You asked about Connecticut’s law taxing marijuana and controlled substances and whether other states (1) have similar laws (if so, summarize), (2) charge possessors who have not paid with tax evasion and what penalties are available, (3) have faced constitutional problems, and (4) use and raise revenue from the laws.

Connecticut requires dealers to pay taxes on marijuana and other illegal drugs. Sixteen states currently have laws similar to Connecticut’s drug tax law. Most of these are very similar in structure, with some variety in tax rates and how a "dealer" is defined. In 15 states, someone who fails to pay the tax is subject to a penalty equal to 100% of the tax. Several states also impose criminal sanctions of imprisonment, a fine, or both.

The Connecticut Supreme Court ruled that the tax does not violate the double jeopardy clause of the U.S. Constitution. State laws around the country have faced similar constitutional challenges and also challenges based on due process and the privilege against self-incrimination. Courts have upheld some of these laws. But a number of rulings have either struck down state laws or limited their enforcement. A number of states have also repealed their laws.

Enforcement of these statutes varies around the country. Court rulings and litigation limit the ability of many states to collect revenue. A few states do not use their statutes while other collect minimal revenue. Kansas collects the most revenue, around $1 million annually. In total, North Carolina collected about $30 million since 1989 but the tax was declared unconstitutional earlier this year.

We have attached some additional information and copies of state laws are available at your request.

Connecticut law imposes a tax on marijuana and controlled substances that are purchased, acquired, transported, or imported into the state. The law has the following provisions.

• The tax is due on acquisition or possession by a "dealer" who may not possess any marijuana or controlled substances unless the tax is paid and a stamp or other indicia is attached. A "dealer" is any person who illegally possesses more than 42 1/2 grams of marijuana, at least seven grams of a controlled substance, or at least 10 dosage units of a controlled substance that is not sold by weight.

• The tax does not apply to individuals who lawfully possess the substance.
• The tax rate is $3.50 per gram (or portion of a gram) of marijuana, $200 per gram (or portion of a gram) of a controlled substance, and $2,000 per 50 dosage units (or portion) of a controlled substance not sold by weight.
• Each dealer must retain records for inspection by the commissioner of the Department of Revenue Services (DRS) for three years. The commissioner can assess a deficiency and impose a penalty of 10% of the deficiency or $50 (whichever is greater) plus interest at 1% per month from the date the tax was due until the date of payment. The penalty is 25% of the deficiency plus interest if the dealer fraudulently evaded the tax. The commissioner may waive all or part of the penalties if the failure to pay was due to a reasonable cause and was not intentional or due to neglect. The attorney general can enforce liens against property to collect the tax.
• Failure to pay the tax subjects a violator to a penalty equal to 100% of the tax. A violation is also punishable by up to six years in prison, a fine up to $10,000, or both.
• An individual can request a hearing and appeal tax assessments.
• The commissioner can investigate, take testimony under oath, issue subpoenas, and require production of documents.
• The commissioner cannot disclose information in a tax report or return nor can the information be used against a dealer in a criminal proceeding unless it is obtained by other means. But the information can be used in a proceeding involving this tax.

Sixteen states have laws similar to Connecticut’s tax on marijuana and controlled substances. Most have faced constitutional challenges. Seven states have repealed their laws in recent years and a number of these were the subject of court cases challenging their constitutionality. In the case of Arizona, the lack of revenue collected under the law was also a factor in the law’s repeal.

Typically the law requires a "dealer" to pay taxes on marijuana or controlled substances when he possesses, purchases, acquires, manufactures, or imports the substance into the state. "Dealers" are generally defined, as in Connecticut, as persons who possess at least 42 1/2 grams of marijuana, at least seven grams of a controlled substance, or at least 10 dosage units of a controlled substance not sold by weight. Most of these laws require dealers to affix stamps to the substance as evidence that the tax is paid. The laws explicitly exclude those in lawful possession of marijuana or controlled substances.

Fifteen states punish tax evaders with a penalty that is equal to 100% of the tax that is due and several states also impose criminal penalties on violators. The law (in 13 states) specifies that it does not provide any immunity from criminal prosecution.

All of these states, like Connecticut, require revenue officials and employees to keep tax information obtained from dealers in reports or tax returns confidential. The information cannot be used against the dealer in criminal proceedings unless it is obtained by other means. But, the information can be used in proceeding to enforce the tax statutes.

The following section describes some of the variations in the main components of these laws.

• In nine states, the definition of a "dealer" is identical to Connecticut’s. A few states require possession of different minimum amounts and three states (Georgia, Indiana, and Nevada) do not set any minimums amounts.

