Pubdate: Thu, 24 Jan 2008
Source: New York Times (NY)
Copyright: 2008 The New York Times Company
Contact:  http://www.nytimes.com/
Details: http://www.mapinc.org/media/298
Author: Anne Barnard

IN TAXING ILLEGAL DRUGS, THE TROUBLE COMES IN COLLECTING

The Tennessee tax authorities slapped a young concertgoer with 
$11,506 in taxes and penalties when he was caught with 
marijuana-laced Rice Krispie Treats. North Carolina collected $11 
million in taxes last year on illegal drugs and moonshine. And in 
Alabama, the rare drug user who chooses to pay state taxes on a stash 
is issued a sticker to place on the package that declares, "Say no to 
marijuana."

Strange as it may seem to levy a tax on a commodity that no one is 
supposed to have, 29 states have passed laws that impose taxes on 
illegal drugs and controlled substances, and on Tuesday, Gov. Eliot 
Spitzer proposed that New York become the 30th.

The plan was part of a package of new or increased taxes and fees 
that the governor proposed in an effort to close an estimated budget 
deficit of $4.4 billion.

Across the country, a variety of drug tax laws have sparked legal 
disputes over issues like the constitutional protection against 
double jeopardy and the weight of spiked baked goods -- as in the 
case of William Hoak, the Tennessee man who argued in court that he 
should have been taxed only for the weight of the marijuana in his 
Rice Krispie Treats, not for the cereal and marshmallows.

The laws have evolved over the past 20 years in response to court 
challenges. Some were struck down for violating the Fifth Amendment 
protection against self-incrimination; new laws then specified that 
taxes could be paid anonymously and that authorities could not report 
the taxpayers to the police.

North Carolina levied taxes so high that a federal appeals court 
ruled that the state unconstitutionally penalized drug dealers twice 
for the same crime: once with jail and once with the tax.

"It's just a veiled attempt by the government to get these guys to 
come in and incriminate themselves for possessing drugs," Jonathan A. 
Street, Mr. Hoak's lawyer, said.

But officials say the taxes give states a new and easier way to seize 
drug money, handing law enforcement a tool to hobble the drug trade 
and replenishing state coffers along the way. Mr. Spitzer's aides say 
the tax could bring in $17 million a year. That figure is 
extrapolated from the take in North Carolina, which revised its law 
in response to the federal court ruling and devotes an entire 
division of its Department of Revenue to enforcing it.

Paying the proposed New York tax -- $3.50 per gram for marijuana and 
$200 per gram for other drugs -- would not allow the taxpayer to keep 
illegal drugs, and the governor does not intend the tax to be a step 
toward drug legalization, said Robert Megna, who was confirmed as 
state tax commissioner on Tuesday.

But in order to make the laws constitutional, states must create at 
least the theoretical opportunity for drug users and dealers to pay 
the tax legally, said Verenda Smith, government affairs associate at 
the Federation of Tax Administrators in Washington.

For example, imagine that there is a drug dealer in North Carolina 
who wanted to do everything by the book. He would go to the 
authorities -- anonymously, of course -- and pay a tax based on the 
weight and the type of drugs he was holding. He would be given a tax 
stamp, not unlike the tax stickers on cigarette packs. The dealer 
could then place the stamp on his quarter-ounce bag of marijuana or 
kilo of cocaine to show that he had paid the tax.

Almost no dealers actually do this, nor does Mr. Spitzer expect them 
to. The vast majority of revenues from the tax are collected after 
law enforcement officials seize the drugs, said Kimberly Y. Brooks, a 
spokeswoman for the North Carolina Department of Revenue.

Officials look for the tax stamps on drugs, but not surprisingly, 
almost never find them, Ms. Brooks said.

Officials then can assess how much tax is owed, and the payment can 
be taken either from any cash found with the drugs or from the 
dealer's other assets.

"It's really about cutting the drug dealers off at the knees," said 
Ms. Smith of the tax administrators group. "It kind of goes back to 
the Al Capone model." Proving tax avoidance is much easier than 
proving a drug crime, she said, so the tax laws help the authorities 
keep seized drug money even when a suspect accused of dealing drugs goes free.

Since North Carolina's law was passed in 1990, only a few dozen 
people have voluntarily bought the stamps. "They're mostly stamp 
collectors," Ms. Brooks said.

Ms. Smith said she had heard of only one drug dealer who paid the tax 
regularly, a young man in Oklahoma.

"For a drug dealer, apparently he was a very likable kid," she said, 
adding that he decorated his bags of drugs with the tax stamp. "So 
when they caught him, they had to give him his money back. He had 
paid the tax." 
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