MILLIONS AT STAKE; DRUG TAX REFUNDS IGNITING DEBATES

A case in New Hanover County Superior Court where a judge appears poised to
order a so-called "drug tax" refund for a convicted drug dealer illustrates
a challenge the N.C. Attorney General's Office is facing across the state.

Friction between federal and state courts on the constitutionality of North
Carolina's drug tax has the Attorney General's Office fighting brush fires
where local judges order refunds.

At stake could be millions of dollars the state has collected since 1990
from people accused of dealing illegal drugs. The N.C. Department of
Revenue has collected $40.4 million through June, primarily by seizing
money and property from drug dealers who failed to pay the tax.

In the Wilmington case, Franklin Bryant wants back $6,000 in cash and
property authorities seized upon his arrest in 1995. Under the drug tax
law, dealers are required to pay a tax on their illegal drugs. If they
don't pay, the state can take money and property when they are arrested.

Mr. Bryant is not alone in his request, which was triggered by a Fourth
Circuit Court of Appeals ruling that appeared to strike down the state's
drug-tax law.

"Many demands have been made on the Department of Revenue," said Andy
Vanore, general counsel to the attorney general. None have been paid, he said.

Local courts are handling requests from convicts who want their money and
property back, saying the tax is unconstitutional, but judges have gotten
conflicting messages from the federal and state appellate courts and no
guidance from the U.S. Supreme Court.

"The majority of Superior Court judges are ruling in favor of the state in
these motions," said Chris Allen, assistant attorney general in the revenue
division.

Some, however, are not. Mr. Allen said several cases the state has lost are
being appealed to the N.C. Court of Appeals.

In the most recent case last week, Mr. Bryant asked Superior Court Judge
Allen Cobb for a refund of $6,000. Judge Cobb told lawyers during a private
hearing that he is inclined to rule in the prisoner's favor.

In a separate case he decided in October in Onslow County Superior Court,
Judge Cobb ordered the state to refund more than $79,000, plus interest, to
two men convicted on drug charges in 1994.

Those cases represent a larger problem for the Attorney General's Office.

Some judges, including Judge Cobb, have been ruling the drug tax is a
criminal punishment that violates constitutional protections against
punishing the same person twice for the same crime. Convicts argue a person
can't have his money and property seized and then be sent to prison.

Federal and state appeals courts have made opposite rulings on the issue,
leaving judges room to make their own decisions.

Judge Cobb and other judges who have sided with prisoners relied partly on
a U.S. Fourth Circuit Court of Appeals ruling in January that said the
state levy is so high it is actually a criminal punishment, not a tax, and
is unconstitutional, according to lawyers in the Attorney General's Office.

The U.S. Supreme Court declined to hear an appeal from the state in
October, letting the Fourth Circuit ruling stand.

Some lawyers and convicts, including Mr. Bryant, took the high court's
silence as a nod affirming the lower court's ruling, and they've sought
refunds.

The Attorney General's Office is arguing the prisoners shouldn't get any
money because of the legal pecking order judges should follow when weighing
precedent-setting decisions.

The office argues state judges are not bound by federal rulings unless they
come from the U.S. Supreme Court. In other words, the N.C. Supreme Court
trumps decisions from the U.S. Fourth Circuit Court of Appeals.

On the drug tax question, the N.C. Supreme Court had declared it was
constitutional in a 1997 decision that upheld a 2-1 ruling from an N.C.
Court of Appeals panel. With the U.S. Supreme Court silent on the issue,
the state Supreme Court ruling should win, said Mr. Vanore.

In some cases, the state is taking that message to individual prosecutors
and judges.

Upon hearing news of Judge Cobb's apparent position on the refund, the
Attorney General's Office called New Hanover County prosecutor Mike DeSilva
on Monday to point out the N.C. Supreme Court decision.

Mr. DeSilva said he will use it when the matter comes before Judge Cobb for
a hearing. He agreed state Supreme Court rulings outweigh the federal
appeals court.

Meanwhile, the Attorney General's Office may be sending mixed messages of
its own. While lawyers in the office say the state will fight such rulings,
they are negotiating a settlement with the two men who won the Onslow case,
according to Mr. Allen.

The talks could prevent an appeal if they reach a deal. Mr. Allen said such
a settlement could encourage more refund requests.

"I suppose it depends on the grounds that we arrive at in the settlement,"
he said.

Meanwhile, the General Assembly amended the drug tax law in October in an
effort to withstand further scrutiny. One of the main reasons the Fourth
Circuit decided the tax was a punishment because it was so high.

The law requires tax stamps to be bought on illegal drugs. A person
arrested without the stamps was charged $200 per gram of cocaine, $400 for
10 dosage units of LSD, and lesser amounts for other drugs. A 50- percent
penalty was added if not paid within 48 hours of an arrest.

The new law lowers some of the tax amounts and deletes the late penalty.

But ultimately, the only way to put the conflict to rest may be for the
U.S. Supreme Court to hear a drug-tax case.

Checked-by: Mike Gogulski