In August of last year, Musser’s Inc. t/d/b/a Genuine Tobacco Co. (“Genuine Tobacco”) filed a lawsuit in the Eastern District of Pennsylvania challenging the constitutionality of certain provisions of the Prevent all Cigarette Trafficking Act (the “PACT Act”). Genuine Tobacco operates two “brick and mortar stores” in Pennsylvania, as well as an online retail store that sells tobacco products through the Internet and telephone to consumers throughout the country. A portion of Genuine Tobacco’s online sales are to U.S. military personnel stationed here and overseas. Genuine Tobacco does not have any employees or representatives outside of Pennsylvania, nor does it send any mail order catalogs into any state. Genuine Tobacco’s only contact with states other than Pennsylvania is through its website and its delivery through the U.S. Postal Service of website purchases to customers.
In the lawsuit, Genuine Tobacco seeks a declaration that the challenged PACT Act provisions are unconstitutional and a preliminary injunction against the enforcement of the provisions of the PACT Act that require (1) delivery sellers to pre-pay the excise or use taxes of the state or local government into which they deliver tobacco products and (2) compliance with the regulatory and legal requirements that apply to the products in the state and locality where delivery is made. Genuine Tobacco also seeks to enjoin enforcement of the provision that, with very limited exceptions, prohibits cigarettes and smokeless tobacco from being “deposited in or carried through the mails.” According to Genuine Tobacco, these provisions are unconstitutional because they violate the due process and equal protection clauses.
Specifically, Genuine Tobacco asserts that the PACT Act’s requirement that delivery sellers comply with the laws and regulations of every state and every locality into which they deliver products violates due process because it forces remote retailers like Genuine Tobacco to identify, collect, and pay state sales and use taxes regardless of whether the retailers have a substantial nexus to the taxing jurisdictions. Genuine Tobacco argues that the maintenance of an Internet website alone does not create the requisite substantial nexus. In support of its position, Genuine Tobacco relies on Red Earth LLC v. United States, a 2010 decision from the Western District of New York in which the court found that the plaintiffs in that case were likely to succeed on a due process claim challenging the same provisions of the PACT Act.
Regarding the PACT Act’s nonmailability provision, Genuine Tobacco claims the provision runs afoul of the equal protection clause because it prevents active duty soldiers stationed on military bases from purchasing cigarettes and smokeless tobacco from remote sellers, while allowing nonmilitary personnel to engage in these transactions. This disparity exists because the only way to ship packages to U.S. military bases is via the U.S. Postal Service; private courier companies are not permitted to make deliveries.
Genuine Tobacco’s lawsuit raises interesting jurisdictional and equal protection questions. Although Genuine Tobacco filed its motion for a preliminary injunction in September 2010, and the court’s docket indicates briefing on the issue was completed in May 2011, the court has not yet ruled on the motion. If the motion is successful, similar lawsuits are almost certain to follow. Stay tuned.
For questions and/or comments, please contact Bryan Haynes, at 804.697.1420 or by email.