New York Judges Weigh Legality of State Income Tax Expansion

Appellate panel hears arguments over whether federal law blocks New York's tax on out-of-state online retailers.

Published on Feb. 11, 2026

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A New York appellate panel heard oral arguments on Wednesday over whether federal law preempts the state's additional income tax obligations on out-of-state online retailers. The American Catalog Mailers Association is seeking to overturn an earlier trial court ruling that upheld the state's regulation expanding the reach of its income tax, arguing the rule violates federal law that prohibits states from imposing income taxes on out-of-state businesses that only solicit sales of tangible personal property in the state.

Why it matters

This case could have significant implications for e-commerce businesses operating across state lines, as well as state governments' ability to generate tax revenue from online sales. The outcome could set an important precedent regarding the limits of state income tax authority over out-of-state companies.

The details

The American Catalog Mailers Association (ACMA) is challenging a New York regulation that expands the state's income tax obligations to include out-of-state online retailers that only solicit sales in New York. The ACMA argues this violates Public Law 86-272, a federal law that prohibits states from imposing income taxes on out-of-state businesses that only solicit sales of tangible personal property in the state.

  • The oral arguments were heard on Wednesday, February 11, 2026.

The players

American Catalog Mailers Association

A trade group representing catalog and online retailers that is challenging New York's income tax regulation.

New York Supreme Court, Appellate Division, Third Department

The appellate court hearing the case over New York's income tax expansion.

Public Law 86-272

A federal law that prohibits states from imposing income taxes on out-of-state businesses that only solicit sales of tangible personal property in the state.

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What’s next

The appellate court is expected to issue a ruling on the case in the coming months.

The takeaway

This case highlights the ongoing tension between states' efforts to generate tax revenue from online sales and federal protections for out-of-state businesses. The outcome could set an important precedent on the limits of state income tax authority over e-commerce companies.