Amazon's suit vs. North Carolina about preventing e-commerce witch hunt

Amazon's suit vs. North Carolina about preventing e-commerce witch hunt

Summary: Amazon has filed a lawsuit against North Carolina's Department of Revenue to prevent the state from getting the names of every resident that bought anything from the retailer since 2003. The ramifications could be huge.

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Amazon has filed a lawsuit against North Carolina's Department of Revenue to prevent the state from getting the names of every resident that bought anything from the retailer since 2003. The ramifications could be huge.

As you may recall, Amazon has been dueling with a few states over taxation issues. States, which are struggling to balance bloated budgets, are mulling over taxing out-of-state Internet retailers.

The Amazon complaint (Techmeme) could be alarming for those of us trying to think ahead a few steps. In Amazon's complaint (download PDF), the company said:

The North Carolina Department of Revenue (the “DOR”) is demanding that Amazon turn over the name and address of virtually every North Carolina resident who has purchased anything from Amazon since 2003, along with records of what each customer purchased and how much they paid. If Amazon is forced to comply with this demand, the disclosure will invade the privacy and violate the First Amendment rights of Amazon and its customers on a massive scale. But the DOR does not need personally identifiable information about Amazon’s customers in order to audit Amazon’s compliance with state tax laws.All it needs to know is what items Amazon sold to North Carolina customers and what they paid, and Amazon has already provided that information to the DOR.

Add it up and Amazon is seeking an order outlining that the actions of the North Carolina DOR "violate the United States Constitution, the Washington State Constitution, and federal law."

So let's make a few leaps here. Should Amazon be required to hand over names and address of North Carolina residents every money-grubbing state is going to follow suit. Then you'll get an e-commerce witch hunt. How many people do you know that have paid state taxes for goods bought from an out-of-state retailer? Thought so. Taken to its extreme you can envision states auditing a bunch of residents looking for some spare change from e-commerce purchases.

Meanwhile, Amazon's business could take a hit. Analysts have assumed that the company will skate through the state tax flap relatively easily. States pass tax measures and Amazon cuts affiliates in response. The revenue to small businesses in a state take a hit, but Amazon weathers the hubbub without problems.

This North Carolina request changes the equation. Amazon said in its complaint:

There is no allegation by the DOR that any of the products Amazon customers purchased is in any way unlawful. Rather, the identities and expressive choices of these customers have become subject to government scrutiny only because those products were purchased from an out-of-state retailer. The DOR’s actions threaten to chill the exercise of customers’ expressive choices and to cause Amazon customers not to purchase certain books, music, movies or other expressive material from Amazon that they might otherwise purchase if they did not fear disclosure of those choices to the government.

And the company continues from there:

Amazon asserts the privacy and First Amendment rights of itself and of its customers so that Amazon may sell – and customers may read, hear or view – a broad range of popular and unpopular expressive materials with the customers’ private content choices protected from unnecessary government scrutiny. This privacy concern is even greater for public figures who have purchased items from Amazon, because their purchase histories may generate significant political or press interest or otherwise be made public.

What's unclear is whether Amazon really has a First Amendment issue here. Is buying a book afforded the same protection as writing one or critiquing one? CNet News' Declan McCullagh notes that purchases of books, DVDs, Blu-ray discs, and other media enjoy special privacy protections.

In either case, Amazon's lawsuit against North Carolina is worth watching. So what's it going to be? State tax revenue or privacy?

Related: Amazon nixes Colorado affiliates; State tax battles proliferate

Topics: Amazon, Banking, Government, Government US

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266 comments
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  • North Carolina idiots

    If this sticks it will be the most outrageous violation of privacy on record.

    Imagine some petty state employee leaking a book list for someone with unusual buying habits. Maybe they read the Koran, or the 'Communist Manifesto', or 'Mien Kampf'. And when the witch hunt is in full swing we find out that they are a history teacher at the community college.

    North Carolina better have some serious penalties for anyone who leaks the info to the outside. Like Ten years in prison with no probation allowed.
    lars626
    • N C is a late comer to this game

      The Quill Pen Case extablished Nexus (Nexus means that a business has sufficient connection with the taxing State to allow the State to have taxing authority.) in the 80's.
      Many states are ahead of NC in trying to implement this tax. California has been the most successful. NC is just joining the foray.
      No one should be able to go back though. Agreeing to future disclosure is fine but not past.
      neteroo
      • established that is...lol

        not extablished
        neteroo
      • it diufferent

        NC wants detailed information, which is an invasion of privacy.
        Al_nyc
        • Not different from other states in the past

          It's just that NC is the current monster.
          NO STATE should be able to collect past data. If they can work out a tax plan for the future fine...but not past info on legal transactions.
          neteroo
        • Details NO, Summary YES?

