As the various states of the United States face increasingly large budget short falls, they are trying to come up with any measure they can to collect more tax dollars.  One of the biggest tactics for some time now has been to try to find a way to tax sales on Amazon.

Due to the current way laws are written, retailers only have to collect tax for states that they have a retail presence in.  States that lack an Amazon warehouse had no way to go after them, so some states got the idea to consider members of Amazon’s affiliate program to constitute a “presence” in a state.  Amazon found the easier thing to do than to fight this idea in court was to just remove affiliates from those states from the program before the rule would kick in.

North Carolina vs AmazonOne of the states that tried to go this affiliate route was North Carolina, and now that it can’t collect those taxes, it has decided to get more serious about enforcing its “Use Tax.”  According to the state tax code, anything purchased anywhere without a tax being paid can be taxed by the state:

In those instances where a sales tax has not been paid on taxable items, a use tax at the applicable rate applies on property purchased or received from within or without this State for storage, use, or consumption in this State.

According to CNET, to try to enforce this law, the North Carolina’s Department of Revenue approached Amazon with a demand for detailed customer records for residents of North Carolina dating back to 2003 which should include names, addresses and lists of what they purchased.  Amazon provided the state with lists of what was sold by zip code, but they refused to provide the state with any identifiable information.

The state is now threatening to sue the retailer if it doesn’t turn over its information, and in turn Amazon has gone to a federal judge in Seattle, WA, the home of its corporate offices, to ask for an injunction on the demand for the information on the grounds it violates the privacy its customers expected they would be afforded when they made their purchases.

And therein resides the real problem in this whole story.  If North Carolina’s tax code says you have to pay a use tax, than that is just the way things are, but to just demand the records from Amazon goes against every legal precedent ever.  As CNET even points out, special prosecutor Ken Starr had to get special permission from a judge to get the records of what books Monica Lewinsky had bought from a book store when she was acting as President Clinton’s mistress.

Bookstores, which is what Amazon still is, have always enjoyed a special relationship with their customers which conveys a privacy to what the purchase.  It falls under the first amendment protection of Free Speech, and what North Carolina is trying to do is to say that its right to this data trumps the law of the U.S. Constitution.  This will probably end up in court, and if the state should happen to win, it isn’t going to be a pretty day for anyone who has shopped online, nor for the online retailers.

All I can say is that Amazon isn’t fighting just for itself here, but for everyone.

What say you?  Amazon?  North Carolina?  Which side are you on?