N.C. DRUG TAX HELD INVALID

Court Lets Stand Ruling That Found It A Criminal Penalty

WASHINGTON -- The U.S. Supreme Court refused Monday to revive North
Carolina's tax on illegal drugs, casting doubt on the constitutionality of
similar laws in other states.

The justices, without comment, let stand a federal appeals court ruling
that said the tax law is really a criminal penalty that lacked necessary
due-process safeguards.

In its ruling in January, the appeals court relied heavily on a 1994
Supreme Court ruling that barred states from forcing drug offenders to pay
a tax in addition to criminal fines. The 1994 decision, on a 5-4 vote, said
such taxes were barred by the Constitution's ban on double punishment for
the same crime.

In the appeal acted on Monday, N.C. Attorney General Michael Easley
defended the state's invalidated 1989 law by contending that it is "not
contingent on arrest of the taxpayer or on seizure of illegal drugs from
him."

But the 4th U.S. Circuit Court of Appeals, in striking down the tax on
illegal drug possession, had said, "It should come as no surprise that no
drug dealer has ever filed a form and voluntarily paid this tax."

General Assembly May Act

In a statement released Monday afternoon, Easley said he was disappointed
with the justices' action but urged the state House to pass a bill that
would reinstate the tax.

A bill to do that has passed the Senate and is pending in the House Finance
Committee. The legislature is expected to adjourn next week.

"This new bill emphasizes that this is only a tax and not a criminal
penalty," Easley said. "The bill also lowers the amount of the tax, as the
federal court required."

Since taking effect in 1989, the state has collected more than $40 million
from the drug tax. The money is used primarily to supplement local law
enforcement budgets.

"Now more than ever it is critical that we reinstate this tax," Easley
said. "It provides a valuable resource to law enforcement agencies across
the state."

The dispute over the tax arose after federal, state and local law
enforcement agents seized about $25,000 worth of cocaine from David Lynn
Jr.'s home in Reidsville. He was convicted in federal court of possessing
the drug with intent to sell.

North Carolina never sought to prosecute Lynn, but immediately after his
federal conviction assessed $389,125.20 in taxes, penalties and interest on
the confiscated cocaine.

In the effort to collect on that tax assessment, state officials seized two
cars and a commercial building owned by members of Lynn's family. Lynn and
the affected family members sued the state in 1994, challenging the tax law.

A federal trial judge upheld the law, but the 4th Circuit court ruled that
it could not stand.

The state's appeal contended that the appeals court wrongly expanded the
scope of the 1994 decision.

The appeal said the ruling was "a devastating blow to the state's ability
to assess a tax on the possession of illegal drugs and to collect the
substantial revenue."

North Carolina reportedly has been the most aggressive state in enforcing a
tax on illegal drugs. The appeals court cited as an example statistics for
1993 indicating that state officials collected more than $6 million -- more
than 10 times as much money as Kansas, which ranked second in collections.

Curricula Choice Not A Right

In another action affecting North Carolina, the court let stand a ruling
that public school teachers have no free-speech protection against being
disciplined over the curriculum materials they select.

The justices, without comment, rejected the appeal of a Buncombe County
drama teacher punished for letting students put on a controversial play.
The appeal argued that her free-speech rights were violated. But the 4th
Circuit Court of Appeals ruled 7-6 that teachers have no such rights when
it comes to curricula.

The ruling is not a decision and sets no national precedent. But it allows
the 4th Circuit ruling to stand -- and continue to be law in North
Carolina, South Carolina, Virginia and West Virginia.

Margaret Boring had taught high school for 11 years when in 1991 she
selected the Lee Blessing play "Independence" for four students in her
advanced drama class to present in an annual statewide competition. The
play focuses on a single mother and her three daughters, one of whom is a
lesbian and one of whom is pregnant and unmarried.

RTI Loses Contract Dispute

The justices, without comment, also rejected an appeal by Research Triangle
Institute in a contract dispute with the Federal Reserve.

The contract was for $616,000, but RTI claimed that the Fed should have
paid it another $284,000 for extra work added by the agency. RTI sued the
Fed in 1996.

The Fed influences the national economy by controlling key short-term
interest rates.

Lower courts ruled that the government agency is entitled to sovereign
immunity and cannot be sued in federal court without its consent. The
Supreme Court let that ruling stand.

"We approached this in a conservative way. We were never counting on the
revenue," said Reid Maness, an RTI spokesman. "We'll just move on."

RTI has about 1,500 employees and handles around $160 million of research a
year, Maness said.

In the appeal acted on Monday, lawyers for RTI argued that although the
Federal Reserve Board enjoys immunity from lawsuits over its regulatory
acts or personal injuries, it should not be shielded from lawsuits over the
contracts it enters.