The American Civil Liberties Union contends that the state's efforts to collect sales taxes from online retailers could lead to government snooping on consumers' online shopping habits.
In court papers filed Wednesday, the nonprofit advocacy group argued that the N.C. Department of Revenue's audit of Amazon.com seeks private customer information the government doesn't need and should not have. The audit is part of the agency's attempt to collect a 7.75 percent sales tax by gathering customer information from at least 350 online retailers, including Amazon.com, that sell to North Carolina residents, who don't pay sales taxes on their purchases.
The ACLU filed its objections on behalf of Asheville Councilman Cecil Bothwell and six anonymous plaintiffs, including four from the Triangle. One is a Raleigh engineer who bought books about restraining orders after receiving death threats from a former spouse. Others bought books on atheism and other controversial subjects.
Jennifer Rudinger, executive director of the ACLU's North Carolina branch, contended that the Department of Revenue can assess taxes based on retail sales without knowing what customers bought. That's how the collection of sales and use taxes works in brick-and-mortar stores.
"If a store is here, they'd collect the tax," Rudinger said. "The Department of Revenue wouldn't even know who the customer is."
The ACLU, a public interest group, raised the privacy issue in Amazon.com's federal lawsuit against the N.C. Department of Revenue, which was filed in Seattle. The retailer is challenging the state's attempt to force the company to turn over customer information.
Amazon has already provided the state with product descriptions but is balking at revealing customers' names.
"These product descriptions reveal highly expressive and private information about consumer choices: for example, whether a person has received a book on alcoholism or home workshop weaponry, a movie like 'Brokeback Mountain,' or 'sexual wellness' items such as sex toys," the ACLU said in a letter to the Revenue Department in May.
The ACLU is not taking a stand on the state's attempt to tax online retailers; instead, it is challenging the nature of personal information the Revenue Department is requesting.
In the past the Revenue Department has said it needs the customers' names so it can bill them for sales taxes on their purchases from online retailers. The agency disputes the ACLU's contentions.
Titles not needed
"The Department has stated in the past and reiterates that at no time has the Department of Revenue asked for book or CD titles because that information is not needed to assess tax owed to the State," Revenue Secretary Kenneth Lay said in a statement. "We ask only for product type in order to determine the correct tax liability."
At stake: $162 million
According to an estimate by the University of Tennessee, North Carolina will lose nearly $162 million in sales-tax revenue this year from out-of-state businesses that don't collect the tax on sales to state residents.
A conventional store collects the tax for the state by charging the customer. But in online transactions with out-of-state retailers, it's the customer's obligation to calculate and pay the tax, and many residents don't follow the law or even know it exists.
Lay has said that businesses that don't pay sales and use taxes have an unfair advantage over businesses that do pay.
john.murawski@newsobserver.com or 919-829-8932
