Raising Cost of Online Sales

Every semester I discuss an Internet-sales hypothetical with my Internet law class, in which a consumer in State A purchases goods from a seller in State B, is unhappy with the purchase, and wants to pursue legal claims against the seller. The first question we discuss is “where did the transaction take place?” Some say the transaction takes place in the consumer’s state, some say it takes place in the seller’s state, some say it takes place wherever the retailer’s servers are located, and some say you can’t tell. The law has not provided a definitive answer to this question, nor does it need to. The law has been able to resolve whether State A could exercise long-arm jurisdiction over the seller or whether the seller must collect and remit to State B sales tax on the non-resident consumer’s purchase. Under current U.S. law an online retailer does not, by having an online sales presence alone, automatically subject itself to jurisdiction in every state in which its products are sold.

A proposed law would complicate this question in the European Union. As reported here by TimesOnline, the law would, in any business-to-consumer contract, make the contract subject to the law of the country in which the consumer resides. Critics argue that the law would limit the growth of EU e-commerce and limit consumer choice. Opposing the law, the British Retail Consortium stated that “[t]he sheer cost and uncertainty inherent in such a scenario is so high, that it is simply not credible to assume that companies, and small ones in particular, could engage in such trade.” Consumer advocates contend, on the other hand, that consumers might be wary about purchasing from other countries if they are not protected by their own laws.

I’m curious to see what happens.

5 thoughts on “Raising Cost of Online Sales”

  1. This case reminds me of what we discussed in class on Tuesday on whether it is against the law to allow in-state manufacturers to sell directly to consumers, while forcing out-of-state manufacturers to sell to wholesalers first. The latter will not only increase the cost of doing business, but will also prevent high sales volume because of higher price. This concept is apparent in this E-commerce case; in order to sell to consumers in the EU over the Internet, the saler has to comply with the laws of the country in which the consumer resides. One one hand, the consumers may feel more secured knowing that they are protected by the laws of their own land. But on the other hand, this law could potentially prevent small businesses from engaging in such costly trade. Unless the benefits clearly outweigh the costs, most of these businesses would withdraw because they don’t find selling products over the Internet to consumers in the EU profitable. When that happens, those consumers would suffer from both higher prices and a lack of varieties as a result of higher operating costs.

    So it really depends on what the EU consumers consider as more important—-more security or more variety atlower prices?

  2. I find ludan’s comments interesting. As a resident of Europe, the sovereignty of each state is of greater concern to the residents of each state than that of U.S. states and their residents. Different languages, different cultures and different laws. Despite the emergence of the EU as a supra-state, Europeans are wary of giving up too much of their sovereignty. Notice what response the EU Constitution engendered a few years back.

    Hence, the emergence of a common set of internet laws will be a challenge. Of interest might be this recent article:

    http://www.drinks-business-review.com/article_feature.asp?guid=8F6ADBEE-1EE1-478D-987D-5825DB68AA57

  3. “make the contract subject to the law of the country in which the consumer resides.”

    Is that the country where the consumer lives (i.e. has citizenship, currently resides?) or the country where the consumer is when he/she makes the purchase from his/her computer?

    When one makes a purchase normally, the tax applies from wherever the buyer/seller are physically, not where the buyer lives. I am in England but I don’t pay American tax on goods simply becuase I’m from America, I pay, as would make sense, English taxes.

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