The latest attempt to cure fiscal irresponsibility with litigation has come to a thundering halt. On June 9, 2009, the highest court in New York (its “Court of Appeals”) slapped down an attempt by its own State to collect from internet cigarette companies. City of New York v. Smokes-Spirits.Com, Inc.(Ct. App. 2009) http://www.courts.state.ny.us/ctapps/decisions/2009/jun09/92opn09.pdf

Cigarette taxes in New York City are already astronomical, and the City of New York sued to collect more money from internet sales. New York City complained that deceptive advertising on the internet, such as promoting tax-free cigarettes, had led its own residents to circumvent its high taxes.

New York City’s onerous taxation requires purchasers to pay taxes on out-of-state cigarette transactions, when the cigarettes are intended for in-state use. Moreover, out-of-state sellers are required by a federal law known as the Jenkins Act to file reports to New York containing information about purchasers, giving officials all they need to collect. But the online defendant Smokes-Spirits.com allegedly did not file these reports, and it advertised that it was exempt from the Jenkins Act.

New York City sued for deceptive business practices, and went much further. Taking a page from its unsuccessful lawsuit against gun manufacturers, the city included a “common law public nuisance claim.” This claim asserted that the sale of cigarettes by internet “poses a serious threat to public health, safety, and welfare,” for which City government demanded to be compensated. And the city tacked on allegations of racketeering, which two defendants have since taken to the U.S. Supreme Court for consideration this fall. Hemi Group, LLC v. City of New York, 2009 U.S. LEXIS 3310, at *1 (May 4, 2009) (granting certiorari). The Court found the city’s nuisance claim even less credible. The city had admitted that the mailing of cigarettes “is not illegal or even traditionally deemed offensive,” but they claimed that the Public Health Law, Section 1399-ll, had changed and that mailing cigarettes was a “newly characterized” public health nuisance. The Court simply rejected the city’s reading of the law and found that no legitimate claim exists.

The higher something is taxed, the more the government seems to like it and want to collect from it, regardless of harm. So perhaps the real reason that government is banning popular, traditional light bulbs is that government does not collect enough taxes on them?