COURT MAY JUST SAY NO TO TAXES ON ILLEGAL DRUGS

4/22/07

When fans of the Bonnaroo summer music festival in Tennessee arrive at the gates, they are searched.  Anyone caught carrying drugs not only gets a summons to appear in criminal court but also receives an on-the-spot tax assessment.  At a nearby booth they are required to pay a tax on the illegal substances, which are then seized.  If they don't have enough cash, ATM machines are provided for their convenience.

The money collected at Bonnaroo makes up part of the $3.5 million that Tennessee has raised since its Unauthorized Substance Tax was adopted in 2005.  Tennessee is the latest of at least 21 states to tax illegal substances to help fight the war on drugs.  But opponents of these laws, questioning their constitutionality and the feasibility of enforcing them, hope that a lawsuit pending in Tennessee may lead to an end to these laws nationwide.

The case is typical: Jeremy Robbins was arrested in March 2005 on charges of attempting to bring two tons of marijuana into Tennessee.  The federal authorities seized what drugs they could, charged him and notified the Tennessee Department of Revenue, which immediately assessed Robbins a fine of $1.1 million for unpaid drug taxes.  Robbins argued that the fine was a punishment rather than a tax and that it violated his Fifth Amendment right to not be punished twice for the same crime.

A Tennessee chancery court agreed, ruling last July that the law violated Robbins' constitutional rights.  The state has appealed the decision and is awaiting a hearing date in a state court of appeals.

"We're hopeful," said Richard Holcomb, Robbins' lawyer.  "But in fairness, it could go either way." Holcomb explained that the same arguments have been used to challenge a tax on unauthorized substances in a number of states, but that only about half of the courts had ruled that the taxes were unconstitutional.

A decades-old federal tax was overturned in 1969, when writer and psychologist Timothy Leary, a proponent of psychedelic drugs, successfully argued that the law violated his Fifth Amendment protection against self-incrimination.  At the time, drug users had to provide personal information when purchasing drug tax stamps to attach to their drugs' packaging -- information that was then passed on to law enforcement agencies.  Soon after the law was overturned, Congress passed the Controlled Substance Act, criminalizing the possession of drugs like marijuana, methamphetamines and cocaine.

But in the frenzy to fight the war on drugs in the 1980s, states began to adopt their own updated versions of the drug tax to provide extra financing for anti-drug initiatives.

Tennessee's law is modeled after North Carolina's program, which has collected more than $82 million since 1990, more than any other state.  The law requires drug dealers and buyers to affix stamps, bought from the state, on each package of drugs.  Anyone carrying more than 42.5 grams of marijuana is expected to buy a $3.50 stamp for each gram.  Other drugs, like cocaine and steroids, carry heavier fees.

Proponents of the law point out that as much as 75 percent of the tax revenue is given directly to law enforcement agencies to help investigate the drug trade.  Virginia recently tried to adopt a state drug tax for the same reason.

"A lot of money is spent on very expensive, often very dangerous undercover operations to fight drug trafficking," said state legislator Robert Hurt, who sponsored the bill in Virginia.  Most of the tax revenue, he said, would go toward buying law enforcement surveillance and protective equipment.

But opponents of the tax argue that enforcing the law is unconstitutional and is a costly waste of government resources.  Drug dealers are unlikely to approach one government agency to pay tax on a substance that would get them in trouble with another government agency, said Paul Messino, the author of a report on these laws that was released in February by The Reason Foundation, a libertarian think tank.  As part of his research, Messino said he called North Carolina's Department of Revenue and explained he had 200,000 pounds of marijuana coming into the state for which he wanted to buy stamps.  The person he spoke to simply asked for his mailing address.

While the law prohibits the Department of Revenue from sharing his information with the police, Messino said, "Was I really supposed to believe that they wouldn't tell the police that 200,000 pounds of marijuana was on its way into the state? If I was a drug dealer, I wouldn't believe it."

