Amazon and North Carolina Battle Over Sales Tax

The U.S. District Court for the Western District of Washington recently ruled unconstitutional, on First Amendment grounds, a North Carolina Department of Revenue information request that seeks, for purposes of computing sales and use tax liability, all information relating to Amazon's sales to North Carolina residents.

The piece that was in question was the Department’s request for the specific content of books, music, and audiovisual materials.  The disclosure of this specific content along with each customer’s name implicated the First Amendment.  Once the First Amendment was in question, the Department needed to demonstrate a compelling reason that it was in the government’s best interest to obtain this information.  Without this information, the Department is still able to assess a tax responsibility on Amazon and require Amazon to prove the transactions were either exempt or subject to a lower tax rate.  As such, the request to require Amazon to provide the specific content was rejected.

The ruling does not prevent the Department from issuing a subsequent general request to Amazon related to the names and addresses of customers along with general product information.

Stay tuned to see how this case continues.  Separate from the First Amendment issues described above, this type of information request could be viewed as discriminatory against out of state retailers – essentially subjecting them to a higher level of compliance than in-state retailers.  Other states including Colorado have a similar measure on their books already.  The race to capture sales tax on internet-based transactions continues!