Blown To Bits

The (North Carolina) Government Wants to Know What You Bought

Tuesday, April 20th, 2010 by Harry Lewis

Massachusetts has started to get a bit more insistent about collecting MA sales taxes on goods purchased out of state–including over the Internet. This year’s return invited me either to list the actual amount paid and pay the Massachusetts rate on the total, or to pay a “safe harbor” tax on my income. Pay the safe harbor rate and I am exempt from harassment for my out of state purchases, even if I get audited and it turns out I would have owed the state much more based on my actual purchases.

I found this annoying. But actually it seems to me correct. I don’t imagine people were paying those taxes until the safe harbor was introduced, and if I don’t like the safe harbor, I can keep track of all my Amazon purchases and whatnot and pay the 6.25% on those. I can object to the whole notion that stuff I buy out of state and bring or have shipped in state should be taxed, but until somebody changes the rules, that is the way the rules read.

Now the state of North Carolina has done Massachusetts one better and has handed its comparable tax collection problem to Big Brother. The state has demanded that Amazon turn over to its tax authorities detailed, itemized records of everything shipped to anybody in the state. (Amazon has no business address in North Carolina. Only customers are there.)

That’s a lot of data, but of course that’s not the problem. Amazon has it, not just for billing purposes but so it can pitch you different suggestions on rainy Tuesday nights if it notices that you particularly like ordering steamy romances on evenings like that. The granularity of the data is extremely fine, and the state wants it all. Amazon provided some anonymized information — not sure I am happy even with that, given how easily apparently anonymized data can be re-identified — but it doesn’t matter, because the state was not content with that. It wants names and addresses.

Amazon is resisting, thank goodness, on First Amendment grounds–citing individuals’ right to read anonymously. But aren’t there Fourth Amendment issues, too? Given constitutional guarantees of security against unreasonable searches, what possible justification could the government have for demanding to know the shoppings lists of ordinary citizens, not under suspicion of anything?

6 Responses to “The (North Carolina) Government Wants to Know What You Bought”

  1. M Says:

    I think a smarter, more effective law would be to require all companies who sell via the Internet to your state to issue a receipt to their customers at the end of the year, showing all purchases those customers had made during the year.

    For example, end of the year, you receive an automated email from Amazon.com with the following:

    “Dear Mr. Lewis:

    In compliance with Massachusetts law [cite], we are sending you the following information to aid you in filing your tax returns. According to our records you purchased the following items from us this year.

    Order # 1831-2, October 2, 2009:
    Stainless Steel Wok – $49.99
    Dreaming of Science – $19.99

    Order # 1964-7, December 14, 2009:
    Kindle e-Book Reader – $399.99
    Chocolates – $18.63

    The total value of purchased items this year was: $488.60.

    If you did not make any of these purchases, please notify us so we can update our records.

    - Amazon.com

    Then, you simply tally all of those up. You are responsible for separating out items by their tax type/bracket. And then paying your taxes as appropriate. In event of audit, you can show the collective end-of-year receipt as your evidence.

    This simultaneously protects privacy while furthering the states goals. The draw back is that it places a burden on companies to track the information and report it at the end of the year. However, this could be viewed as the cost of doing business and is something they probably already do – at least to some extent – in their overall accounting system. This feature could be fully automated in order to comply with the law. Companies that do not want to participate could notify their users, “We do not participate in MA’s draconian tax reporting laws. You are required to track all of your purchases independently using the receipts we give you at the time of purchase.”

    -M

  2. Harry Lewis Says:

    Mark Rasch explained a little more about the background here. Historically, states haven’t collected sales taxes of other states on purchases sent to those other states, because it was too complicated for one state to know what’s taxable at what rate everywhere else in the US. The Supreme Court ruled years ago that collecting such taxes and transferring them to the other states would be too much to ask. Of course, that was then. Today some enterprising soul just has to code up the sales tax codes of the 50 states (fewer, actually, they don’t all have sales taxes) on the various categories of merchandise. With the aid of this software and data base, the out of state sales tax could be collected at the point of sale (at least by large stores) and transferred directly to the other states, without the other state ever knowing exactly what items had been purchased.

  3. Tyler Moore Says:

    While I agree that automatically tracking different sales tax rates is more feasible than was the case previously, it’s a bit more complicated than having a 50-entry database that gets looked up. Cities and counties can levy their own sales taxes in some states. In Broken Arrow, Oklahoma, for instance (my hometown), sales tax used to be 7.917% when I was growing up. This was a combination of state sales tax (around 5% I believe), plus county and city taxes. There are 77 counties in Oklahoma, each charging different tax rates, and then each city sets its own rates. To top it off, referendums are frequently proposed at the county and city level to fund public works projects. For instance, Tulsa County passed a 20-year 1% sales tax to build an arena, boosting sales tax to 8.9% through 2025. Broken Arrow spans Tulsa and Wagoner counties, and around the same time passed a city-wide temporary boost in the sales tax of .5% to fund the construction of a public university located in the town. So now in Tulsa you pay 8.9% sales tax, in adjacent Broken Arrow you pay 9.4% sales tax in part of the city, and 8.4% in the other part of town. How convoluted is that?!

    And this ignores the fact that some states (but not Oklahoma) don’t tax clothing or food (or both!).

    Given how cash-strapped state and local governments are, it would make sense for states to set up a website where merchants can find out the tax rate (and which governments to pay) by inputing an address. This could simplify the collection of taxes from a merchant perspective while putting the onus of sorting through the bureaucratic mess on the bureaucrats themselves.

  4. Harry Lewis Says:

    Tyler, Do the authorities in Broken Arrow try to collect a use tax when Broken Arrow residents buy stuff in Tulsa? I could imagine deciding that states should collect taxes on interstate shipments without extending the principle to municipalities and counties.

    Quite an extensive discussion over at the Volokh Conspiracy.

  5. Harry Lewis Says:

    There has been some confusion about whether NC really wanted item level data, or just the category data (“book,” for example) that would enable it to assess the proper tax. The answer is they want item level data. This is from Amazon’s complaint.

    By letter hand delivered on March 19, 2010, to Amazon in Seattle, Washington (the “March Information Request”), the DOR stated that Amazon’s initial response to Question 16 of the December Information Request omitted the “Bill to Name; Bill to Address (Street, City, State, and Zip); Ship to Name; Ship to Address (Street); Product/item code or description” (the “Customer Data”).

  6. Bruce Says:

    Tyler, Do the authorities in Broken Arrow try to collect a use tax when Broken Arrow residents buy stuff in Tulsa? I could imagine deciding that states should collect taxes on interstate shipments without extending the principle to municipalities and counties.

    Quite an extensive discussion over at the Volokh Conspiracy.