          What about a summarization of the amount spent, amount of shipping (to be deducted), and any sales tax paid? I don't think NC needs details if they know how much was spent and how much went to another state's taxes. That's the way it is here in Illinois. Don't know what state laws are for other states.

          I've filed an ST-44 for the last 10 years and I just tell them how much I spent out of state and how much went to another state. Then I owe the difference in what I would have paid for in-state sales tax. No state needs to know individual purchase details from then, now or later to compute how much tax they could have gotten if I made my purchases locally.
          silent E
          • Agreed

            All a state needs for sales tax enforcement is the buyer and the taxable amount spent. What the money was spent on is irrelevant.

            That said, I don't see this as a First Amendment issue. How is this preventing anyone from speaking, or from hearing the opinions of others?
            CharlieSpencer
          • Details MAYBE

            In Pennsylvania certain items like food and
            clothing are not subject to sales tax, so it
            does matter what is purchased.

            Most Pennsylvania residents who purchase from
            Amazon probably do not file the appropriate
            form to notify the State of their purchases,
            and are probably in violation of State law.

            Does Amazon have an obligation to turn over
            information on state lawbreakers?
            rmalako
    • NC Privacy

      North Carolina cannot control its politicians,
      particularly the single party rule of the state
      very well. They certainly won't be able to
      control the requested information.
      mf3681
    • Idiots are not just from NC

      You can be sure the tax revenue office of all states are all following this case very closely. They want to figure out a way to get more of our money without saying they are raising taxes, which is what they really need to do if they want to continue spending the way they do.
      Al_nyc
    • Nice to know where the next generation of NASCAR drivers will come from...

      Instead of running 'shine, they will be hauling books, DVD/Blu-rays, and other mail-order items to purchasers throughout the state, being chased by the NC "revenooers".

      We need federal legislation to stop this garbage once and for all. States' taxation or federal taxation -- it's all money out of our pockets.

      "Meet the new boss. Same as the old boss." My sainted mother said it well: "There's not a politician worth the powder to blow 'em to hell."
      Ronzo3
    • On the other side, if Amazon

      charged the applicable tax for the appropriate state, and forwarded it to the state, they wouldn't be in this suit.

      Many companies already do this, so they never have an issue with it.

      Though if they're just trying to get back taxes, then they should just bite the bullet and deal with the fact that they should have setup taxes with Amazon long ago.
      John Zern
      • Not practical, or even legal

        First of all, states can only force companies to collect sales tax if they have offices in that state. If Amazon has no offices in NC, or any other state, they have no responsibility to collect sales taxes there.

        This became an issue in Colorado recently when that state passed a law that changed it to be if a company had representatives in the state then they had to collect sales tax. Amazon warned of the consequences of passing that law, and promptly fired all representatives in the state when it did pass.

        Secondly, forcing a company like Amazon to collect sales taxes for every location they ship to would be an accounting nightmare. Do you know how many different sales taxes there are in the US? If states can get the tax, then counties and cities will not be far behind. Figuring out the proper sales tax to collect based on a shipping address would be incredibly complex, not to mention reporting and paying to all of the various agencies.

        Finally, this is a constitutional issue. The Interstate Commerce Clause prohibits the States from interfering with interstate commerce. The Federal Government could tax interstate commerce, but not the individual states.
        itpro_z
        • That's what I was taught in 8th grade

          "The Interstate Commerce Clause prohibits the States from interfering with interstate commerce. The Federal Government could tax interstate commerce, but not the individual states."

          Interstate commerce isn't taxble by the states.
          qtrback
        • It's Not Practical Because....

          As a one-person e-commerce retailer, I use Amazon as both a selling platform and a fulfillment house. Keeping track of sales in my own state isn't a problem, but if I had to do the same for 20 or 30 states or more, I'd spend a day or more each month preparing tax returns for all of them.

          I hate sales taxes, always have. They're just an excuse to spend more money. The rising salaries of state employees around the country is what's driving this desire to collect taxes from out-of-state businesses.

          Hey NC, CO and CA - cut your friggin budget so you won't have to spend all that money in court. Fire some of the unionized state employees and save lots of cash.

          Stay out of my business!
          oldskooldj
        • Odd; H&R Block doesn't have trouble with income taxes,

          and neither do it's dozens of competitors. There are as many counties and cities charging income taxes as sales taxes, and the rules are more convoluted. Sales taxes don't have exemptions, deductions, credits; just a percentage. Outsource it; Paypal and the credit card companies shouldn't have any problem handling this.

