In 2009, North Carolina passed an "Amazon" tax law requiring some online retailers to collect sales and use taxes on online purchases. To jump start compliance, the state revenue department has issued an audit to online retailer Amazon.com, allegedly demanding the names and addresses of all North Carolina residents who have bought from Amazon since 2003. The revenue department hoped to collect sales tax on all these purchases.
Amazon filed a lawsuit in federal court in Seattle (its company headquarters) to block the auditA tax audit is when the Internal Revenue Service (IRS) conducts a formal investigation of financial information to verify an individual or corporation has accurately reported and paid their taxes. Selection can be at random, or due to unusual deductions or income reported on a tax return. . The company's lawsuit states that the North Carolina revenue department's attempt to collect personal information about Amazon consumers and their purchases is a gross violation of consumer privacy, implicating the First Amendment and privacy laws.
Now, the American Civil Liberties Union (ACLU) has joined the legal battle, filing on behalf of six North Carolina residents and Asheville Councilman Cecil Bothwell. ACLU claims that North Carolina can make its sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. assessments without intimate knowledge of customers' purchases. According to the ACLU, disclosing personal records for "thousands of Amazon customers would violate their constitutional rights to read and purchase the lawful materials of their choice, free from government intrusion."
As Amazon also noted, the revenue department's request is particularly intrusive where customers have purchased personal or controversial items. Such purchases by North Carolina residents include:
- Bipolar Disorder: A Guide for Parents and Families
- He Had It Coming: How to Outsmart Your Husband and Win Your Divorce
- Living with Alcoholism: Your Guide to Dealing with Alcohol Abuse and Addiction While Getting the Alcoholism Treatment You Need
- What to Do When You Can't Get Pregnant: The Complete Guide to All the Technologies for Couples Facing Fertility Problems
- Outing Yourself: How to Come out as Lesbian or Gay to Your Family, Friends, and Coworkers
The ongoing dispute in North Carolina is only one example of the nationwide struggle between online retailers and revenue-seeking states seeking to extend enforcement of sales taxes to out-of-state retailers not present in the jurisdiction. Amazon terminated its affiliate programs in Colorado when the state considered adopting a burdensome use taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. compliance law. In New York, Amazon is fighting a tax law that requires sales tax collection on purchases shipped to the state, even as neither Amazon operations nor employees are present in the state. (The Tax Foundation has submitted a friend-of-the court ("amicus curiae") brief on Amazon's behalf in that case, currently before the state's Appellate Division.)
Online sales taxes represent a constitutionally dubious effort by states to create revenue windfalls. These taxes create a tremendous compliance burden on out-of-state businesses, implicate serious consumer privacy issues, signal hostility to businesses engaged in interstate commerce, and undermine states' efforts to create uniform sales tax standards.
More on Amazon tax and state nexus issues here.
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