So far, drug dealers and users do seem to be wary of the law.  Tennessee has only sold 799 stamps and most of those were to stamp collectors.  Ten years ago, attorney Robert Henak successfully argued that Wisconsin's drug tax violated self-incrimination protections, leading the state to revise the law, which was later ruled unconstitutional again.  Today, Henak collects those stamps.

Nevada has sold only a handful of stamps and when Henak called to buy one for his collection, the revenue officials couldn't recall having printed any.  "I guess they just lost track of the stamps," Henak said.

For many states, the real money is in the tax evasion fines, not in stamp sales.  When Virginia recently tried to introduce its tax, Hurt expected that within six years, Virginia would make more than $750,000 a year this way.

The bill did not pass, but it was this type of thinking that frustrated The Reason Foundation and the National Organization for the Reform of Marijuana Laws.  In testifying against the Virginia bill in January, the president of the state's chapter of NORML, Michael Krawitz, argued that the tax was just a grab for money and wouldn't help treat addiction or curb drug use.

"It's 'throw out any attempt to get people off the drug.  We'll just put our hands next to the drug dealers hands to make some extra money,'" Krawitz said.

Henak hopes that with the state legislatures in Virginia and Arkansas recently deciding not to adopt drug tax laws, and court rulings overturning laws in eight other states so far for violating constitutional rights, the demise of the "crack tax" could be nearing.

"It was a fad in the mid-to-late '80s and early '90s," Henak said.  "It was just a fad that I don't think anyone thought through very well.  They wanted to look tough on drugs but ended up doing something really stupid."
Read

Should illegal drugs be taxed?
1/16/07
So you’ve just been busted with two tons of illegal drugs in Tennessee — let’s say marijuana — and you’re going to jail for a lot of years.
Wait until you get your tax bill for the crime! About $1.1 million on the sale of those drugs.
Wait! you may say…how come I get punished with prison and THEN have to pay a tax on the confiscated contraband?
Well then, you should have bought your tax stamp to sell those illegal drugs.
Yes. Stamps. On illegal drugs.
Brilliant!  
Read

Judge Strikes Down Tennessee Illegal Drug Tax as Unconstitutional
July 17, 2006
by Andrew Chamberlain
In the past we've blogged about the spread of illegal drug taxes on things like marijuana and cocaine (see here and here). Although law enforcement officials adamantly insist that the sole purpose of these taxes is to raise revenue, as an economist it's easy to see a more plausible rationale for them.
By taxing illicit substances, law enforcement authorities are provided with another tool to crack down on illegal drug use and distribution—even when suspects are able to avoid criminal conviction. Despite the public statements of law enforcement officials, the claim that the only purpose of these taxes is to raise revenue for programs like any other sales, property or income tax is highly implausible.
In the past, courts have overturned these taxes in many states on grounds that they force suspects to self-incriminate—after all, paying a "marijuana tax" is essentially an admission of guilt—and they subject suspects to double jeopardy, once through the criminal code and again through the civil code governing tax evasion.
Last week, Tennessee became the latest state to have its illegal drug tax struck down as unconstitutional. A Tennessee judge has ordered the state to abandon its highly-publicized illegal drug tax enacted just last year:
Read

State to tax illegal drugs 
December 29, 2004
By BONNA de la CRUZ
Staff Writer

Tennessee targets dealers, users with new levy

Come the new year, the tax man is coming after drug dealers in Tennessee.

Drug peddlers will be required to pay state excise taxes on illegal substances - from marijuana to moonshine, from cocaine to the often illegally obtained prescription painkiller OxyContin - under a new law that goes into effect Saturday.

A 10-person tax agency has been created at a one-time cost of $1.2 million to assess the taxes and collect them. The annual cost to enforce the drug tax will be $800,000, said Elizabeth Fitzgerald, spokeswoman for the state Revenue Department.

The tax, however, is expected to more than cover the costs. One estimate by the law's sponsor, Sen. Randy McNally, R-Oak Ridge, projects collecting $3.6 million in one year.

Bob Acuff, neighborhood watch director for Historic Edgefield in east Nashville, said he's anxious to see what impact the tax has on the drug trade in Nashville.

