OLR RESEARCH REPORT |
December 16, 1998 MARIJUANA TAX |
98-R-1391 |
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By: Christopher Reinhart, Research Attorney |
You asked about Connecticut’s law taxing marijuana and controlled substances and whether other states (1) have similar laws (if so, summarize), (2) charge possessors who have not paid with tax evasion and what penalties are available, (3) have faced constitutional problems, and (4) use and raise revenue from the laws.
SUMMARY
Connecticut requires dealers to pay taxes on marijuana and other illegal drugs. Sixteen states currently have laws similar to Connecticut’s drug tax law. Most of these are very similar in structure, with some variety in tax rates and how a "dealer" is defined. In 15 states, someone who fails to pay the tax is subject to a penalty equal to 100% of the tax. Several states also impose criminal sanctions of imprisonment, a fine, or both.
The Connecticut Supreme Court ruled that the tax does not violate the double jeopardy clause of the U.S. Constitution. State laws around the country have faced similar constitutional challenges and also challenges based on due process and the privilege against self-incrimination. Courts have upheld some of these laws. But a number of rulings have either struck down state laws or limited their enforcement. A number of states have also repealed their laws.
Enforcement of these statutes varies around the country. Court rulings and litigation limit the ability of many states to collect revenue. A few states do not use their statutes while other collect minimal revenue. Kansas collects the most revenue, around $1 million annually. In total, North Carolina collected about $30 million since 1989 but the tax was declared unconstitutional earlier this year.
We have attached some additional information and copies of state laws are available at your request.
CONNECTICUT STATUTES (CGS § 12-650 et seq.)
Connecticut law imposes a tax on marijuana and controlled substances that are purchased, acquired, transported, or imported into the state. The law has the following provisions.
OTHER STATES
Sixteen states have laws similar to Connecticut’s tax on marijuana and controlled substances. Most have faced constitutional challenges. Seven states have repealed their laws in recent years and a number of these were the subject of court cases challenging their constitutionality. In the case of Arizona, the lack of revenue collected under the law was also a factor in the law’s repeal.
Current Statutes |
Repealed |
Ruled Unconstitutional |
Alabama |
Arizona (1997, effective 1/1/99) |
Illinois |
Georgia |
Colorado (1996) |
Montana |
Idaho |
Florida (1995) |
North Carolina |
Indiana |
Maine (1995) |
Wisconsin |
Iowa |
New Mexico (1994) |
|
Kansas |
North Dakota (1995) |
Questionable |
Kentucky |
South Dakota (1987) |
Massachusetts |
Louisiana |
||
Minnesota |
||
Nebraska |
||
Nevada |
||
Oklahoma |
||
Rhode Island |
||
South Carolina |
||
Texas |
||
Utah |
DIFFERENCES IN STATE LAWS
Typically the law requires a "dealer" to pay taxes on marijuana or controlled substances when he possesses, purchases, acquires, manufactures, or imports the substance into the state. "Dealers" are generally defined, as in Connecticut, as persons who possess at least 42 1/2 grams of marijuana, at least seven grams of a controlled substance, or at least 10 dosage units of a controlled substance not sold by weight. Most of these laws require dealers to affix stamps to the substance as evidence that the tax is paid. The laws explicitly exclude those in lawful possession of marijuana or controlled substances.
Fifteen states punish tax evaders with a penalty that is equal to 100% of the tax that is due and several states also impose criminal penalties on violators. The law (in 13 states) specifies that it does not provide any immunity from criminal prosecution.
All of these states, like Connecticut, require revenue officials and employees to keep tax information obtained from dealers in reports or tax returns confidential. The information cannot be used against the dealer in criminal proceedings unless it is obtained by other means. But, the information can be used in proceeding to enforce the tax statutes.
The following section describes some of the variations in the main components of these laws.
Tax Rates
Criminal Penalties
Confidentiality of Tax Information
Other Provisions
COURT CHALLENGES TO ILLEGAL DRUG TAXES
Taxing marijuana and controlled substances involves several constitutional issues. Most of these laws have faced court challenges. Some of these challenges have been successful based on double jeopardy, due process, and the privilege against self-incrimination.
Double Jeopardy
The double jeopardy clause protects individuals from a second prosecution for the same offense after acquittal, a second prosecution for the same offense after conviction, and multiple punishments for the same offense. Many state courts have considered a double jeopardy argument and decisions are divided on whether the tax statutes are punishments that subject them to a double jeopardy analysis. A number of states, including Alabama, Connecticut, Iowa, Kansas, Nebraska, and South Carolina, have ruled that the tax is not a punishment for double jeopardy purposes. But several state courts declared the tax a violation of the double jeopardy clause when used in addition to criminal penalties, including Colorado, Illinois, Indiana, Massachusetts, and Utah. In states such as Indiana, the tax is assessed only if a court orders it or the court prosecutor does not pursue criminal charges.
