Legal Briefing: Amazon Sues to Facilitate Tax Cheating

Amazon sues North CarolinaA daily look at legal news and the business of law:

Amazon Sues to Block North Carolina's Attempt to Collect Sales Tax

States lose as much as $20 billion a year in sales tax revenue when online retailers don't collect taxes on purchases. Admittedly, online retailers are not obligated to collect sales tax and remit it to the states the way brick-and-mortar stores do. They are only required to collect sales tax in states where they have a physical presence. Nonetheless, without the cooperation of online retailers in identifying taxes that may be due, states have to rely on people who voluntarily report owed sales taxes on their tax returns -- an honor system that has proven an abject failure.

States have sought a variety of ways to get the information needed to collect sales taxes from internet purchases; North Carolina's method appears to be the most invasive.

North Carolina has asked online retail giant Amazon (AMZN) to turn over the names and addresses of North Carolina residents who have made purchases. This list would correspond with purchase information that Amazon has already provided, and would allow North Carolina to bill individuals for unpaid taxes. Rather than turn over the lists, however, Amazon has sued. Amazon objects on privacy grounds, noting that the personal information, paired with the purchase information, would give the state data that's none of its business -- namely, a description of items that individuals have bought. That data can be very personal and sensitive, notes Amazon. As far as that goes, Amazon is right. However, it's not clear that North Carolina has been asking for that information. All North Carolina needs is the same information that Colorado law seeks from Amazon already: names, addresses and the amount owed.

Amazon has aggressively fought all efforts to force it either to collect or cooperate in collecting sales taxes. While Amazon customers may appreciate the effect this stance has on their total invoice, they surely wouldn't appreciate the damage it does to their state budgets. Amazon argues that collecting sales tax will hurt it competitively, but some major online sites, including (TGT), already collect sales tax automatically. Further, Amazon's no-tax policy leaves brick-and-mortar shops with a disadvantage. Making sales tax collectible from internet purchases merely levels the playing field.

In sum, whatever the details of the North Carolina case, Amazon's overall war against sales tax compliance amounts to an effort to facilitate tax cheats.

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