If You Try to Buy, I'll Tax That High

Tennessee's Court of Appeals has overturned the state's "drug tax," a punishment disguised as a revenue measure. In addition to whatever criminal penalties they receive, drug offenders have to pay taxes on the drugs they possess, plus interest and penalties. The case heard by the appeals court involved Steven Waters, who was arrested in Knoxville after buying a kilogram of cocaine from a police informant for $12,000 and was then hit with a tax bill for more than $55,000. The trial court concluded that the drug tax, which is imposed automatically, violated Waters' right to due process and his privilege against self-incrimination, since a drug dealer who fails to identify himself as such to the government is punished for failing to comply with the tax law. (Almost four decades ago, the U.S. Supreme Court overturned the federal Marihuana Tax Act for the same reason.) The appeals court rejected the tax on different grounds, finding that "the statute is arbitrary, capricious, and unreasonable and, therefore, invalid under the Tennessee Constitution, in that it seeks to tax as a privilege activity that prior legislation has designated as criminal activity."

A PDF of the decision is available here. In January I mentioned another case in which a trial court rejected Tennessee's drug tax. In a 2000 reason article, Stephen F. Hayes described one man's harrowing encounter with Indiana's drug tax. In a 2007 Reason Foundation study, Paul Messino reviewed the experiences of the 21 states that tax illegal drugs and explained why they shouldn't.