STATE KICKING 'CRACK TAX' OFF

Revenue Department To Begin Selling Stamps For Illicit Drugs, Alcohol

NASHVILLE - Starting Saturday, Tennessee drug dealers and moonshiners will
also become Tennessee tax dodgers unless they've purchased new stamps now
available at state Department of Revenue offices.

"The way this is set up, once anyone comes into possession of an illegal
substance, they have 48 hours to purchase a stamp," said Al Laney, the
department's director of tax enforcement.

The taxpayer needs only to say what sort of illegal substance he or she
possesses and how much, then pay the appropriate amount of money - $50 per
gram for cocaine, for example. The person need not give a name and the law
provides that purchase of the stamp will be kept confidential and forbids
revenue officials from asking any questions.

Laney said, however, that "we don't expect a lot of people to walk in off
the street and buy these stamps."

In North Carolina, which adopted the law used as a model for the new
Tennessee law 13 years ago, only 79 people have voluntarily purchased the
tax stamps during that period, Laney said. North Carolina officials believe
"the vast majority" of those were stamp collectors, he said.

The Tar Heel stamps are "pretty," he said, while "in Tennessee our stamps
are very, very generic" because officials wanted to "discourage collectors
from just coming in and buying them."

"We are serious about this, and we do not want the public to take this as a
frivolous undertaking," Laney said.

The proposal was nicknamed "the crack tax" by the sponsors, who say the new
levy will provide much-needed money for law enforcement efforts.

When the tax was enacted by the Legislature last session, it was projected
to generate $3.6 million in revenue each year. Virtually all of that is
expected to come when law enforcement officers seize illegal substances,
then assess taxes against the owners.

"We'll make a demand for payment to that drug dealer and, if that drug
dealer does not pay us immediately, then we will begin to seize any assets
that we can find, sell those assets at public auction and apply the
proceeds to the tax due," he said.

The law provides that 75 percent of the proceeds will go to the law
enforcement agency that seizes the substance and 25 percent to the state's
general fund.

For marijuana, the tax applies to quantities of more than 42.5 grams.
Freshly harvested marijuana, including stalks and stems, is taxed at 40
cents per gram over that amount while processed marijuana, excluding stalks
and stems, is taxed at $3.50 per gram over the 42.5 gram threshold.

For cocaine, the tax kicks in with possession of more than seven grams.
Illegally obtained prescription drugs, such as OxyContin and anabolic
steroids, are taxed at $200 for every 10 pills. The first 10 pills in
possession are exempt from the tax.

Moonshine is taxed at $12.80 per gallon, regardless of amount, if sold in
containers. If sold by the drink, the tax rate is $31.70 per gallon.

The Department of Revenue has hired 10 people to handle enforcement of the
new tax - an administrator in Nashville and three agents in each of the
state's three grand divisions. In East Tennessee, the three agents will be
based in the state office building on Henley Street in Knoxville, Laney said.

The department is spending $300,000 in startup costs, Laney said, and
expects to spend $800,000 per year to keep the program running. If the tax
generates $3.6 million in new revenue, the state's 25 percent share would
more than cover cost of operating the program.

The bill establishing the new tax passed overwhelmingly in the Legislature
earlier this year under sponsorship of Sen. Randy McNally, R-Oak Ridge, in
the Senate and Rep. Charles Curtis, D-Sparta, in the House.

McNally said he had pushed for passage of similar legislation several years
ago "and didn't get anywhere with it."

"With state revenues a lot tighter, it's pretty hard to leave that money
lying on the table when it comes from people dealing drugs," he said.