FAQ - What Licenses and Permits do I need to Start an Online Business?

The short answer is pretty much the same things you need for a phyical business.

In a Nutshell Answer - you will need

• City and/or County Business License
• Fictitious Business Name Filing unless you are do business under your own full name or, if you're incorporated, under your full corporate name
• Seller's Permit form the California State Board of Equalization
• Federal EIN (Employer Identification Number) unless you're a sole proprietor with no staff. You may want one so that you don't have to give out your SS# to vendors on a 1099 form

See Paperwork, Regulations, Permits and Licenses for more details and other possibilites.

The state of California has a website, http://www.calgold.ca.gov/ that tries to maintain a list of federal, state, and local permits needed for different kinds of businesses ranging from taxi services to ice manufacturing.

Taxes

- Sorry, but you are required to collect and pay taxes under State law for the state from which you operate. If you can deliver your product or service online and do so only in that manner, then under the Revenue and Taxation Code section 6203 rules of "nexus" ("physical presence doing business," aka: PE or Permanent Establishment), you do not have the sufficient minimum  nexus requiring sales tax collection.

Otherwise, if you are a retailer engaged in business in California, you are said to have sufficient nexus and must collect State, county and municipal retail sales taxes. Like a catalog mail order business, if the product is mailed to California residents you charge tax, if out of state, you do not. If you have a presence in other states, you would be required to collect taxes there as well. So far, having only a server in a state is not considered a sufficient nexus for taxation.

Another issue is that Congress has an Advisory Commission on Electronic Commerce studying the taxation issue based on state sales tax, no tax or a compromise position. Currently a few state's have amended their sales tax laws to say that Internet sales are not exempt from their current law. California has done this with CA AB 1614. There has been some discussion of a Federal taxation. Under the Internet Tax Freedom Act (ITFA) passed by the U.S. Congress in 1998, there is a three year moratorium on any new Internet taxation.

btw (By the way.) The retail sales tax law states that the business has the right to be reimbursed (collect) retail sales tax from the customer but that the business actually owes the retailer sales tax.

Also, your business is required to file for a resellers permit whereby you are designated as a retailer and subject to the nexus tax interpretation or as a wholesaler or manufacturer and therefore exempt.

New Laws?

Books

See Cabrillo College TLC (Teaching & Learning Center) Handbook titled Am I A Crook?

Links

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Distance Ed and Digital Education

Prompt Delivery Rules

Selling on the Internet: Prompt Delivery Rules

The Federal Trade Commission is advising online merchants to review their obligations under the Mail or Telephone Order Merchandise Rule to better serve their customers this holiday season.

The Rule spells out the ground rules for:

• making promises about shipments
• notifying consumers about unexpected delays
• refunding consumers' money.

Enforced by the FTC, the Mail or Telephone Order Rule applies to orders placed by phone, fax or the Internet. Your compliance can have bottom line benefits for your company - that is, satisfied customers are repeat customers.

Complying With The Rules
By law, you must have a reasonable basis for stating that a product can be shipped within a certain time. If your advertising doesn't clearly and prominently state the shipment period, you must have a reasonable basis for believing that you can ship within 30 days.

• State a policy based upon USPS, UPS or other delivery services
• Ship within 30 days

If you can't ship within the promised time (or within 30 days if you made no promise), you must notify the customer of the delay, provide a revised shipment date and explain his right to cancel and get a full and prompt refund.

• notify the customer of the delay
• explain his right to cancel
• within 30 days you may treat the customer's silence as agreeing to the delay
• issue full and prompt refund if customer wants it.

For definite delays of up to 30 days, you may treat the customer's silence as agreeing to the delay. But for longer or indefinite delays - and second and subsequent delays - you must get the customer's written, electronic or verbal consent to the delay. If the customer doesn't give you his okay, you must promptly refund all the money the customer paid you without being asked by the customer.

