Amazon lawsuit says free speech rights violated by NC tax collection bid demanding names

Amazon: NC bid to track taxes violates free speech

RALEIGH, N.C. — Online retailer Amazon.com Inc. said it is taking a stand for free speech by fighting a request from North Carolina tax authorities for information on people who bought about 50 million items since 2003.

Amazon said disclosing the names and addresses of buyers, as requested, would harm customers who may have bought controversial books or movies. In a federal lawsuit filed in Seattle, the company also expressed worries that the disclosures would diminish future sales.

North Carolina Revenue Secretary Kenneth Lay said his auditors don’t care what Amazon customers read or view.

“We’re not asking what they bought,” he said in an interview. “We’re asking how much they paid. We’re not asking for specific titles.”

At stake is potentially millions of dollars in taxes that North Carolina contends Amazon was responsible for collecting for years before state law was changed last summer.

Amazon wants the court to rule that North Carolina’s collection effort violates the company’s rights to sell and its customers’ rights to buy books and other items “free from government intrusion into the customers’ reading, viewing and listening choices.”

Amazon is asking the U.S. District Court in Seattle, where Amazon has its headquarters, to find North Carolina’s request unconstitutional. The company said federal action would avoid varied decisions in multiple courts “in the event other states make similar demands for customer data.” The lawsuit was filed Monday.

Lay said North Carolina tax collectors regularly ask corporations for information to help officials check whether customers are paying the taxes they owe.

“We’re not doing anything here that we don’t do with everybody else,” he said.

North Carolina requires residents to pay taxes on online purchases if buying the same item in a physical store would result in a sales tax. But out-of-state retailers can’t be forced to collect North Carolina’s tax if it has no physical presence in the state.

The dispute is over the state’s definition of whether the company had a North Carolina presence.

Last summer, state legislators passed a law making Amazon responsible for collecting sales taxes because it had a network of local affiliates — North Carolina residents who linked to products on their blogs, promote Web shopping deals and offer coupons.

Before the change was adopted, Amazon cut its ties to those North Carolina affiliates. The company also stopped working with affiliates in Rhode Island and Colorado because of collection-enforcement laws passed in those states.

But Lay said North Carolina will pursue tax collections for the years those affiliates were operating, even before the new law was passed.

“This is a fairness and equity issue,” he said.

As the recession slashed tax collections, states have been stepping up efforts to collect from online retailers. In 2008, New York became the first state to treat local affiliates as enough of state presence to require retailers to collect sales taxes. Lawmakers in Iowa, New Mexico, Vermont and Virginia have considered similar laws, according to the Tax Foundation, a Washington, D.C.-based research group.

Last December, tax collectors auditing Amazon’s compliance with North Carolina laws asked for documents listing all sales to customers in the state between Aug. 1, 2003, and Feb. 28, the company said. Amazon estimated the volume at 50 million items.

The company said that to protect customer privacy, it did not provide customers’ names, addresses, phone numbers, e-mail addresses or other personally identifiable information.

State revenue agents visited Amazon’s Seattle offices for meetings about the information request last month, then hand-delivered a letter seeking the personal data by a Monday deadline, the company said. Amazon said it did not respond before filing its lawsuit.

In 2007, federal prosecutors in Wisconsin withdrew a subpoena seeking the identities of thousands of people who bought used books through Amazon in a tax-evasion case after a judge ruled that customers have a right to keep their reading habits from the government.