Amazon Bad News Behind Mask Of State Tax WinWritten by Frank Hayes
Just in time for Halloween, a Seattle federal judge ruled on Monday (Oct. 25) in favor of Amazon.com—but the ruling’s effect was actually against Amazon and every other E-tailer. Technically, Amazon won a legal victory; the court said it was unconstitutional for the North Carolina Department of Revenue to demand names and addresses and details about books, movies and music that customers bought from Amazon. But the judge also said the state could have exactly what it needs to calculate sales taxes: who bought things and how much they cost.
Amazon has dressed up that court ruling as a big victory for customer privacy. But now Amazon will have to cough up the customer data, and North Carolina will begin to go after Amazon’s North Carolina customers to collect the taxes due—and you can bet that the revenuers will mention Amazon’s name when the tax bills go out. Amazon is already collecting sales taxes in five states where it has physical operations. Therefore, a few more court victories like this one, and Amazon might be better off just collecting all state sales taxes itself.
U.S. District Judge Marsha Pechman made it clear in her decision that she wasn’t getting in the way of North Carolina collecting taxes. She was only concerned with a government agency learning exactly what books and movies customers bought, which violates their First Amendment and privacy rights. Strip out the details, she wrote, and North Carolina can have its information.
“The Court is aware of the sensitive nature of this case,” Pechman wrote in her ruling. “The declaratory relief issued here is of limited scope and cannot be interpreted to grant Amazon a free pass from complying with any valid tax law of North Carolina or elsewhere.”
The bottom line of the decision: “To the extent [the North Carolina Department of Revenue] demands that Amazon disclose its customers’ names, addresses or any other personal information, it violates the First Amendment only as long as (North Carolina) continues to have access to or possession of detailed purchase records obtained from Amazon” (emphasis added).
“The fear of disclosure of their reading, watching and listening habits poses an imminent threat of harm and chill to the exercise of First Amendment rights,” the judge wrote.
For Amazon and other pure-play E-tailers, this ruling isn’t exactly good news. A federal judge has ruled these companies have to open their sales records to state tax agencies, setting the stage for states to make a new run at sales tax revenue that has eluded them since the early days of E-Commerce.