on the Web (cont’d.)
Forming contracts using electronic commerce
Pen or paper not required (fortunately)
Writing exists:
When contract terms reduced to tangible form
Signature
Any symbol executed or adopted for the purpose of authenticating a writing

34. Contracting and Contract Enforcement in Electronic Commerce (cont’d.)
Creating written contracts on the Web (cont’d.)
Article 11 of the United Nations Convention on Contracts for the International Sale of Goods (CISG)
Requires neither writing nor a signature to create a legally binding acceptance
Information on CISG and related topics in international commercial law
Pace Law School CISG Database Web site

35. Contracting and Contract Enforcement in Electronic Commerce (cont’d.)
Implied warranties and warranty disclaimers on the Web
Implied warranty
Promise to which the seller can be held even though the seller did not make an explicit statement of that promise
Law establishes these basic elements of a transaction in any contract to sell goods or services
Warranty disclaimer
Statement declaring that the seller will not honor some or all implied warranties

36. Contracting and Contract Enforcement in Electronic Commerce (cont’d.)
Implied warranties and warranty disclaimers on the Web (cont’d.)
Warranty disclaimer must be conspicuously made in writing
Put in larger type, bold font, or contrasting color
State it obviously
Make it easy for buyer to find on Web site

37. FIGURE 8-5 A Web site warranty disclaimer

38. Contracting and Contract Enforcement in Electronic Commerce (cont’d.)
Authority to form contracts
Contract formed when offer accepted for consideration
Problems with acceptance
Issued by imposter (forgery)
Improper authority to bind company to a contract
Electronic commerce technology
Makes forged identities easy to create
Also provides means to avoid deception
Establish identity in online transactions
Use digital signatures

39. Contracting and Contract Enforcement in Electronic Commerce (cont’d.)
Authority to form contracts (cont’d.)
Authority to bind
Authority to commit company to online contract
Example: employee accepts contract, company later asserts employee not authorized
In physical world transactions:
Check public information on file
Obtain copies of corporate certificates or resolutions
In online transactions:
Physical world methods can be time consuming and awkward

40. Contracting and Contract Enforcement in Electronic Commerce (cont’d.)
Terms of service agreements
Site visitors must follow stated rules
Most visitors not aware of rules
Terms of service (ToS) agreements
Detailed rules and regulations
Limit Web site owner’s liability for what one might do with site information
Site visitor held to terms of service by simply using site

41. FIGURE 8-6 Yahoo! Terms of Service agreement
Copyright © 2012 Yahoo! Inc. All rights reserved
FIGURE 8-6 Yahoo! Terms of Service agreement

42. Use and Protection of Intellectual Property in Online Business
Intellectual property (general term) includes:
All products of the human mind
Tangible or intangible
Protections afforded by copyrights and patents, trademarks registration, service marks
Right of publicity
Limited right to control others’ commercial use of an individual’s name, image, likeness, identifying aspect of identity
Limited by U.S. First Amendment provisions

43. Use and Protection of Intellectual Property in Online Business (cont’d
Online businesses must avoid:
Deceptive trade practices
False advertising claims
Defamation or product disparagement
Infringements of intellectual property rights
By using unauthorized content

44. Copyright Issues Copyright
Right granted by government to the author (creator) of literary or artistic work
Specific time length provided in copyright law
Gives author (creator) sole and exclusive right to the work (print, publish, sell)
Includes virtually all forms of artistic or intellectual expression

45. Copyright Issues (cont’d.)
Idea contained in an expression
Cannot be copyrighted
Requirement
Idea must be separate from expression
Example: mathematical calculations
Collection of facts
Can be copyrighted
Example: Yahoo! Web Directory

46. Copyright Issues (cont’d.)
U.S. law still allows registration (no longer required)
Work created after 1989
Copyrighted automatically by virtue of copyright law
Most U.S. Web pages protected by automatic copyright provision
Web client computer copy of HTML file
Acceptable under fair use
Includes copying it for use in criticism, comment, news reporting, teaching, scholarship, or research

47. FIGURE 8-7 U.S. law governing the fair-use exception

48. Copyright Issues (cont’d.)
Fair use specific factors
Nonprofit educational uses have better chance of qualifying than commercial uses
Court may consider painting using different standards than sound recording
Small sections qualify when entire work might not
Court may consider amount of damage caused to value of copyrighted work
Fair-use Web site sources:
University of Texas Copyright Crash Course
Stanford Copyright & Fair Use

49. Copyright Issues (cont’d.)
Copyright law difficult to apply
Due to elements such as fair use
Vicarious copyright infringement
Entity capable of supervising infringing activity
Obtains a financial benefit from infringing activity
Example: Napster
Failed to monitor its network
Profited indirectly from the infringement
Music downloads, copying
Legality unclear in many cases

