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Cash strapped N.C. looks to milk money out of citizens in its battered local economy

When it comes to internet purchases, you're supposed to individually list them on your yearly tax return and then pay back sales taxes to the state.  Of course, few people do this.  Now the government of North Carolina and other states are battling and other e-tailers to get these records. this week filed suit against the North Carolina state government -- specifically, the Department of Revenue (DOR) -- claiming that the state's demand for records of virtually every North Carolina resident who has purchased anything from Amazon since 2003 was not only unreasonable, but a violation of privacy.

Amazon writes in a filing for the case, "In re: LLC vs Kenneth R. Lay", Case No. 10-00664, U.S. District Court, Western District of Washington, "[T]he DOR has no business seeking to uncover the identity of Amazon's customers who purchased expressive content, which makes up the majority of the nearly 50 million products sold to North Carolina residents during the audit period."

If the case is lost, Amazon may have to turn over the records of millions of its customers in North Carolina.  Those individuals who purchased from Amazon (but did not report their purchase on their tax returns) might be audited and face civil penalties. At the very least, they would likely be expected to repay back taxes on the items they failed to report to the government.

In North Carolina, failing to pay state sales taxes is handled as a civil infraction.  Under the codes 105 236(5)c. and 105 236(5)a., citizens can face additional fines for dodging state taxes.  The penalty would likely be to pay 25 percent more tax, except on small items, which would require taxpayers to pay only an additional 10 percent fine.

The fight is the latest in the growing trend of states hungering for internet tax revenue.  Many states have passed or are debating laws that would tax digital downloads such as those offered by Amazon, Steam, Apple's iTunes store, or others.  While many in the public have complained about excessive taxation on the federal level, it is actually the states that have been pushing the most for bigger taxes of late.  The federal government has made some mild efforts to fight taxation of the internet.

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RE: Just A Matter Of Time
By AlexWade on 4/20/2010 7:42:56 PM , Rating: 2
However, in the meantime, if you don't pay use taxes on your out of state purchases, you're still breaking that law. And you're still a criminal.

No, I am not according to the Supreme Court which states that use taxes and interstate sales tax is illegal in the above mentioned legal brief. The US Constitution says I am not breaking the law, which trumps state law.

I understand what you are saying. But the simple fact is the Supreme Court has already ruled such laws illegal in the above decision. You are under no obligation to obey a law ruled illegal.

RE: Just A Matter Of Time
By Motoman on 4/20/2010 7:50:51 PM , Rating: 2
You run that past your state's AG and see what they have to say.

Go on...I'll wait.

The only legal thing you could do would be to pay the use taxes appropriately and keep a detailed accounting of them, and then bring a case to the state to have your use taxes refunded on the basis that the law is unconstitutional.

Not remitting use taxes in the first place breaks that law, and makes you a criminal. Paying them and asking for the state to refund them makes you a concerned citizen.

I categorically do not believe that the case you listed proved the use tax to be unconstitutional, or else ND would have removed it from the books.

RE: Just A Matter Of Time
By Motoman on 4/20/2010 8:00:47 PM , Rating: 2

There you go. 20 seconds on Google found a 1996 Supreme Court case that upheld use taxes as not being unconstitutional, so long as the use tax is roughly in-line with intrastate sales taxes. Which is to say, a use tax of 8% when sales taxes are also 8%, or maybe 7%, is fine...but you can't make a use tax of 20%.

I would imagine you could bounce around for days finding multiple cases that appear to go on either side of this. Which is not something I care to do. However, it is clear that the case you cited is not definitive on this issue.

...and use taxes are on the books, and I'd advise you that you do not have the right to ignore them.

RE: Just A Matter Of Time
By AlexWade on 4/20/2010 9:17:44 PM , Rating: 3
Okay, obviously, I'm no lawyer. Having said that, I'll continue this argument.

Read the introduction of the brief please.
In this case we decide whether North Carolina's "intangibles tax" on a fraction of the value of corporate stock owned by North Carolina residents inversely proportional to the corporation's exposure to the State's income tax violates the Commerce Clause. We hold that it does.

This ruling is about taxing stocks and not about goods and services. It is not a ruling on a use tax, unlike the other ruling. Reading through tidbits of the brief, it seems to favor less confusing taxes. I didn't read it all, I just searched for "use tax" in the brief and read the surrounding paragraphs. So I may have missed it; please show me where in the brief in makes a ruling on where the use tax for interstate commerce is legal.

I did find this in the ruling:

But because North Carolina has no general sovereign interest in taxing income earned out of state, Maryland v. Louisiana teaches that the Secretary must identify some in-state activity or benefit in order to justify the compensatory levy. Indeed, we have repeatedly held that "no state tax may be sustained unless the tax . . . has a substantial nexus with the State . . . [and] is fairly related to the services provided by the State."

The Secretary's theory is that one of the services provided by the State, and supported through its general corporate income tax, is the maintenance of a capital market for corporations wishing to sell stock to North Carolina residents. Since those corporations escape North Carolina's income tax to the extent those corporations do business in other States, the Secretary says, the State may require those companies to pay for the privilege of access to the State's capital markets by a tax on the value of the shares sold. So, the Secretary concludes, the intangibles tax "rests squarely on `the settled principle that interstate commerce may be made to pay its way.' "

The argument is unconvincing, and we rejected a counterpart of it in Oregon Waste, where we held that Oregon could not charge an increased fee for disposal of waste generated out of state on the theory that in-state waste generators supported the cost of waste disposal facilities through general income taxes.

