May 11th 2010
North Carolina has raised the ire of online retailer Amazon by beginning an audit of its compliance with state sales and use tax laws.
The state has asked Amazon for the names and addresses of residents who have purchased items on the site since 2003 in order to collect taxes. Last year, North Carolina passed a law requiring out-of-state retailers to collect sales tax in the state if they have marketing affiliates there.
Marketing affiliates are people who earn a fee for providing links to online retailers on their own Web sites, The Wall Street Journal reported. While Amazon has cut its ties with North Carolina affiliates, state officials want to seek taxes for sales during the years those affiliates were operating, even before the law was enacted.
The state wants to find out what kind of items were purchased on Amazon under the belief that it is missing out on millions of dollars in uncollected sales taxes on some of those items.
“This is really an issue of fairness and equity for small businesses, the brick and mortar, corner store operations,” Kenneth R. Lay, the state’s secretary of revenue, told The New York Times. “These businesses are at a competitive disadvantage when they have to collect sales taxes that other businesses do not.”
Federal law prevents states from requiring out-of-state retailers to collect sales tax if the company does not have a physical presence in that state.
Amazon, in a complaint filed in Federal District Court in Seattle, states the audit violates the First Amendment and customers’ privacy rights.
Lay said the state is not interested in specifics. “It is important to know whether a book or steak was sold, but we don’t care about the title of the book or the type of steak,” he said, adding that the tax rates are different in each case. “We have too much data. The last thing we need is data we don’t need.”
Amazon said it has already provided "the order ID number; the city, county, and zip code to which the item was shipped; the total price for the transaction; the date of the transaction; and Amazon's standard product code for each item,” according to court papers. The company refuses to disclose more personal details.
An editorial in the Winston-Salem Journal May 10 stated, “What Amazon can afford in legal costs, Aunt Millie's Internet quilting business cannot. That is why small Internet retailers should simply agree to North Carolina's offer. If they agree to collect the taxes, they need not worry about being sued by the state.”
North Carolina is not alone. Other states are trying to capture sales tax on online purchases. Colorado this year passed a law that requires online retailers to collect sales tax or share the purchaser information so that the state can get consumers to pay. Amazon removed its marketing affiliates from the state in response, and has already done so in North Carolina. New York in 2008 also required online retailers to collect sales taxes from state customers. Amazon challenged the law in court, lost, and appealed. A decision is pending.