50. Patent Issues
Patent
Exclusive right granted by government to an individual
Make, use, sell invention
Invention must be:
Genuine, novel, useful
Not obvious given current technology state
1980s: companies started obtaining software patents
Not useful for Web site software
Technology obsolete before patent protection secured

51. Patent Issues (cont’d.)
Business process patent
Protects specific set of procedures for conducting a particular business activity
Enforcing rights under business process patent
Not yet clear
Examples:
Amazon.com sued Barnes & Noble for process similar to 1-Click method
MercExchange sued eBay over fixed price sales option

52. Trademark Issues Trademark Service mark
Distinctive mark, device, motto, implement company affixes to goods it produces
Identification purposes
Service mark
Similar to trademark, identifies services provided
Both registered with governments (state, federal)
Trade name
Name business uses to identify itself
Protected under common law

53. Trademark Issues (cont’d.)
Common Law
Law established by history of court decisions
Statutory law
Elected legislative bodies pass laws (statutes)
Web site designers must not use:
Any trademarked name, logo, other identifying mark
Without express trademark owner permission

54. Domain Names and Intellectual Property Issues
Cybersquatting
Registering trademarked domain name
Hope owner will pay money to acquire URL
Name changing (typosquatting)
Purposely registering misspelled variations of well-known domain names
Registering a generic name
Not cybersquatting
U.S. Anticybersquatting Consumer Protection Act
Provides protection

55. Domain Names and Intellectual Property Issues (cont’d.)
World Intellectual Property Organization (WIPO)
Uniform Domain Name Dispute Resolution Policy (UDRP)
Handles trademark domain name disputes
Example: Barry Diller versus cybersquatters owning URL barrydiller.com
Example: Sting musician case
WIPO criticism: UDRP enforced unevenly

56. FIGURE 8-8 WIPO Domain Name Dispute Resolution information page
© United Nations
FIGURE 8-8 WIPO Domain Name Dispute Resolution information page

57. Domain Names and Intellectual Property Issues (cont’d.)
Name stealing
Unauthorized changes to domain name ownership
Domain name ownership change
Information maintained by public domain registrar changed in registrar’s database
Reflects new owner’s name and business address
Occurs when safeguards not in place
Main purpose: harass site owner

58. Protecting Intellectual Property Online
Digital watermark
Digital code or stream embedded undetectably in digital image or audio file
Can be encrypted to protect contents
Example: Verance
Provides digital audio watermarking systems
Example: Digimarc
Provides watermark protection systems and software
Copy control
Electronic mechanism limiting number of copies
Example: Blue Spike

59. Defamation Defamatory statement Product disparagement
False and injures reputation of another person or company
Product disparagement
When statement injures product or service reputation
Web sites must consider specific laws:
Before making negative, evaluative statements
Designers must avoid potential defamation liability

60. Defamation (cont’d.) Per se defamation Important exception in U.S. law
Statements so negative that injury assumed
Important exception in U.S. law
Defamatory statements about public figures
Allows considerable leeway for:
Satirical statements
Valid expressions of personal opinion
Other countries do not offer same protections
Web site operators with international audiences need to be careful

61. Deceptive Trade Practices
Trademarked object manipulation
Constitutes infringement of trademark holder’s rights
Personal Web pages
Cannot include unauthorized Web sites links
Risk implying nonexistent relationship
Trademark protection prevents buyer confusion
Trademark dilution
Reduction of distinctive trademark quality by alternative uses

62. Advertising Regulation
Federal Trade Commission (FTC) (United States)
Regulates advertising, publishes regulations, investigates false advertising claims
FTC Web site
Includes links to advertising regulations

63. Source: United States Federal Trade Commission,
FIGURE 8-9 U.S. Federal Trade Commission Bureau of Consumer Protection Business Center page

64. Advertising Regulation (cont’d.)
Illegal under U.S. law
Advertising claim misleading substantial number of consumers in a material way
FTC accepts referred investigations
Better Business Bureau
FTC provides policy statements
Useful for e-commerce Web site designers

65. Advertising Regulation (cont’d.)
Policy statements cover specific areas
Bait advertising
Consumer lending and leasing
Endorsements and testimonials
Energy consumption statements for home appliances
Guarantees and warranties
Prices
Other regulatory agencies
Food and Drug Administration (FDA); Bureau of Alcohol, Tobacco, and Firearms (BATF); Department of Transportation (DOT)

66. Online Crime, Terrorism, and Warfare
Internet
Opened up worldwide possibilities for people to communicate
Opened doors for businesses to:
Reach new markets
Create opportunities for economic growth
Tool for some for perpetrating crimes, conducting terrorism, and waging war

