On February 1, Amazon will begin collecting and remitting sales tax in North Carolina. The news is not only a victory for sales tax fairness proponents, but also for the North Carolina Department of Revenue (NCDOR). The department had been unsuccesssful in two attempts to require Amazon.com to collect and remit sales tax in the state. In 2012, NCDOR estimated that the state was losing as much as $214 million in online sales taxes each year, as reported by the Triangle Business Journal. Amazon did not provide a reason as to why it decided to collect and remit sales tax in the state, WRAL.com reported.
In August 2009, when North Carolina passed legislation to require online retailers with affiliates in the state to collect sales tax, Amazon.com quickly fired its affiliates in the state to avoid collecting sales tax. In April 2010, after the state sought data on residents who purchased from Amazon in an effort to enforce its use tax laws, Amazon filed a lawsuit challenging the NCDOR’s request, which it claimed violated customers’ rights to privacy.
In October 2010, U.S. District Judge Marsha Pechman ruled that the First Amendment protected Amazon.com’s customers from Department of Revenue inquiries for “detailed records of their purchases, including the expressive content.” However, Judge Pechman said that her decision did “not prohibit the [Department of Revenue] from issuing a new request for information” with only general product information, stating that the ruling “cannot be interpreted to grant Amazon a free pass from complying with any valid tax law of North Carolina.”
The challenge was finally settled in February 2011 when NCDOR announced that future requests for data from online retailers would clarify that tax collectors are not seeking either the titles or other identifying information of books, movies, or music sold, according to a copy of the settlement provided by the agency. The agency also agreed to pay $99,000 in attorneys’ fees, and it reserved the right to pursue tax collections against Amazon or its customers.
NCDOR noted at the time that “the case between the North Carolina Department of Revenue and Amazon has long been twisted into something it is not. Bottom line, this is about fairly collecting the tax that is due to the state of North Carolina and nothing more.”
As the House Judiciary Committee prepares to consider federal sales tax legislation as soon as the last week of February or first week of March, the number of states in which Amazon collects sales tax continues to grow. With the addition of North Carolina, the online retailer now collects in 20 states.