Amazon Bad News Behind Mask Of State Tax Win

Written by Frank Hayes
October 28th, 2010

Just in time for Halloween, a Seattle federal judge ruled on Monday (Oct. 25) in favor of—but the ruling’s effect was actually against Amazon and every other E-tailer. Technically, Amazon won a legal victory; the court said it was unconstitutional for the North Carolina Department of Revenue to demand names and addresses and details about books, movies and music that customers bought from Amazon. But the judge also said the state could have exactly what it needs to calculate sales taxes: who bought things and how much they cost.

Amazon has dressed up that court ruling as a big victory for customer privacy. But now Amazon will have to cough up the customer data, and North Carolina will begin to go after Amazon’s North Carolina customers to collect the taxes due—and you can bet that the revenuers will mention Amazon’s name when the tax bills go out. Amazon is already collecting sales taxes in five states where it has physical operations. Therefore, a few more court victories like this one, and Amazon might be better off just collecting all state sales taxes itself.

U.S. District Judge Marsha Pechman made it clear in her decision that she wasn’t getting in the way of North Carolina collecting taxes. She was only concerned with a government agency learning exactly what books and movies customers bought, which violates their First Amendment and privacy rights. Strip out the details, she wrote, and North Carolina can have its information.

“The Court is aware of the sensitive nature of this case,” Pechman wrote in her ruling. “The declaratory relief issued here is of limited scope and cannot be interpreted to grant Amazon a free pass from complying with any valid tax law of North Carolina or elsewhere.”

The bottom line of the decision: “To the extent [the North Carolina Department of Revenue] demands that Amazon disclose its customers’ names, addresses or any other personal information, it violates the First Amendment only as long as (North Carolina) continues to have access to or possession of detailed purchase records obtained from Amazon” (emphasis added).

“The fear of disclosure of their reading, watching and listening habits poses an imminent threat of harm and chill to the exercise of First Amendment rights,” the judge wrote.

For Amazon and other pure-play E-tailers, this ruling isn’t exactly good news. A federal judge has ruled these companies have to open their sales records to state tax agencies, setting the stage for states to make a new run at sales tax revenue that has eluded them since the early days of E-Commerce.


4 Comments | Read Amazon Bad News Behind Mask Of State Tax Win

  1. Sucharita Says:

    Wasn’t the ruling that NC cannot own both the items bought and customer information at the same time? How would they be able to match the two? The only thing NC would know is $X billion in tax is owed and these are the people who should pay it. A customer could claim they purchased $1 worth of items and NC would never know.

  2. Beatrice Vaccaro Says:

    The Quill decision in ’92 upheld an earlier decision (Bellas Hess ’67) that said it would be too burdensome for out-of-state retailers to collect state sales tax. Today, technology makes is easy for anyone to open a Web business, manage inventories, use targeted marketing, calculate shipping etc.
    The Main Street Fairness Act, now pending before Congress, would modernize the law to catch up with the reality that so much shopping is now done online. It is better that Congress address this issue so that all businesses collect the correct tax. Until then, more and more states are going to be attempting on their own to collect these taxes, which will 1) raise privacy concerns as in the NC ruling, and 2) raise fairness issues since not all consumers will be contacted to pay up.

  3. Megan H Says:

    Okay … there’s a reference in this article to a NC Dept of Revenue person saying they want the information to collect outstanding use taxes from the consumer.

    However, throughout the judgment both the court and DOR stress that the information is required with respect to the audit against Amazon, not its customers.

    Unless the state is able to establish Amazon has a tax nexus in the state, then it’s unlikely they will make a tax nexus claim stick. To me, it seems obvious that the DOR has another agenda entirely. Sorry, NC customers.

    I hope Amazon appeals this decision.

  4. Robert Martell Says:

    I have said many times that the Sales & Use tax is the most insidious tax ever devised in the US. There is no end to it. Yes, everyone owes tax even if purchased without it according to the laws. Like going to a sales tax free state in the next state and bringing it home, you still owe Your state the tax, or the difference.

    This is the one tax that puts the burden on the low end of the income spectrum, too, – sure everyone pays the same rate – But taxing me on what I earn and then, when I spend it, taxing it again?

    Unless they is a serious push to make these taxes uniform, it is also a major PITA to keep up with all State/City/Local tax rules and rates – I know, I did it for 25 states for many years. Some states have over 4 jurisdictions, too! Solid Waste Commission tax – really?

    The Sales & Use tax is the politician’s easy way out.


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