Friday, September 02, 2005

Big Brother Really IS Watching You

While this is not a political blog, government actions that specifically affect online marketing or e-commerce are fair game. Several states have recently begun sending nasty letters to taxpayers who purchased tobacco products online from several e-retailers, including eSmokes.com.

How did they obtain information on these customers? This issue is about far more than the perils or expense of smoking; these actions have the potential to affect anyone and everyone involved in online marketing or e-commerce, anyone who buys or sells anything online. Do you sell products online? Are you absolutely positively certain that you comply with EVERY state and federal tax statute enacted in the last 100 years? Ever purchased anything online, maybe a book or CD, perhaps some jewelry, say back in 2001? Are you certain that the online retailer paid all appropriate taxes on your purchase? Disturbing? Absolutely. Please read on.

First, the state actions: the Minneapolis Star Tribune reported on this activity in late July of this year, although for some mysterious reason the articles can no longer be found on their site. I was able to track down one of the articles here. Minnesota, among other states, is apparently using a dusty 60-year-old law called the Jenkins Act, originally enacted to combat cross-border cigarette smuggling by the Mafia, to bypass the normal channels of obtaining evidence and simply demand that legal, private companies in other states simply throw open their customer records to state investigators. This law may run afoul of the Internet Tax Freedom Act, not to mention Indian tribal sovereignty.

There are several problems here. First, no state has any more right to search through your online purchasing records than they do to break down your door and search your home. There needs to be evidence of a crime, probable cause to believe that you were involved in it, and a warrant granted by a judge before the state can legally search your online history or your home. Several states have therefore violated the Fourth Amendment prohibition of unreasonable searches. The Jenkins Act itself may be an unconstitutional violation of the Tenth Amendment.

Second, if the online retailers were acting illegally, isn't it logical to prosecute them? To use an offline analogy, if the proprietor of a local retailer in your neighborhood, let's call it John's Bait Shop and Beauty Supply, decided to increase his profits by simply failing to pay sales taxes to his state, that would be clearly be illegal. The state would no doubt pursue John in this case. However, it is inconceivable, unless the state not only knew but could prove that John's customers were in on this activity, that the state would track down John's customers for payment of back taxes.

Minnesota, along with Michigan and at least 10 other states, have violated the Constitution in their pursuit of higher revenues; even more disturbing than the fact that online retailers have been forced to throw open their confidential customer information is that the major credit card companies are also exposing their records (which means of course, your records). And Minnesota "intends to work with the U.S. Postal Service and commercial transportation companies to monitor cigarette deliveries to residential addresses." So Big Brother is now searching your mail and FedEx packages as well.

Wisconsin governor Jim Doyle is one of the few sane politicians fighting this practice.

The state of Minnesota, along with the other participating states, apparently believe that it is fine to violate the Constitution in their pursuit of revenue. They've violated the privacy of their citizens. They've violated certainly the spirit, if not the letter, of the Internet Tax Freedom Act. Worst of all, however, they have violated the trust of the entire e-commerce marketplace.

To the long list of nefarious cretins intent on stealing your private online information -- hackers, spammers, perpetrators of fraud -- we can now add state revenue officials. They want your money. They won't stop with tobacco users. Express your outrage. And watch your back.

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