STATE 'CRACK TAX' STRUCK DOWN BY COURT OF APPEALS

You can tax sin, but you can't tax crime.

So concludes the state Court of Appeals in striking down as
unconstitutional the state's Unauthorized Substance Tax Act, more
commonly known as the "crack tax." In an opinion delivered Friday by
Appellate Judge Sharon G. Lee, the court joined a growing list of
chancellors across the state in declaring the crack tax
unconstitutional. But it did so from an entirely different angle, thus
sidestepping what has been the primary legal beef with the tax. Rather
than address whether the tax violates an alleged drug dealer's rights
to due process and against self-incrimination, the court instead
determined that the tax itself is unconstitutional.

"Because it seeks to levy a tax on the privilege to engage in an
activity that the Legislature has previously declared to be a crime,
not a privilege, we must necessarily conclude that the drug tax is
arbitrary, capricious and unreasonable and, therefore, invalid under
the Constitution of this state," Lee wrote. The ruling comes in the
case of construction worker Steven Waters. Waters was nabbed in April
2005 in a reverse sting operation by the Knox County Sheriff's Office.
Ten days later, the state Department of Revenue slapped him with a tax
bill of more than $55,000, including penalty and interest of more than
$5,000 for not voluntarilypaying the tax by buying an "excise" sticker.

The agency filed a lien on his Lenoir City home and later confiscated
$4,000 from his bank account -- all this before Waters had even
appeared in court to face the charges.

In fact, he still hasn't been tried. Knoxville attorney Phil Lomonaco
appealed, arguing that the crack tax was unconstitutional. Loudon
County Chancellor Frank V. Williams III agreed, opining that the tax
violated Waters' right against self-incrimination and the right to due
process.

Williams' opinion mirrored that of a Davidson County chancellor who
had heard an appeal by Knoxville attorneys James A.H. Bell and Richard
Holcomb on behalf of admitted Jefferson County pot supplier Jeremy
Robbins. The state also appealed that ruling.

The appellate court has not yet ruled on Robbins' case, but its
constitutional claims mirror exactly those in Waters' case. Holcomb
and Bell have a third case pending in Davidson County. Even though
Friday's opinion did not address the constitutionality of imposing a
tax on a crime alleged but not yet proven, Lomonaco was pleased. "I
think it's a just decision," he said. "The tax is not one that should
be on the books." The tax was passed in 2005 and was largely painted
as a sin tax akin to those levied against cigarettes and alcohol.

Drug dealers would be expected to voluntarily purchase an excise
sticker on their illegal wares, with the amount of the tax determined
by the weight of the drugs.

Most people laughed off the measure since few expected drug dealers to
voluntarily pony up. But the Department of Revenue wasn't waiting for
voluntary compliance. Agents worked closely with drug investigators,
hitting drug suspects with tax bills within hours or days of arrest.

The agency has collected more than $4 million so far.

The tax has been under legal attack for more than a year now, but the
agency has continued its collection efforts.

It was not immediately clear Friday whether the state Attorney
General's Office would advise the Department of Revenue to stop
collecting the tax.

"Our office is reviewing the opinion," said AG's Office spokeswoman
Sharon Curtis-Flair. "We have 60 days to file an appeal." Bell
responded, "The only surprise development in this entire thing is the
commissioner of revenue is operating under the illusion that these
opinions don't exist and the agency continues to exercise their
apparent authority." According to Friday's opinion, the crack tax was
nonsensical on its face. "The tax applies only to persons in
unauthorized possession of substances which the Legislature has
declared to be illegal," Lee wrote. "However, the Legislature through
the drug tax now seeks to tax the possession of these substances upon
the premise that the possession of such is a privilege." Lomonaco said
Waters will take his criminal case to trial in October. The attorney
contends Waters had developed a cocaine habit but was not a dealer. He
said Knox County Sheriff's Office undercover agents made repeated
offers to sell Waters a kilogram of the drug. Each time he rebuffed
the offer, the agents lowered the price until it became "a deal too
good to pass up," the attorney said.

Friday's ruling came at a good time for Bell, who had spent the past
few days trying to convince people that it was Dandridge attorney
James W. Bell who was slugged by a client in court this week and not
him. James A.H. Bell, who has offices in Knoxville and Sevierville, is
listed as one of the nation's top criminal defense lawyers, so an
erroneous television report linking him to the courtroom fracas drew
calls from across the country. He is often confused with James W.
Bell, who is several years his senior and whose practice is far more
limited.

The two are not related.