• Four states have tax rates identical to Connecticut’s and most others are similar. Nevada has the highest rates on marijuana at $100 per gram and on controlled substances at $1,000 per gram. Rhode Island has the highest tax rate on controlled substances not sold by weight at $1,000 per 50 dosage units.
• Three states also tax the possession of marijuana plants (Idaho at $775 per plant, Iowa at $750, and Kentucky at $1,000). Kentucky only taxes a "dealer" with more than five plants.

• 11 states impose criminal penalties for possession or sale of marijuana or controlled substances without stamps or other indications that the tax is paid.
• Seven of these states impose penalties of up to five years in prison, a fine of up to $10,000, or both. Penalties in other states vary. Alabama, for example, imposes punishment of one to 10 years in prison, a fine of up to $5,000, or both. Texas law imposes punishment of two to 10 years in prison, a fine of up to 10,000, and a fine equal to the amount of the tax.
• Idaho imposes the same punishment as for possession of a controlled substance.
• Three states punish the re-use of tax stamps or the counterfeiting of stamps (Iowa, Rhode Island, and Texas). Texas imposes two to 10 years in prison and a fine up to $10,000 for this crime. Iowa imposes up to five years in prison, a fine of $500 to $7,500, or both. Rhode Island imposes up to five years in prison, a fine of up to $10,000, or both.

• 11 states impose penalties on employees who disclose confidential tax information. All of these penalties have a combination of prison sentences and fines. Five states impose sentences of up to one year in prison. Idaho, in addition to a fine and prison option, requires an employee to forfeit his office.

• Eight states do not require dealers to give their name or any other identifying information when paying the tax. Iowa, Minnesota, and Nebraska also prohibit the possession of a tax stamp from being used against an individual in court.

• Five states (Indiana, Kansas, Louisiana, Nebraska, and Utah) distribute some of the funds collected under the tax to law enforcement and education programs. In Indiana, the state may award up to 10% of a collection to a person who provided information leading to the collection of that assessment.

• In three states (Kentucky, Nevada, and Rhode Island) law enforcement agencies inform the revenue department if an arrested individual is subject to the tax.
• In Indiana, the revenue department cannot assess the tax unless it receives a court order to do so or the prosecuting attorney does not pursue criminal drug charges relating to the substance that is subject to the tax.
• In Nevada, dealers must register with the state and pay a fee of $250 each year (a dealer does not have to give his name).
• Some states tax counterfeit or simulated controlled substances.

Taxing marijuana and controlled substances involves several constitutional issues. Most of these laws have faced court challenges. Some of these challenges have been successful based on double jeopardy, due process, and the privilege against self-incrimination.

The double jeopardy clause protects individuals from a second prosecution for the same offense after acquittal, a second prosecution for the same offense after conviction, and multiple punishments for the same offense. Many state courts have considered a double jeopardy argument and decisions are divided on whether the tax statutes are punishments that subject them to a double jeopardy analysis. A number of states, including Alabama, Connecticut, Iowa, Kansas, Nebraska, and South Carolina, have ruled that the tax is not a punishment for double jeopardy purposes. But several state courts declared the tax a violation of the double jeopardy clause when used in addition to criminal penalties, including Colorado, Illinois, Indiana, Massachusetts, and Utah. In states such as Indiana, the tax is assessed only if a court orders it or the court prosecutor does not pursue criminal charges.

U.S. Supreme Court. The Court’s decision in Department of Revenue of Montana v. Kurth Ranch, 511 U.S. 767 (1994) is the key decision on this issue. In this case, Montana attempted to collect the tax after the defendant was convicted of drug possession. The Court ruled that Montana’s illegal drug tax violated the double jeopardy clause of the Fifth Amendment of the U.S. Constitution. The Court reasoned as follows:

1. A civil penalty or tax can be a punishment for double jeopardy purposes.
2. A court must assess the character of the actual sanctions that are imposed and labels are not determinative of whether it is a tax or a punishment.
3. The tax imposes a high rate of taxation and has a deterrent purpose which is at least consistent with a punishment.
4. The Montana tax has two additional features that indicate it is a punishment. First, the tax is imposed only after the taxpayer is arrested. Persons arrested for possessing drugs are the entire class of taxpayers subject to the tax. Second, the taxpayer does not own or possess the marijuana at the time the tax is imposed. The law taxes possession and storage of illegal drugs but the tax is imposed after the police have seized the goods. These features show a penal intent rather than the intent to gather revenue and the tax is the functional equivalent of a successive criminal prosecution.

