E-Business Eighth Edition Chapter 7 The Environment of Electronic Commerce: Legal, Ethical, and Tax Issues 1 1

Learning Objectives In this chapter, you will learn about: Laws that govern electronic commerce activities Laws that govern the use of intellectual property by online businesses Online crime, terrorism, and warfare E-Business, Eighth Edition 2 2

Learning Objectives (cont’d.) Ethics issues that arise for companies conducting electronic commerce Conflicts between companies’ desire to collect and use data about their customers and the privacy rights of those customers Taxes that are levied on electronic commerce activities E-Business, Eighth Edition 3 3

The Legal Environment of Electronic Commerce All businesses: Must comply with same laws and regulations Face same set of penalties Web businesses: two additional complicating factors Web extends reach beyond traditional boundaries Subject to more laws more quickly Web increases communications speed and efficiency More interactive and complex customer relationships E-Business, Eighth Edition

The Legal Environment of Electronic Commerce (cont’d.) Web creates network of customers Significant levels of interaction (with each other) Implications of interaction for Web businesses Violating law or breaching ethical standards Face rapid and intense reactions from many customers E-Business, Eighth Edition

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 Through language and currency change E-Business, Eighth Edition

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 E-Business, Eighth Edition

Borders and Jurisdiction (cont’d.) Geographic boundaries on culture Historically: defined by lack of ability to travel great distances Today: people travel easily between countries Free EU member country citizen movement European Money Union (euro common currency) Relationship of geographic and legal boundaries Four elements Power, effects, legitimacy, notice E-Business, Eighth Edition

Borders and Jurisdiction (cont’d.) Power Form of control over physical space People and objects residing in physical space Defining characteristic of statehood Effective enforcement Required for effective laws Requires power to: Exercise physical control over residents Impose sanctions on violators E-Business, Eighth Edition

Borders and Jurisdiction (cont’d.) Power (cont’d.) Jurisdiction Government’s ability to exert control over 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 limitation Acceptance by existing culture Geographic boundaries, cultural groupings, legal structures all coincide E-Business, Eighth Edition

Borders and Jurisdiction (cont’d.) Effects Laws in the physical world 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 E-Business, Eighth Edition

Borders and Jurisdiction (cont’d.) Legitimacy 1970 United Nations resolution Affirmed idea of governmental legitimacy Legitimacy (idea) Those subject to laws should have role in formulating them Countries and governments Operate with varying levels of authority and autonomy Example: China and Singapore versus Scandinavian countries E-Business, Eighth Edition

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 E-Business, Eighth Edition

E-Business, Eighth Edition

Jurisdiction on the Internet Jurisdiction is difficult on the Internet No geographic boundaries Four physical world considerations Do not translate well (power, effects, legitimacy, notice) 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 Goods, services, money E-Business, Eighth Edition

Jurisdiction on the Internet (cont’d.) Breach of contract: 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 Contract or tort law claims Must be filed in courts with jurisdiction Court jurisdiction requires: Subject-matter jurisdiction and personal jurisdiction E-Business, Eighth Edition

Jurisdiction on the Internet (cont’d.) Subject-matter jurisdiction Court’s authority to decide particular type of dispute 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) E-Business, Eighth Edition

Personal jurisdiction Determined by residence of parties Defendant: state resident where court is located Straightforward determination Out-of-state person can voluntarily submit to a jurisdiction Signing contract including forum selection clause Contract enforced according to particular state laws E-Business, Eighth Edition

Jurisdiction on the Internet (cont’d.) Personal jurisdiction (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 before electronic commerce existed E-Business, Eighth Edition

Jurisdiction on the Internet (cont’d.) Personal jurisdiction (cont’d.) Tortious act An exception to general rule determining personal jurisdiction Commit tortious act by: Selling product causing harm to buyer Negligent or intentional Defamation, misrepresentation, fraud, trade secret theft Long-arm statutes invoked more readily for tortious acts Compared to breach of contract E-Business, Eighth Edition

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, 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 E-Business, Eighth Edition

Jurisdiction on the Internet (cont’d.) Jurisdiction in international commerce (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 Example: eBay in China Chinese government made it difficult Online resources Berkman Center for Internet & Society UCLA Online Institute for Cyberspace Law and Policy E-Business, Eighth Edition

Conflict of Laws Business governed by various laws Federal laws, state laws, local laws Conflict of laws: laws address same issues in different ways Online businesses Look to federal laws for guidance May lead to problems with state and local laws Example: direct wine sales industry U.S. Constitution’s Commerce Clause versus states’ right to regulate matters pertaining to citizens health, welfare E-Business, Eighth Edition

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 terms) Made to another party Declaration of willingness to buy, sell product, service Can be revoked Acceptance: expression of willingness to take offer Including all stated terms E-Business, Eighth Edition

