State officials are trying harder to collect millions of dollars in sales tax owed by residents who buy books, music and other products online.
The world's largest online retailer is resisting.
Amazon.com sued Monday to block North Carolina from gathering personal information about customers and their purchases of more than 50 million products since 2003.
In a complaint filed in federal court in Seattle, Amazon wrote that a request from the N.C. Department of Revenue would violate the First Amendment rights of its customers "on a massive scale" and could hurt the company's business. State officials are seeking customer information as part of an audit of Amazon's compliance with state sales- and use-tax law.
The spat comes as North Carolina tries to collect more tax revenue to bolster its ailing budget. The state threatened contempt proceedings if Amazon doesn't turn over the names and addresses of North Carolinians who have bought products in the past seven years, the company wrote.
Amazon also wrote that it already provides North Carolina information about how much state residents spend on its site. Revealing more personal data would chill customers' willingness to shop at its site, the company argued.
"Each order of a book, movie, CD or other expressive work potentially reveals an intimate fact about an Amazon customer," Amazon wrote.
"The [Department of Revenue] has no business seeking to uncover the identity of Amazon's customers who purchased expressive content," Amazon wrote. "The collection and disclosure of the customer data ... will link those purchases directly to the customers' names and addresses, exposing their otherwise private reading, viewing, listening and other personal choices to government scrutiny."
Revenue secretary Kenneth Lay said Amazon's complaint is misleading. North Carolina is seeking customer names and how much they spent, he said - not specific titles or products. Once the state gets the information, it will go after active customers with big tax bills.
"If you owed $5,000, you'd probably get an invoice," Lay said. "If you owed $1.98, you probably wouldn't. We're not asking for anything that's not due the state."
Amazon does not collect sales tax, and North Carolina is trying to put pressure on the company to do so. Amazon and other online retailers say it would be too expensive and difficult for them to collect different rates of sales tax for every state.
Lay declined to estimate how much tax North Carolina is missing from online sales but noted that officials are in discussions with other online retailers. "It's really a fairness and equity issue," Lay said. "Brick-and-mortar businesses are at a disadvantage because they collect sales tax. We would ask that all taxpayers comply with all regulations on the books."
North Carolina residents already are expected to pay state tax on items they buy online. The state's income tax form requires taxpayers to declare what they spent online or out of state, and pay sales and use tax on it. But few taxpayers include that information. State officials want to increase collection.
"What we are seeing is that the state's unquenchable thirst for revenue does have real-life consequences for businesses," said Dallas Woodhouse, director of the state chapter of Americans for Prosperity, a conservative, anti-tax, smaller-government group.
In December, the Department of Revenue asked Amazon for information about all sales to customers with a shipping address in this state who made purchases between Aug. 1, 2003, and Feb. 28, 2010. Amazon refused to provide personal information such as customers' names, addresses, phone numbers and e-mail addresses.
Then in March, two agents with the department, Romey McCoy and Jerri Noland, visited Amazon's Seattle headquarters and tried to get more information from employees, the company wrote. The state gave Amazon an April 19 deadline to turn over the information, which prompted the company's lawsuit.
"The best-case scenario for customers would be where the N.C. Department of Revenue withdraws their demand because they recognize that it violates the privacy rights of North Carolina residents," Amazon spokeswoman Mary Osako said in a prepared statement.
It's not the first fight North Carolina has picked with Amazon. Last summer, state lawmakers passed a law that requires online retailers such as Amazon to collect taxes when a North Carolina-based Web blog or other website steers a customer to them.
Amazon, which paid commissions to the North Carolina sites, cut off its relationships with some of those affiliates because of the change.
Small retailer complies
Vickie Burns, who owns Genealogy Research of North Carolina, keeps track by hand of any revenue she gets selling books on her website via Amazon. Burns, who lives in Holly Springs, said she also declares that income to the state herself.
"Right now, the state has no other way of knowing where my revenue comes from," she said. "I'm sure it would be a total nightmare for Amazon to report sales to all the states and counties."
And if North Carolina enforced that, it could be a deterrent that sends potential customers to rival Web sites that operate out of South Carolina or other states, Burns said.
Staff researcher Brooke Cain contributed to this report.
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