April 20, 2010, 4:39 PM

Amazon sues North Carolina over state’s demand for customer names

Citing its First Amendment rights, Amazon.com Inc. filed a complaint in federal court yesterday seeking to block the North Carolina Department of Revenue’s demand for the names and addresses of the several hundred thousand customers who have purchased a total of more than 50 million products from Amazon.com since 2003.

Internet Retailer

Citing its First Amendment rights, Amazon.com Inc. filed a complaint in federal court yesterday seeking to block the North Carolina Department of Revenue’s demand for the names and addresses of the several hundred thousand customers who have purchased a total of more than 50 million products from Amazon.com since 2003.

Amazon, No. 1 in the Internet Retailer Top 500 Guide, also contends in its complaint filed in the U.S. District Court for the Western District of Washington at Seattle, that North Carolina’s demand could hurt the retailer’s business. “Customers who fear that their purchases will not be private are less likely to purchase books, movies, music or other items that might be personal, sensitive or controversial,” Amazon says in its complaint, a copy of which was acquired by Internet Retailer.

The action by North Carolina is part of an ongoing audit of Amazon.com’s compliance with the state’s sales and use tax laws. Amazon says it has been cooperating with the state and has already provided it with information for each purchase transaction conducted by a North Carolina resident on Amazon.com between Aug. 1, 2003, and Feb. 28, 2010, including the order identification number; the city, country and ZIP code to which each order was shipped; the total price and date, and Amazon’s standard product code for each item purchased.

Amazon argues that the state doesn’t need more information to review the retailer’s compliance with tax laws. It also notes that it maintains no employees or physical facilities in North Carolina, and thus is not required to collect sales tax from North Carolina customers.

Amazon says in its complaint that the North Carolina Department of Revenue has not explained why it needs the names and addresses of Amazon’s customers. The state’s revenue department did not immediately return a call for comment.

Daniel Schibley, a state tax analyst at CCH Inc., a unit of Wolters Kluwer that publishes tax and legal information, says North Carolina’s request for consumers’ personal information as part of a tax compliance audit is highly unusual. But he notes that it follows efforts by other states, notably Colorado, to force online retailers to provide information that would help states enforce the collection of use taxes, which consumers are supposed to pay directly to states when they purchase items from an out-of-state merchant that doesn’t collect sales tax. Few consumers pay such taxes.

Colorado passed a law earlier this year that requires out-of-state online retailers that don’t collect sales tax from Colorado residents to provide the state with a list each year of the names of their Colorado customers and the monetary value and product categories associated with their online orders. Similar legislation is being reviewed in California.

Schibley adds that retailers could be expected to take steps to discourage other states from following Colorado’s lead. Amazon did not comment on whether its complaint against North Carolina was part of an effort to try to ward off further laws like Colorado’s.

"The best-case scenario for customers would be where the North Carolina Department of Revenue withdraws their demand because they recognize that it violates the privacy rights of North Carolina residents,” an Amazon spokeswoman says.

In its court complaint against North Carolina, Amazon notes that the products sold to North Carolina residents since 2003 include more than 30 million “expressive works,” including some controversial books and DVDs whose purchases customers would expect to be “remain private and free from government intrusion.” For example, Amazon adds, one of the books purchased was “He Had It Coming: How to Outsmart Your Husband and Win Your Divorce.”

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