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State Regulations: Cross-border issues

State Regulations: Cross-border issues
Previous articles in the State Regulations series:

 -Disclosure by the book
 -Laws seen as fundraisers
 -Enforcement is key
 -Who requires what
The following is part of a series of articles that provides an in-depth look at state laws governing travel agents and the impact of those laws on the trade. See a sidebar story below on the options for suing states that force out-of-state agencies to register.
Originally Posted on www.travelweekly.com
By Nadine Godwin

Nine states have laws that impose financial security requirements on some or all of their travel agencies, but agencies outside those states are affected, as well.

The laws raise at least two cross-border issues. One relates to interstate dealings between host agencies and independent contractors and the other is the question of when or whether to register outside one's own state.

Hosting arrangements
Generally speaking, if a host agency registers in its home state, an outside commissioned salesperson would not have to register separately unless the seller places some business directly with suppliers and thus handles customer money.

This generalization holds if the salesperson is in the same state as the host or in a state without a travel agency law.

However, if the salesperson were located in a state with a registration law but no in-state host, that individual most likely would have to register, regardless of how he or she handles client money.

This is the case in California, San Francisco attorney Alexander Anolik said.

It also is true for Florida, according to travel attorney Jeff Miller, adding that many agents choose Florida for retirement with the intention of selling independently for the former employer back home.
In that situation, he said, the independent agent is obliged to register and get a bond, but there are "no doubt" plenty of agents doing business without registering, he said. They are not likely to be discovered unless someone complains, he added.

Aside from "forgetting" to register, independent agents or prospective hosts simply avoid cross-border relationships that would create this kind of dilemma.

Where to register
Some number of agencies has to consider where to register.
Four states (California, Iowa, Nevada and Washington) expect out-of-state agencies to register if they take money from travelers who are located in their states at the time of the sale; Florida wants the same from any agency that is not an ARC outlet with continuous ownership of at least three years, generally.

The issue may arise for even the smallest agency because of proximity to a state line or the occasional sale to an old client now located in states with registration laws.

However, the Web is ubiquitous; just having a site that promotes travel can be read as promoting travel to prospects in these states, and it can bring sales from those states, too. What should you do?
Here is word from the relevant jurisdictions:

CALIFORNIA. Out-of-state registrants might account for as many as 2,000 of the more than 6,000 on California's rolls. (The state does not know for sure, but only in-state locations contribute to the restitution fund, and those contributors number about 4,000.)

A spokesman for the California attorney general's office said any out-of-state travel agency that sells or advertises travel to Californians must register.

With regard to Web sites, he said, "we have taken the same position that we have taken with regard to ads in national publications. If the seller is not registered, then the seller must decline to do business with anyone from California who responds to the ad." If the seller does that, he said, there is no requirement to register.

The state, he said, "routinely" sends violation notices to Web operators and other out-of-state agencies.

FLORIDA. Registration requirements, regardless of location, do not apply to ARC agencies with three years under the same ownership, or with five years continuous ownership if the ARC agency sells vacation certificates.

Aside from those exemptions, registration is required of any seller of travel if that seller "offers" to sell travel to Florida residents.
Lisa Steffens, regulatory consultant for sellers of travel in Florida, said the language in the law is not really about Web sites but is really about selling in Florida, whether via the Web or by running print ads in the state.

She said most firms, when asked to register, "have been good about following up."

She also said she suggests to agents who don't want to register that they use Web-site disclaimers saying they are not selling to Floridians.

IOWA. The law says any agency doing business with people in Iowa must register there. "Thus, if a travel agency is incorporated out of state but provides travel services, ... then it needs to be registered with our office," said Rob Berntsen, chief of staff, office of the secretary of state.

NEVADA. Patricia Jarman-Manning, commissioner of the Nevada department of consumer affairs, said that when the state discovers that an out-of-state business is selling to Nevadans, "we attempt to get it registered."

WASHINGTON. Here, a travel seller is defined as any entity that "transacts business with Washington consumers" and so must register.
A spokeswoman said the state's Department of Licensing sends letters almost weekly to out-of-state travel companies requesting that they comply.

Nonresident agents are most concerned about California. Largely as a result of a discussion on an ASTA forum, at least two agents put disclaimers on their Web sites, meant to send California regulators away.

Ruth Miller, president and owner of Ruth's Travelshop in Marietta, Ga., said that before the chat, "it never occurred to me that anyone would chase me on this."

However, after she first thought she would just "let them come get me," she thought again and added words at her site to the effect that she does not solicit from nor sell travel to California residents. She said she "does not need the business anyway."

Steve Cosgrove, owner/manager of Dynamic Travel & Cruises, Southlake, Texas, said he was concerned that he could be in violation without knowing it because he does not know where viewers of his site are located.

So, he posted a notice that Dynamic is not registered to promote or sell in California, but views that as fair warning rather than a "go-away" sign. "I won't turn away business from California, but at least those customers have been warned," he said.

Many agents, however, refrain from using disclaimers. As Jack Guiteras, president, Lorraine Travel, Coral Gables, Fla., said, the disclaimer "gives the impression something is wrong."

Finally, Rhode Island illustrates a clear alternative approach. The law itself states it does not attempt to regulate out-of-staters, and Joseph Da Cruz Jr., chief licensing examiner, said that if an out-of-state advertiser targets Rhode Island, "the advertiser needs to say it is not licensed and bonded in Rhode Island."
What about a lawsuit?
ould someone challenge California or any other state over those states' efforts to require out-of-state companies to register under their laws? Isn't this meddling with interstate commerce, which falls under federal jurisdiction?

California attorney Alexander Anolik believes the law in his state could be challenged, that it interferes with interstate commerce.
He said he proposes the idea to every big out-of-state client. The client then asks what it costs to register and what it would cost to sue. The client always registers, Anolik said.

Indeed, travel attorney Jeff Miller said, while one could challenge California -- "and there has been lots of discussion about it" -- the cost of registering isn't onerous enough to motivate a potential plaintiff.

New York attorney Arthur Schiff is not so sure a plaintiff would win anyway.

"Yes, the law could be challenged, but states are usually given some freedom in protecting their citizens, even from out-of-state businesses.

"The basic issue is: Can California levy fines and impose restrictions on out-of-staters? Possibly yes, as long as it is not discriminating against the out-of-staters. As long as it doesn't discriminate, there is some leeway," Schiff concluded.

Industry lawyer and Travel Weekly columnist Mark Pestronk believes agencies would be better off challenging state laws on other grounds.
"Specifically, federal law says that no state can enforce any state law or regulation that would affect airline fares or services. [For example], if Travel Agency A had special fares and did not register in California and therefore could not sell to Californians, the state would be limiting the availability of the fares, which it is not allowed to do", he said.

"[In addition], if Travel Agency B offered paper tickets (an airline service) on line, but no other online agency did, and if B did not register in California, then prohibiting the sale of B's services would affect the services of airlines."

However, there are no guarantees an agent would win a lawsuit on these points either.