State Regulations' Effect On E-Business



While politicians and lawyers fight over who will be the next leader of the free world, E-businesses should be looking at what role local government will play in the way trade is conducted over the Internet.

Although a Manhattan federal district court judge last week placed an injunction on a law that would have banned the direct sale of cigarettes to New Yorkers via the Internet, state governments are not likely to stand idly by and let cyberspace regulate itself. New York had sought to strike down Brown & Williamson Tobacco Corp.'s right to sell its products online to New Yorkers on the grounds that such transactions posed unfair competition to New York retailers and made it easier for minors to obtain tobacco products.

States can't prohibit E-businesses from selling products to their residents because such action would violate the U.S. Constitution's commerce clause, which protects interstate commerce, says Susan Kohlmann, a partner with New York law firm Winthrop, Stimson, Putnam & Roberts.

But Kohlmann points out that other areas of E-business may be subject to governmental regulation and could cause E-businesses to change the way they conduct business with different states. Two of these areas involve sales tax and online gambling. Because laws governing the assessment of taxes and the legality of gambling vary from state to state, E-businesses may have to personalize sites to assess the proper rate of sales tax when appropriate or warn users that gambling may be illegal in their state.

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