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

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.

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