A federal appeals court panel on Tuesday left in place an order exempting Seneca Indian Nation mail-order businesses from complying with the taxing laws of states where they sell cigarettes.
The Second Circuit Court of Appeals rejected government arguments that Judge Richard Arcara's July 2010 order granting a preliminary injunction was an abuse of his judicial discretion.
Arcara stayed enforcement of certain provisions of last year's Prevent All Cigarettes Trafficking Act, concluding a group of about 140 Seneca businesses was likely to win its legal challenge against them. Arcara refused to block other key provisions, including one barring retailers from shipping cigarettes through the mail, which forced numerous Seneca businesses to close.
In staying the taxing provision, Arcara said the law's unprecedented requirement that sellers follow the taxing schemes of the cities and states into which they ship cigarettes could have far-reaching effects and deserved a closer look.
"If Congress possesses the authority to subject out-of-state retailers to every state and local taxing jurisdiction into which products are delivered, then it has the authority to do so for all commercial products, not just cigarettes," Arcara wrote.
The three-judge panel said in Tuesday's ruling that Arcara reached "a reasonable conclusion" at this preliminary stage of what is "a close question of law."
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