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Amazon Cites First Amendment in North Carolina Tax Case

Amazon and the American Civil Liberties Union argued in a Seattle court on Wednesday that North Carolina should drop its request for Amazon customer names combined with details like the titles of books they've purchased, and be forbidden from asking for such information in the future.

The case is rooted in North Carolina's investigation into whether it should tax Amazon for sales in the state. Last year, the North Carolina Department of Revenue asked Amazon for information regarding products sold to people in the state. Amazon complied with the request, which it called vague, by sending the state a detailed list of the products, including book and video titles.

North Carolina then asked for customer names. But offering that information would conflict with the First Amendment because it would allow the government to match those names with potentially sensitive information including what kinds of books people are reading, Amazon argues.

In April, Amazon asked the U.S. District Court for the Western District of Washington to declare North Carolina's request for customer names invalid. It also asked the court to prevent the state from asking any Internet retailer for customer names when attached to book or video titles.

The ACLU joined the case, arguing that the mere request for names causes a "chilling" effect, preventing people from buying sensitive books for fear of the consequences.

On Wednesday, Judge Marsha Pechman questioned North Carolina's lawyer about the state's need for customer names. She asked if the state could simply calculate the highest tax rate on all the goods, requiring Amazon to check the tax rates and point out miscalculations.

The state could theoretically do that, said Kay Miller Hobart, a lawyer with North Carolina's attorney general office. But the state has a duty to determine taxes correctly. It also has a duty to investigate and verify transactions, which is one reason it wants customer names, she said.

"You're telling me you're going to knock on people's doors and say, 'did you buy this $15 book?'" Pechman asked.

Hobart said that's a decision for the Department of Revenue to make.

She also said that customer names are required for the state to investigate certain kinds of sales tax liabilities.

Amazon argued that it's important for the court to prevent such requests. "Without a court order saying that they can't tomorrow issue another all-sales request and request the same data over and over... it's cold comfort to many customers hearing about this case who may be worrying if tomorrow I order 'Bipolar Disorder: A Patient and Family Guide,' or 'What to Do When You Don't Get Pregnant,' the Department of Revenue in North Carolina will see what I purchased," said Laura Handman, a lawyer with Davis Wright Tremaine representing Amazon.

The ACLU is asking the court to issue such an order preventing the state from asking for such information from any retailer, not just Amazon. That's because North Carolina has said that it is receiving such information from other Internet retailers, said Aden Fine, staff attorney with the ACLU Speech, Privacy and Technology Project.

Amazon did not say it is opposed to handing over customer names for other products that may not be protected by the First Amendment. However, it does not currently have the capability to hand over sales data to the state without including details like book titles.

"This is the cart before the horse. To require us to create a whole system to respond to the North Carolina tax system when it hasn't even been determined that we owe any sales tax is premature to say the least," said Handman.

Still, the ACLU has asked North Carolina to issue a new request for information that specifically does not require details about book titles, but it has refused to consider any such changes to its practice, Fine said. North Carolina's request asks for "all" information related to products purchased, and Amazon and the ACLU argue it should more specifically ask for the details it needs.

Pechman, who asked questions throughout the hearing about whether she had jurisdiction to rule in this kind of case, said she expects to issue an opinion in about two weeks.

Nancy Gohring covers mobile phones and cloud computing for The IDG News Service. Follow Nancy on Twitter at @idgnancy. Nancy's e-mail address is Nancy_Gohring@idg.com

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