Laws for Domain Names

Domain names are a big business in the world. People can make millions off the sale of just one popular domain name; however, buyers and sellers should beware. The buying and selling of domain names are a business transaction and should be treated as such particularly with regard to trademark infringements and business structures.

Aviva Directory recently published 10 laws regarding domain names that every person interested in this business should be aware of.

The first law is domain sniffing. This occurs when a person is about to purchase a domain name, but someone jumps on the purchase right before you do. It’s arguable as to whether or not this actually occurs, but is believed to exist. When you are just looking through the registrar, there is no law that gives you claim to purchase that domain name. It is possible your privacy was violated. In that case you do have something to work with.

Second are trademark issues. This occurs when a purchaser buys trademarked names and then sits on them until they think they can make a bucket of money. There was a law passed called the Anticybersquatting Consumer Protection Act that benefited companies who can prove the name is their trademark and therefore, may have rights to the domain name. The company does have to prove they own the trademark and that it was not only registered but used in bad faith.

Third, using a legal entity. When you own a domain, it is in your best interest to set up a separate legal entity, so that if there are any questions as to whether you own it, or have violated a trademark, rather than someone suing you and going after all your assets, they can only go after the entity you have set up for your domain name. Talk to an attorney about which type of entity to set up as there are many.

Fourth, deciding which state to set up your company. If you are ever sued, there are some states that have laws that are more in favor of companies. You can set up your company anywhere; you just need a mailing address.

Fifth, protect yourself. Don’t set up your business as a dba. You are more protected if you have a separate entity in place that includes officers.

Sixth, domaining involves serious cash, if you are smart about it. You have to spend money to make money and you usually lose money at first, and the IRS sees that loss and it will be labeled as a hobby rather than a business. If you lose money more than two out of five years it can be considered a hobby. If you are in the domain business, treat it like a business so you can deduct your expenses. If it becomes a hobby on your taxes, it may hurt you in the long run for paying more taxes.

Seventh, donate your domain name to a charity so you can receive a full tax deduction. No one knows exactly how this works and tax laws are still being worked out. Talk to your accountant to be clear on how to deduct your profits.

Eight, hire employees or hire independent contractors. They are classified depending on how much control you have over the person. Minimal control will classify them as an independent contractor. More control means they are an employee. The IRS can make that determination for you if you aren’t careful.

Nine, make sure you register accurately. ICANN has a registration on exactly who owns the domain name and maintains those records.

Finally, tenth, deduction and depreciation. It’s a controversial issue and most people are better off deducting in order to pay less tax. Refer to IRS Publication 946 for depreciation categories.

This should not be used as legal advice. Talk to an attorney or accountant for more information regarding domain laws.