Monday, September 17, 2007

Taxes on illegal drugs just another strange law

(Published 8/18/07)

I love strange laws. You know the ones: You can’t shoot a rabbit from a waterboat in Kansas. In Florida, single women face fines or arrest for parachuting on Sundays. And in New York, a second conviction for flirting results in the offender having to wear a "pair of horse-blinders" whenever he goes out for a stroll on the city streets.

While these laws are now just reminders of bygone eras, we have modern replacements.

Consider Alabama’s Drugs and Controlled Substances Excise Tax.

According to the Birmingham News, Alabama is one of 20 states that require drug dealers to purchase stamps for the products they sell. Noncompliance can result in prison time and a hefty tax levy.

The law, passed in 1988, covers every type of illegal drug: marijuana, drugs sold by weight, and drugs sold by unit. Stamps range from $3.50 to $40,000 (yes, $40,000).

Steep, yes, but hey – they’re colorful: lime green, deep red and blazing orange.

And did I mention the catchy slogans?

"Say No to Marijuana" and "Say No to Drugs."

Charles Crumbley is the head of the investigations division at the Alabama Department of Revenue and was part of the team that wrote the law.

Dealers needn’t worry that compliance with the state’s drug tax law could lead to unfavorable run-ins with law enforcement, Crumbley said.

Subsection 16 says the law’s intent is to "levy this tax upon illegal drugs in an effort to compensate for the lost revenue from a section of the economy that has not heretofore borne its fair share of the tax burden," not to set a trap for illegal drug dealers.

"Here we have an underground economy, folks that are enriching themselves illegally," Crumbley said. "Drug dealers should be required to pay their fair share of taxes, too."

In fact, he said, the law specifically protects the confidentiality of stamp buyers.

But isn’t it strange to be taxing something that is illegal anyway?

Susan Pace Hamill, a tax law and ethics professor at the University of Alabama School of Law, said the law functions more as "negative reinforcement" against drug-related activities than as a revenue-generating operation.

"Obviously, drug dealers are not going to be comfortable sauntering up to the Department of Revenue office and plunking down money to buy these stamps, even with the confidentiality provisions," she said, adding that the stamp tax on illegal drugs functions in much the same way that tax deductions for charitable giving serve as positive reinforcement of those activities.

"So the question becomes, should we be using tax law as an enforcement tool?" Hamill said. "Clearly, it’s not a revenue tool."

Indeed, Crumbley estimates that the system has only raised about $2 million since 1988. The main problem is collections, he said; drug dealers often have their assets condemned.

And so, Crumbley said, stamp collectors comprise a large portion of the stamps’ buyers. And there are curiosity seekers. Lawyers have called and demanded to see the stamps, in disbelief that they really exist. Crumbley has fielded calls from as far away as London. Once, he said, someone called to ask whether a stamp must be affixed to each individual marijuana cigarette (the answer is no; the law was designed to punish dealers and includes minimum thresholds that trigger the tax requirement).

This reminds me of that line in "The Firm," when Tom Cruise’s character presents the Feds with documents implicating his law partners in mail fraud instead of information about the Mafia: "Hey, it’s not sexy, but it’s got teeth."

Tax evasion. It’s not sexy, but it’s got teeth. Just ask Al Capone.

No comments: