The Tax on Illegal Drugs
One can never underestimate the enthusiasm that politicians have for trying to hunt up tax revenues. The creativity of some politicians can lead to bizarre taxes and unfortunate consequences.
Taxes on Illegal Drugs
One argument for the legalization of various narcotics is that massive tax revenues would be created. Interestingly, a few states already are trying to collect such taxes!
More than 10 states have tried to tax people that possess illegal drugs. For instance, Kansas levies a drug tax on dealers as soon as they take possession of the substance. To avoid prosecution for failure to pay the drug tax, individuals possessing the drugs are supposed to purchase "drug tax stamps" and attach the stamps to the drugs in interrogation. The stamps are valid for 3 months.
In an apparent effort to promote compliance, the Kansas Department of Revenue promises:
"A dealer is not required to render his/her name or address when purchasing stamps and the Department is prohibited from sharing any information relating to the purchase of drug tax stamps with law enforcement or anyone else."
The tax is imposed on cocaine, marijuana, methamphetamine and other hard drugs. Interestingly, the state collected over $300,000 in such taxes by going after individuals that were charged with criminal activity. This is better known as the "Al Capone Theory", which is derived from the fact that government agencies were able to put away the famous mobster on tax evasion charges. Unfortunately, criminal prosecutors have not always welcomed the illegal drug tax.
Drug Tax Foils Prosecution of Drug Dealers in Texas
The 5th Amendment of the Constitution protects Americans from being punished twice for the same offense. This concept, known as "double jeopardy", caused prosecutors in 1989 to literally beg the state controller's office to stop accepting tax payments by drug traders. The reason? A Texas Criminal Court of Appeal found that the state law assessing taxes on illegal drugs constituted a "punishment". As a result, requiring the payment of the tax constituted double jeopardy if the taxpayer had already been charged criminally.
In an attempt to get their clients off on drug charges, criminal attorneys began advising them to belt along to pay their drug-related taxes. The theory was that in one case the taxes were paid, the drug dealer could not be prosecuted because doing so would constitute a second punishment! The appellate court concurred with the theory and the state controller immediately stopped collecting the Texas drug tax.