I also found this, which may be what your point is based on:

The statute exempted the use of any article that had already been subjected to a sales tax equal to the use tax or greater, so that the use tax effectively applied only to goods purchased out of state. Although the use tax was itself facially discriminatory, we held that the combined effect of the sales and use taxes was to subject intrastate and interstate commerce to equivalent burdens. "`There is no demand in. . . [the] Constitution that the State shall put its requirements in any one statute,' " we said; rather, "`[i]t may distribute them as it sees fit, if the result, taken in its totality, is within the State's constitutional power.' "

RE: Just A Matter Of Time
By Motoman on 4/20/2010 10:04:03 PM , Rating: 1
Yes, the third bit there specifies that although a use tax may be "facially" discriminitory, which basically means at first glance it looks like it might be bad, it's combined effect with intrastate sales taxes means that both in-state and out-of-state transactions are burdened similarly. Therefore, not unconstitutional.

The case made many determinations - one of which was on the appropriateness of a use tax.

RE: Just A Matter Of Time
By Motoman on 4/20/2010 10:17:39 PM , Rating: 1
Another interesting bit from 2007 that illustrates the "similarity" clause:

The USVI have no sales tax, but they were charging a 4% use tax on all products brought in from elsewhere. THAT doesn't're being discriminatory against the out-of-state (er, territory) purchases. It also cites a precedent from way back in 1937 when the use tax was upheld, stipulating also what I have heard referred to as "reciprocity."

I have seen this in action many times myself - for example, when I purchased a motorcycle in IL and brought it home to MN - when I went to register it, I had to pay the difference in tax between IL and MN to MN.

I can find no actual legal proceedings that declare use taxes to be unconstitutional - only many such documents, article, reports, etc. that discuss use taxes without ever suggesting that they are unconstitutional.

Even around the Amazon thing, no one is even suggesting that there's anything amiss about use taxes. No one (well, other than you and reclaimer). The kerfuffle is about the state demanding detailed consumer transaction information. Nobody is suggesting that use taxes aren't owed.

RE: Just A Matter Of Time
By tmouse on 4/21/2010 8:52:13 AM , Rating: 2
I do not see why others are having difficulty with your positions. There has NEVER been a high court decision declaring use taxes unconstitutional. The points that have been made are whether the tax is being used to unfairly benefit intrastate sales over interstate sales in effect usurping the federal governments powers to regulate these sales. In essence requiring a seller to collect use taxes is making them pay the tax to another state where they have no presence and no recourse to effect the laws. The buyers DO have recourse and representation and are responsible for the tax. The USIV case created an environment that discriminated against outside commerce. In the other cases for the buyer it makes no difference if they pay a sales tax within the state or a use tax or some partial use tax if the sellers state has already collected some of the taxes for the buyers state because of a reciprocal tax agreement. There is no discrimination between interstate or intrastate commerce. As long as the use tax meets the requirements of the states constitution and does not actively breech any protected rights reserved by the federal constitution (like a tax on race)it's perfectly legal. As a matter of fact it could be a constitutional breech if the federal government made restrictions on any single state's laws that are not applied equally across all states. So they cannot strike down one states use tax (provided it does not effect rights I mentioned above) and ignore the others.

RE: Just A Matter Of Time
By Motoman on 4/21/2010 11:24:54 AM , Rating: 2

It's quite telling that the only 2 people in the world, as far as I can tell, who are asserting that use taxes are unconstitutional are Alex and reclaimer. least Alex does it without the douchebaggery that always comes with reclaimer.

If there was the slightest validity to the concept that use taxes were unconsitutional, that point would be getting made in EVERY article about the Amazon thing going on right now.

...the concept is mentioned in none of them.

So, we can either believe 2 guys on an internet forum, or we can believe every news source in the world. Hmmm...

RE: Just A Matter Of Time
By tmouse on 4/21/2010 8:10:05 AM , Rating: 2
You are misinterpreting the decision. It does NOT say the use tax is unconstitutional. It says one state cannot force a SELLER in another state who has no presence in the receivers state to COLLECT the tax. It does not in fact address the buyers tax obligations at all. Quill corp.'s position was that they cannot legally collect sales tax for a state from another state and are not required to COLLECT a use tax, that would in fact be allowing one state to enforce its laws on a citizen under a separate jurisdiction and the court agreed with that interpretation (for now; they did say congress could change this). Now there are multiple decisions upholding the rights of states to collect taxes within their own jurisdictions. Use taxes are perfectly legal (I do not like them), they can only be imposed on items used within the state so for example if I buy a car in Delaware which has no state sales tax and keep it there I have no obligation to pay New York's use tax, BUT if I bring it to New York then I have to. Since a seller cannot determine where an item is going to be used it cannot enforce collection of a use tax. In the case of the Quill corp. its customers should be paying the use tax but Quill does not have to collect it. Now on topic it is not clear if Amazon could be compelled to supply purchase information to other states so they could enforce the laws on their citizens. My guess is it will be upheld at some point or congress will amend the interstate commerce laws to authorize it (not detailed information but taxable totals). Sales taxes are the only major alternative to property taxes to fund things like schools. Currently property values are in the dumpster and a second wave of devaluation is right around the corner. Sale taxes are also down , due in no small part to internet sales. Congress has held off allowing internet sale taxes to not cripple what was then a emerging industry. That time has passed (whether we like it or not). Its either increase property taxes (which is becoming near impossible in some areas), cut back in education, and other basic services or generate more sales tax revenue. Not sure how its going to be done, its either require sellers to supply individual's sale totals to the states so they can use their use tax authority, or some form of federal tax with the sellers reporting state totals so they get some share from the federal government. I do not like the idea of any of this but you cannot get something for nothing and nothing is certain except death and taxes.

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