E-Commerce Laws and Regulations for Beginner Entrepreneurs in 2023

For e-commerce retailers, compliance can be overwhelming. Business owners need to stay on top of regulations governing various aspects of online sales.

There’s a lot to think about there:

• Consumer rights
• Payments
• Taxes
• Data usage
• Business insurance advertising
• Intellectual property rights, etc.

There are plenty of e-commerce laws and regulations regarding shipping, refunds and returns, and international selling. E-commerce managers and business owners need to bear all of this in mind at all times.

To make this easier for you, our team at NEXT BASKET has put together this handy guide designed to shed some light on the legal obligations and relevant laws that apply to e-commerce organizations. 

Many of these rules and regulations are the same as those that apply to brick-and-mortar stores. However, several requirements are specific to online selling and e-commerce.

Continue reading to discover more about this as we break down the key areas to be aware of. We will also offer tips and best practices for staying 100% compliant 100% of the time.

Consumer protection laws and regulations

In the United States, several laws and regulations protect consumer rights. 

These include, but are not limited, to:

• The Federal Trade Commission Act
• The Dodd-Frank Act
• The Telephone Consumer Protection Act

These legal requirements apply to all e-commerce businesses that operate in the US. Some industries and goods categories also have their own consumer protection legislation, such as the Federal Food, Drug, and Cosmetic Act for food, pharmaceuticals, makeup and beauty products, and other associated categories.

There is no set of rules and regulations that exclusively governs e-commerce stores on a federal level. However, the Federal Trade Commission and the Consumer Financial Protection Bureau oversee customer rights relating to online retailers. The idea is to protect customers whenever they shop anywhere in the United States.

As well as federal laws, there are a number of e-commerce regulations governing the situation on a state level. 

For instance, the Consumer Legal Remedies Act is applied in California, while New York State implements its own General Business Law. All states have their own rules and regulations, and you’ll need to adhere to them in every state you operate in around the country.

Payment and financial regulations

An e-commerce business entity will typically use payment gateways to handle customer transactions. These gateways are designed to make it easy for consumers to pay for the goods they purchase, connecting securely with digital systems at financial institutions and streamlining the payment collection process for a small business. 

Following the Uniform Electronic Transactions Act and the Electronic Signatures in Global and National Commerce Act, payments can be authorized electronically, further simplifying the process. 

However, all of this is subject to payment security regulation on the federal level as well as at the state level.

You’ll need to use payment gateways that meet federal regulations and are approved for handling online payments in your state of operation. 

Viable gateways typically will not store any customer payment information or credit card details and will complete the transaction via the customer’s bank account. Any stored information will be subject to data privacy regulations. And data defined as sensitive must be kept safe from data breach and not misused or sold.

If the e-commerce business cannot service its debts on money loaned, the organization and the owner of the company may be eligible for bankruptcy. Bankruptcy offers some protection from creditors while helping to ensure that the owed money is paid back where possible. 

On entering bankruptcy, the online store owner will be prohibited from certain business activities and from borrowing more money.

Data protection and privacy laws

Around the country, individual states have their own laws and regulations on data privacy and protection. If you run a nationwide business, you must adhere to all the laws in the states you operate within.

This generally involves:

• Being transparent with your data collection policies.
• Protecting sensitive information to safeguard consumer privacy.
• Working to prevent data breaches.

E-commerce businesses should avoid collecting any sensitive information, as that practice helps you steer clear of possible legal issues.

There are a number of federal data privacy and protection laws you should be aware of. One example is the Children’s Online Privacy Protection Act, which stops businesses from collecting information from any minors aged 13 or below. 

There is also the Cable Communications Policy Act, which protects the data of any customers who have subscribed to a service provided by a business or another organization.

Cybersecurity is now an increasingly hot topic across the United States.

Cybersecurity is particularly relevant to this sector as e-commerce businesses connect with customers chiefly online. 

The National Cybersecurity Strategy has been formulated to meet the challenges associated with an evolving business landscape, and we can expect a number of further measures to protect the data security of online consumers in the not-too-distant future.

Sales tax and VAT regulations

Most goods bought and sold in the United States will have a sales tax applied. This is a percentage of the item’s value that is usually added to its sale price. In other words, the consumer covers this sales tax by paying more for the items they buy.

But this is only true in some instances. Only e-commerce businesses granted the proper license or certification can collect sales tax. 

If you do not have this business license, you are not allowed to collect sales tax from your customers, and you must cover the cost of this tax on every item sold.

State and local laws govern sales tax in the USA. 

A nationwide VAT – or value-added tax – replaces this local or state sales tax in other countries. The two forms of taxation essentially work in the same way, but VAT is applied at the same rate across the country, while sales taxes can vary in different locations across the USA.

Intellectual property laws and regulations

Intellectual property laws protect the rights of individuals and organizations across the USA. If you create something – a company logo, a new recipe, an innovative device, or almost anything else – no one can take this idea from you without your consent.

