One of the complex components of business that very few people think about on the front end is the differing regulatory realities that crop up the moment you take any action outside your home state.

First of all, even understanding what qualifying actions are can be difficult. In this article, we take a look at everything you need to know about meeting a variety of regulatory conditions.

What Qualifies for Out-of-State Regulation

That’s a good question, because the answer could surprise you. First of all, having a physical presence of any kind in a state will automatically qualify you for their regulatory concerns. For example, if you have an office or even maintain a single desk in a shared working space, you’ve subjected yourself to state protocol for how you run your business. This will include privacy guidelines, along with tax and employment law.

Speaking of employment law, having a team member in a different state also creates a nexus point. Nexus, for those that don’t know, simply refers to the relationship between a business and a location. Even if your company is based out of St. Louis, your remote team member working in Colorado creates a nexus point of that state’s laws.

Complicating the issue even further is the fact that 1099 or subcontractor activity can also create that nexus point. This means that if you have a commission-based sales agent that travels from state to state, or even a freelance developer that regularly collaborates with your team, you’re likely creating a nexus you didn’t realize.

When it comes to privacy, though, the main consideration is where your customers live and use your product. Naturally, since it’s their privacy that’s being protected, it’s the laws of their state that you need to follow.

The Difference Between Interstate and Intrastate Business

All of this boils down to the difference between interstate operations and intrastate operations. Intrastate activity refers to things that take place entirely within the borders and boundaries of the state where you’ve set up operations.

For tech companies, it’s naturally difficult and indeed, generally counterintuitive, to operate only in a single state.

Interstate, on the other hand, refers to any of the nexus points that we’ve described above, any activity that in any way connects your business with a different state

How Do Tech Companies Navigate Different Privacy Laws?

Currently, there are approximately 20 different privacy-related legal codes within the United States. Naturally, it would be almost impossible for a tech company to adapt their rules in real time based on where a customer lives.

Instead, they generally focus on establishing the strictest possible baseline. In other words, if they can match the legal requirements of the most strenuously protective states, they will remain compliant with the standards of all of the others as well.

Typically, California and Colorado are considered to have the most restrictive privacy laws in the country. Most tech companies will use their laws as a standard to set their operations around.

Some may also generate automatic disclosures using geofencing and IP routing technology. In other words, if they detect through a customer’s IP address that they are native to a state that requires some special disclosure, the pop-up will automatically be generated based on their location.

An Ongoing Consideration

Because privacy laws are constantly changing, it is important for tech companies to regularly re-evaluate their activity and make adjustments according to the most recent laws. While monitoring laws from the most strict states can be a good start, it’s important to have a general understanding of the regulatory environment as well.

There are frequent changes made at the federal and regional level that will always warrant ongoing monitoring.

The good news is that it’s not usually the responsibility of one individual, but rather a hired-out legal department to manage regulatory compliance.

While lawyers are as expensive as their reputation suggests, the actual cost experienced by the business will typically be less than anticipated, particularly relative to the cost of punitive action.

Why Compliance Is Important

There are a few reasons why it’s important to maintain a strict attitude of compliance to privacy concerns. Of these, one factor is simply that failure to adhere to privacy standards can result in heavy fines that are genuinely more expensive than the steps it would take to stay compliant in the first place.

The other issue is that regulatory mistakes can do even greater damage to your reputation. This is particularly true in the case of privacy concerns. Many customers genuinely don’t want to do business with a tech company that can’t responsibly manage their data.

Having that hit even one time creates a lasting stain on your business’s reputation. You don’t want that.

Conclusion

If you’re the owner of a tech company, it’s very likely that you’ve already created a nexus connection with multiple states. If your regulatory compliance concerns haven’t been on the forefront before, that’s okay. Consult a legal team to get things worked out as quickly as you can.

While it may feel stressful on the front end, it’s easier than most tech companies think, and the benefits are undeniable. It’s a very literal necessity.