[tyketime]

This should be an interesting case to watch...

Amazon e-commerce tax fight heats up

North Carolina: Hey Amazon, we want your customer records for everyone that lives in our state. We want names, addresses, and a list of everything they've bought over the last eight years.

Amazon.com: Why?

North Carolina: We're going to send them tax bills for that stuff.

Amazon.com: Hell, no, North Carolina.

And so it has gone between the state of North Carolina and Amazon.com over the issue of sales taxes for goods sold to residents of the state since 2003. North Carolina says it wants back taxes for purchases that were sold tax-free via the online merchant. Amazon says it's not going to give up that information, as it violates the privacy and First Amendment rights of its customers.

Now it's up to a federal judge in Seattle to figure out whether the demand is even legal. The company is hoping North Carolina drops the request altogether, seeing as how Amazon has no "nexus" — a physical presence in the form of an office building or warehouse — in the state. This exempts Amazon, from a federal standpoint, from collecting sales tax there.

It doesn't, however, exempt buyers from having to pay a use tax on goods they purchase from out of state. Most states have use-tax laws. Technically, we're all supposed to declare such purchases on our income tax returns and pay the appropriate tax on them, but in reality, few people ever do this. North Carolina, hurting for revenue like all the other states, probably figures it has hit on a simple solution to such behavior — that is, forcing Amazon to give up its customer data so it can simply bill residents directly.

Few are happy with this move, as it clearly smacks of Big Brother tactics. Never mind the extra tax bill: Who among us wants the government armed with a list of our purchases from the last decade?

The case sits with a judge for now, but I'm not altogether hopeful. The courts have generally been friendly toward states trying to weasel their way into e-commerce taxation, as evidenced by New York's enacting and upholding of a law that allows it to tax residents for all online purchases by considering "affiliate sales program" members — website owners who host links out to merchant sites — to be a nexus. Other states have efforts similar to North Carolina's in the works. All it takes is one domino to fall and the rest of the states are likely to go along with it.

Be afraid.