Massachusetts. The most recent decision on this issue came from the Supreme Judicial Court of Massachusetts. The court did not rule the statute unconstitutional but found that the tax was a punishment and double jeopardy restricts the ability of the state to assess the tax. The court, in Commissioner of Revenue v. Mullins, 428 Mass. 406 (November 19, 1998), ruled as follows.

1. The high rate of taxation and the deterrent purpose of the illegal drug tax show that it is intended to be punitive.
2. The law’s similarities to the Montana law in Kurth Ranch are more compelling than its differences.
3. The Massachusetts law does not depend on an arrest but criminal activity is required for the tax to be imposed. The tax only applies to "dealers" who possess specified amounts of illegal drugs and excludes those in lawful possession from paying the tax.
4. Enforcement is invariably limited to individuals who are arrested for drug crimes. The existence of the voluntary payment option is at best illusory.
5. The tax has no logical relationship to lawful possession. A dealer does not have a legal ownership interest in the possession of criminal goods.
6. In this case, taxing a dealer who possesses marijuana with the intent to sell or distribute it is punishing the same crime to which the defendant plead guilty. The crime and the activity that is taxed are so closely related that they are the identical offense for purposes of double jeopardy.
7. The tax is not invalid but the double jeopardy clause restricts the ability of the state to assess the tax against those who have suffered criminal penalties from the same possession.

Connecticut Supreme Court. The Connecticut Supreme Court in Covelli v. Commissioner of Revenue Services ruled that the tax does not violate the double jeopardy clause (235 Conn. 539 (1995), vacated and remanded 518 U.S. 1031, aff’d after remand, 239 Conn. 257 (1996), cert. den. 117 S.Ct. 1445 (1997)). The U.S. Supreme Court vacated the court’s initial decision and ordered reconsideration of the case after its ruling in United States v. Ursery (116 S.Ct. 2135 (1996)). The Connecticut Supreme Court then affirmed its prior judgment upholding the tax.

The state police arrested Covelli for possession with the intent to sell illegal drugs and submitted a drug tax referral form to DRS. DRS assessed a tax, a penalty for nonpayment, and interest totaling $552,802.04. After Covelli’s sentencing on drug charges, DRS attempted to collect the tax. Covelli appealed the assessment. The court ruled as follows.

1. The unlawfulness of an activity does not prevent its taxation.
2. A tax can be so punitive in nature that it is subject to the constraints of the double jeopardy clause.
3. A high rate of taxation and a deterrent purpose do not automatically make a tax a form of punishment.
4. The U.S. Supreme Court struck down Montana’s tax on marijuana and controlled substances because of two unusual features (Kurth Ranch). Connecticut’s tax does not have either of these unusual features. The tax is due immediately on acquisition or possession by a dealer. In many cases, if not all, the tax will not be imposed until a taxpayer is arrested and the illegal drugs are confiscated or destroyed. But, persons arrested for drug possession are not the entire class of taxpayers.
5. Connecticut’s act also has additional safeguards that the Montana act did not. Tax payments are confidential and tax information cannot be used against the taxpayer in a criminal proceeding, unless it is a tax proceeding under this statute.
6. The legislative history indicates that punishment is not the only purpose of the tax. Legislators also addressed the issue of tax evasion in an underground economy and considered that the tax would produce money for the state while imposing a burden on drug dealers.
7. Even though gathering revenue may be a secondary purpose, the tax does not rise to the level of punishment.

Another recent decision involved North Carolina’s law. The federal court of appeals for the Fourth Circuit ruled that the tax was a criminal penalty that requires the constitutional safeguards usually accorded to criminal penalties (Lynn v. West, 134 F.3d 582 (4^th Cir. 1998), cert. denied 119 S.Ct. 47 (1998)). The U.S. Supreme Court declined to review this decision. In this case, the defendant was convicted on federal drug charges and then North Carolina assessed the drug tax. Double jeopardy was not an issue because the constitution does not bar successive prosecutions by different sovereigns and a state and the federal government are considered different sovereigns. The court reasoned as follows.

1. The North Carolina tax is similar to Montana’s tax in Kurth Ranch. The statute has enough punitive features that it must be considered a criminal penalty and not a civil tax.
2. Like the Montana tax, the North Carolina law has a high rate of taxation and a deterrent purpose. The rate of taxation is even higher than in Kurth Ranch and it has no rational relationship to the market value of the drugs. The tax also is conditioned on the commission of a crime. The theoretical possibility that dealers could voluntarily pay the tax does not remove it from the criminal penalty category. This unused confidential reporting scheme is clever but cannot distinguish it from Kurth Ranch. The tax is still based on a criminal act and has no relationship to lawful possession.
3. The tax is a criminal penalty and its enforcement must conform to the constitutional safeguards that accompany criminal proceedings. The tax cannot be enforced through findings and summary actions of executive officers. The guarantees of the Fifth and Sixth Amendments must be met.

