No Taxation Without Customer Privacy, Says Judge in Amazon vs. NC Case

Citing First Amendment protections, a U.S. District Court judge in Seattle has ruled in favor of Amazon.com in its battle with North Carolina over potentially sensitive customer data the state claims it needs to calculate taxes.

Judge Marsha J. Pechman ruled Monday that Amazon is not obligated to provide the names, addresses and purchasing records of North Carolina residents with whom the company has done business between August 2003 and February 2010.

“The First Amendment protects a buyer from having the expressive content of her purchase of books, music and audiovisual materials disclosed to the government,” Pechman wrote in her ruling. “Citizens are entitled to receive information and ideas through books, films and other expressive materials anonymously.”

Ongoing Dispute

The ruling is the latest in a string of disputes between online retailers and state revenue departments interested in collecting millions of dollars in sales and use taxes legally due on transactions with out-of-state retailers. A Supreme Court ruling limits the ability of states to require companies to collect such taxes to those with a physical presence in the state.

While the ruling could still be appealed, the swiftness of decision could slow the march of such efforts going forward, Joseph Henchman, tax counsel and director of state projects for The Tax Foundation, told the E-Commerce Times.

“I think it certainly has the impact to slow a lot of these efforts, mainly because I think a lot of people were under the impression the state would win,” he said.

Neither a spokesperson for the North Carolina Department of Revenue nor Amazon.com’s media relations office responded to requests for comment by deadline for this article.

North Carolina Request

In December 2009, the North Carolina Department of Revenue asked for information about an estimated 50 million Amazon shipments to North Carolina addresses between 2003 and 2010.

The company provided a detailed log of purchases, including order IDs and product information, but didn’t include its customers’ names or addresses.

Three months later, the state asked for names and addresses of its customers, and threatened to issue a summons under state law compelling the release of the information if Amazon did not comply. One month later, the company sued, complaining that asking it to turn over such information is a violation of its customers’ privacy rights under the First Amendment, the Washington state constitution and a federal law protecting the privacy of video rental records.

According to the ruling, North Carolina responded that it didn’t want specifics on purchases by North Carolina residents, but that it couldn’t return the initial data set because it contained important information about Amazon’s tax liabilities.

“While the [Department of Revenue] states that it could not possibly match the names to the purchases, its promise of forbearance is insufficient to moot the First Amendment issue,” Pechman wrote in her ruling.

No ‘Free Pass’

However, Pechman was careful to limit her ruling, as well. She wrote that her decision should not be construed as barring North Carolina from asking for purchase records to enforce its tax laws, but rather only prohibits it from asking for new such records while it is in the possession of the detailed information it currently has.

“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,” she wrote.

3 Battlegrounds

The North Carolina case is one of three battlegrounds over the collection of Internet sales taxes. The others are in New York and Colorado.

In New York, Amazon is challenging a state law that broadens the definition of a company’s physical presence to include agents and affiliates such as those Amazon routinely recruits to flesh out its offerings. The company lost at trial but is appealing. A decision is pending.

In Colorado, the Direct Marketing Association is suing over a new state law that imposes new requirements to turn over customer records, arguing the law is an invasion of privacy and violation of interstate commerce protections as it treats in-state and out-of-state retailers differently. That lawsuit has yet to go to trial.

1 Comment

  • Not that I want to give government any ideas, but they are going about it all wrong. You can’t target a specific business like this. You have to go after the payment processors like Visa, Mastercard, Discover, AmEx, and Paypal. They have the technology and budget to be able to program something on a massive scale distribute collected state and district tax to the appropriate agencies. If the state is willing to let the financial processors charge the state for this service and also give the merchants a discount for signing on, you will get a lot more buy in from all parties involved.

    Financial services can do AM azing things with programming. They just posture that it would to be "too difficult" because they don’t want to pay for the programming nor pay the government more than it has to.

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