In August, we reported on a different lawsuit, brought by Genuine Tobacco, challenging the constitutionality of the PACT Act.  Unlike the New York lawsuit brought by merchants on the Seneca Nation of Indians, in which the trial court enjoined the PACT Act provision requiring out-of-state sellers to collect taxes for remote sales, the Pennsylvania-based federal court denied all of Genuine Tobacco’s challenges to the Act.  The court issued its decision on September 26, 2011.

Genuine Tobacco challenged two provisions of the PACT Act:  (1) the provision requiring out-of-state sellers to collect taxes for remote sales; and (2) the provision prohibiting the use of U.S. Mail to deliver certain tobacco products.  Genuine Tobacco challenged the U.S. Mail ban on the ground that it discriminated against military members stationed abroad by denying them the ability to make remote tobacco purchases.

With respect to Genuine Tobacco’s first claim, the Pennsylvania court disagreed with the New York court’s determination that states are unable to collect taxes from remote sellers under the Due Process Clause.  (The Pennsylvania court did not address the Second Circuit’s affirmance of that determination.)  The court found that selling products over the Internet and knowingly conducting business in a state was sufficient to satisfy due process concerns.

With respect to the mail order ban, the court found that Genuine Tobacco lacked standing to pursue this claim on behalf of military members, which were not parties to the case.  The court also found that the mail order ban survived its relatively minimal burden of rationality.

With one federal court in New York (and an appellate court) enjoining the PACT Act’s tax collection requirement, and another Pennsylvania court sustaining that requirement, it appears that this issue ultimately may be resolved by the U.S. Supreme Court.

For questions and/or comments, please contact Bryan Haynes, at 804.697.1420 or by email.