The Connecticut Department of Revenue Services (DRS) recently issued demand letters to many remote sellers requiring that they either: (a) provide electronic sales records for all individual sales shipped to a Connecticut address over the past three calendar years; or (b) register to collect and remit Connecticut sales and use tax. This action is consistent with statements made by DRS Commissioner, Kevin Sullivan, via a press release in March and more recently at a Federation of Tax Administrator’s (FTA) presentation on the topic two weeks ago. Sullivan’s comments at the FTA meeting indicated that state tax administrators “will move from hoping Congress will help” to taking action into their own hands.
For remote sellers with no physical presence in Connecticut that don’t wish to voluntarily collect and remit sales and use tax (consistent with the US Supreme Court’s precedent in Quill and Bellas Hess), they are given only one option–provide DRS with a semi-colon delimited text file containing 16 fields of data–including customer names, customer addresses, ship to addresses, item descriptions and quantities sold. But supplying such personal data about customers intrudes upon the privacy and First Amendment rights of the customer, and unconstitutionally deprives remote sellers of their property right in the data set without due process of law. Of equal concern, some sellers question whether DRS is appropriately limited in its ability to disclose or share the customer data it seeks.
First, disclosure of the records DRS is requesting from remote sellers would be a significant intrusion on their customers’ privacy. The records requested include disclosure of customer names, addresses, shipping state, sales price and specific product(s) purchased. This can be highly sensitive information. Merely linking a particular online retailer to a specific customer may reveal information about the customer’s health issues, political leanings, sexual orientation, personal tastes and financial circumstances. By collecting shipping addresses, DRS will learn when an individual has a gift purchase delivered to a different address, revealing what could be a personal (and highly private) relationship. Moreover, some sellers question whether Connecticut law adequately protects the confidentiality of the information DRS is attempting to collect, leaving the possibility that the information could be shared with other government agencies and potentially used for purposes other than collection of sales and use tax.
Second, for remote sellers that offer books, music, videos and other forms of expressive content, the DRS request violates the customers’ First Amendment protections. In 2010, a US District Court held that an online retailer’s North Carolina customers’ First Amendment rights were implicated by a similar content disclosure requirement on audit. See Amazon.com LLC v. Lay, 758 F. Supp. 2d 1154, 1169 (W.D. Wash. 2010). The First Amendment protects a buyer from having the expressive content of that buyer’s purchase of books, music and audiovisual material disclosed to the government. Thus, First Amendment rights are implicated when the government seeks disclosure of reading, listening and viewing habits. As a result, the North Carolina Department of Revenue was enjoined from [...]