67. Online Crime: Jurisdiction Issues
Online versions of physical world crimes
Theft, stalking, pornography distribution, gambling
New online crime
Commandeering computer to attack other computers
Law enforcement obstacles
Jurisdiction issues
Tricky to determine
Prosecuting across international boundaries
Internet provides new life to old fraud scams
Advance fee fraud
Nigerian scam (419 scam)

68. Online Crime: Jurisdiction Issues (cont’d.)
Distribution of pornographic material
Jurisdiction issues
Subjective distinction between legal and illegal adult material
Online gambling
Sites located outside United States
State laws specifically outlaw Internet gambling
Jurisdiction not clear
Unlawful Internet Gambling Enforcement Act (UIGEA) of 2006 provides clearer jurisdiction
Other countries’ laws challenged as discriminatory 68

69. New Types of Crime Online
Difficulty applying pre-Internet era laws
Example: online stalking
Few states have passed Internet laws
Cyberbullying
Using technology to harass, humiliate, threaten, or embarrass another
Laws lag behind technology
Sexting
Sending sexually explicit messages or photos using a mobile phone 69

70. New Types of Crime Online (cont’d.)
Infiltrating computer systems with intent of stealing data, creating operational disruptions
Smaller companies: easier targets
Criminal extortion example:
Myron Tereshchuk threatened MicroPatent with confidential client information disclosure
National Retail Federation partnered with eBay and FBI
Combat cases of items stolen from physical stores and then sold online

71. New Types of Crime Online (cont’d.)
Internet can help law enforcement
Track perpetrators of crime
Criminals brag on social networking sites
Criminals leave clues in online profiles

72. Online Warfare and Terrorism
New age of terrorism and warfare
Carried out or coordinated through the Internet
Web sites (considerable number)
Operated by hate groups and terrorist organizations
Contain detailed instructions for creating biological weapons and other poisons
Contain discussion boards
Help terrorist groups recruit new members online
Offer downloadable terrorist training films (thousands)

73. Online Warfare and Terrorism (cont’d.)
Agencies devoting resources to monitoring terrorist activities online
U.S. Department of Homeland Security, Interpol
Historically: faced difficulty in coordinating activities
Interpol motivations:
Update and expand computer network monitoring skills
Coordinate global antiterrorism efforts
Sustained terrorist effort could slow down major transaction-processing center processing

74. Ethical Issues Web electronic commerce sites:
Adhere to same ethical standards of other businesses
Consequences all companies suffer
Damaged reputation, long-term loss of trust, and loss of business
Web advertising or promotion
Include true statements; omit misleading information
Ensure products supported by verifiable information

75. Ethics and Online Business Practices
Ethical lapse rapidly passed among customers
Can seriously affect company’s reputation
Examples
Amazon.com arrangements with publishers for book promotions
eBay firearm sales
2009 Apple Apps store software approval time
Important ethical issues that organizations face
Limiting use of collected addresses; related information
Lack of government regulation protecting site visitor

76. Privacy Rights and Obligations
Online privacy: evolving
Hotly debated in various forums
Electronic Communications Privacy Act of 1986
Main law governing privacy on the Internet today
Deals with leased telephone line interceptions
Legislative proposals
None have survived constitutional challenges
1999 FTC report
Concluded no federal laws regarding privacy required
Created privacy advocacy group outrage

77. Privacy Rights and Obligations (cont’d.)
Direct Marketing Association (DMA)
Established set of privacy standards
Member activity regulation: less than successful
Ethics issues
Significant in online privacy area
Laws not keeping pace with Internet, Web growth
Nature and degree of personal information recorded
Threaten visitors privacy rights

78. Privacy Rights and Obligations (cont’d.)
Ethics issues (cont’d.)
Companies may lose control of data collected
Companies may release confidential information about individuals:
Without the individual’s permission
Internet has changed traditional assumptions about privacy
Worldwide cultural differences provide different electronic commerce privacy expectations
European Union adopted Directive on the Protection of Personal Data

79. FIGURE 8-10 Example Web page showing opt-in choices
FIGURE 8-11 Example Web page showing opt-out choices

80. Privacy Rights and Obligations (cont’d.)
Major United States privacy controversies
Opt-in versus opt-out
No law limiting companies’ use of gathered information
Opt-out approach
Assumes customer does not object to company’s use of information
Unless customer specifically denies permission
Opt-in approach
Company collecting information does not use it for any other purpose
Unless customer specifically chooses to allow use

81. Privacy Rights and Obligations (cont’d.)
Another opt-out approach
Page includes checked boxes
Instructs visitor: “uncheck the boxes of the items you do not wish to receive”
Opt-in approach more preferable
Gives customer privacy protection
Unless customer specifically elects to give up rights

