ACMA Files Suit to Challenge NY Tax Regulation

On April 5, 2024, Brann & Isaacson filed a complaint in New York state court on behalf of the American Catalog Mailers Association (ACMA), challenging a recently issued New York Department of Taxation and Finance regulation, 20 N.Y.C.R.R. § 1-2.10. That regulation improperly expands the authority of the Department to impose income tax obligations on out-of-state merchants even if they engage in no business activities in the Empire State other than soliciting sales. In so doing, the regulation effectively negates the protections of a federal statute, Public Law 86-272, which protects against just this kind of state tax agency overreach.

Brann & Isaacson submitted comments to the Department for the ACMA explaining why the New York regulation conflicts with federal law. They pointed out that the New York regulation treats “activities on the Internet,” such as responding to customer emails or live chats, as if they occurred in New York—without regard to whether an affected business has any people, offices, or equipment in New York. After the Department went forward with the regulation anyway, the ACMA filed suit.

“Like California before it,” partner Nathaniel Bessey said, “New York is trying to use state tax regulations to rewrite federal law. Public Law 86-272 has protected ACMA members since 1959. When the California Franchise Tax Board published unlawful regulations over the ACMA’s objections, the ACMA filed suit in California state court and won. When New York followed suit, that forced the ACMA’s hand. We believe the New York courts will agree that a state agency does not have the authority to undo a federal statute.”

The ACMA is represented by attorneys Martin Eisenstein, David Swetnam-Burland, and Nathaniel Bessey, who also represented the ACMA in the California litigation.