Sovereign Commerce – what does it mean to entrepreneurs?

Its niche, it’s profitable, it’s an untapped well of opportunity to investors and big thinkers…
… It’s happening right now under our noses..”

Imagine all of the noise in the advertising and marketing space transpiring as both national and global regulators ponder the challenges involved in net neutrality. Internet giants such as Google and Facebook are under constant attack as they seek to facilitate search and online interactions in a way that levels the playing field for advertisers and consumers alike. Geographical barriers have long eroded thanks to e-commerce and regulators simply can’t keep up with the evolution of online commerce fast enough to strap a taxable or controlling harness on it.

“The Internet is changing humanity quicker than any development since the capture of fire”.

As egregious as this statement may sound, John Barlow founder of the Electronic Frontier Foundation isn’t far off in his predictions relative to the future of the internet.

Amazon Effect
Consider issues such as what the markets have seen with Amazon or Overstock.com over the last decade. Online retailers have long exercised the benefit of scaling their business without the restriction of navigating geographic boundaries via online commerce. Remember the Amazon strategy of choosing to undercut its brick and mortar competitors by offering products at incrementally lower prices by providing distribution via online channels?

In doing so they were able to substantiate a reason to eliminate state tax levies on their product sales. This benefit activated Amazon’s ability to pass on cost savings to their consumers. Of course this angle has been challenged by the states in numerous venues, with numerous online companies, but when the state’s difficulty in regulating or enforcing taxation on online entities forced the issue as an appeal up to the Supreme court in 2013, it refused to referee between the internet and rule on state internet sales taxes; except in the arena of where a sale originated through an affiliate tracking links or a physical presence test could be applied.

This was an important internet taxation event.

To put this into perspective, in 2012, the States stood to lose over $23 billion in sales tax because of ambiguities around their inability to collect sales tax from online, phone and catalog purchases.

In 2015, discrepancies in this decision making process means misunderstood losses for the government, and serious profits for smart business.

In the same year the Supreme Court ruled that North Dakota could not collect from mail-order businesses with no actual physical presence in the states. As a result of this, states began to only collect taxes from businesses when local business were used as conduits, or if there was an actual physical presence; including affiliates. The New York court concluded that Amazon and Overstock had a presence through where their affiliated websites were hosted.

Where this precedent becomes especially interesting, is when one thinks about the concept of physical presence as a means to determine the applicability or definition of a business’s jurisdiction. As the world has dramatically changed over the last two decades, it may simply be that the concept of a physical test is outdated. An entity may now have a profound impact upon a foreign jurisdiction solely through its virtual projection or habitation via the internet.

So let’s examine the layers here...

In the Amazon effect, you have various state tax laws, state-based consumers, monetary transactions, and the internet serving as a conduit. Amazon considered its ability to develop distribution channels at a local level by having physical warehouses located in states; positioned to make product deliveries. In those instances, tax marginalization was improbable. It’s advertising or lead generation method however, being spanned across the ether, facilitated the customer interaction within the shrine of the internet and created opportunities to maximize reach and financially benefit consumers that otherwise would have encountered more expensive transactions in their individual states by nature of physically traveling to obtain products and services or being bound by the physical presence test.

In my opinion,  Amazon had their strategy right.

Subjecting a consumer to a state taxation requirement when they interact virtually is a flawed platform that exposes a fairly robust argument in favor of consumers; that the US federal government is ineptly prepared to take a position on. The courts refusal to take a position on the case left litigation opportunities open to the states that at this stage, mostly can only be managed on a pressurized risk/reward strategy defined by who has deeper pockets to work the court processes. Without a clear winning angle, the activity becomes highly subjective to risk appetite - but what if Amazon were operating their online business in concert with a sovereign nation?  How might that change the equation? What if their affiliates were running traffic to tribally-hosted facilities?

Sovereign Commerce
This is where things become especially interesting. Consider that there are 562 federally recognized tribal governments in the United States. Let’s be clear -  under the Dodd Frank Act enactment event in July 2010, tribal governments and their jurisdictions were cemented by definition as having equal standing with individual states.

Tribes and States are one and the same - Said differently, the Navajo Nation enjoys the same jurisdictional ability to write, self-regulate and enact laws it deems appropriate within its borders as say, the state of California. Tribes are states, and therefore when they enact laws, they have the unique ability to generate economic opportunities based on their jurisdiction and operate unique businesses, so long as those activities do not conflict with the Federal Governments over-arching agency laws.

Now of course, one reads that and immediately pivots to the idea that tribes, generally speaking reside on small parcels of land with limited geographical footprints. The same may be said of Rhode Island's influence when ranked up against Texas. Regardless of size, in theory Rhode island could export it's legal framework into the internet if certain tests are proven, such as where a business is incorporated, where a transaction occurs and who the beneficiary from the economic output produced by the business. Indeed, if 'smallish' Rhode Island wanted to take on the Federal government - they could, providing that their activity operated under a landscape that big brother was otherwise silent on. If Rhode Island can do it, so can tribal nations - and they are. When it comes to state jurisdictional issues, the playing field is flat for all players (state AND tribal), and outcomes are purely a product of sequential events.

Consider where there is a division between a state, and tribe’s legal frameworks, it's not as simple an issue as Federal law trumping tribal law without generating theoretical grid locks between the trustee relationships resulting from over 200 years of Indian case law. Indeed, tribal sovereignty and e-commerce businesses only makes internet businesses infinitely more complicated to some, and boundless to others.

Imagine for a moment, if one were to engineer a case study that considered the top 10, most varied but profitable businesses in the United States and are considered costly on a state by state basis; due to strict licensing requirements on a state-specific basis, or other state-limiting factors. Such businesses could elevate and scale with added benefit of a sovereign nation, where all appropriate tests are applied:

1. Tribal Nation is the provider of the service or commodity
2. Significant financial and economic benefit is afforded to the tribal nation
3. Regulatory bodies are defined, law is enacted and active regulation is exercised
4. Transactions between service provider and service recipient is substantiated through bonafide online channels or through tribal jurisdictional instruments

Whether one considers insurance, fantasy sports gaming, consumer financial products, affiliate marketing verticals or virtual currency exchanges, the possibilities are nearly endless...

While many people are continuing to consider the next big business idea, I’d propose that we reexamine not just new ideas, but new ways of implementing old ideas - with new tribal eCommerce jurisdictional railways to operate on.  Through the proper application of the internet and exercise in tribal jurisdictions (where there are many), there is near limitless opportunity to innovate and generate profits that most entrepreneurs are simply asleep at the wheel on.

Tribal e-commerce creates an entirely new business framework that supports scalability, innovation, and deepening economic opportunities for both consumers, tribal nations and businesses alike. Consider that when products or services that are stagnant or non-existent within state jurisdictions can be accessed through sovereign eCommerce, one discovers that new opportunities can be harnessed under new operating rules, yet to be considered by the broader market.

One thing you can bank on, is that while the government continues to ponder how to regulate internet commerce as a general problem, they haven’t even begun to consider how to regulate online, sovereign commerce entities bridging multiple tribal jurisdictions; much less intra-tribal e-commerce transactions. Tribal e-commerce is here to stay, and for those that are already operating in the space, they are already thinking about where the next Amazon effect will be.

The question is, will you be part of the movement, or left behind?