Posted October 26, 2010 9:02 am by with 4 comments

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I live in North Carolina. It’s a pretty state. You get a taste of the winter months but you don’t get a lot of winter weather per se. Sure the summers are hot but that’s what air conditioning is for. Overall, it’s a great place to live and raise a family.

That is except for the state government and their attempts to collect taxes on online purchases made from Amazon. They have already pushed Amazon far enough that the online retailing giant ended its affiliate programs with North Carolina residents in 2009 thus depriving residents of the chance to bring money into the state that would be spent in the state and would give some ailing jobless folks a chance at survival. Nice move!

Apparently, Big Brother is alive and well in the Tar Heel state as well since the state government has been trying to get detailed purchase information from Amazon which would include names and addresses of those making purchases from 2003 to 2010. Fortunately, a federal judge has called the state on its draconian efforts and handed them a major setback in federal court yesterday. cnet reports:

In a victory for the free speech and privacy rights of customers, a federal judge ruled today that the company would not have to turn over detailed records on nearly 50 million purchases to North Carolina tax collectors.

The state had demanded sensitive information including names and addresses of North Carolina customers–and information about exactly what they had purchased between 2003 and 2010.

U.S. District Judge Marsha Pechman in Washington state said that request went too far and “runs afoul of the First Amendment.” She granted Amazon summary judgment.

The Tar Heel State’s tax collectors have “no legitimate need” for details about the literary, music, and film habits of so many Amazon customers,” Pechman wrote. “In spite of this, (North Carolina) refuses to give up the detailed information about Amazon’s customers’ purchases, while at the same time requesting the identities of the customers and, arguably, detailed records of their purchases, including the expressive content.”

With privacy victories coming too few and far between these days at least we can feel like someone is paying attention and not letting the government run rough shod over privacy while squashing commerce in the process.

I suspect that the state feels they have good reasons for doing what they are doing. They will say that the taxes they want to collect will help the state. Pardon my cynicism, but if the affiliate money that was once coming onto the hands of the residents were turned back on that would REALLY help the state.

At the heart of this ruling though is privacy.

In addition, the ACLU intervened in the lawsuit asking for an even broader injunction against the tax collectors. They wanted Amazon to be prohibited from disclosing customer purchases without a subpoena, which the court did not grant.

In general, as Amazon stressed in its lawsuit, purchases of books, DVDs, Blu-Ray discs, and other media enjoy special privacy protections.

So what is the North Carolina government trying to do here? At the core, it’s trying to collect taxes from both Amazon and its citizens because of online purchases. In the process, it is killing an avenue for commerce in the state and appearing as if it wants more data on its residents in a time when that is not considered such a good thing. I don’t get it.

In the end the state is only hurting itself though because as people learn about these attempts they will maybe stop short of saying they will set up a business in the Tar Heel state for fear of too much government intrusion. Sadly, no one wins in that scenario.

What’s your take on the idea of taxing online purchases? It’s an old story but one that will likely get more attention in these days of scarce money. Have you been impacted by rulings like this in any other states? What’s worse, more taxes or invasion of privacy to collect them?

  • Old School

    Thank God someone remembers the Constitution. Most of the veterans of WWII are gone now, so without judges like this one (too few) and the ACLU, supporters of The Patriot Act [sic], would soon be publishing private details of candidates’ (and our) lives, EG, reading lists, movie choices, etc. Easily justified by the neo-Nazis in the name of anti-terrorism or fundamentalism. I know it is a radical thought today, but “Give me liberty, or give me death!”

  • I attended a luncheon at ConvergeSouth with several NC politicians, including US Congressman Brad Miller, NC Senator Don Vaughn, NC Representative and UNCG Associate Professor of Sociology Paul Luebke, and NC GOP Vice Chair Timothy Johnson. One of the hot topics of debate was this issue of collecting sales tax on Internet purchases. They argued that under the statues of the state, residents were required to pay sales taxes on ALL purchases, but that fewer than 5% recorded outside purchases on their tax forms. They claim the $3 Million budget deficit in North Carolina is the primary reason they are going after the taxes now.

    I personally feel putting the burden on out of state retailers to collect sales taxes on purchases in all 50 states is asking too much. Large retailers such as have the resources to implement the technology solutions required, but the vast majority of online retailers do not. There are over 3,000 counties (and thus over 3,000 distinct tax zones) each with different tax rates for different categories of products and services. There are easily more than 50,000 different tax codes to account for nationwide.

    Not to mention the tax is the responsibility of the resident not the merchant. Just as recording additional income is required by law, so is recording taxable purchases. If North Carolina can’t find a way to enforce the tax on their own residents, then perhaps they should simplify their tax structure instead of adding more complexities in order to be able to collect.

    • $3 million or $3 billion short? If it was only $3 million they probably lost that money on the taxes that would have been paid on the goods purchased in state by affiliate marketers if they hadn’t forced Amazon’s hand and ruined the opportunity to bring top line money into the state ripe for the spending.

      I suspect you walked away underwhelmed by that group.

  • Sorry, it was a $3 Billion shortage.