Tennessee cannot collect taxes on illegal drugs because dealers are not merchants, the state supreme court ruled last week, overturning a controversial—and lucrative—2004 law, according to the Knoxville Sentinel.
The Unauthorized Substances Tax—modeled after a similar North Carolina law—applied taxes and interested to illegal drugs and certain illicit alcohol (such as moonshine) that did not have an Unauthorized Substances Stamp.
In its ruling, the 3-2 majority wrote that illegal drugs are not subject to taxation because the Department of Revenue—who issued the stamps—can only collect taxes on merchants, peddlers and privileges under the state constitution. However, the tax was applied to anyone in possession of illegal drugs, not necessarily selling them. And because drug possession is illegal, it is not a taxable privilege.
However, the court also rejected an argument that purchasing the stamp is a form of self-incrimination, leaving the door open for legislators to draft a new version of the tax.
The Department of Revenue allowed anyone to purchase the stamp anonymously, and was required for any person in possession of one or more marijuana plants or more than 42.5 grams of marijuana ($3.50/gram), seven or more grams of any other unauthorized substance that is sold by weight ($50/gram for cocaine), 10 or more dosage units of any other unauthorized substance not sold by weight, or any illicit alcoholic beverage, according to the Tennessee Department of Revenue website.
A 2007 Time article about the tax said Tennessee had already brought in $3.5 million in revenue in its first three years—75% of which went to state drug enforcement agencies, and the majority of which came in fines and penalties.