North Carolina Department of Revenue Sales Tax Audit of Amazon.com May Result in Use Tax Audits for Online Buyers

 

The North Carolina Department of Revenue has launched a fight against approximately 350 online retailers. The North Carolina Department of Revenue is seeking the identity of the purchasers with North Carolina addresses as well as a description of the purchases. Marital property division lawyer. The most visible case is a North Carolina sales tax audit of Amazon.com. In the Amazon.com case alone there are about 50 million purchases covered.

North Carolina charges a "use tax" on out-of-state purchases of goods for use or consumption in North Carolina. If you or your business has purchased goods from Amazon.com since 2003, the North Carolina Department of Revenue may get your identity and a description of what you purchased. If you have not paid the North Carolina use tax on these purchases, you may be the subject of a North Carolina Department of Revenue use tax audit in the future.

Lucky for you, Amazon.com is not giving up without a fight and neither is the American Civil Liberties Union.

Amazon filed a lawsuit in April in the U.S. District Court for the Western District of Washington against the North Carolina Department of Revenue in response to a state request for purchase records dating back to August 2003 of customers with a North Carolina shipping address.

In June, the American Civil Liberties Union filed a motion to intervene in the lawsuit. The ACLU contends that the Department's demand for information is unconstitutional, as the Department can assess taxes based on retail sales without knowing what customers purchased. The ACLU argues the product descriptions reveal personal and private information about consumer choices, and that the Department should narrow the scope of its request in order to protect privacy rights. The Department counters that it only asks for product descriptions in order to determine the correct tax liability.

In accordance with the Internet Freedom Tax Act, remote sellers (i.e. online retailers) are generally required to collect taxes where they maintain a physical selling presence. If they do not have such a presence, they are not required to collect sales tax. Thus, in online transactions with out-of-state retailers, the consumer typically has the obligation to calculate and pay a use tax. North Carolina seeks voluntary compliance from taxpayers, requesting inclusion of a "consumer use tax" on residents' individual tax returns for items purchased or received through the mail.

Currently, North Carolina levies a general retail sales and use tax of 5.25 percent. Most counties levy an additional 2.5 percent local sales and use tax on items taxed by the state at the general rate. Thus, the combined general state and county tax rate is 7.75 percent in all counties with the exception of Mecklenburg County (which has a combined general state and county tax rate of 8.25 percent due to inclusion of a 0.5 percent public transit tax). Further, Surry, Sampson, Pitt, Martin, Haywood, Cumberland, Catawba, and Alexander counties have an additional 0.25% sales tax. The actual use tax rate may be different depending on the date of the purchase.