Amazon.com sues North Carolina over customer data demand

From a related CNET article (http://news.cnet.com/8301-13578_3-20002870-38.html):

In a 2002 decision, the Colorado Supreme Court ruled that the First Amendment protects "an individual's fundamental right to purchase books anonymously, free from governmental interference." The justices tossed out a subpoena from police to the Tattered Cover Bookstore asking for information about what books a certain customer had purchased.

And in a 2007 case, federal prosecutors tried unsuccessfully to force Amazon to identify thousands of innocent customers who bought books online, but abandoned the idea after a judge rebuked them. Judge Stephen Crocker in Wisconsin ruled that "the subpoena is troubling because it permits the government to peek into the reading habits of specific individuals without their prior knowledge or permission."

This is an important issue in online shopping. However it is really technical and boring, so nobody pays attention to it. But if you live in a state with sales tax and buy stuff over the internet, you should.

Here is the issue. State governments are allowed to levy taxes against their residents. A common one is sales tax. If you are a resident of North Carolina, or New York, or California, or lots of other states, then you owe sales tax on everything you buy. However experience has shown that individuals don't keep track of what they buy, and won't calculate or pay that tax. Therefore it is easier for the government to get vendors to charge the tax, and then they collect from vendors.

The problem here is that it would be unfair for any state to be able to compel every merchant to think about their local laws. Therefore the legal principle that has been settled on by the Supreme Court is that a state may only compel a company follow its laws if that company has a physical presence in that state. Otherwise that company can ignore anything that the state says, even if said company is actually doing business with residents of the state.

Please note here that by law the tax is owed by the citizens of the state. Collecting it from the merchant is merely a convenience. But in practice the tax won't be collected unless the merchant does it. So the question of whether the merchant can be compelled to collect tax is really a question about whether that tax will be collected.

The argument that has been brewing is what "physical presence" means. In particular Amazon is careful to avoid having employees, warehouses, etc in states that collect sales tax. But a number of states are trying to claim that Amazon affiliates, private people who are paid for promoting Amazon, are part of Amazon, and can represent a physical presence that are grounds for suing Amazon. Amazon, unsurprisingly, does not agree.

This is Amazon's latest salvo. They claim that the information being requested invades people's right to privacy. And therefore they can't be audited. However North Carolina doesn't actually want to know what people are reading. They want to know how much people paid, and therefore how much tax people failed to pay.

At stake here is billions of dollars of uncollected taxes.