State tax collectors have settled a privacy lawsuit and agreed not to ask Amazon.com or other online retailers to reveal details about Internet purchases made by North Carolina residents.

The N.C. Department of Revenue signed the agreement with the ACLU in January as part of a broader lawsuit filed last year against the state by online retailing giant, Amazon.com.

The revenue department and the N.C. Attorney General released the settlement today.

"For months we've been negotiating with them [N.C. revenue department] to try to get them to adopt a policy like the one they just did," said Jennifer Rudinger, the executive director of the ACLU's North Carolina chapter.

A federal judge has blocked North Carolina's attempt to force online retailer Amazon.com to turn over the names of its customers to state tax officials.

The U.S. District judge in Seattle, where Amazon.com's headquarters is based, said Monday that turning over customer names to government authorities violates a key First Amendment tenet.

"The First Amendment protects a buyer from having the expressive content of her purchase of books, music, and audiovisual materials disclosed to the government," Judge Marsha Pechman wrote. "The fear of government tracking and censoring one's reading, listening, and viewing choices chills the exercise of First Amendment rights."

The ruling is a victory for a half-dozen anonymous North Carolina residents who bought products from Amazon.com and asked the court in Seattle to protect their identities. The residents, four of whom live in the Triangle, said they bought materials about sex, alcoholism and other controversial subjects.

The N.C. Department of Revenue is on track to clear by year's end a backlog of unprocessed tax returns that is expected to lead to more than a million dollars in refunds to taxpayers who did not realize they had overpaid their taxes.

But Revenue officials may be risking the assessment of roughly $51 million in current taxes, and the collection of roughly half that, by devoting the manpower to whittle down the backlog. That's the estimate they gave as Gov. Bev Perdue was developing a plan to tackle the backlog.

Revenue Secretary Kenneth Lay said that since the governor has ordered the backlog to be cleared, his staff will work six days a week to get the job done by the mid-December deadline and then jump back to the assessment and collection of taxes with the goal of getting them caught up by the end of the fiscal year.

Lawmakers will be counting on those revenues in yet another tough budget year.

"We're going to do our best to get it all done with the resources that we have," Lay said in a recent interview. "I mean there's really no other way to do it. We're all stretched."

The potential tax collection delays don't deter Perdue from her directive to clear the backlog as soon as possible. Her communications director, Chrissy Pearson, said it's a matter of principle. The money belongs to the taxpayers, Pearson said, and for some it could help in a big way.

"We recognize that it could make the difference in that person going to the doctor or not," Pearson said.

The backlog, and a controversial policy change intended to help reduce it by eliminating the department's responsibility for making refunds that were outside of the three-year statute of limitations, were not known to the public until we obtained internal e-mails from the department last month.

The American Civil Liberties Union told a federal judge today that North Carolina's effort to collect sales taxes from online retailers could violate shoppers' rights to free speech and privacy.

The ACLU intervened in Amazon.com's federal lawsuit against the N.C. Department of Revenue, in which the online retailer challenges the state's attempt to force the the company to turn over sales information so it can be assessed for taxation. The lawsuit is filed in Seattle, where Amazon is based.

The ACLU's suit is filed on behalf of Asheville Councilman Cecil Bothwell and six anonymous plaintiffs, most of them from the Triangle. Bothwell, an atheist and a publisher of controversial material, is joining the suit on behalf of himself and his readers.
 

Amazon.com is fighting an effort by North Carolina tax officials to collect customer data, including personal information and details on everything residents have purchased at the online retailer since 2003.

In a complaint filed Monday in federal court in Seattle, Amazon wrote that the request from the N.C. Department of Revenue would violate the First Amendment rights of its customers. State officials are seeking the additional information as part of an audit of Amazon's compliance with state sales and use tax.

The spat comes as North Carolina is trying to increase tax revenue and bolster its ailing budget. North Carolina has threatened contempt proceedings if Amazon doesn’t turn over the names and addresses of each customer in the state who bought more than 50 million products from Amazon during the past seven years, according to the complaint.

Retailers might do a double take when they file their sales tax data for the month of September.

The online system at the N.C. Department of Revenue will show the sales tax as one penny, or one percentage point, lower than the actual rate for September, which is 7.75 percent in most counties, including the Triangle area.

But retailers still have to pay the correct rate and fill out a worksheet to do it, creating an extra hassle for store owners.
 The sales tax rose by a penny on Sept. 1, but the Department of Revenue is not changing the online system for September to reflect that change for two reasons.