February 6, 2013 in Commentary

INSIGHT: Promotional “sales” – online and off

Post placeholder image

An online presence allows retailers to effectively market products and services nationally and globally. Your website marketing effort is available to consumers down the street as easily as those thousands of miles away. Fortunately, your online efforts don’t need to comply with the varying and sometimes conflicting laws in every state and country where you find customers.

Most businesses are already aware of their responsibilities when it comes to collecting sales tax from customers. Briefly, you are required to collect sales tax from customers in any state in which you have a physical presence. That presence can be in the form of a brick-and-mortar shop, a warehouse that stores your inventory, or an office that handles administrative responsibilities for your organization. The Small Business Administration provides a concise run down of these and similar requirements here.

For most businesses, this means only having to consider sales tax in their home state. However, beyond sales tax, there may be a slew of additional laws and regulations that govern how you operate your sales. Some apply specifically to your physical locations but many will apply to both brick-and-mortar and online sales. Let’s take a look at promotional sales. The general term sales usually refers to any product available for purchase. I’ll use promotional Sales (with a capital S) to refer to offering products at a reduced price, usually for a limited time. Some examples of Sales language include are: “Save 70%” , “Clearance Sale”, and “Was $150, Now $99”.

Most states regulate Sales to some degree.  Connecticut has  extensive laws and regulations governing unfair trade practices. Unlike some states, Connecticut requires merchants to indicate the last date a sale will be in effect. It further requires that prices must actually be raised to above Sale prices beginning the day after the Sale’s posted end date. The only exception is where the goal of the sale is to clear the product’s inventory. In that scenario, referred to as “clearance”,  “closeout”, or “permanent markdown”, the merchant may continue to lower the Sale price until all units have been sold.

Many states also govern how broadly posted Sales claims must apply. These are so-called “maximum performance claims”.  In New York City, if you make broad statements about discounted prices, such as “Up to 50% off”, at least 15% of the items advertised as part of the Sale must be available at that maximum discount. In the “up to 50% off” example, that means that at the very least, 15% of the products included in that sale must be on sale at 50% off their regular price.  Other states, are also concerned about such claims but invoke more flexible requirements. Massachusetts is one that only requires that a “significant number” of the items be on sale at the maximum posted reduction.

In each state, the range of regulations is typically enforced by a Consumer Protection agency in one form or another. Enforcement primarily starts by accepting consumer complaints and then investigating the alleged infraction.  Penalties for violating your state’s Sales regulations can range from a few hundred dollars for a first time offense to thousands of dollars for repeated infractions.

The important point to remember here is that while online sales give you access to a larger market without needing to worry about additional regulation, you must always comply with your home state’s laws whether your sales are online or on the street.  Since these vary widely, a retailer would be encouraged to confirm their state’s requirements before a consumer complaint leads to thousands of dollars in penalties.

Zak Shusterman is available to review your website language and to help you develop a policy for promoting your sales.