Most courts have ruled that drug tax laws do not violate the privilege against self-incrimination. Most state laws contain specific provisions prohibiting the disclosure of information in tax returns or reports. But the Florida Supreme Court declared Florida’s law unconstitutional based on this argument (Florida Department of Revenue v. Herre, 634 So.2d 618 (1994)). In this case, the court ruled as follows.

1. Under the Fifth Amendment to the United States Constitution privilege against self-incrimination, no person can be compelled to be a witness against himself in a criminal matter. The test is whether a person is confronted by a substantial and real hazard of incrimination.
2. Under the Florida drug tax, the taxpayer is required to sign a form that serves as an admission that the taxpayer participated in criminal activity. The statute contains confidentiality provisions but the information in a return must be disclosed if a proper subpoena is issued.
3. The statute does not provide adequate protection against self-incrimination. It requires the disclosure of incriminating information that a person might reasonably suppose would be used against him in a criminal prosecution.

We collected a variety of revenue statistics from telephone interviews with state revenue departments. A few could not reveal information due to confidentiality concerns. Several states do not use their statutes or collect minimal revenue from them. These states include Georgia, Idaho, Kentucky, Louisiana, Oklahoma, and Rhode Island.

Court rulings and continuing litigation limit the ability of many states to collect revenue. Indiana’s collections dropped significantly from a high of $337,902 in fiscal year 1993 to $58,502 in fiscal year 1997 due to a reduction in the tax rate for marijuana and a double jeopardy ruling in state court. As a result of the court decision, the state law allows collection of the tax only if the individual is not prosecuted on criminal charges or the court orders it. Iowa, Minnesota, and Texas also gather revenue from the tax. South Carolina has assessed $7.693 million since 1993 but has only collected $65,000.

A few states use or used the tax aggressively. Kansas’s collections are near or surpass $1 million in each of the last three fiscal years. North Carolina collected about $30 million since it began tax collection in 1989. But its law was declared unconstitutional earlier this year. Idaho used the statute aggressively in the early part of this decade with a high during fiscal year 1993-1994 of $312,993.45 in collections and $110,000 in seized assets. Litigation has limited Idaho’s enforcement during the last several years.

Below is a chart of statistics from states that currently collect revenue under the tax and were able to provide us with information.

The following information is a result of telephone interviews and other research. We talked with all of the states with current statutes about their use of these laws and the revenues they have collected. A few states would not release revenue numbers because of confidentiality concerns.

• Ala. Code § 40-17A-1

• The state is not making assessments currently and has faced lawsuits since it began collections.
• Over 10 years, the state has collected about $1.5 million.

• Repealed by Laws 1997, Ch. 150 § 9, effective 1/1/99 (formerly Ariz. Rev. Stat. Ann. § 42-1201 et seq.).

• The state collected $327,000 in 13 years through 1996.

• Repealed L.96, p. 135, §2 (formerly Colo. Rev. Stat. § 39-28.7-101 et. seq.).

• State courts ruled that the tax violated double jeopardy (People v. Maurello, 932 P2d 851 (Colo.App. 1997)).

• Repealed 1995, c. 95-140, § 7 effective 7/10/95 (formerly Fla. Stat. § 212.0505)
• State courts ruled the tax was unconstitutional (Florida Department of Revenue v. Herre, 634 So.2d 618 (1994)).

• Ga. Code Ann. § 48-15-1

• The state is not using the statute.

• Idaho Code § 63-4201
• The statute was used aggressively but it has not been enforced since 1994. Legal challenges are moving through the court system.

• FY 1991-1992—Assessed $17,167,504—Collected $249,511.68—Assets seized but unsold $77,000.
• FY 1992-1993—Assessed $8,226,585—Collected $280,233.57—Assets seized but unsold $100,000.
• FY 1993-1994—Assessed $9,592,771.40—Collected $312,993.45—Assets seized but unsold $110,000.

• State court ruled that the tax violated the double jeopardy clause (Wilson v. Department of Revenue, 662 N.Ed.2d 415 (1996)).
• Formerly Ill. Rev. Stat. Ch. 35, Para. 520/1

• Ind. Code §6-7-3-1.

