International e-commerce laws have been evolving since the inception of the information technology age. International e-commerce transactions which take place over the vast network of computers have become more streamlined with the advancement of technology. The following topics will be evaluated and addressed in these series of articles: Intellectual properties, taxes, and alternative dispute resolution.
Intellectual property rights can be protected by registering trademarks, copyrights or patents with governmental agencies. For example, the United States Patent and Trademark Office (“USPTO”) registers patents and trademarks. The United States Copyright Office registers copyrights. However, trade secrets cannot be registered with any government agencies. The trade secret owner is responsible to protect it by taking precautionary steps. International e-commerce and business law attorneys should recommend the following steps to their clients: (1) locate, identify, and mark the trade secrets; (2) restrict access to the trade secrets; (3) sign non-disclosure agreements with the trade secret holders; and (4) restrict access to the trade secrets. The Uniform Trade Secrets Act (“UTSA”) defines a trade secret as information that derives independent economic value because it is not generally known or readily ascertainable and is the subject of efforts to maintain secrecy. It includes formulas, patterns, compilations, programs, devices, methods, techniques, or processes that yield economic value – e.g., customer lists.
International e-commerce transactions will be taxed by the appropriate government agencies. In 2018, the United States Supreme Court addressed this issue in South Dakota v. Wayfair and acknowledged the states are losing revenue due to their incapability to collect sales tax from out-of-state retailers. Thus far, the Internet Tax Freedom Act (“ITFA”) and Streamlined Sales Tax Project have been implemented to prevent new taxes on e-commerce transactions and to simplify sales and use taxes.
International tax policies are addressed by the World Trade Organization (“WTO”) which makes sure trade flows as smoothly, predictably, and freely as possible. There are other organizations that render international forums for governments to discuss tax policies. They include the Organization for Economic Cooperation and Development (“OECD”) which promotes the development of international tax policies.
United States tax policies are implemented through state and federal laws. In 1998, Congress passed the ITFA under 47 U.S.C. § 151 to apply a 3-year moratorium on the imposition by state and local governments of new taxes on internet access or multiple or discriminatory taxes on electronic commerce. This temporary 3-year moratorium was made permanent through the Trade Facilitation and Trade Enforcement Act. In 2002, the Streamlined Sales and Use Tax Agreement (“SSUTA”) was developed by state tax officials to create uniform tax policies. It is now effective in approximately 20 states that have agreed to comply with its provisions.
In California, local e-commerce retailers that sell products in California or to local residents must collect California sales and use taxes from customers. California imposes the principle of tax neutrality for equivalent transactions upon retailers for online and offline transactions. As such, it imposes a sales tax on all tangible personal property. See Revenue and Taxation Code § 6051. Also, in additional to sales tax, consumers must pay an excise tax – i.e., use tax – on the storage, use, or other consumption of tangible personal property. See Revenue and Taxation Code § 6202-6203. It is important to note that the retailer must have a “substantial nexus” with the state for purposes of the federal Commerce Clause. In South Dakota v. Wayfair, the Supreme Court held that the retailer is not required to have a physical presence in the state to meet this requirement.
Out-of-state retailers must register with the California Department of Tax and Fee Administration (“CDTFA”) and collect and pay the use tax even if they do not have a physical presence in the state. There is a minimal transaction threshold of $500,000 for the sale of tangible personal property within California. See Revenue and Tax Code § 6203(c)(4) and AB 147 for more information.
It’s important to know your legal rights and responsibilities when it comes to international e-commerce transactions and the statutory and regulatory guidelines. Please contact our law firm to speak with an international e-commerce attorney at your earliest convenience.