Tennessee Revenue Officials Continue Profiting from Illegal Drug Trade

January 3, 2007

When state governments decide to tax something, it usually represents an official stamp of legal legitimacy. But not in the case of Tennessee’s illegal drug tax. Despite continuing questions of the constitutional legitimacy of the “crack tax”—officially a “controlled substance tax” since it also applies to bootlegged moonshine—the Tennessee tax continued sluicing revenues into state coffers in 2006. From WVLT in Knoxville:

Tennessee collected $1.8 million from its tax on illegal drugs in 2006.

The tax applies to controlled substances like cocaine, crack, methamphetamine and marijuana, as well as certain illicit alcoholic drinks like moonshine and non-tax-paid liquor.

The state requires drug dealers buy tax stamps similar to those found on cigarettes or legal alcohol. If dealers don’t have the tax stamps to prove they paid the tax, revenue department agents can seize and auction off anything of value the person owns.

The tax is currently $50 per gram of cocaine or $3.50 per gram of marijuana. (Full story here.)

According to Tennessee officials, drug dealers worried about self-incrimination need not fear the tax, as information collected when the tax is paid up-front can’t be used against them. But as the story above notes, “paying the tax doesn’t make the drugs legal, either.” Not surprisingly, reports from other states with “crack taxes” show most sales of the actual tax stamps are to stamp collectors, not drug dealers.

Last year, CNN Money reported that 23 states had illegal drug taxes of some kind. Since tax evasion is a civil rather than a criminal offence, drug taxes lower the burden of proof facing district attorneys in drug cases, making “crack taxes” a popular law-enforcement tool. But whether such taxes that cross the line into criminal law enforcement actually represent good tax policy is another question altogether.

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