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Genesee Valley Chapter — How Collecting Sales Tax Could Violate Your Privacy

How Collecting Sales Tax Could Violate Your Privacy

By Scott Forsyth A version of this article appeared in the ‘Daily Record’ on November 17, 2010. You purchase several books from on how to handle your own divorce, why God does not exist, personality disorders and the evils of Obama zombies. As you check out, you note with a chuckle that Amazon does not charge you sales tax. You do not intend to pay a use tax on the items when you file your New York income tax return in April. But the New York Department of Taxation and Finance may compel Amazon to collect sales tax if it prevails in a case Downstate. End of story? Not quite, if the crusade of the North Carolina Department of Revenue is successful. It, too, is wanting to impose a sale tax on Amazon. To accomplish this goal, it sent Amazon a letter demanding that Amazon provide “all information for all sales to customers with a North Carolina shipping address” between 2003 and 2010. Failure to comply would prompt the state to issue a summons. Amazon turned over detailed purchase records, including the name, title and brand of the 50 million items purchased but excluding the customer’s name and address. Not enough, according to the NCDOR. “All information” means the name and address tied to a “detailed description of the item.” If you reside in North Carolina, the NCDOR asserts that what you read or view in the privacy of your home is its business. Such an assertion may make you think twice about making the purchase. If you do, your right to express yourself has been chilled. Fortunately for the North Carolina addressees, Amazon did not knuckle under. Instead, in April it commenced a lawsuit in Seattle, its headquarters, to have the actions of the NCDOR declared unconstitutional. The ACLU intervened on behalf of six customers of Amazon. They in fact purchased books on divorce, religion, mental disease and liberal politics. Amazon and the ACLU rely on well-established constitutional law. When government requests information protected by the First Amendment, it must “convincingly show a substantial relation between the information sought and a subject of overriding and compelling state interest,” according to Gibson v. Fla. Legislative Investigation Comm., 372 U.S. 539, 546 (1963). Anything less than this strict scrutiny will deter individuals from freely exploring the ideas in books, films and other medium, an exploration that is at the core of the First Amendment. The NCDOR claims that it does have a compelling interest in the administration of the state’s tax system and the enforcement of summonses for tax information. Amazon and the ACLU do not deny that the NCDOR generally has such a compelling interest. Instead, they argue that the NCDOR must show that it has “a compelling need for the precise and specific information sought.” In support of its position, the ACLU cites a series of decisions quashing sweeping subpoenas issued by grand juries demanding the identities of persons purchasing books and online movies, see, e.g., Tattered Cover Inc. v. City of Thorton, 44 P.3d 1044 (Colo. 2002). The NCDOR has admitted that it does not need the additional information to assess a sales tax against Amazon. The information would just be helpful. The NCDOR promises that it will not match customer names with the product data provided. It further promises not to misuse the information acquired from the matches that it does perform. Fortunately, “trust us” is not a defense to a violation of the First Amendment. Just this year the Supreme Court reiterated this principle when it struck down a statute that criminalized the making and sale of videos depicting animal cruelty. “… the First Amendment protects (us) against the Government; it does not leave us at the mercy of noblesse oblige. We would not uphold an unconstitutional statute merely because the Government promised to use it responsibly.” United States v. Stevens, 130 S.Ct. 1577, 1591 (2010). Happily, at the end of October, the court sided with Amazon and its customers and held the NCDOR’s demand to be unconstitutional. v. Lay, Case No. C10-664 (W.D. Wash. 2010). An appeal may be coming. Obviously, going after Amazon is easier than pursuing the thousands of North Carolina residents who might not have paid a use tax. If the NCDOR did conduct a use tax audit, it might be able to demonstrate a need for the identity of the purchasers, but not the name and brand of the items purchased. You can bet that the New York Tax Department is following the case. You should, too, whether you purchase books online or not. The next bill that the department sends you may contain information about your reading and viewing habits, information that you consider personal and confidential.  

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