TennesseeState to tax illegal drugs
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.
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.