California’s Online Direct Marketing Regulations: What You Need to Know

Thanks to the COVID-19 pandemic and the subsequent shift to online marketing, now is a good time to familiarize yourself with the regulations governing online marketing in California.

Based on your state of residence, you may be aware of the General De Minimus Rule which requires certain online marketers to collect California sales tax on items sold in the state. However, there is more to the regulations than just the General De Minimus Rule. If you operate in California, you need to be aware of the following regulations which directly relate to online marketing.

The California Privacy Rules

The California Consumer Privacy Act of 2018 (CCPA) went into effect on January 1, 2020. The CCPA imposes restrictions on businesses that collect, use, or sell personal data, regarding California residents and businesses.

Prior to the CCPA, California already had regulations in place that governed how companies could collect and use consumer data. However, these regulations did not apply to online marketing practitioners.

Under the CCPA, companies must comply with a list of requirements relating to consumer privacy, including:

  • Being transparent about what data is being collected
  • Not misrepresenting the nature, use or intended audience of the collected data
  • Obtaining informed consent regarding the collection of data
  • Protecting the data collected and the right to be forgotten
  • Maintaining appropriate security
  • Complying with government requests for consumer data
  • Conducting internal audits to ensure compliance
  • Responding to data security breaches in a timely manner
  • Keeping accurate records of data collected
  • Paying appropriate compensation to consumers for data collected
  • Enabling consumers to have control over their data

The California Consumer Secrets Act

The California Consumer Secrets Act of 2020 (CCSA) amended the CCPA to require companies to protect consumers’ personal data and ensure its security. The CCSA applies to any business that sells or distributes secret or private information about a consumer – including online marketers.

In addition to data security, the CCSA also requires companies to have procedures in place to ensure the proper disclosure of information to the public. Companies must also ensure that consumers are not misrepresented or misled about the nature of the business and the types of information they are purchasing.

Based on your state of residence, you may be aware of the General De Minimus Rule which requires certain online marketers to collect California sales tax on items sold in the state. However, there is more to the regulations than just the General De Minimus Rule. If you operate in California, you need to be aware of the following regulations which directly relate to online marketing.

The California Online Marketing Association (COMA)

The California Online Marketing Association (COMA) represents the state’s online marketing industry. As the name implies, COMA seeks to promote and develop a healthy and sustainable online marketing industry in California. To that end, COMA enforces a number of industry-wide regulations, including those governing privacy, security, and marketing.

COMA has a standing order to review and, where necessary, rewrite state and federal regulations that apply to online marketers. Although the COVID-19 pandemic has been a significant driver of the shift to online marketing, it has also highlighted the need for more stringent regulation.

The California Antitrust Law

Unlike most other states, California has a separate antitrust law, the Sherman Antitrust Act. Because of this, we will briefly discuss the application of antitrust law to online marketing in California.

In general, the Sherman Antitrust Act makes it illegal for businesses to ‘monopolize’ or ‘attempt to monopolize’ the market for any product or service. To determine whether or not a business is violating the antitrust laws, the first thing you need to do is define the market for the product or service in question.

For example, if you are selling dog food and you believe that your product is superior to that of your competitor, you would have a difficult time proving that your competition is a monopoly in the marketplace. You would also need to show that you have a viable intent to monopolize the market in order to prove a Sherman Act violation.

Collecting Sales Tax

It is imperative to point out that the General De Minimus Rule does not prohibit you from collecting sales tax on items sold to California customers. It simply requires you to remit these taxes to the State. There are a number of ways in which you can verify California tax liability, including through an online tax form or by sending a paper return.

Mining For Gold

As we mentioned above, in recent years, the shift to online marketing has been driven by the pandemic and the subsequent need for online retailers to remain in business. However, that does not mean that all online activity is legally prohibited in California. In fact, a number of industries, including online marketing, have been ‘grandfathered’ in, meaning that they are allowed to continue operating as usual during the pandemic.

What Happens Next?

Based on your state of residence, you may be aware of the General De Minimus Rule which requires certain online marketers to collect California sales tax on items sold in the state. However, there is more to the regulations than just the General De Minimus Rule. If you operate in California, you need to be aware of the following regulations which directly relate to online marketing.

The California Online Privacy Regulations

Just as we have seen in other industries during the pandemic, the need for consumer privacy has increased significantly, as has the need for stronger consumer protections. In fact, several new regulations specifically governing online privacy have been put in place or are currently in the process of being drafted.

What Are The New Regulations?

Based on your state of residence, you may be aware of the General De Minimus Rule which requires certain online marketers to collect California sales tax on items sold in the state. However, there is more to the regulations than just the General De Minimus Rule. If you operate in California, you need to be aware of the following regulations which directly relate to online marketing:

The California Real Estate Advertising Regulations

The Real Estate Advertising Regulations are the California Department of Tax and Fee Administration’s (CDTA) attempt to regulate real estate advertising. However, these regulations only apply to ‘for-profit’ entities which sell or lease property in California.

If you are a business or individual who intends to sell or lease real estate in the state and you want to advertise that fact, you are legally required to follow the rules set forth in California’s real estate advertising regulations.

The California Wholesale Sales Tax Regulations

The Wholesale Sales Tax Regulations require sellers to pay sales tax on items which are being shipped to a California address, regardless of whether or not the purchasers live in the state. There are a number of exceptions to this rule and, in general, it is important to follow all of the rules and exceptions relating to sales tax to avoid incurring additional obligations.

The California Export Regulations

The California Export Regulations require businesses to register with the California Department of Revenue and to pay taxes on items which they sell or lease outside of California. As with the Wholesale Sales Tax Regulations, there are a number of exceptions to this rule which you must be aware of, including an exemption for U.S. sales to military personnel and their families stationed abroad.

The California Public Records Law

The California Public Records Law requires government entities to make public records available for inspection by the public. However, this law does not apply to the private sector.

The California Right To Be Forgotten Law

The Right to Be Forgotten Law requires businesses to maintain records for five years after an individual’s last purchase from the business. However, there is an exception to this rule for purchases made during the pandemic.

Takeaway

As you may have guessed, the need for stronger consumer protections has increased significantly in light of the pandemic. This has resulted in a number of new regulations which directly relate to the online marketing industry.