U.S. Supreme Court. The Court’s decision in Department of Revenue of Montana v. Kurth Ranch, 511 U.S. 767 (1994) is the key decision on this issue. In this case, Montana attempted to collect the tax after the defendant was convicted of drug possession. The Court ruled that Montana’s illegal drug tax violated the double jeopardy clause of the Fifth Amendment of the U.S. Constitution. The Court reasoned as follows:
Massachusetts. The most recent decision on this issue came from the Supreme Judicial Court of Massachusetts. The court did not rule the statute unconstitutional but found that the tax was a punishment and double jeopardy restricts the ability of the state to assess the tax. The court, in Commissioner of Revenue v. Mullins, 428 Mass. 406 (November 19, 1998), ruled as follows.
Connecticut Supreme Court. The Connecticut Supreme Court in Covelli v. Commissioner of Revenue Services ruled that the tax does not violate the double jeopardy clause (235 Conn. 539 (1995), vacated and remanded 518 U.S. 1031, aff’d after remand, 239 Conn. 257 (1996), cert. den. 117 S.Ct. 1445 (1997)). The U.S. Supreme Court vacated the court’s initial decision and ordered reconsideration of the case after its ruling in United States v. Ursery (116 S.Ct. 2135 (1996)). The Connecticut Supreme Court then affirmed its prior judgment upholding the tax.
The state police arrested Covelli for possession with the intent to sell illegal drugs and submitted a drug tax referral form to DRS. DRS assessed a tax, a penalty for nonpayment, and interest totaling $552,802.04. After Covelli’s sentencing on drug charges, DRS attempted to collect the tax. Covelli appealed the assessment. The court ruled as follows.
Due Process
Another recent decision involved North Carolina’s law. The federal court of appeals for the Fourth Circuit ruled that the tax was a criminal penalty that requires the constitutional safeguards usually accorded to criminal penalties (Lynn v. West, 134 F.3d 582 (4th Cir. 1998), cert. denied 119 S.Ct. 47 (1998)). The U.S. Supreme Court declined to review this decision. In this case, the defendant was convicted on federal drug charges and then North Carolina assessed the drug tax. Double jeopardy was not an issue because the constitution does not bar successive prosecutions by different sovereigns and a state and the federal government are considered different sovereigns. The court reasoned as follows.
Self-Incrimination
Most courts have ruled that drug tax laws do not violate the privilege against self-incrimination. Most state laws contain specific provisions prohibiting the disclosure of information in tax returns or reports. But the Florida Supreme Court declared Florida’s law unconstitutional based on this argument (Florida Department of Revenue v. Herre, 634 So.2d 618 (1994)). In this case, the court ruled as follows.
ENFORCEMENT AND REVENUE
We collected a variety of revenue statistics from telephone interviews with state revenue departments. A few could not reveal information due to confidentiality concerns. Several states do not use their statutes or collect minimal revenue from them. These states include Georgia, Idaho, Kentucky, Louisiana, Oklahoma, and Rhode Island.
Court rulings and continuing litigation limit the ability of many states to collect revenue. Indiana’s collections dropped significantly from a high of $337,902 in fiscal year 1993 to $58,502 in fiscal year 1997 due to a reduction in the tax rate for marijuana and a double jeopardy ruling in state court. As a result of the court decision, the state law allows collection of the tax only if the individual is not prosecuted on criminal charges or the court orders it. Iowa, Minnesota, and Texas also gather revenue from the tax. South Carolina has assessed $7.693 million since 1993 but has only collected $65,000.
A few states use or used the tax aggressively. Kansas’s collections are near or surpass $1 million in each of the last three fiscal years. North Carolina collected about $30 million since it began tax collection in 1989. But its law was declared unconstitutional earlier this year. Idaho used the statute aggressively in the early part of this decade with a high during fiscal year 1993-1994 of $312,993.45 in collections and $110,000 in seized assets. Litigation has limited Idaho’s enforcement during the last several years.
Below is a chart of statistics from states that currently collect revenue under the tax and were able to provide us with information.
Revenue Statistics from Several States
Currently Collecting Revenue Under the Tax
State |
Year(s) |
Collections |
Alabama |
10-year period |
$1,500,000 (est.) |
Indiana |
FY 1997 |
$58,502 |
FY 1996 |
$102,696 |
|
Iowa |
FY 1997 |
$502,000 |
Kansas |
FY 1998 FY 1997 FY 1996 |
$1,100,000 $1,300,000 $952,000 |
Kentucky |
FY 1998 FY 1997 FY 1996 |
$4,135 $34,045 $201,689 |
Minnesota |
FY 1998 |
$105,000 est. |
FY 1997 |
$112,000 |
|
South Carolina |
FY 1993-1998 |
$65,000 |
Texas |
Since passage in 1989 |
$2,475,431.29 |
Utah |
FY 1997-1998 |
$69,700 |
STATUTES, USE, AND REVENUE INFORMATION
The following information is a result of telephone interviews and other research. We talked with all of the states with current statutes about their use of these laws and the revenues they have collected. A few states would not release revenue numbers because of confidentiality concerns.
Alabama
Arizona
Colorado
Florida
Georgia
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Massachusetts
Minnesota
Montana
Nebraska
Nevada
New Mexico
North Carolina
North Dakota
Oklahoma
Rhode Island
South Carolina
South Dakota
Texas
Utah
Wisconsin
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