Amazon.com Challenges North Carolina Over Sales and Use Tax Collection

Earlier this week, Amazon.com filed a lawsuit in the U.S. District Court for the Western District of Washington challenging the North Carolina Department of Revenue's request for data on residents who made purchases from the online giant. The department requested the information in an effort to enforce use tax laws and has publicly stated it is only seeking general information, as reported by the Wall Street Journal [1]. Nonetheless, Amazon's lawsuit has sparked privacy concerns over the department's request.

Oren Teicher, ABA CEO, noted that both reader privacy and sales tax fairness are critical issues for ABA member bookstores in all states. "Certainly, we would strongly oppose any effort by the North Carolina Department of Revenue to seek title-specific data on customer book purchases, as this would have a chilling effect on reader privacy," he said. "However, the collection of general purchase information for purposes of use tax enforcement does not violate the First Amendment, and we fully support the equitable enforcement of sales and use tax laws. Moreover, Amazon.com's actions in North Carolina and other states have made only too clear that it will do whatever is necessary to maintain its competitive advantage over competitors. The department's request for customer information came about only because of Amazon.com's refusal to collect sales tax."

Amazon.com's lawsuit is the second tussle the online giant has had with the state over sales and use tax laws in less than a year. In August 2009, when North Carolina passed legislation to require online retailers with affiliates in the state to collect sales tax, Amazon.com quickly fired its affiliates in the state to avoid collecting sales tax. However, state residents still must pay a use tax on online purchases, and this week North Carolina noted it sought customer information from the online giant in its attempts to collect those monies.

Amazon.com's lawsuit alleges that the state's request for information regarding customer purchases was overbroad. It argues that North Carolina's efforts to compel it to turn over information about sales it made to the state's residents since 2003 would violate its customers' privacy. However, the state's Department of Revenue has characterized the lawsuit as "misleading" and has asserted that it is in no way violating the First Amendment rights of the online retailer's shoppers, as reported by the Wall Street Journal.

"We have requested the same information from other businesses who have complied with their obligation to provide information to the [Department of Revenue]," said Department of Revenue Secretary Kenneth R. Lay, as quoted in the WSJ. In a statement, an Amazon.com spokesperson said, "the department did specifically ask for 'all information for all sales to customers with a North Carolina shipping address.'"

However, Beth Stevenson, the North Carolina Department of Revenue's director of public affairs, noted in a statement to CNET News: "The Department of Revenue has not requested information regarding specific titles of books or CDs. The request for 'product/item code or description' simply requested the type of product purchased, for example, 'book.' Information regarding the type of product is necessary to determine the correct rate of tax."

As the debate played out, ABA made available to its members in North Carolina a suggested letter [2] to Gov. Bev Perdue that addresses two important principles highlighted by the lawsuit: sales tax fairness and reader privacy.

The letter's language makes clear that, from an independent bookseller's perspective, were "the state to demand the specific titles of books a customer has purchased, it would create a chilling effect on the free flow of information."

However, the letter also states that "the enforcement of sales and use tax laws and reader privacy need not be mutually exclusive. " if the state is "simply asking remote retailers for general item information, such as 'TV' or 'book,' and total purchase amount in an effort to enforce use tax laws." --Dan Cullen [3]

[STORE LETTERHEAD]

[DATE]

The Honorable Bev Perdue
Office of the Governor
20301 Mail Service Center
Raleigh, NC 27699-0301

Fax: (919)733-2120

Dear Governor Perdue:

I am writing in regards to two important issues crucial to the well-being of my business: sales tax fairness and reader privacy. This week, Amazon.com, Inc., filed a lawsuit regarding what it alleged were the efforts of North Carolina's Department of Revenue to force it to turn over data on North Carolina residents who purchased products from the online retailer. The department has since stated it seeks this customer data in an effort to enforce use tax laws and that it is not asking Amazon.com for detailed information that would provide specific book titles purchased.

Amazon's lawsuit attempts to construe reader privacy and the equitable collection of sales and use tax as competing goals. This has unfortunately clouded two issues important to my business. The enforcement of sales and use tax laws and reader privacy need not be mutually exclusive. Were the state to demand the specific titles of books a customer has purchased, it would have a chilling effect on the free flow of information. However, news reports indicate that North Carolina is requesting less specific data that does not encroach on reader privacy.

If that is the case, I have no issue whatsoever with simply asking remote retailers for general item information, such as "TV" or "book," and total purchase amount in an effort to enforce use tax laws. Toward that end, I do not believe the enforcement of use tax collection and reader privacy to be at odds.

For too long, businesses like mine have worked at a significant competitive disadvantage because Amazon.com has refused to comply with current sales tax laws, including the affiliate nexus law that the state passed last year. In fact, North Carolina's effort to ascertain use tax information from Amazon.com has only come about because of Amazon.com's insistence on circumventing the collection of sales tax, which is indicative of Amazon's desire to maintain its illegal competitive disadvantage.

I urge the state to continue its efforts to enforce existing sales and use tax laws, but exhort you to please respect readers' rights to privacy in the process.

Thank you for your consideration.

Sincerely,

[NAME]

[BOOKSTORE NAME & ADDRESS]