COURT RULES AGAINST TENNESSEE DRUG TAX

Appeals Judges Uphold Lower Court, Finds Tax-Stamp Unconstitutional

Drug dealers won a round against the tax man with a Tennessee Court of
Appeals ruling this week striking down the so-called "crack tax." In a
unanimous decision Thursday, a three-judge panel upheld a lower court
decision declaring unconstitutional a law that requires dealers of
drugs like cocaine, marijuana and even moonshine to buy a tax stamp or
face hefty fines and confiscation of assets.

Despite the ruling, Tennessee intends to continue enforcing the law
while appealing the ruling to the state Supreme Court, said Sophie
Moery, spokeswoman for the Tennessee Department of Revenue. Since the
Unauthorized Substance Tax was enacted in January 2005, the Revenue
Department has sold 981 tax stamps, some to stamp collectors, and
taken in a total of $6.8 million arising from 3,818 cases, she said.
Three-fourths of the money goes to local law enforcement agencies for
drug education and enforcement, she said.

"In that way, it's excellent in putting money back towards the drug
problem," Moery said.

The amount charged for the stamps depends on the type and quantity of
drugs. Law's value disputed Critics say the law punishes people before
they have been convicted of a drug crime.

Others argue the law costs state taxpayers more than it takes in. The
program costs $1.1 million annually to administer, Moery said.
"Everything about this tax is unconstitutional and unfair," said Drew
Johnson, president of the Tennessee Center for Policy Research. In its
ruling, the appeals court called the tax law "arbitrary, capricious
and unreasonable," upholding a decision from Loudon County Chancery
Court, but for different reasons.

The lower court said the tax violated due process and protections
against self-incrimination under the state and federal constitutions.
The appeals court ruled the state can't assess a tax on the privilege
of conducting a business activity that the state has declared to be a
crime. A Chancery Court judge in Nashville also has ruled the law
unconstitutional in a separate case, which is under appeal.

Assets are incentives A third case is under review by a Davidson
County chancellor, who recently issued a restraining order preventing
the state from disposing of the defendant's assets.

In the Loudon County case, Steven Waters challenged the law after his
2005 arrest for buying a thousand grams of cocaine for $12,000 from a
jailhouse "snitch" acquaintance, said his Knoxville attorney, A.
Philip Lomonaco. "They kept lowering the price until he bought it, and
they gave him some to prove to him how good it was," Lomonaco said.

Lomonaco said that Waters, a carpenter, had become hooked on cocaine
but never had been in any trouble with the law.

The state filed a lien against his property and raided his bank
account to cover a $55,316.84 assessment from the Revenue Department
for failing to buy a tax stamp.

Giving the lion's share of seized assets to local law enforcement
agencies provides an incentive for them to target the more well-heeled
drug users like Waters, Lomonaco said.