Cal. Court of Appeal Clears Path for ACMA Challenge to Tax Reg.

On February 16, 2023, the California Court of Appeal issued a one-line order that will allow the San Francisco Superior Court to hear the merits of a lawsuit by the American Catalog Mailers Association (ACMA) against the California Franchise Tax Board.

The ACMA filed suit in August 2022, challenging the Board’s legal authority to publish tax guidance that, the ACMA contends, directly conflicts with a federal statute, Public Law 86-272. Public Law 86-272 protects out-of-state businesses from certain tax obligations if their only activity in a taxing state consists of solicitation.

In November 2022, Superior Court Judge Richard B. Ulmer Jr. denied the Board’s motion seeking dismissal of the case, ruling that California law authorized the ACMA to bring the case.

In January 2023, the Board sought immediate review of that ruling by the Court of Appeal, seeking a stay of the trial court proceedings and a ruling that the ACMA’s lawsuit could not proceed. The Court of Appeal rejected that argument, denying the Board’s petition and request for a stay. The result is that the case will go forward, and the Superior Court will be able to decide whether the Board’s public guidance is an improper regulation that directly contradicts controlling federal law.

The ACMA is represented by George Isaacson, Martin Eisenstein, David Swetnam-Burland, and Nathaniel Bessey.