HOW DOES NORTH CAROLINA'S DRUG TAX WORK?

Do you have to pay taxes on illegal drugs like cocaine and
marijuana?

If you live in North Carolina, the answer is "yes."

The state's "Unauthorized Substance Tax" has received national
attention from, among others, CNN, which named the statute among the
nation's strangest tax laws.

North Carolina statute 105-113.107 indicates that the state charges an
excise tax of $3.50 for each gram of marijuana that is prepared for
street use, $50 for each gram of cocaine, $50 for each group of 10
dosage units of "low-street-value drugs (like steroids), and $200.00
per gram of any other controlled substance.

The law goes on to say that the dealer must pay the excise fee with in
48 hours of receiving the "unauthorized substance" (excluding
Saturdays, Sundays, and legal holidays), and that dealers are not
required to give their name, social security number, or any other
identifying information. The law also states that tax stamps for
cocaine and similar drugs can be purchased in person or by mail.

After purchasing the stamps, the dealer must then "permanently affix
the appropriate stamps to the unauthorized substance."

If an alleged dealer is arrested with unstamped dope, the state will
serve the alleged dealer with a tax bill, which includes tax,
penalties, and interest.

A dealer must then pay the tax bill, or the state will take his or her
property to pay the fine.

The final provision of the law makes it illegal for the tax office to
disclose any information about the purchase of tax stamps to any law
enforcement agency. The information cannot be used against the dealer
in court or for purpose of investigation.

Ron Starling, director of the Unauthorized Substance Division of the
North Carolina Department of Revenue (DOR), said that many people find
the law strange at first glance, but that the logic of the law is
tough to question.

In the 14 years since the law was enacted, Starling said that only 77
people had paid for the tax stamps.

"Most of the stamps sold were for marijuana," he explained. "We
believe that most of them were stamp collectors."

Starling said that the department has no idea who paid the taxes since
the law does not allow them to keep that information.

"The way the law is written, we have no access to those records,"
explained Randy Jones of the Alamance County Sheriff's Department.
"There is no Fifth Amendment issue here."

Even though only 77 people have paid their drug taxes willingly, the
department has been quite busy with the other part of its job,
collecting the tax from drug dealers who have not paid.

Since 1990, the DOR has collected in excess of $80 million in cash and
forfeited property from drug dealers.

Starling said that the DOR presents drug dealers with tax bills when
they are arrested, but they often choose not to pay at that time.

If a dealer does not pay the tax on time, the state assesses a 40
percent penalty.

The DOR then seizes the dealer's property, auctions it off and applies
the proceeds towards the dealer's tax bill.

"We would rather have cash," he said. "A lot of time and expense goes
into seizing and selling property."

The DOR has no qualms about trying taking back the money that they
spend seizing property.

The law allows the DOR to charge the dealers for expenses incurred
while selling their property. So, the DOR regularly runs ads in large
newspapers, advertising sales and auctions.

They then charge the dealers whose property is for sale a pro-rata
portion of the cost of advertising.

Dealers may or may not be convicted of a crime, such as possession of
a controlled substance, for the DOR to bill them for the drug tax.

The tax is a civil fee, not a criminal charge, and, according to
Starling, civil liability rules are a lot more lenient than criminal
courts.

Starling said that the tax works much like the O.J. Simpson murder
trail that made headlines a few years ago.

"[Simpson] was found not guilty of murder," he said. "But he was found
liable in civil court for the death of his wife and [Ron Goldman]. A
person does not have to be arrested or convicted of possession to be
liable for this tax."

If dealers go to jail, their tax bill collects interest at the rate of
five percent per year and will be garnisheed from their wages when
they are released.

Seventy five percent of the money collected by the DOR in the
Unauthorized Substance program is given to the local law enforcement
agencies whose investigations led to the seizures.

Since 1998, the Alamance County Sheriff's Department has collected
123,875.74 from this program while the Mebane Police Department raked
in 11,855.66.

These monies are used to help these departments purchase equipment
that would assist officers in the fight against illegal drugs.

While 22 states have similar laws, Starling said that North Carolina
collects the most money through drug forfeitures.

For more information on the Unauthorized Substance Program or where to
find auctions check the World Wide Web at www.DOR.state.nc.us/taxes/usub