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Musser's Inc., D/B/A Genuine Tobacco Company v. United States

September 26, 2011


The opinion of the court was delivered by: Stengel, J.


Musser‟s Inc., doing business as Genuine Tobacco Company, filed this action seeking a declaration that the Prevent All Cigarette Trafficking Act ("the Act") is unconstitutional. It also filed a motion for preliminary injunction against the defendants seeking to enjoin and restrain the enforcement of the Act pending final determination of this action. The defendant and various amici curiae*fn1 vehemently oppose the granting of this preliminary injunction. I held a hearing on the motion. For the following reasons, I will deny the motion in its entirety.


From May 2003 to June 2010, the plaintiff operated an online retail store, selling tobacco products via the internet and the telephone to customers located in all fifty states.

During that period, about 10-15% of its online sales was to our nation‟s military all over the world. The plaintiff shipped products to its customers by way of the United States Postal Service, the only permitted method of shipping to those stationed on military bases. The plaintiff contends that, before the Act, its online store had been "successful and profitable, offering a business model that afforded a competitive advantage over traditional brick-and-mortar retail stores that do not engage in telephone or online sales."

On March 31, 2010, Congress enacted the Act, a broad cigarette and smokeless tobacco tax law, which went into effect on June 29, 2010. The Act imposes restrictions on the sale of cigarettes and smokeless tobacco which are delivered to the purchaser, rather than "in-person" sales. The plaintiff complains that this law has had a dramatically negative effect on its business.

The Act echoes the Jenkins Act, passed in 1949, which required all "out-of-state cigarette sellers to register and to file a report with state tobacco tax administrators listing the name, address, and quantity of cigarettes purchased by state residents," in order to facilitate state and local collection of taxes from buyers. Hemi Group, LLC v. City of New York, 130 S.Ct. 983, 987 (2010). In passing the Act, Congress found that the majority of internet and other remote sellers do not comply with the registration and reporting requirements of the Jenkins Act. See Prevent All Cigarette Trafficking Act, Pub. L. No. 111-154 § 1(b), 15 U.S.C. § 375 (2010). Billions of dollars of tax revenue have been lost each year due to remote sales of tobacco products. Id. It is interesting to note that mailing cigarettes without complying with the Jenkins Act has also resulted in convictions for mail fraud. See United States v. Melvin, 544 F.2d 767 (5th Cir. 1977); United States v. Brewer, 528 F.2d 492 (4th Cir. 1975).

The Act requires that each seller of these tobacco products which are delivered must: (1) pre-pay*fn2 the excise or use taxes of the state and/or local government into which the products are delivered; and (2) comply with all of the regulatory and legal requirements that apply to the products in the state and locality where delivery is made. The Act also provides that all cigarettes and smokeless tobacco are "non-mailable" and "shall not be deposited in or carried through the mails." If any of these provisions are violated, the seller could be charged with severe criminal and civil penalties.

The plaintiff further complains that the Act makes it "cost prohibitive and effectively impossible" for it to be aware of and comply with the requirements of all fifty states and thousands of local jurisdictions. Even more troublesome for the plaintiff is the Act‟s prohibition on mailing tobacco products especially to the military who can only receive packages through the United States Postal Service. Accordingly, the plaintiff has had to cease operating its online retail business, and its entire business is in danger of closing.

In legislative findings set out in the statute, Congress found that the majority of internet and other remote sales of these products are made without payment of state and local taxes, without compliance with existing federal registration and reporting requirements, and without adequate precautions to prevent sales to minors. Congress also found that sales over the internet and through mail, fax, or phone orders make it cheaper and easier for children to obtain tobacco products, that criminals and terrorist groups profit from trafficking in untaxed cigarettes, and that billions of dollars of tax revenue are lost each year. See Prevent All Cigarette Trafficking Act, Pub. L. No. 111-154 § 1(b), 15 U.S.C. § 375 (2010).

To address these problems, Congress added provisions in the Act which make it unlawful to deliver cigarettes and smokeless tobacco through the United States Postal Service, and prohibit remote sales of these products unless applicable state and local taxes are paid in advance. The Act also imposes other requirements that are not challenged here, including new registration, record keeping, and age-verification requirements, and new penalties and enforcement mechanisms.

The plaintiff filed a two-count complaint against the United States and the Attorney General seeking declaratory relief. In Count 1, the plaintiff alleges that the Act violates the Due Process Clause because it forces remote sellers to comply with tax laws of foreign jurisdictions with which they do not have sufficient contact, thereby denying them the right to contest the Act‟s application. In Count 2, the plaintiff contends that the Act violates the Equal Protection Clause because it discriminates without a rational basis against military personnel by denying them the ability to make remote purchases of tobacco products for delivery.

At the hearing on the motion for preliminary injunction, Andrew Schenk, the plaintiff‟s Director of Operations since May 2003, testified that Musser‟s is a family-run business and in addition to its online store, operates supermarkets, two tobacco shops, and a hobby shop. See Notes of Testimony 2/08/11 at 7-8. One of the tobacco shops is located in Columbia, Pennsylvania, and the other is located in Millersville, Pennsylvania. Id. The online store sells moist tobacco products, leaf tobacco products, roll-your-own cigarette products, and some lighters and cigar-type accessories. Id. at 9. It does not sell cigarettes online, only smokeless tobacco and cigars. Id.

Mr. Schenk testified that after the Act became effective, the plaintiff attempted to comply with all of the Act‟s provisions, especially those governing age verification, private carrier delivery, and handling the various tax rates throughout the United States and the different taxing jurisdictions. Id. at 10-11. The plaintiff was able to find ways to satisfy the age verification and private carrier delivery provisions, but it was nearly impossible to find a resource to help comply with the taxation provisions of the Act. Id. at 12. The plaintiff‟s own accountants were unable to compile a list of all of the laws for each state and each taxing jurisdiction in each state. Id. at 13-18.

Mr. Schenk also testified that the only way to get the plaintiff‟s product to the military before the Act was through the United States Postal Service, which is now prohibited by the Act. Id. at 21. However, following a public outcry, the Postal Service modified its regulations and now allows for limited quantities of tobacco product to be shipped to military. Id. The shipment must be made in ten ounce packages, no more than ten times in a thirty-day period, and the shipment must be made by a relative of that military member. Id. at 21; also at 51.

Mr. Schenk also stressed that the plaintiff has no physical property or sales personnel outside of the Commonwealth of Pennsylvania. Id. at 23. It also makes no use of ...

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