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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: And the purpose?
By FITCamaro on 4/20/2010 10:39:21 PM , Rating: 2
I agree. While I'm not going to claim to be perfect here, states have every right to try to collect sales tax that you're supposed to pay.

And in reality we should be paying far more in taxes to state governments and far less to the federal government.

RE: And the purpose?
By Jaybus on 4/21/2010 11:52:50 AM , Rating: 2
Well now that is the question isn't it? Are we supposed to pay it? It depends on whether or not the business has a "nexus" in your state. A nexus is a "direct or indirect physical presence". A direct presence is owning or leasing property in the state, such as distribution center, warehouse, etc., or in general having employees who work in that state. An indirect presence is having employees or contractors that enter the state, as for example sales reps, non-manufacturer warranty service calls, etc.

In 1992 the US Supreme Court ruled in the Quill Corp. v. North Dakota case that simply shipping catalog orders to another state did not constitute a nexus. In other words, UPS and FedEx are not acting as agents of the company.

So, that is the question. Does Amazon have nexus in NC? Before 2009 they did not. In 2009 NC adopted the "Amazon rule", which means that if any website owned or paid for by a NC business links to Amazon, then the state of North Carolina considers that enough to claim Amazon has nexus in North Carolina.

New York and Rhode Island also have Amazon rules, so in spite of the 1992 Supreme Court decision, there will have to be another long trek to the Supreme Court over the issue of whether or not a website link constitutes a nexus. Since that would be very expensive and drawn out, Amazon is first challenging the privacy issue.

As for paying more to state and local governments and less to the federal government, I couldn't agree more. But the states are asking us to pay more AND the federal government is now asking us to pay more too. It would be better for taxpayers if the state got more of your tax dollars than the fed. It is easier for citizens of a state to keep their state in check than it is to keep the feds in check. Alas, that level of state sovereignty was lost when the South lost the Civil War.

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