BREDESEN SAYS RULING MAY END STATE 'CRACK TAX'

NASHVILLE -- A recent Court of Appeals ruling may end Tennessee's tax
on illegal drugs, Gov. Phil Bredesen and state Revenue Commissioner
Reagan Farr said Thursday.

But Sen. Randy McNally, who sponsored the bill creating the tax when
it was enacted in 2005, said he remains hopeful that the Legislature
can approve a revised version to eliminate any "constitutional
shortcomings," even if the court ruling stands.

A three-judge Court of Appeals panel ruled unanimously Sept. 7 that
the "unauthorized substances tax" -- often called the "crack tax" --
violates the state constitution.

"I'd say if the court says it's unconstitutional, it probably is time
to shut it down," said Bredesen when asked about the decision
Thursday. "They (judges) have certainly, for the time being anyway,
taken the guts out of it." State Department of Revenue spokesmen said
shortly after the court decision was released that officials plan to
continue enforcing the law pending an appeal to the Supreme Court.

But Farr said Thursday that there may be no appeal. A decision will be
made, he said, after department officials meet next week with Attorney
General Bob Cooper. A key question, Farr said, is whether there is "a
legislative fix" to the Court of Appeals complaints about the tax.

Lower-court decisions also have declared the tax invalid but on
different grounds. Chancellors in Davidson and Loudon counties said
the tax violates individual rights under the U.S. Constitution dealing
with due process and self-incrimination.

The complaints raised in the lower court decisions, Farr said, could
be addressed by changes to the statute by the Legislature. Indeed, a
Department of Revenue omnibus bill revising multiple provisions of the
state tax code included a section revising the "crack tax" with court
decisions in mind. The Court of Appeals, however, said the tax itself
violates the state constitution, even without considering the
individual rights under the federal constitution.

Basically, the court said the tax amounts to a tax on "privileges,"
one of the types of levies permitted under the state constitution. But
there is no privilege to sell illegal drugs, and so there is, legally
speaking, nothing to tax. "This is an issue where there may not be a
statutory fix," Farr said. At the same time, the commissioner noted
that the state constitution authorizes taxes on "merchants and
peddlers" as well as privileges. "So we have to sit down with the
experts and determine whether these (people possessing illegal drugs)
are peddlers or merchants," he said. "By changing it to a different
type of tax, a merchant tax, would that address the concerns of the
court?" McNally, who modeled the law after a North Carolina statute
when pushing it in the Legislature, said he disagrees with the court's
ruling. "I would hope they would appeal it," he said, adding that 22
states have similar taxes in effect and that a federal appeals court
has upheld such taxes. "I don't believe the taxpayers of Tennessee
should foot the entire bill that the criminal element imposes on
society. To the extent we can shift the burden of that to make the
criminals pay -- in particular, drug dealers -- I'm all for doing that,"
he said.

McNally, R-Oak Ridge, also said an attorney general's opinion, issued
prior to passage of the law in 2005, stated that the tax would be
valid. "If it doesn't survive a Supreme Court challenge or if the
attorney general decides not to appeal, we will work with his office
and the Department of Revenue and correct any constitutional
shortcomings in the law," the senator said.