TENN. TAX ON ILLEGAL DRUGS RULED UNCONSTITUTIONAL

NASHVILLE -- The Tennessee Supreme Court ruled today that a state law
that taxes illegal drugs is unconstitutional.

The court found in a 3-2 decision that the law, sometimes called the
"crack tax," exceeds the state's taxing power because it isn't a tax
on "merchants, peddlers and privileges."

But the court also ruled that the law didn't violate constitutional
protections against self-incrimination, leaving open the possibility
that the General Assembly could develop a new tax on drugs that would
be constitutional.

The ruling differed from some of the reasoning of lower courts that
struck down the tax because of the self-incrimination issue and
because it seeks to generate revenue from illegal activity.

Justice Gary Wade acknowledged in the court's opinion the "enormous
burden" using, possessing and selling illegal drugs places on Tennessee.

"... Our legislature is worthy of commendation for its effort to
defray the costs incident to the struggle against illegal drugs," Wade
wrote.

"Even under these circumstances, however, it is our duty to
dispassionately apply the rule of law in a fair and impartial manner,
unswayed by genuine public concerns, partisan interests, or fear of
criticism."

In dissent, Justice William Koch Jr. wrote that he believes the tax
can be imposed in a constitutional manner on drug dealers.

"The illegal drug trade is a hydra-headed monster that preys on our
society," Koch wrote. "It destroys individual lives and tears families
apart. It undermines our economic well-being by impairing
productivity, requiring taxpayers to bear the expense of treatment and
social services for the drug abusers and their families, and forcing
the public to bear the collateral expenses of drug-related crimes."

The dissent said Tennessee joined 19 other states in imposing such a
tax and currently, laws in Alabama, Kentucky, North Carolina, South
Carolina, Iowa, Kansas, Minnesota, Nebraska, Oklahoma have been upheld
on appeals in their courts.

State Revenue department spokeswoman Sophie Moery said officials had
just received the ruling and "right now what we are trying to do is
figure out what our next steps are. Obviously we are
disappointed."

The tax, approved by the Legislature with one dissenting vote in 2004,
took effect in January 2005 and has since generated $10.4 million,
Moery said.

Tax stamps are available for anonymous purchase in various values at
the Tennessee Department of Revenue.

She said 75 percent of the revenue goes to law enforcement in the
community where it was collected. Moery said the Supreme Court
decision stops collection of the tax.

She said the question of making repayments is "going to be another
thing we need to talk to the attorney general's office about."

The case stemmed from 2005 arrest of Loudon County carpenter Steven
Waters. Waters, a first-time offender who was then 51, was arrested
for possession of 1,000 grams of cocaine he bought for $12,000 in a
reverse sting undercover investigation run by the Knox County
Sheriff's Office.

Waters' attorney, Philip Lomonaco of Knoxville, said today that he was
glad the Supreme Court ruled as it did.

"A lot of people had their property taken," Lomonaco said. "I believe
everybody should have their property returned."

Eleven days after his arrest, he received a tax bill of more than
$50,000, plus late fees, for failing to voluntarily buy an excise
stamp for his narcotics. The state filed a lien on his Lenoir City
home and confiscated $4,000 from his bank account before his criminal
case went to trial.

Waters eventually pleaded guilty to felony possession and was
sentenced to a fine and probation, according to court records.

Lomonaco said Waters is "happy. He is working hard," and liens on his
property will be released.

Chief Justice Janice Holder and Justice William M. Barker concurred
with Wade's opinion. Justices William C. Koch Jr. and Cornelia A.
Clark dissented in part, saying they thought the tax could be applied
to drug dealers.