Contracting and Contract Enforcement in Electronic Commerce (cont’d.) Consideration: agreed upon exchange of something valuable Money, property, future services Implied contract: formed by two or more parties Act as if contract exists Even if no written and signed contract Contract Every agreement or exchange between parties No matter how simple Important on the Internet E-Business, Eighth Edition

Contracting and Contract Enforcement in Electronic Commerce (cont’d.) With Internet communications: Offers and acceptances occur Exchange e-mail, engage in electronic data interchange, fill out Web page forms Can be combined with traditional methods Example: end-user license agreements (EULAs) Contract user must accept before installing software Excellent contract law resource Contracts Uniform Commercial Code (UCC) Cornell Law School Web site E-Business, Eighth Edition

Contracting and Contract Enforcement in Electronic Commerce (cont’d.) Web site seller advertising goods for sale Inviting offer from potential buyers (not making offer) Prevents seller liability to deliver more goods than available Legal offer acceptance: usually quite easy Courts view of offers and acceptances Actions occurring within particular context If actions considered reasonable under the circumstances: Courts interpret actions as offers and acceptances E-Business, Eighth Edition

Contracting and Contract Enforcement in Electronic Commerce (cont’d.) Written contracts on the Web Statute of Frauds (state laws) Categories of contracts not enforceable unless terms put into writing and signed Sale of goods worth more than $500 Actions cannot complete within one year Electronic commerce writing Pen or paper not required (fortunately) Writing exists When contract terms reduced to tangible form E-Business, Eighth Edition

Contracting and Contract Enforcement in Electronic Commerce (cont’d.) Written contracts on the Web (cont’d.) Electronic commerce contract Easy to satisfy writing requirement Signature: any symbol executed or adopted for the purpose of authenticating a writing Names on telegrams, telexes, faxes, Western Union Mailgrams, typed names or printed letterhead names Symbol or code included in electronic file, digital signatures E-Business, Eighth Edition

Contracting and Contract Enforcement in Electronic Commerce (cont’d.) 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 E-Business, Eighth Edition

Contracting and Contract Enforcement in Electronic Commerce (cont’d.) Warranties on the Web Implied warranties Included in any contract for sale of goods Seller implicitly warrants goods offered for sale Fit for purposes normally used Additional implied warranty of fitness Seller knows specific buyer’s requirements information Seller provides specific description of additional warranty terms Seller makes general statements in brochures or other advertising materials E-Business, Eighth Edition

Contracting and Contract Enforcement in Electronic Commerce (cont’d.) Warranties on the Web (cont’d.) Seller: avoid implied warranty liability Provide warranty disclaimer: statement declaring seller will not honor some or all implied warranties Warranty disclaimer: conspicuously made in writing Put in larger type, bold font, or contrasting color State it obviously Make it easy to find by buyer on Web site E-Business, Eighth Edition

E-Business, Eighth Edition

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) Person does not have authority to bind company to a contract Electronic commerce technology Makes forged identities easy to create Provides the means to avoid being deceived Prevent forgery: use digital signatures E-Business, Eighth Edition

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 Employee accepts contract, company later asserts employee not authorized Avoid Check public information on file Obtain copies of corporate certificates or resolutions Can be time consuming and awkward E-Business, Eighth Edition

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 Intended to limit Web site owner’s liability for what one might do with information obtained from site Site visitor held to terms of service by simply using site Even if text not read, button indicating agreement not clicked E-Business, Eighth Edition

E-Business, Eighth Edition

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 E-Business, Eighth Edition

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 E-Business, Eighth Edition

Web Site Content Issues Legal issues with e-commerce Web page content Common concerns Use of intellectual property protected by other parties’ copyrights, patents, trademarks, service marks Copyright infringement 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 E-Business, Eighth Edition

Web Site Content Issues (cont’d.) Copyright infringement (cont’d.) Idea contained in expression cannot be copyrighted Work cannot be copyrighted if idea cannot be separated from expression Example: mathematical calculations Collection of facts can be copyrighted Example: Yahoo! Web Directory E-Business, Eighth Edition

Web Site Content Issues (cont’d.) Copyright infringement (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 Fair use: includes copying it for use in criticism, comment, news reporting, teaching, scholarship, or research E-Business, Eighth Edition

Nonprofit educational uses get better chance 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 E-Business, Eighth Edition

Web Site Content Issues (cont’d.) Copyright infringement (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 (could have) Profited indirectly from the infringement Music downloads, copying Legality unclear in may cases E-Business, Eighth Edition

Web Site Content Issues (cont’d.) Patent infringement Patent Exclusive right granted by government to an individual Make, use, sell invention Invention: must be genuine, novel, useful, and not obvious given current technology state 1980s: companies started obtaining software patents Not useful for Web site software Technology obsolete before patent protection secured (rely on copyright protection) E-Business, Eighth Edition

