SEATTLE – Reports by some media outlets in North Carolina suggest that up to 450 top out-of-state retailers may face audits of their books as the state tries to collect current and back sales taxes from the firms. In late October, however, a federal court judege in Seattle ruled that government requests for detailed information about customers purchases violates their rights of free speech, anonymity and privacy.

The ruling evolved from a lawsuit Amazon filed to stop the NC Department of Revenue (NCDOR) from gathering personally identifiable information about customers that could be linked to their specific Amazon buys.

The case has already disrupted the Internet sector startup community and some established online retailers in North Carolina, who lost their associate status as a result of North Carolina’s attempts to establish “nexus,” a retailer’s physical presence in a state via brick and mortar stores or warehouses and so on, that allows a state to collect sales taxes from the business. North Carolina argued that by having associates in NC, Amazon established nexus. Amazon responded by firing all of its NC associates, spurring some larger sellers to pull up stakes and leave the state.

American Civil Liberties Union, ACLU of North Carolina Legal Foundation and ACLU of Washington intervened in the Amazon lawsuit on behalf of several customers.

Judge rules NC request violates First Amendment rights

Recognizing that government requests for expressive information can have an unconstitutional chilling effect on constitutionally-protected behavior, U.S. District Judge Marsha J. Pechman of the Western District of Washington at Seattle wrote:

“The First Amendment protects a buyer from having the expressive content of her purchase of books, music, and audiovisual materials disclosed to the government. Citizens are entitled to receive information and ideas through books, films, and other expressive materials anonymously. …The fear of government tracking and censoring one’s reading, listening, and viewing choices chills the exercise of First Amendment rights.”

Aden Fine, staff attorney with the ACLU Speech, Privacy and Technology Project said, “This ruling is a victory for privacy and free speech on the Internet. Disclosing the purchase records of Internet users to the government would violate their constitutional rights to read and purchase the lawful materials of their choice, free from government intrusion, and undermine the very basis of American democracy and our cherished freedoms.”

He concluded, “With this ruling, the court emphatically reemphasized what other courts have found before – that government entities cannot watch over our shoulders to see what we are buying and reading.”

While Amazon, its customers and the ACLU may have won this round, it is likely only one battle in an ongoing war as states nationally scrounge for new taxes to bolster recession ravaged state budgets.

We’ll be making calls to the NCDOR and ACLU to follow up on this  story as it unfolds further.

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