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Truly Bizarre Taxes: The Tax On Illegal Drugs
By: Richard Chapo
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 results.
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
example, 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 question. The stamps are valid for 3 months.
In an apparent attempt to promote compliance, the Kansas Department of Revenue
promises:
“A dealer is not required to give 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 levied on cocaine, marijuana, methamphetamines 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 authorities were
able to put away the famous mobster on tax evasion charges. Alas, 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 crime. This concept, known as “double jeopardy”, caused
prosecutors in 1989 to literally beg the state comptroller's office to stop
accepting tax payments by drug dealers. The reason? A Texas Criminal Court of
Appeal ruled 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 rush to pay their drug–related taxes. The theory was that once
the taxes were paid, the drug dealer could not be prosecuted because doing so
would constitute a second punishment! The appellate court agreed with the theory
and the state comptroller immediately stopped collecting the Texas drug tax.
About the Author:
Richard Chapo is CEO of
http://www.businesstaxrecovery.com - Obtaining tax
refunds for small businesses by finding overlooked tax deductions and credits
through a free tax return review.
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