Web Site Content Issues (cont’d.) Patent infringement (cont’d.) Business process patent Protects specific set of procedures for conducting a particular business activity Business process patents are controversial Grant recipients unfair monopoly power Inappropriate patent law extension Examples Amazon.com sued Barnes & Noble (process similar to 1-Click method) MercExchange sued eBay (fixed price sales option) E-Business, Eighth Edition

Web Site Content Issues (cont’d.) Trademark infringement Trademark 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 E-Business, Eighth Edition

Web Site Content Issues (cont’d.) Trademark infringement (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 permission of trademark owner E-Business, Eighth Edition

Domain Names and Intellectual Property Issues Cybersquatting Registering trademarked domain name Hope that owner will pay huge amounts of money to acquire URL Registering generic name is not cybersquatting Name changing (typosquatting) Purposely registering misspelled variations of well-known domain names E-Business, Eighth Edition

Domain Names and Intellectual Property Issues (cont’d.) U.S. Anticybersquatting Consumer Protection Act World Intellectual Property Organization (WIPO) Uniform Domain Name Dispute Resolution Policy (UDRP) Handles disputes of trademarked domain names Arise when business has common term trademark Example: Sting musician case (www.sting.com) Critics of WIPO UDRP: enforced unevenly E-Business, Eighth Edition

Domain Names and Intellectual Property Issues (cont’d.) Name stealing Someone other than domain name’s owner changes ownership of domain name 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 E-Business, Eighth Edition

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 (digital audio system) Audio watermarks do not alter audio fidelity Copy control Electronic mechanism: limiting number of copies Example: Blue Spike (Giovanni system) Digimarc Tracks works protected by Digimarc system E-Business, Eighth Edition

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 about persons or products Designers must avoid potential defamation liability: By altering person’s photo or image depicting person unfavorably E-Business, Eighth Edition

Defamation (cont’d.) 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 E-Business, Eighth Edition

Deceptive Trade Practices Trademarked object manipulation Constitutes infringement of trademark holder’s rights Personal Web pages include unauthorized cartoon characters, celebrity photographs Still illegal even if altered Web sites linking to other sites Risk implying non-existent relationship Trademark protection Prevents firm from using same (similar) name, logo, other identifying characteristic in a way that would cause potential buyers confusion E-Business, Eighth Edition

Advertising Regulation Federal Trade Commission (FTC) (United States) Regulates advertising, publishes regulations, investigates false advertising claims FTC Web site Includes information releases Useful to businesses and consumers FTC business education campaign publications Available on Advertising Guidance page Help businesses comply with law See Figure 7-7 E-Business, Eighth Edition

E-Business, Eighth Edition

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 for e-commerce Web site designers Information on: Permitted advertisements Policy statements E-Business, Eighth Edition

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) E-Business, Eighth Edition

Online Crime, Terrorism, and Warfare Internet Opened up possibilities for people to communicate Worldwide Opened doors for businesses Reach new markets Create opportunities for economic growth Useful tool for perpetrating crimes, conducting terrorism, waging war E-Business, Eighth Edition

Online Crime Online versions of physical world crimes New online crime Theft, stalking, pornography distribution, gambling New online crime Commandeering computer to attack other computers Law enforcement obstacles Jurisdiction issues Prosecuting across international boundaries Distribution of pornographic material Online gambling Applying laws written before Internet prevalence E-Business, Eighth Edition

Online Crime (cont’d.) Advance fee fraud Nigerian scam (419 scam) Perpetrator offers to share large payoff with victim Victim must make “good faith” deposit, provide funding Perpetrator disappears with deposit Nigerian scam (419 scam) Victim receives e-mail from Nigerian government official requesting assistance in moving money to a foreign bank account Perpetrator asks for identity information Information used to steal advance fee E-Business, Eighth Edition

Online Crime (cont’d.) Pornographic material Gambling Subjective distinction between legal and illegal adult material Gambling Sites located outside United States State laws specifically outlaw Internet gambling Jurisdiction not clear Stalking (online) Few states have passed Internet laws Cyberbullying: using technology to harass, humiliate, threaten, or embarrass another E-Business, Eighth Edition

Online Crime (cont’d.) Infiltrating computer systems with intent of stealing data, creating operational disruptions Smaller companies are easier targets Criminal extortion Myron Tereshchuk: threatened MicroPatent with confidential client information disclosure Internet can help law enforcement Track perpetrators of crime Criminals brag on social networking sites Criminals leave clues in online profiles E-Business, Eighth Edition

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, other poisons Contain discussion boards Help terrorist groups recruit new members online Offer downloadable terrorist training films (thousands) E-Business, Eighth Edition