• Revenues have dropped dramatically since the tax rate for marijuana changed and a court ruling on double jeopardy required the state to either pursue criminal charges or assess the tax.
• FY 1997 $58,502.
• FY 1996 $102,696.
• FY 1995 $293,425.
• FY 1994 $269,148.
• FY 1993 $337,902.

• Iowa Code § 453B.1.
• The state collected $502,000 in the last fiscal year, much of it from stamp collectors.

• There is some enforcement currently, but in the past, tax collection efforts were coordinated with law enforcement officials.

• Kan. Stat. Ann. § 79-5201.
• The state is facing court challenges.
• FY 1994 $934,000.
• FY 1995 $925,000.
• FY 1996 $952,000.
• FY 1997 $1,300,000.
• FY 1998 approximately $1.1 million.
• So far this FY, about $800,000.

• KRS § 138.870 et. seq.
• The tax is hard to collect and the state is facing court challenges.

• FY 7/1/94 - 6/30/95 - $15,988.

• FY 7/1/95 - 6/30/96 - $201,689.

• FY 7/1/96 - 6/30/97 - $34,045.

• FY 7/1/97 - 6/30/98 - $4,135.

• Since 7/1/98—$378.94.

• La. Rev. Stat. Ann. 47:2601.

• The state is collecting some revenue but much of it is from stamp collectors. Since 1990, the tax was assessed in a few hundred cases. Current outstanding assessments are probably $1-2 million.

• Repealed effective 6/21/95 (formerly Me. Rev. Stat. Ann. 36 § 4433).

• Mass. Gen. L. Ch. 64K, § 1.
• State court ruled that double jeopardy prevents tax collection in addition to criminal punishments but one or the other is possible (Commissioner of Revenue v. Mullins, 428 Mass. 406 (November 19, 1998)).
• The state has not tried to enforce compliance and there are only two assessments since the law was passed.

• Minn. Stat. § 297D.

• FY 1998 estimated $105,000.
• FY 1997 $112,000.
• Yearly averages are similar. The tax is not actively enforced. The collection division finds it difficult to collect assessments. If a dealer receives a tax refund from the state, the division will take it to satisfy the illegal drug tax.

• The U.S. Supreme Court ruled the tax unconstitutional in Department of Revenue of Montana v. Kurth Ranch, 511 U.S. 767 (1994).
• Formerly Mont. Code Ann. § 15-25-101.

• Neb. Rev. Stat. § 77-4301.
• The state is not too active in enforcing or assessing the tax. The state is waiting for the results of ongoing litigation.

• Nev. Rev. Stat. § 372A.010.
• There have not been any new cases in several years but some individuals are still making payments.
• Since July 1998, collected $1,700.
• Total collections under the tax are $417,642.15.

• Repealed 1994, Ch. 101, § 1 (formerly N.M. Stat. Ann. § 7-18A-1).

• N.C. Gen. Stat. § 105-113.105.
• The federal Fourth Circuit court of appeals declared the tax unconstitutional (Lynn v. West, (134 F.3d 582 (4^th Cir.), cert. denied, 119 S.Ct. 47 (1998)).

• The state collected about $30 million since it began collections in 1989 (Charlotte Observer, 1/16/98).

• Repealed SL 1995, Ch. 545, § 2 (formerly N.D. Code § 57-36.1-01).

• Okla. Stat. Tit. 68 § 450.1.

• The state collects minimal revenue and most of it is from stamp collectors. Concerns about double jeopardy limit enforcement.

• R.I. Gen. Laws § 44-49-1.
• The state has prepared few, if any, assessments in the last few years. Initially, several million dollars was assessed against dealers but collections were low.
• Current collections are insignificant and probably only a few hundred dollars each year.

• S.C. Code Ann. § 12-21-5010
• The state has faced problems with court cases and it is just in the last year or two that the tax has been used. Stamps are mostly sold to collectors.
• From 1993 to 1998, the state assessed $7.693 million and collected $65,000.

• Repealed SL 1987, Ch. 111, § 1-15 (formerly S.D. Codified Laws § 10-1-28.4).

• Texas Tax Code § 159.001.

• The state has sold a total of 3,450 stamps for $16,688.50.
• Total collections as of November 30, 1998 amounted to $2,475,431.29.

• Utah Code Ann. § 59-19-101.

• The state has limited enforcement because of court cases.
• The tax has not been assessed since 1995 but the state is still collecting on old cases.
• Since July, collections are $7,200.
• FY 1997-1998, collected $69,700 (mostly from a public auction in one case).

• State court ruled the tax unconstitutional because it compels self-incrimination (State v. Hall, 557 N.W.2d 778 (1997)).

• Formerly Wis. Stat. § 139.87.

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