Under United States government codes, intellectual property rights are protected across four main categories. 

These categories are as follows:

• Patents: A license granted by the United States Patent and Trademark Office securing exclusive rights to develop an idea or design.
• Copyright: An exclusive right to copy or distribute something, like a work of art or a unique material.
• Trademarks: A protection applied to logos, slogans, or other marketing or branding materials, preventing their copying or theft.
• Trade secrets: A legal right to keep a specific production method or device secret from competitors.

These types of intellectual property laws are implemented in different ways. Patents and copyright laws are applied at a federal level according to the Intellectual Property Clause. Both federal and state bodies implement trademark regulations, while individual states mainly regulate trade secrets.

Advertising and marketing regulations

Advertising and marketing are regulated by the Federal Trade Commission’s regulations in the United States, but individual states also have their own applicable law. 

When an online retailer and service provider advertises their wares or make any claim, they need to back this up with evidence. It is not permitted to make any claims that are untrue or that could mislead the general public.

As well as avoiding deceptive marketing practices, companies must bear specific FTC rules and regulations in mind. 

Marketing or advertising to children is more tightly regulated than other forms of promotion. Endorsements and partnerships may also be strictly controlled. For example, if you are paying an influencer to promote your product, both parties must clarify this.

Any claims about the environmental or health benefits of a particular product or service need to be backed up with provable facts, as do claims about the origin of the product. 

For instance, you will need to show that a product was ‘made in the USA’ if you try to claim this. Online ads and telemarketing strategies also have their own regulations under the FTC’s framework, while the CAN-SPAM Act prevents harassment or unwanted communications from businesses.

Shipping and delivery regulations

Shipping and delivery must be taken seriously for small, medium, and large businesses selling online through online stores. The FTC requires that online businesses ship the products they sell promptly and without delay. 

Any pledges regarding delivery time – perhaps ‘next day delivery’ or ‘delivery in five working days’ – need to be achievable. If a product will take a long time to ship, the business owners need to be upfront and transparent about this.

There are also various shipping restrictions and permissions to consider. 

You are not permitted to ship the following items:

• Fire extinguishers
• Lighters with fuel
• Perishable products, including foods
• Medical devices
• Poisonous or infectious materials
• Hoverboard products
• Animals and insects, living or dead
• Damaged batteries
• Pesticides and herbicides
• Fungi.

There are other product categories that can be shipped but are heavily regulated and restricted.

Some of them include:

• Fuel
• Airbag inflator devices
• Paint
• Antifreeze
• Window cleaning fluids
• Lithium-ion batteries
• Aerosols.

Any of the items listed above may require a shipping declaration outlining the nature of the items you are sending and their intended usage. You should also arrange a dedicated transport solution if you want to move any items listed as prohibited.

Return and refund regulations

Returns and refunds are more areas of commerce that are governed by both federal and state regulations. 

Federal regulations

On a federal level, the rules are based on the idea of ‘merchantability’ – that is, products must be of ‘fair average’ quality, be suitable for their intended purpose, and be true to any promises made on the packaging and labeling. 

If the product does not meet any of these criteria, it’s not merchantable, and customers must be able to return it.

There are also federal cooling-off periods applied to goods over a certain value. These protect the customer’s right to change their mind if they are unhappy with the product they receive.

State regulations

On a state level, there may be exceptions to the above rules. 

For example, vendors in California, Massachusetts, and Minnesota – as well as other states– have some flexibility regarding their return policies. 

However, the refund and return policy must be clearly stated so that the customer fully understands their rights. Some states have highly specific returns laws. Ohio, for instance, implements regulations regarding hearing aid sales and entertainment subscriptions.

International e-commerce laws and regulations

Up to now, we’ve looked almost exclusively at the applicable laws and regulations here in the USA.

However, international e-commerce gives business owners the potential to reach a global audience. 

If you operate outside the US, you must abide by all relevant laws and regulations in the nation, state, or territory you do business in – including online business laws and other forms of legislation. In Europe, for example, you must abide by the General Data Protection Regulation or GDPR.

This can be confusing. With so many different jurisdictions worldwide administered by their own governments and legal systems, it can be challenging to stay compliant. 

Twenty-nine countries, including the USA, have signed up for new unified e-commerce guidelines to make this easier. These nations are all Organization for Economic Cooperation and Development members and have joined together to make international trade easier and more beneficial for those involved.

These guidelines offer a mutually agreed code of conduct for businesses in the field of e-commerce while also guiding and supporting governments in developing their own consumer protection laws. 

On top of this, the initiative offers advice to customers, illustrating what to expect and what to look for when shopping online.

Compliance with e-commerce laws and regulations

All e-commerce business owners must ensure that they comply with all relevant laws and regulations whenever they sell online. This covers the federal law and regulations that pertain across the country and the regulations and statutes laid down by each state they operate in. 

