Basics of E-Commerce Sites

Basics of E-Commerce Sites

Opening a retail store used to mean startup costs, long-term leases, employees and ongoing overhead. But with e-commerce sites, entrepreneurs can start a new retail business with a minimum of expense and overhead. Existing businesses can use online sales to supplement their brick-and-mortar locations.

But e-commerce sites raise some unique legal concerns.

Because you’re not personally interacting with customers, your website is your only opportunity to explain your policies about such things as ordering and returns. You face more complicated sales tax issues, and you may be more vulnerable to security breaches.

Being Clear About Transactions

An e-commerce site should never leave a customer guessing about the conditions of doing business online. It should include clear, easy-to-find information about such things as minimum purchase amounts, when credit cards will be charged, return policies and shipping policies.

Policies about the ordering and payment process. A good e-commerce site tells consumers what to expect in the ordering and payment process. It explains whether a credit card is charged at the time the order is placed or at the time an item is shipped. It estimates shipping times and says what will happen if an item is backordered. By stating these policies up-front, you minimize customer misunderstandings later.

Return policies. An online retailer should always have a return policy that’s easy to find on the website. A good policy explains any time limit on returns and describes how those returns will be credited to the customer. It also says whether return shipping will be paid by the customer or the retailer. Your policy may place other limitations on returns, including limiting returns to items that are damaged or defective, requiring a return authorization, or specifying that some items are non-returnable.

Developing policies about transactions and returns is part common sense and part experience. Use other retailers’ sites as a guideline and try to anticipate common situations and develop policies that work for your business.

Collecting Sales Tax

Sales tax can be complicated, but the general rule is that retailers must collect and pay sales tax for transactions in states where the retailer has a physical presence, or “nexus.” Retailers have a nexus with states where they have a store, an office, a warehouse or other physical connection. For example, an online business that is based in New York but has a warehouse in New Jersey must collect sales tax from New York and New Jersey residents and pay taxes to those states. If you are unsure whether your business has a nexus with a particular state, contact the state’s taxing authority for clarification.

You should be familiar with the sales tax laws in the states where you have a nexus. A few states do not charge sales tax at all, and most have exemptions for certain items such as food or clothing. In many states, you must register with the state’s department of revenue and obtain a sales tax permit.

Collection of sales tax from online retailers has been a hotly debated topic over the past few years, due to the increased presence of large online retailers such as Some states have passed legislation altering their definition of a nexus or requiring large retailers to pay sales tax even if they don’t have a nexus. The federal government is also considering legislation that would change the sales tax rules for online retailers.

Data Security

Personal and credit card information collected by retailers is a prime target for a cyberattack, and a major data breach can be devastating for an online retailer that relies on customer trust and relationships. Privacy and data security policies can reduce the chances of a data breach.

Payment Options

You have numerous payment options, including credit cards and online payment services such as PayPal. Research your options carefully. Fees may vary, banking laws can be complicated, and you may encounter legal issues related to charge-backs or refunds. An accountant or business lawyer may be able to advise you on how to make a good choice and minimize problems.