Court Sides with Amazon in Tax-Related Dispute

A federal judge has ruled in favor of Amazon.com after the Seattle-based e-commerce giant sued to stop the North Carolina Department of Revenue from collecting personally identifiable information about its customers that could be linked to their purchases.

States such as North Carolina have been pressuring Amazon and other e-commerce sites to charge sales taxes to customers based in their states, especially as more states continue to have trouble closing their budget deficits. The American Civil Liberties Union, ACLU of North Carolina Legal Foundation and ACLU of Washington intervened in the lawsuit on behalf of several Amazon.com customers whose information was at stake.

Recognizing that government requests for “expressive” information can have an unconstitutionally chilling effect on constitutionally protected behavior, U.S. District Judge Marsha J. Pechman of the Western District of Washington at Seattle ruled in favor of Amazon on Monday.

“The First Amendment protects a buyer from having the expressive content of her purchase of books, music and audiovisual materials disclosed to the government,” she wrote in her ruling. “Citizens are entitled to receive information and ideas through books, films, and other expressive materials anonymously. … The fear of government tracking and censoring one's reading, listening and viewing choices chills the exercise of First Amendment rights.”

According to the lawsuit filed by Amazon in April, the North Carolina Department of Revenue issued a request to Amazon for the purchase records from August 2003 through February 2010 of customers with a North Carolina shipping address as part of a tax audit of Amazon. Amazon provided NCDOR with product codes that reveal the exact items purchased — including books on the subjects of mental health, alcoholism and LGBT issues — but withheld individually identifiable user information that could be linked back to the individual purchases, including names and addresses. NCDOR refused to agree that it is not entitled to such information, leading to the lawsuit.

Separately, Amazon.com disclosed in a Securities and Exchange Commission filing Friday that the state of Texas sent it a $289 million bill for uncollected sales taxes from December 2005 to December 2009, along with interest and penalties. The company is disputing the Texas-size tax bill, according to the Dallas Morning News.

“We believe that the State of Texas did not provide a sufficient basis for its assessment and that the assessment is without merit,” the company said in an SEC filing accompanying its quarterly results. “Depending on the amount and the timing, an unfavorable resolution of this matter could materially affect our business, results of operations, financial position, or cash flows. We intend to vigorously defend ourselves in this matter.”