STATE 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.

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.

Coming Tomorrow

A report on several other new laws that go into effect Jan. 1.