RALEIGH, NC – Amazon.com has filed a suit to prevent the North Carolina Department of Revenue from learning what state residents bought from the online retailer so they can collect sales taxes on the buys.

Amazon filed the suit in federal court in Seattle Monday. It names NC Revenue Secretary Ken Lay as defendant.

Amazon wants the court to order a halt to the Revenue department’s attempt to secure the information, saying it violates the First Amendment.

No stores or warehouse in state

Amazon does not have a physical presence in North Carolina such as stores or warehouses, so it does not have to collect the sales tax information for the state.

North Carolina passed a controversial law last year requiring out-of-state retailers such as Amazon to collect sales taxes from state residents if the retailer had affiliates in the state, claiming that established the physical presence required for North Carolina to collect sales taxes on purchases.

Amazon dumps NC affiliates

Amazon responded by ending its North Carolina affiliate program, a blow to many Internet startups that need early income to establish a viable business model and obtain further funding.

Amazon, while known for its book and media sales, also offers many other products and some state firms simply moved to other states to continue their business with Amazon.

Threatened with contempt hearings

In March, NC threatened to hold civil contempt hearings if Amazon didn’t provide the names and addresses of NC residents who purchased anything from the company since August 2003.

Amazon contends such disclosure invades the privacy of buyers and violates their First Amendment rights “on a massive scale.”

Amazon says in the suit that its sales are primarily “expressive materials” such as movies, music and books and giving the state information on those purchases could affect buying habits by revealing items that may be personal, sensitive or controversial.

In the suit, Amazon states: “Amazon asserts the privacy and First Amendment rights of itself and of its customers so that Amazon may sell – and customers may read, hear or view – a broad range of popular and unpopular expressive materials with the customers’ private content choices protected from unnecessary government scrutiny,”

Thorny legal issues

We have covered North Carolina’s attempt to collect sales taxes from Amazon in detail in a series of articles.

Pressured by recession-caused budget deficits of disturbing proportions, NC, like many other states, is seeking new revenue from any potentially lucrative possibility. Amazon itself says state residents have made 50 million purchases since August 2003, so the amount in question is far from trivial.

The legal issues are thorny and less clear than either side might wish, but this suit may begin a process of clarification. North Carolina is not the only state trying to collect sales taxes from online retailers.

Many legal authorities think the matter of states collecting sales taxes from online retailers who do not have a physical presence in the state will eventually have to be decided by Congress on a federal level.

We have covered this issue extensively at TechJournal South.

We found entrepreneurs disturbed about not being able to develop crucial early income streams, Tech organizations say the state is singling out the tech sector unfairly and with questionable legal basis, and the state responds it is losing up to $300 million a year.

Previously on TechJournal South:

Amazon terminates NC sales associates

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Tags: Amazon tax, Legal, NC, online retailer sales taxes