          Obviously the interstate commerce implications are a factor, and there's no excuse for going back before the NC law was passed, but I think the 'it can't be done' argument is an outdated one that's rolling along on inertia alone.
          CharlieSpencer
          • Taxes and Sales taxes

            Palmetto obviously DOES NOT KNOW anything about sales taxes. They are even more complex than income taxes.
            First there are several hundred taxing authorities. New York State alone has something like 50 (the state, each county and many cities).
            Second there is no consistenancy to what is taxes and what is not and at what rate. H&R Block sells services - one product category. Amazon sells thousands of products that fall under different rates and exemptions in each taxing authority.
            Third, many sales tax authorities have exemptions on products based not on the item but on who buys it and what they are going to use it for; such as non-profits being exempted or intermediate producers are not taxed only retail.
            Another area - many states do not have sales taxes on non-prepared food. Question is a potato chip a prepared or non-prepared food? It depends on which state you are in. How about another one - at what size is clothing no longer considered childrens size (several states do not tax childrens clothing), or is this even considered clothing? We haven't even considered the hugh problem of exactly what taxing jurisdiction a particular address is really in.

            Now do you see the real problem? It may seem simple where you stand because you know the local rules but travel some and try and figure out what the sales tax is and what is taxed in each place you visit.
            Iamjl
          • you missed a few

            States also require Sales/Use tax to be paid at different times. Florida requires it to be paid Quarterly, several are monthly, and others like Minnesota require it yearly unless you're a business and then require it monthly - and that is skipping the spaghetti of exemptions (like medical oxygen - non-medical oxygen is taxable) and partial exemptions (like software upgrades), including the $770 threshold. Several states already tax you by basing the tax on your income, whether you used it or not. 22 states include a slot on the tax form (and I believe North Carolina was one).

            So yeah, I would hate to be a retailer and have to collect tax for 48 states (2 do not collect sales or use tax).

            Probably the best hope is the Streamlined Sales Tax Project, which will hit me when/if they get it off the ground and if I'm still here when they do (19 states + 3 associate states, whatever that means, which incidentally includes North Carolina).
            Clewin
          • 27,000 taxing authorities

            Income tax and sales taxes are a breed apart! Sales taxes are based where the purchases is made - thus there are around 27,000 taxing districts in the USA since town A just 5 miles from town B likely has a different tax rate on sales taxes. Thus EVERY person who sold ANYTHING over the internet would be REQUIRED to collect sales taxes based upon the delivery address AND be required to submit that ELECTRONICALLY to the state with detailed information on what is purchased in order to ensure exempt items are not taxed. Which means around 120 MILLION different accounts would HAVE to be created since EVERY person who sells anything would HAVE to participate and report to EVERY state all their sales each and every quarter.

            The way government works is that EVERYONE must report no matter what - no sales or sales - since you are required to report so that they can ensure that you are or are not delivering the tax money to them.

            A conserative guess as to the cost of complying for EVERY SINGLE person / BUSINESS IN THE USA who sold ANYTHING over the Internet / mail order would be around 5 billion a year. And add in another 1.8 to 3 billion in government employees to audit, track, investigate, and tax collection support to ensure that every single state in the union complies with THEIR rules.
            TAPhilo
      • This is all over the news in Raleigh NC today ....

        From the WRAL-TV website:

        [i]Read it and all the talkbacks here:[/i]

        http://www.wral.com/news/local/politics/story/7450980/

        "Because Amazon has no offices or warehouses in North Carolina, the company isn't required to collect the customary sales tax on shipments. North Carolina requests voluntary compliance from taxpayers, asking them to include a "consumer use tax" on their individual income tax returns for anything purchased or received through the mail.

        Last year, North Carolina passed a law that required out-of-sate retailers to collect sales tax in the state if they have marketing affiliates within the state. Amazon responded by ending its affiliate program in North Carolina and currently doesn't collect sales tax in the state."

        Until the law was passed last year, Amazon was not required to collect taxes for NC. So just how does the NC DOR think that they should be able to request this information going all the way back to 2003? I live in this sorry state, and I can personally assure you that the NC government is one of the most corrupt state governments in this country. We pay a very high state income tax along with almost 7% sales tax on everything we buy. But somehow, we can't afford to pay our teachers or build needed schools, fix our roads, etc etc. Oh, yea, we also have the 'NC State Education Lottery' which brings in huge amounts of money every year, but no one really knows what happens to it.

        The only way this will ever be settled is for every retailer, whether brick-and-mortar in-state or online anywhere in the US is required to collect and distribute sales taxes for the state an item is sold in or shipped to. Think shipping and 'handling' charges are bad now? Then just wait until that happens. In all likelihood it will no longer be cheaper to buy online if that happens.
        babyboomer57