The following is cross-posted from

Earlier this year, Colorado became the first state to employ a new and controversial way to force consumers to pay tax on online purchasesHouse Bill 1193 required out-of-state retailers to provide the Department of Revenue with detailed customer information on purchases made, so that the state can pursue residents who fail to pay “use tax.” Use tax is sales tax on out-of-state purchases that requires the consumer, not the retailer, to collect and pay up.

Now, North Carolina has jumped on the bandwagon, though without passing any new legislation. In letters dating back last December and March of this year, the state’s Department of Revenue is demanding that retailers provide “all information” on North Carolina customer purchases dating back to 2003. This would include each consumer’s name, address, product/item code, detailed description of each purchase, and other information.
This is a flagrant violation of privacy rights and the First Amendment. A state has no authority to demand private information about individuals completely unrelated to tax collection. In fact, though Colorado passed the bill earlier this year, their State Supreme Court ruled in 2002 that the First Amendment ensures “an individual’s fundamental right to purchase books anonymously, free from governmental interference.” Yes, that would include books bought online. The demand could also be a violation of the Interstate Commerce Clause of the U.S. Constitution, as in-state retailers would not be subject to the same information reporting requirements.
North Carolina and Colorado’s push to collect sales information stems from a failed effort last year to begin taxing out-of-state purchases. Last fall, North Carolina joined Rhode Island and New York in passing an “affiliate nexus tax” law, which requires online retailers to collect tax on consumers if company advertises on an in-state website. This effort too raises serious constitutional concerns, as retailers with no physical presence in a state cannot be required to collect taxes on consumers under the U.S. Supreme Court’s ruling in Quill v. North Dakota.
In North Carolina and Rhode Island, retailers subsequently stopped advertising to avoid what many – including us – regard as an unconstitutional tax collection scheme. Both states have failed to collect any additional revenue from the tax hike, which is probably why the NC Department of Revenue began its pursuit to gather private consumer information. Meanwhile, a similar consumer information reporting bill is pending in California.
It appears states will stop at nothing in pursuit of taxing online shoppers. First, with the affiliate nexus tax, states tossed aside the U.S. Constitution’s Commerce Clause and long standing legal precedent. Now their “Plan B” is to trample all over the First Amendment and privacy rights.
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