Online Warfare and Terrorism (cont’d.) Agencies devote considerable resources to monitoring terrorist activities online U.S. Department of Homeland Security, Interpol Historically: difficulty in coordinating activities Interpol has been motivated to: Update, expand computer network monitoring skills Coordinate global antiterrorism efforts Sustained terrorist effort could slow down major transaction-processing center processing More Internet business communications traffic: Provides more potential damage E-Business, Eighth Edition

Ethical Issues Companies conducting Web site electronic commerce: Adhere to same ethical standards of other businesses Consequences all companies suffer Damaged reputation, long-term loss of trust, loss of business Web advertising or promotion Include true statements, omit misleading information Misleading when ad omits important related facts Products supported by verifiable information E-Business, Eighth Edition

Ethics and Web Business Policies Ethical lapse rapidly passed among customers Can seriously affect company’s reputation Example: New York Times Amazon.com report Arrangements with publishers for book promotions Example: eBay Newspaper stories about illegal items sales Important ethical issue organizations face Limiting use of collected e-mail addresses, related information Lack of government regulation Most organizations state their policy E-Business, Eighth Edition

Privacy Rights and Obligations Online privacy is evolving Hotly debated in various forums Electronic Communications Privacy Act of 1986 Main law governing privacy on the Internet today Written to deal with leased telephone lines interceptions Legislative proposals Not withstanding constitutional challenges July 1999 FTC report Concluded no federal laws regarding privacy required E-Business, Eighth Edition

Privacy Rights and Obligations (cont’d.) Near-term future privacy United States regulation Unclear Direct Marketing Association (DMA) Established set of privacy standards Critics note member activity regulation is less than successful Ethics issues Significant in area of online privacy Laws not keeping pace with Internet, Web growth Nature and degree of personal information recorded Threaten visitors privacy rights E-Business, Eighth Edition

Privacy Rights and Obligations (cont’d.) Ethics issues (cont’d.) Companies may lose control of personal information Companies may lose track of shipments containing computer backup tapes Stolen laptops with personal data People have access to data once impossible to obtain Real estate transaction information; privacy reduced Worldwide cultural differences provide different electronic commerce privacy expectations European Union adopted Directive on the Protection of Personal Data E-Business, Eighth Edition

Major United States privacy controversies Opt-in versus opt-out No law limiting companies’ use of gathered information Companies free to sell, rent customer information E-Business, Eighth Edition

Privacy Rights and Obligations (cont’d.) 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 E-Business, Eighth Edition

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 E-Business, Eighth Edition

Privacy Rights and Obligations (cont’d.) Electronic commerce Web sites Be conservative in customer data collection and use Use four 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 E-Business, Eighth Edition

Communications with Children Privacy considerations when Web sites attract children Children less capable of evaluating information sharing and transaction risks Concern Children’s ability to read, evaluate privacy statements Consent to providing personal information to Web sites E-Business, Eighth Edition

Communications with Children (cont’d.) MySpace 2006: former federal prosecutor (site security officer) Software looks for sex offenders 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 E-Business, Eighth Edition

Disney Online Offers three registration choices (adult, teen, kids) Refuses to enroll child under age 13 Meets COPPA law requirements Sanrio Asks for birth date before allowing access to English-language site Encourages visitors to notify company of child gaining site access in violation of COPPA E-Business, Eighth Edition

Taxation and Electronic Commerce Web businesses must comply with multiple tax laws Several types of taxes Income taxes: levied on net income Transaction taxes: levied on products or services company sells or uses Sales taxes, use taxes, excise taxes, customs duties Customs duties: levied on imports into the country Property taxes: levied on personal property, real estate Web businesses’ greatest concern Income and sales taxes E-Business, Eighth Edition

Nexus Connection between tax-paying entity and government Similar concept as personal jurisdiction Activities creating nexus (United States) Determined by state law, vary from state to state Determining nexus: difficult 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 E-Business, Eighth Edition

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 E-Business, Eighth Edition

E-Business, Eighth Edition

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 E-Business, Eighth Edition

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 has been established Use tax levy Property used in that state Not purchased in that state Property not “purchased” at all (leases) E-Business, Eighth Edition

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 Some businesses collect tax on all sales Streamlined Sales and Use Tax Agreement Simplifies state sales taxes E-Business, Eighth Edition

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 Downloaded software E-Business, Eighth Edition

European Union Value Added Taxes Transfer taxes generate revenues Value Added Tax (VAT) Most common transfer tax Mid-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 E-Business, Eighth Edition

Summary Issues of borders, jurisdiction, Web site content How these factors affect company’s ability to conduct electronic commerce Avoiding deceptive trade practices, false advertising claims, defamation or product disparagement, intellectual property rights infringement Legal issues when Web used in commission of crimes, terrorist acts, conduct of war Role of ethics in formulating Web business policies Various forms of taxation E-Business, Eighth Edition