For longer or indefinite delays - and second and subsequent delays

• must get the customer's written, electronic or verbal consent to the delay
• If the customer doesn't give you his okay, you must promptly refund all the money the customer paid you without being asked by the customer

Finally, you have the right to cancel orders that you can't fill in a timely manner, but you must promptly notify the customer of your decision and make a prompt refund.

For orders you can't fill:

• you have the right to cancel orders that you can't fill in a timely manner
• you must promptly notify the customer of your decision
• you must make a prompt refund

Running Late? Overwhelmed with Orders?
The Rule gives you several ways to deal with an unexpected demand.

• You can change your shipment promises up to the point the consumer places the order, if you reasonably believe that you can ship by the new date.
• The updated information overrides previous promises and reduces your need to send delay notices.
• Be sure to tell your customer the new shipment date before you take the order.
• You must provide a delay option notice if you can't ship within the originally promised time.

The Rule lets you use a variety of ways to provide the notice, including e-mail, fax or phone. It's a good idea to keep a record of what your notice states, when you provide it, and the customer's response.

For More Information
The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint or to get free information on consumer issues, visit www.ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters Internet, telemarketing, identity theft and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

price - Like any business, you need to have set prices or negotiate prices. If you offer product/service versions or options, it is even more important to have accessible price information for the customer. Whatever system you use should make it possible for customers to see a running total based on per item and quantity chosen.

discounts - You may offer sales prices, specials, good customer discounts, free delivery, quantity discounts that are cumulative or non-cumulative and other price deals as you would in any selling situation.

Legally, you can change price at any time  with proper notice under the Uniform commercial Code.

U.C.C. - ARTICLES 1-9 http://www.law.cornell.edu/ucc/ucc.table.html

Returns - When a customer wishes to return merchandise you need to do two things: have a policy and comply with the law.

Returns Policies

• Refunds
  • Cash Refund
  • Credit Card Refund
  • ATM Card Refund
  • Store Credit for Future Purchase
• Exchanges
  • Same Item
  • Better Item- exchange merchandise + collect additional Revenue
  • Lesser Item - exchange merchandise + Issue refund of Revenue
• Allowances
  • Issue a Partial Refund (Discount the Sales Price) and Customer Keeps the Damaged or Defective Item

Policy Guidelines

• Post the Policy Conspicuously
• Receipt includes printed policy
• Verbally Communicate the Policy
• Exceptions
  • Check - no refund until the check has cleared
  • Credit Card - void the sale and avoid fees (charge back) (note: a cash refund would pay back to the customer the full retail price including transaction fees you paid but didn't collect)

California Civil Code section 1792: New Merchandise and products sales laws.

1. A business can clearly state a policy on returns, exchanges or refunds:

* Post it conspicuously
* Print it on receipts
* Verbally communicate it

2. All new merchandise is covered by a 60-day "implied warranty" against defects, unless the item is sold as-is.

3. Excepted are clothing, food and other perishables.

4. Customers are not legally entitled to refunds or exchanges.

5. If a store does not give refunds or exchanges within seven days with a receipt, the state law requires the policy to be posted. Conversely, if no policy is posted you must give a refund or exchange with seven days.

6. Stores are prohibited from knowingly selling defective merchandise.

7. "As-is" and "all sales final" policies can mean just that!

8. Contact the Department of Consumer Affairs with questions or for requesting printed materials.

Return and Exchange Policy
(Return Merchandise Authorization aka RMA)

Customers may want to return a purchase for many reasons:

1. Customer does not want product
2. Product DOA ("dead on arrival") = Broken
3. Incorrect product shipped
4. Product ordered incorrectly
5. Order entered incorrectly
6. Duplicate order shipped
7. X-Cross order - part of what you need was shipped but necessary parts were unavailable or back-ordered

Software exists, called RMA modules, to help in the processing by generating labels, shipping info, bar coding for transportation and payment, and tracking return statistics for inventory management.

More commonly, the term RMA is used by customers as a verb to refer to the physical act of shipping a defective product back to the vendor, e.g. "I'll have to RMA that computer because it was dead on arrival."

