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."