Amazon wins fight to keep customer records private

Federal judge slaps down demand from North Carolina tax collectors but hints that a narrower approach may comply with the First Amendment.

Declan McCullagh Former Senior Writer
Declan McCullagh is the chief political correspondent for CNET. You can e-mail him or follow him on Twitter as declanm. Declan previously was a reporter for Time and the Washington bureau chief for Wired and wrote the Taking Liberties section and Other People's Money column for CBS News' Web site.
Declan McCullagh
4 min read

In a victory for the free speech and privacy rights of Amazon.com customers, a federal judge ruled today that the company would not have to turn over detailed records on nearly 50 million purchases to North Carolina tax collectors.

The state had demanded sensitive information including names and addresses of North Carolina customers--and information about exactly what they had purchased between 2003 and 2010.

U.S. District Judge Marsha Pechman in Washington state said that request went too far and "runs afoul of the First Amendment." She granted Amazon summary judgment.

The Tar Heel State's tax collectors have "no legitimate need" for details about the literary, musical, and cinematic habits of so many Amazon customers, Pechman wrote. "In spite of this, [North Carolina] refuses to give up the detailed information about Amazon's customers' purchases, while at the same time requesting the identities of the customers and, arguably, detailed records of their purchases, including the expressive content."

Amazon has provided the state tax collectors with anonymized information about which items were shipped to which ZIP codes. But North Carolina threatened to sue if the retailer did not agree to divulge the names and addresses linked to each order--in other words, by providing personally identifiable information that could be used to collect additional use taxes that might be owed by state residents.

Pechman's opinion did leave open the possibility of North Carolina tax collectors deleting the data they currently have and firing off a narrower request to the online retailer: "Issuing the declaratory relief as phrased does not prohibit [N.C. tax collectors] from issuing a new request for information as to only the names and addresses of Amazon's customers and general product information, assuming that [the state] destroys any detailed information that it currently possesses."

Because Amazon has no offices or warehouses in North Carolina, it's not required to collect the customary 5.75 percent sales tax on shipments, although tax collectors have reminded residents that what's known as a use tax applies on anything "purchased or received" through the mail. The dispute arose out of what had otherwise been a routine sales and use tax audit of Amazon by North Carolina's tax agency.

As CNET previously reported, Amazon filed a lawsuit in April after negotiations with the state tax collectors broke down. Neither side could be reached for comment this evening.

In addition, the ACLU intervened in the lawsuit asking for an even broader injunction against the tax collectors. They wanted Amazon to be prohibited from disclosing customer purchases without a subpoena, which the court did not grant.

In general, as Amazon stressed in its lawsuit, purchases of books, DVDs, Blu-ray discs, and other media enjoy special privacy protections.

In a 2002 decision, the Colorado Supreme Court ruled that the First Amendment protects "an individual's fundamental right to purchase books anonymously, free from governmental interference." The justices tossed out a subpoena from police to the Tattered Cover Bookstore asking for information about what books a certain customer had purchased.

And in a 2007 case, federal prosecutors tried unsuccessfully to force Amazon to identify thousands of customers who bought books online, but abandoned the idea after a judge rebuked them. Judge Stephen Crocker in Wisconsin ruled that "the subpoena is troubling because it permits the government to peek into the reading habits of specific individuals without their prior knowledge or permission."

In addition, a federal law called the Video Privacy Protection Act makes it illegal for anyone selling movies to disclose customer information to anyone, including state tax collectors. The 1988 law specifically covers "prerecorded video cassette tapes," and also sweeps in "similar audio visual material" such as DVDs and Blu-ray discs.

North Carolina's legal setback comes as other states experiment with new ways to collect taxes from online retailers. California may require retailers to report the total dollar value of purchases made by each state resident. A decision is expected at any time in a related case that Amazon filed against New York state.

Update October 26 at 7:06 a.m. PT: Last night I asked the North Carolina Department of Revenue what its plans were, including: "Will you destroy that information and issue a new request?" I just received a partial response via e-mail, which doesn't answer that particular question. All it says is: "Attorneys with our office are currently reviewing the ruling, and no decision has been made yet about whether or not the State will seek an appeal."

Update October 26 at 10:40 a.m. PT: The ACLU sent over this response from staff attorney Aden Fine (it's also put the opinion online): "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. 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."