''I'm happy to hear they're at least trying something,'' said Acuff, 56, a small-business owner.

Eric Jans, 32, a Nashville insurance agent and neighborhood activist, said he's unsure whether the tax will reduce drug trafficking.

''If it's bringing in extra money and if they can collect it off the backs of the drug dealers, that's a good thing. But I'm not sure it will reduce crime. Criminals don't think about the long-term effects of what they're doing,'' said Jans, vice president of two east Nashville groups, the Lockeland Springs Neighborhood Association and Rediscover East!, which work closely with police on crime and safety issues.

McNally said he proposed the law to take money out of the drug trade and recover some of the costs of prosecuting and jailing drug offenders.

''People felt good that we could do something other than have to spend taxpayer money on housing drug dealers.''

Proponents for the legalization of marijuana call the Tennessee law and similar ones in other states absurd.

''It's patently ridiculous. Legal nitwittery,'' said Allen St. Pierre, executive director of the National Organization for the Reform of Marijuana Laws, a Washington nonprofit that calls itself the largest, oldest group devoted to legalizing marijuana for responsible adult use.

''On the one hand, it says you can't own a substance. And on the other hand, it creates a taxing scheme ... The law on its face makes no sense.''

St. Pierre suggests that marijuana users here challenge the law to either get it wiped off the books or affirm the legal taxation of marijuana, similar to how alcohol and tobacco are taxed.

North Carolina model

Tennessee joins at least 22 other states in taxing illegal drugs. Its law was modeled after North Carolina's, which has collected $83 million in the 14 years it has been on the books, said Laura Lansford, assistant director of that state's Unauthorized Substances Tax Division. Last fiscal year, the drug tax brought in $8.5 million, and $4.9 million since July 1, she said.

Of the 72,000 taxpayers North Carolina has assessed, only 79 people voluntarily bought stamps, she said.

How it works

The new tax would be collected in two ways:

• Drug dealers can go to any of the state revenue offices within 48 hours of coming into possession of unauthorized substances. They pay the tax and get a ''stamp'' to put on the drugs showing they have paid up. They would not be required to give their name, address, Social Security number or other identifying information. State tax collectors would be constrained by taxpayer privacy laws from reporting them to police. Still, state officials say voluntary payment is unlikely to happen often.

• The most probable way the tax will be collected is when police make drug busts. Law enforcement agencies are required to call tax officials within 48 hours detailing the drugs found.

Tax collectors then assess the tax on the drug suspects, as well as additional fines for not paying the tax in the first place. If the suspects cannot make immediate payment, the state seizes and sells any assets, such as cars, homes and personal belongings, to pay off the liability.

Paying the tax does not immunize a drug dealer from criminal prosecution, nor does nonpayment result in harsher jail sentences or fines, other than a tax penalty. Typical tax penalties are 5% of the unpaid tax liability.

''We consider this a revenue source for law enforcement's fight against narcotics and other illegal substances,'' said Al Laney, Tennessee's director of tax enforcement.

Three-fourths of the tax money collected will go to the law enforcement agency that initiated the arrest, and one-fourth will go to the state's general fund.

Court challenges

In the past 15 years, several courts have struck down drug taxes, NORML's St. Pierre said. Often, legislatures rewrite the law to satisfy the courts and put them back on the books, he said.

In North Carolina, the law was challenged by citizens who said the tax was a penalty rather than an excise tax, taking their argument to the 4th U.S. Circuit Court of Appeals, Lansford said. North Carolina legislators ultimately adjusted the rates to get the law untangled from the court system.

Paul Kuhn, a member of the Tennessee Alliance for Medical Marijuana, said a marijuana tax will burden citizens least likely to afford it, primarily minorities and low-income people.

Paying the tax

Where to go in Middle Tennessee to buy stamps showing you have paid taxes on unauthorized substances:

• Tennessee Revenue Department regional office, 1321 Murfreesboro Pike

• Tennessee Revenue Department taxpayer services office, third floor, Andrew Jackson Building, 500 Deaderick St.
http://tennessean.com/