North Carolina wants Amazon to turn over a list of customer names and purchased items so that the state can slap them with a tax on internet purchases. But this week, Amazon and the ACLU took the issue to court, arguing it is a clear violation of online customers’ First Amendment rights.

The release of these figures would allow the government to match customer names with potentially sensitive information including what kinds of books people are reading. Thankfully, Amazon is crying foul at the state’s First Amendment violation.

The affiliate nexus tax (aka the “Amazon Tax”) is an unconstitutional effort for states to collect taxes on internet transactions from out-of-state online retailers. The tax is a double whammy; while taking a shot at the Dormant Commerce Clause of the Constitution, the disclosure of such information infringes upon people’s First Amendment rights.

Additional reasons why the affiliate nexus tax should be shot down in court:

  • Not only is a case like this unconstitutional due to the First Amendment, but also due to the 1992 Supreme Court Quill v. North Dakota case, that ruled a company must have a substantive physical nexus in order for the state to require that company to collect sales taxes, something out-of-state retailers do not have.
  • The tax imposes disparate burdens on online retailers by forcing internet-based businesses to track thousands of sales tax bases.
  • Instead of generating government revenue, we have seen the tax cut it. When Rhode Island, North Carolina, and a handful of other revenue-desperate states hopped on the bandwagon and instituted affiliate nexus taxes, what happened? Retailers immediately discontinued advertising programs in those states to avoid collecting the unconstitutional tax, resulting in a loss of income for advertising businesses in those states and obviously for the state governments. The Tax Foundation released a report, in which it found, “Amazon taxes are unlikely to produce revenue in the near term. New York continues to face a lengthy legal constitutional challenge. Rhode Island has even seen a drop in income tax collections due to the law.”

The affiliate nexus tax will surely harm taxpayers and business through the obvious burden of taxation, but the blatant unconstitutionality should have stamped it out much earlier. The results of this North Carolina battle will surely set the path for the future of eTaxes. Stay tuned for updates as the case progresses.