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A lawsuit filed against the North Carolina Department of Revenue by, LLC has been settled. The lawsuit alleged that an information request issued by the North Carolina Department of Revenue violated the First Amendment as it sought all information pertaining to sales made by Amazon to North Carolina residents for the purposes of collecting sales and use tax. Both parties wish to resolve any remaining issues without further litigation. A court order was filed in federal district court stating that judgment has been entered in favor of Amazon. In October 2010, the court had granted Amazon’s motion for summary judgment on all claims except their state constitutional claims. The court had held that the First Amendment protects buyers from disclosing to the government the content of their purchases of books, music and audiovisual materials. The North Carolina Department of Revenue had issued an information request seeking the name, address, and the product purchased or product description for all of Amazon’s North Carolina customers. Amazon alleged that complying with the information request would violate the U.S. Constitution, the Washington Constitution, and federal law. Amazon has dropped its remaining state constitutional claims. The North Carolina Department of Revenue maintains that it doesn’t want titles or similar details of the products purchased by Amazon’s customers. Any information that Amazon did provide to the Department of Revenue was voluntarily destroyed, and the Department extended an offer to Amazon to comply with state tax laws moving forward. The Department further stated that customer privacy would have never been an issue if Amazon had already been collecting and remitting North Carolina sales tax. (, LLC v. Hoyle, U.S. District Court, W.D. Washington, No. 2:10-cv-00664-MJP, January 28, 2011) (Note: See prior posting


In collaboration with e-commerce retailers, the North Carolina Department of Revenue has developed the Internet Transactions Resolution Program. Participants may resolve their prior tax liability by registering for sales and use tax and agreeing to collect and remit those taxes for four years, beginning September 1, 2010. Any retailer that failed to register for sales and use tax as a result of operating an affiliate program in North Carolina at any time is eligible to participate. The Department will not assess tax, penalties or interest for periods prior to September 1, 2010 for retailers that successfully complete the program. Also, the Department will not obtain consumer information from the retailer to collect a tax liability for the period prior to September 1, 2010. The program begins on April 23, 2010. Eligible retailers must submit an election to participate by June 30, 2010. A resolution agreement must be signed by both the retailer and the Department by August 31, 2010 Internet Transactions Resolution Program, North Carolina Department of Revenue, April 23 , 2010).

(06/04/2010) LLC ("Amazon") has filed a complaint for declaratory relief alleging that its compliance with the North Carolina Department of Revenue’s demand for personally identifiable information about its customers would violate the First Amendment rights of Amazon and its customers. As part of the DOR’s audit of Amazon’s compliance with state sales and use tax laws, Amazon has provided the DOR with each transaction’s order ID number, the city, county, and zip code to which the item was shipped, the total price for the transaction, and the Amazon standard product code for each item, which the DOR can use to immediately find on Amazon’s website a full description of every product purchased by a North Carolina customer. In addition to this information, the DOR is requesting the name and address of every North Carolina customer who purchased or received goods in these transactions, and has stated its plans to serve Amazon an administrative summons and summary contempt proceeding if the information is not supplied.

Amazon asserts that its customers have a reasonable expectation that Amazon will comply with the Privacy Notice on its website and will not disclose the details of its customer’s purchases. Amazon believes that disclosing this information will make customers less likely to purchase books, movies, music or other items that might be personal, sensitive, or controversial, which Amazon states will cause it real and tangible harm. Further, since the First Amendment protects the right to distribute, sell, purchase, and receive lawful expressive materials free from government scrutiny, Amazon alleges that the DOR’s request for Amazon to disclose the purchaser’s name and address violates this Amendment. Since the DOR has not made any showing of need or relevance to obtain customer data, the complaint states that the DOR’s interest in the data is not compelling enough to outweigh the harm the disclosure would cause to the First Amendment and privacy rights of Amazon and its customers. (, LLC v. Lay, U.S. District Court for the Western District of Washington (Seattle), Case No, 2:10-CV-00664-BAT, filed April 19, 2010)

NOTE: Resolved. See updated news item at


The North Carolina Department of Revenue has issued a notice discussing enacted legislation concerning the taxability of computer software. Effective January 1 ,2010, the sale at retail and the use, storage, or consumption of computer software that meets the following requirements is exempt from tax: (1) software that is designed to run on an enterprise server operating system; (2) software that is sold to a person who operates a datacenter and is used within the datacenter; (3) software that is sold to a person who provides cable service, telecommunications service, or video programming and is used to provide ancillary service, cable service, Internet access service, telecommunications service, or video programming. Prior to January 1, 2010, computer software delivered electronically or by load and leave was exempt from sales and use tax. Also effective January 1, 2010, computer software or digital property that becomes a component part of other computer software of digital property that is offered for sale or of a service that is offered for sale is exempt. Custom computer software and the portion of prewritten computer software that is modified or enhanced if the modification or enhancement is designed and developed to the specifications of a specific purchaser and the charges for the modification or enhancement are separately stated continue to be exempt. Prewritten computer software or licenses purchased by consumers for personal use are taxable (Important Notice: Computer Software, North Carolina Department of Revenue, February 2010).


A yarn manufacturer’s purchase of packaging material used to deliver yarn to its customers was found exempt from North Carolina sales and use tax. To ship its cones of yarn to customers, the taxpayer uses a “yarn pak” which is returned to the taxpayer for recycling and reuse. After the cones of yarn are packed into the yarn pak, the taxpayer typically wraps it in “shrink wrap,” overlapping the edges of the bottom and top pallets as well as the dividers. Although, the shrink wrap is not part of the yarn pak and is not necessary to hold the yarn pak together, it does provide a protective barrier against dust and moisture during shipping.

The North Carolina statute provides an exemption for a container that is used as packaging by the owner of the container or another person to enclose tangible personal property for delivery to a purchaser of the property and is required to be returned to its owner for reuse. However, the Department argued that the plain language of the statute only exempts containers that enclose tangible personal property and the yarn paks did not completely enclose the yarn cones. In order to accept the Departments position that a container must “completely” or “fully” enclose property, the Court would have to add language to the statute, which it has no power to do. Therefore, it was determined that the taxpayer’s purchase of the yarn paks did qualify for the exemption from sales and use tax. (Parkdale America, LLC v. Hinton, North Carolina Court of Appeals, No. COA09-10, October 6, 2009)



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