82. Privacy Rights and Obligations (cont’d.)
Electronic commerce Web sites
Be conservative in customer data collection and use
Principles for handling customer data
Use data collected for improved customer service
Do not share customer data with others outside your company without customer’s permission
Tell customers what data you are collecting and what you are doing with it
Give customers the right to have you delete any data collected about them
Keep data secure

83. Communications with Children
Additional privacy considerations arise:
When Web sites attract children
Children are less capable of evaluating information sharing and transaction risks
Concerns
Children’s ability to read, evaluate privacy statements
Consent to providing personal information to sites
MySpace
2006: former federal prosecutor (site security officer)
Software looks for sex offenders 83

84. Communications with Children (cont’d.)
Most countries
People under 18 or 21: not considered adults
Specific laws for children’s privacy rights
Define a child as person below the age of 12 or 13
1998: Children’s Online Protection Act (COPA)
Unconstitutional: restricted lawful material access
Children’s Online Privacy Protection Act of 1998
Successful: COPPA does not regulate content
2001: Children’s Internet Protection Act (CIPA)
Federally funded schools install filtering software

85. Communications with Children (cont’d.)
Disney Online
Offers three registration choices (adult, teen, kids)
Refuses to enroll child under age 13 without parent’s consent
Meets COPPA law requirements
Sanrio
Requires birth date before allowing access
Encourages notification of COPPA site violations

86. FIGURE 8-12 Sanrio’s approach to COPPA compliance

87. Taxation and Electronic Commerce
Web businesses must comply with multiple tax laws
Several types of taxes
Income taxes: levied on net income
Transaction taxes (transfer taxes): levied on products or services company sells or uses
Sales taxes, use taxes, excise taxes
Property taxes: levied on personal property, real estate
Greatest concern: income and sales taxes

88. Nexus Connection between tax-paying entity and government
Similar concept: personal jurisdiction
Activities creating nexus (United States)
Determined by state law; vary from state to state
Determining nexus:
Difficult if company conducts few activities in the state
National nexus issues
Business conducted in more than one country
Establish nexus with a country
Liable for filing tax returns in that country

89. U.S. Income Taxes Internal Revenue Service (IRS) Basic principle
Charged with administering tax laws
Basic principle
Any verifiable increase in company wealth:
Subject to federal taxation
Pay U.S. federal income tax if:
U.S.-based Web site generating income
Web site maintained by U.S. company
Credit given for taxes paid to foreign countries
Reduces double taxation of foreign earnings

90. FIGURE 8-13 Internal Revenue Service home page
© 2011 IRS
FIGURE 8-13 Internal Revenue Service home page

91. U.S. Income Taxes (cont’d.)
States levy income tax on business earnings
Must file tax returns in all states
Apportion earnings in accordance with each state
Others with power to levy income taxes
Cities, counties, other political subdivisions
Must apportion income, file tax returns in each locality
Companies selling through Web site
Do not establish nexus everywhere goods delivered to customers (in general)
Avoid nexus by using a contract carrier

92. U.S. State Sales Taxes Transaction tax on goods sold to consumers
Businesses establishing nexus with a state
Must file sales tax returns and remit sales tax collected from customers
Business not required to collect taxes from out-of-state customers
Unless nexus established
Use tax
Tax levied by a state on property used in that state
Not purchased in that state

93. U.S. State Sales Taxes (cont’d.)
Large companies
Use complex sales tax management software
Purchasers exempt from sales tax
Charitable organizations, businesses buying items for resale
Sales tax collection problem
Confusing; no new laws
Amazon laws require online retailers to collect taxes
Streamlined Sales and Use Tax Agreement (SSUTA): Simplifies state sales taxes

94. Import Tariffs Countries regulate import and export of goods
Goods imported: only if tariff paid
Tariff (customs duty, duty)
Tax levied on products as they enter country
Many reasons for imposing tariffs
Beyond scope of this book
Goods ordered online: subject to tariffs
When crossing international borders
Products delivered online: subject to tariffs
Example: downloaded software

95. European Union Value Added Taxes
European Union (EU)
Transfer taxes generate revenues
Value Added Tax (VAT): most common
2003: VAT applied to sales of digital goods
EU-based companies
Must collect VAT on digital good sales
Non-EU companies
Must register with EU tax authorities, levy, collect, remit VAT if sales include digital goods delivered into EU

96. Summary Concept of jurisdiction on Internet: still unclear
Contracts are part of doing business on the Web
Web businesses must avoid:
Deceptive trade practices
False advertising claims
Defamation or product disparagement
Intellectual property rights infringement
Law enforcement agencies face difficulty combating online crimes, terrorist acts, conduct of war

97. Summary (cont’d.) Online privacy
Collection and use of consumer information
Opt-in and opt-out methods used
Special rules for communicating with children
Ethics issues can shape Web business policies
Various forms of taxation apply to e-commerce
National, international, state and local