International sales are governed by their own guidelines and restrictions, and sellers need to stay aware of these as they expand their businesses across international borders and boundaries.

E-commerce, as an industry, is growing and evolving at a fast pace. 

As a result of this growth, the rules and regulations governing e-commerce are subject to change, which means business owners must work extra hard to stay on top of any shift in requirements. Business owners cannot claim that they were unaware of a specific rule or were ignorant of a certain regulation.

Instead, they are responsible for staying informed, as it is assumed that all United States business owners know what is required of them.

Take your time to get to know all of the laws and regulations that apply to your industry, as well as all of your operating locations. Staying fully compliant at all times must be a priority.

Penalties and consequences for non-compliance

Both federal and state bodies have the power to impose penalties if e-commerce businesses cannot comply with their regulations. These penalties may vary, ranging from the relatively minor to the very serious, according to the type of infringement. 

Even owners of limited liability companies will be subject to these penalties if they fail to meet compliance standards, although a limited liability company has its own financial protections.

These penalties can be divided in four categories:

• Warnings: Accidental and minor infringements, particularly first-time infringements, may only carry a warning. Business owners will be notified of their non-compliance and given the chance to put this right.
• Fines: E-commerce business owners may be hit with a small fine for a minor infringement, but this fine will increase for repeat offenses or more serious infringements.
• Trade restrictions: Federal and state bodies may apply trade restrictions if the business owner is deemed unfit to run their organization. This may mean the individual is not allowed to form a new company or is not permitted to sell products and services in a specific sector. Both business and personal assets may also be frozen in some cases.
• Custodial sentences: More serious infringements, such as submitting fraudulent tax returns or wilfully endangering the public, may be punished with a prison sentence.

E-commerce business regulations and compliance measures are taken very seriously in the USA and around the world. It’s really in your interest as a business owner to stay on top of all the regulations that apply to you and your company.

Best practices for e-commerce legal compliance

Being fully compliant with all e-commerce regulations and laws is not only important – it’s vital. Let’s take a look at some of the best practices that can help you do exactly this.

Stay engaged with changes in the law

We’ve already touched upon the constantly changing nature of e-commerce and how laws and regulations are always changing, too. Give yourself time each week to get up to speed on recent updates and possible future changes.

Here are some best practices to follow:

• Use software with automated features: Human error is a leading cause of non-compliance, so that software can be a useful asset for your business. Automated features will scan for possible breaches of rules and regulations, bringing these to your attention.
• Oversee software with manual practices: Never rely completely on automated software. Be sure to back this up with human personnel tasked with checking and ensuring proper software configuration and function.
• Get professional legal advice: Professional legal counsel can make a real difference. It can help you achieve the peace of mind you need whenever you sell online. These legal experts deliver reliable advice and support to business owners.

These are just a few ways you can remain engaged. Adopting a comprehensive approach will help you keep your business compliant.

Read on resources to stay up to date with e-commerce laws and regulations

Use a number of different resources to stay up to date on the latest laws and regulations pertaining to your field.

Here are some resources that NEXT BASKET recommends:

• The Federal Trade Commission, or FTC, website is one of the main resources you should be using. This is where you will find news and information on all the recent changes to trade laws across the United States, including those regarding e-commerce.
• The Internal Revenue Service, or IRS, is the main hub for taxation information and all the rules and regulations governing this.
• Business owners can also check for the latest Consumer Product Safety Commission website updates.
• International sellers should go to the International Trade Administration website for info.
• The US Customs and Border Protection website also provides valuable information to international sellers.

Check on these resources regularly. Bear in mind that the resources can change, and they might not offer any notification to inform you beforehand.

Hiring a professional for e-commerce legal compliance

It’s always a good idea for business owners to be cost-conscious. Naturally, you want to make savings wherever possible, increasing the viability of your company. 

In some cases, however, active investment saves you money over time. 

Hiring a legal and regulatory compliance expert is a good example of this. They can help you avoid non-compliance penalties so you can go on operating your business efficiently and effectively.

Before making your choice, consider the following criteria:

• Do they know the specifics of your industry and your market?
• Do they have experience in legal compliance across all the locations you operate in?
• Do they have the accreditations and qualifications necessary for offering legal and regulatory compliance advice?
• Do they provide testimonials and recommendations that support their services?
• Are they up to date with all the latest e-commerce rules and regulations?
• Do they have experience using automated software and a digital e-commerce platform?
• Are they communicative and ready to work alongside you and your business?
• Does their attitude and approach match and align with your own?
• Do their services fit within your business’s budget?

Use this checklist as you choose the right professional for you. Different professionals have their own skill sets, but you can use these criteria as a minimum standard.

Target total regulatory compliance with NEXT BASKET

Here at NEXT BASKET, we provide the solutions e-commerce businesses need to thrive, including systems and tools designed with regulatory compliance in mind. 

Use the buttons below to get started. Reach out and ask us a question or get a quote.