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Should illegal drugs be taxed?

January 16, 2007

So you’ve just been busted with two tons of illegal drugs in Tennessee — let’s say marijuana — and you’re going to jail for a lot of years.

TaxstampWait until you get your tax bill for the crime! About $1.1 million on the sale of those drugs.

Wait! you may say…how come I get punished with prison and THEN have to pay a tax on the confiscated contraband?

Well then, you should have bought your tax stamp to sell those illegal drugs.

Yes. Stamps. On illegal drugs.


Time Magazine chronicles the state’s unique way to earn revenue through illegal drug sales. And it’s paying off big time. Either you buy the stamp in advance for your illegal drug sale, or pay 10 times the cost when it’s discovered in a raid. You lose both ways, because I’m sure you’ll get a visit from your friendly neighborhood law officer if your name goes in the state database.

And then, how about those telemarketers from the state? “Yes, Mr. Smith, we’re calling to make sure that you’ve got enough stamps for the year….oh, you need MORE? OK, we’ll have them dropped off by our ‘courier’…”

How HIGH do you have to be to take THAT call?

Here’s more from the article:

The so-called “crack tax” applies to controlled substances like marijuana and cocaine, and also illicit alcoholic beverages like moonshine. It allows someone to anonymously purchase stamps in person from the Department of Revenue based on the type and amount of the substance ($3.50 for a gram of marijuana, $50 for a gram of cocaine, etc.) with the understanding that doing so cannot be used against them in a criminal court. Posessing drugs is still illegal — the tax works completely outside the criminal justice system. A stamp cannot provide immunity from criminal prosecution, and a conviction of possession isn’t required for the Department of Revenue to assess the penalties.

Of the 726 stamps sold so far (some to collectors as novelty items), none have turned up during a seizure. The penalty for not having a stamp can exceed 10 times the original cost — and the Department of Revenue concedes that the tax was instituted with the expectation that most dealers won’t buy the stamp. “Dealers can do it either way,” says Assistant Commissioner for Operations Sam Chessor. “But in reality, the payoff for us is going to be on the back end, not the front end. ”

And what a payoff: since the tax was enacted in 2004 it has netted Tennessee $3.5 million in extra revenue, 75% of which goes directly to the enforcement agencies that carry out the drug busts. Still, some opponents argue that adding such steep penalties on top of criminal charges amounts to a second punishment, and thus a violation of double jeopardy law. “Aside from this incredible acrimony and bill-collecting mentality,” says Knoxville attorney Gregory P. Isaacs, “you are divested of all your constitutional rights.”

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  1. January 16, 2007 11:39 pm

    Can’t we just let people get high in peace?

  2. whitishrabbit permalink
    January 17, 2007 12:39 am


  3. January 17, 2007 10:27 am

    Uh, not sure why you seem to be ridiculing the state of Tennessee. The concept of paying taxes on illegal income isn’t new. Al Capone was never convicted of being the gangster that he was, he was convicted of income tax evasion. And that money you won in your home poker game? That’s taxable too, even if gambling is illegal in your state.

  4. January 17, 2007 10:33 am

    Glen, I don’t ridicule the state of Tennessee…it’s a very beautiful state with very nice people (and good whiskey too).
    But, Al Capone’s violations were for federal tax evasion, not from the state of Illinois. The IRS has always wanted its share of contraband sales.

    Funny side story, I used to work at an off-track betting location as a bartender, and at the end of the shift, some bettors would go around and collect all the losing wager tickets off the tables, taking them home with them.
    I asked a supervisor what they were doing, and he said they were taking the tickets to claim them as gambling losses on their taxes, which gives them a deduction, I think.
    So they claimed the losses, even though they didn’t lose the $$ themselves.

  5. March 20, 2007 11:35 pm

    I’m an accountant, and you are 90% right on the tickets. They were taking them to offset their gambling winnings. The gamblers would have to claim income from gambling which would normally be provided in the form of a 1099Misc to the IRS and the gambler. In order to offset the winnings they would have to have documentation to substantiate a loss in case of audit. The tickets they were collecting would offset the winnings on their tax return and they’d hold on to them in case of audit.

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