(See David Borden's blog post this morning on this topic [13].)
In a September 6 opinion [14], the Tennessee Court of Appeals ruled the state's tax on illegal drugs, widely known as the crack tax, is unconstitutional. The state cannot impose a tax on items it considers illegal, such as illicit drugs or moonshine, the court held.
In the case before the court, Steven Waters of Knoxville was arrested in 2005 shortly after purchasing a kilogram of cocaine valued at $12,000 from an informant. A few days later, the Tennessee Department of Revenue sent Waters a tax assessment demanding more than $55,000. It also filed a tax lien against real property owned by Waters and seized $4,000 from his bank account.
Waters sued, charging the tax violated constitutional self incrimination, due process, and equal rights protections under both the state and the federal constitutions. A trial court found in Waters' favor, and now, the state Court of Appeals has agreed.
The state cannot impose an excise (or "privilege") tax on items it has criminalized, the court held: "Because it seeks to levy a tax on the privilege to engage in an activity that the Legislature has previously declared to be a crime, not a privilege, we must necessarily conclude that the Drug Tax is arbitrary, capricious, and unreasonable, and therefore, invalid under the Constitution of this state," the opinion read.
The state of Tennessee has 60 days to file an appeal to the state Supreme Court. The Department of Revenue says it plans to appeal and will continue collecting the tax in the meantime.
More than 20 other states have similar illegal drug tax laws.