RMAs are also referred to as RGAs (Return Goods Authorization), product returns, and customer returns.

Your return policy may involve the following decisions:

• Who pays for the return packaging and shipping fees
• Who pays for the replacement items packaging and shipping fees
• Restocking fees (often 15%)
• Boxing (shippers may provide free boxes and tape)
• email acknowledging the return and including:
  • Labeling and packing list
  • Shipper Call Tags (bar code authorization for shipping to vendor and payment for the shipper)

When you use drop shippers or fulfillment houses, a common practice is for you to charge the customer a restocking fee, and transportation to return and reshipping if exchanged. You also email the customer a printable packing list and a bar-coded return label that the return shipper (UPS, USPS, FedEx) will put on the box (they collect their fee from you the seller out of the money charged to the customer.) Your customer prints the label, takes it to the shipper and the package is shipped.

When you process a return, your RMS module software can help with the following tasks.

1. What will the credit card companies do to protect the seller and buyer
2. What rules of behavior have evolved over the "Internet years" regarding refund policies, pricing, customer expectations, etc., when shopping online.

What can the merchant do to fight fraud and chargebacks? Some solutions are elaborate, some burden the customer, some are thin threats, some are technological.

• Have a clear refund, guarantee and return policy
• Match customer's shipping address to the billing address
• Require "acceptance" of terms & conditions of the sale
• verify the card isn't lost or stolen
• check for any unusual activity on the card
• Use a full service Gateway company (digital certificates, etc.)
• technology to fight fraud before it happens
• payer-verification (authentification) services (Visa uses Verified, Master Card uses SecureCode) where a cardholder registers with the program and Internet retailers can ask for password registered wit the cardholders bank as giving the retailer evidence of a purchase and strongerleverage over disputes (10% of Visa users have registered)
  • Some merchants fear this extra step will drive off custonmers in the check out process
• Credit card companies streamline their chargeback dispute mediation procedures
• Call the customer befor shipping
• Threaten to notify authorities and verify or investigate (Mike Aquilana of Fujitsu Computer Systems, Corp. says a customer claimed to not recieve a computer and he called the customer promising that an FBI agent would be at his house to investigate. The customer puportably recieved deliverywithin the hour)

The following apply for the purchase or lease of goods or services for personal consumption, not business to business transaction or real property.

Prohibited Acts

• Adverting goods with the intent not to sell them as advertised or with the intent not to supply reasonably expected demand
• Falsely representing that a part, replacement or repair service is needed
• Misrepresenting the source, sponsorship, approval or certification of goods and services
• Representing that goods or services have characteristics, approval, ingredients, uses, benefits or quantities which they do not have, or that a person has a sponsorship, approval, status, affiliation or connection which he or she does not have.
• Falsely representing that goods or services are of a certain standard, quality, or grade or that goods are of a particular style or model.
• Making false or misleading statements of fact concerning the reasons for, existence of, or amounts of, price reductions.
• Falsely representing that a transaction involves rights, remedies or obligations which do not exist or are against the law.
• Falsely representing that goods or services have been supplied as per prior arrangement.
• Misrepresenting the authority of a salesperson, representative, or agent to negotiate the final terms of a transaction.
• Inserting an unconscionable provision in a contract (oppressive to consumer).
• Making an unsolicited, prerecorded message by telephone unless an unrecorded, natural voice introduces the call, and other requirements are met.

General Consumer Remedies

• The consumer has three (3) years from the time the prohibits act occurred to file a suit.
• The consumer must first send a demand letter, via certified mail, asking for rectification, repair or replacement.
• Honest mistakes are not actionable.
• Cause of action under $5,000 may be brought to small claims court. (No attorneys allowed)
• California law recognizes that Senior Citizens (65 years and older) and Disabled Persons (has a substantial physical or mental impairment which substantially limits one or more major life activities) may be particularly vulnerable to deceptive acts of the type described above. Therefore the law allows for an additional $5,000 penalty in addition to other damages and penalties.