The National Association of Enrolled Agents recently released a warning that the Affordable Care Act Marketplace may complicate tax returns. The NAEA is an organization of tax professionals that are specially licensed...
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- Colorado Debates Marijuana Tax; Would Be First Genuine Re...
Colorado Debates Marijuana Tax; Would Be First Genuine Revenue-Raising Tax on Illegal Drug
Colorado and Washington State have passed ballot initiatives to legalize and tax marijuana, with Maine and Rhode Island legislators now considering it as well. The Colorado initiative specifically authorized the state legislature to impose an excise tax of up to 15 percent on marijuana sales, although officials are debating whether it is written in a way to satisfy the state’s strict tax increase limitation requirements. The Washington initiative sets up a license system for producers and retailers, initially set at $250, with $1,000 for annual renewals.
These may the first drug excise taxes that are actual taxes (designed to raise revenue from a legal transaction) as opposed to disguised efforts to prohibit or penalize drug sales or use. Such “taxes” have a long history:
- 1914: Congress passes the Harrison Narcotics Tax Act, which imposed a $1 tax (raised to a range of $3 to $24 in 1919) on the production, importation, manufacture, and distribution of opium and cocaine, with a $2,000 fine for non-compliance. The sponsor, Rep. Francis Harrison (D-NY), emphasized that the tax was “hardly be said to raise revenue, because it prohibits the importation of something upon which we have hitherto collected revenue” and that its purpose was to “regulate commerce.” The act required doctors to prescribe drugs only “in the course of his professional practice,” and federal officials prosecuted those who provided drugs to addicts, as they ruled that this was not medically related and thus outside the course of professional practice. The U.S. Supreme Court upholds this interpretation in 1919-20 but then reverses itself in Linder v. United States (1925), holding that the Harrison Act cannot abuse its tax power for regulatory ends, and that Congress had no power to directly control medical practice (a “Lochner”-era decision).
- 1925-35: A uniform state Narcotic Drug Act is developed and adopted by nearly all states, prohibiting or sharply regulating drugs.
- 1937: Congress passes the Marihuana Tax Act, imposing a $1 tax on those engaged in commercial activity relating to cannabis, hemp, or marijuana, with a $2,000 fine and imprisonment for non-compliance. Similar to the Harrison Act, the real purpose was not to raise revenue but to criminalize marijuana sales and usage, as concluded by a 1967 presidential commission. Those who registered were investigated for violation, so few registered.
- 1969: The U.S. Supreme Court unanimously invalidates the Marihuana Tax Act as a violation of the right against self-incrimination in Leary v. United States. Drug activist Timothy Leary was arrested at the U.S.-Mexican border for marijuana possession in violation of the Act. He argued that because marijuana was illegal under Texas law, complying with the federal law required incriminating himself under Texas law. The Court agreed and ruled that the law was unconstitutional.
- 1970: Congress passes the Controlled Substances Act, abandoning tax-related rationales and proceeding to direct federal regulation and criminalization.
- 1980s: As part of a nationwide trend getting tough on drugs, several states pass “drug stamp tax” laws, imposing a tax on the sale or possession of illegal drugs. The taxes were designed to be exorbitant (most were set in the 1980s at $3.50/gram or $100/ounce for marijuana, compared to present street values of $168 to $339 per ounce, or $6 to $12 per gram), and the real purpose is to levy tax-related interest and penalties on those arrested for drug crimes, as they invariably would not have paid the tax and purchased the stamps. Many of these statutes have been overturned as violations of the right against self-incrimination; a few states retain them with “firewalls” between revenue officials selling the stamps and drug enforcement personnel. The stamps themselves are collector items.
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