May 27, 2010, 12:17 PM

Amazon sues North Carolina to block state’s demand for customer names

The world’s largest online retailer filed a complaint in federal court in April seeking to block the North Carolina Department of Revenue’s demand for the names and addresses of several thousand customers who have purchased a total of more than 50 million products from Amazon since 2003.

Citing its First Amendment rights, Inc. filed a complaint in federal court last month 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 since 2003.Amazon, the leading online retailer by sales, 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 state’s revenue department, however, says it has not requested specific product information like book titles. “Amazon’s complaint is misleading,” the department said in a statement released on April 21, two days after Amazon filed its complaint.

Amazon contends in its complaint that North Carolina has not explained why it needs the names and addresses of Amazon’s customers, but the state said in its statement that it routinely requests information about purchase transactions including the purchaser’s name, address and the item’s price in order to administer the collection of taxes.

North Carolina is conducting an audit of’s compliance with the state’s sales and use tax laws. Amazon says it has already provided the state with information for each purchase transaction conducted by a North Carolina resident on between Aug. 1, 2003, and Feb. 28, 2010, including the order identification number; the city, county 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.

An unusual request
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 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 “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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