Tennessee’s Excise Tax on Illegal Drugs Ruled Unconstitutional

September 7, 2007

Tennessee is one of twenty states that impose a tax on illicit drugs, at a rate of $3.50 per gram of marijuana, $50 per gram of cocaine, and $200 per gram of other controlled substances. We’ve previously noted that these “drug stamp taxes” or “crack taxes” became popular in the 1980’s as an easy way for states to raise revenue from dealers and users who had plead guilty to drug offenses, since few pay the tax before they are arrested; convictions are not needed to levy the tax, and the burden of proof is lower. Tennessee raised $1.8 million last year from the tax.

Today, the Tennessee Court of Appeals ruled that the tax is unconstitutional, exceeding the legislature’s taxing power. (Read the full opinion in the case, Waters v. Chumley, from the Tennessean.) Article II, Section 28 of the Tennessee Constitution empowers the state to impose excise taxes on “privileges,” and after reviewing of statutes and past cases, the court concluded that the word “privileges” necessarily means a legal product: “[A] tax on privileges] recompenses the state for the secure and nurturing environment it has provided the activity or occupation upon which the tax is levied.” Waters, slip op. at 5. Because illicit drugs are not “privileged” by this protection, the court ruled that the state cannot impose an excise tax on their use.

In many states, drug stamp taxes have been found unconstitutional for violating the right against self-incrimination guaranteed by the Fifth Amendment. If a state does not have a “firewall” between revenue agents and drug enforcement personnel, paying the tax amounts to an invitation to be arrested for drug offenses. Many states who have opted to keep their taxes have instituted such a “firewall.” The lower court judge in the Tennessee case based his ruling on this ground, but the appeals court opted for a broader rationale for invalidating the tax.

The state has promised to appeal to the state supreme court.

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