New York's attorney general Eliot Spitzer has demanded changes to the way Wal-Mart sells toy guns in its New York stores.
Wal-Mart complies with federal laws on toy guns
Mr Spitzer says the guns don't carry a number of distinctive markings required by state law, meaning they could be confused with real firearms putting people at risk of being shot by police officers.
But Wal-Mart insists its toys comply with federal law and do not need to meet New York's requirements.
Eliot Spitzer has a reputation as something of a gunslinger, a lawman who has already shown himself willing to take on the might of corporate giants, after a year-long campaign against dubious practices on Wall Street.
Now he's turned his sights on Wal-Mart, the world's biggest retailer.
Toy guns must have orange stripes along the barrel that cannot be removed, according to New York Law.
But federal law requires toy guns to have an orange cap on the end of the barrel, and Wal-Mart complies with this law.
Frederick Locker from America's Toy Industry Association told the BBC's World Business Report his organisation would like to see colour and marking requirements standardised across the United States.
"Imagine if you were to have 1000 different locations... each picking the colour of the moment to try to have a toy marked or coloured, that would just create chaos and confusion," he said.
"What we'd like to see is a uniform approach to colour and marking," he said.
Wal-Mart suspended sales of real guns in its Californian stores a week ago after an investigation by California's attorney general Bill Lockyer found hundreds of violations of state firearms law.