North Carolina’s approach to taxing illegal substances is detailed in Article 2D of Chapter 105 of the General Statutes. This system is designed to generate revenue from the possession and distribution of unauthorized substances, such as controlled substances, illicit mixed beverages, illicit spirituous liquor, and mash. Here’s a comprehensive look at how the state assesses and collects these taxes:
Purpose of the Tax
The primary purpose of the tax on unauthorized substances is to generate revenue for state and local law enforcement agencies and the General Fund. It is important to note that this tax does not provide immunity from criminal prosecution for possession of illegal substances.
Tax Rates and Assessment
The tax rates on unauthorized substances vary depending on the type and quantity of the substance. Here are some key rates:
- Controlled Substances:
- Marijuana: $3.50 per gram, or fraction thereof.
- Cocaine: $50.00 per gram, or fraction thereof.
- Other Controlled Substances Sold by Weight: $200.00 per gram, or fraction thereof.
- Dosage Units of Controlled Substances Not Sold by Weight: $200.00 per 10 dosage units, or fraction thereof.
- Illicit Spirituous Liquor:
- Sold by the Drink: $31.70 per gallon, or fraction thereof.
- Not Sold by the Drink: $12.80 per gallon, or fraction thereof.
- Mash: $1.28 per gallon, or fraction thereof.
- Illicit Mixed Beverages: $20.00 per four liters, or fraction thereof.
Seizing Assets vs. Taxing Illegal Substances
- Seizing Cash and Assets: When law enforcement agencies seize assets related to illegal activities, they can sell those assets (like vehicles, property, and other valuable items) and use the proceeds to fund their operations. However, they cannot sell the seized illegal substances such as drugs.
- Taxing Illegal Substances: By imposing a tax on unauthorized substances, the government creates a legal mechanism to extract financial penalties from individuals involved in the illegal drug trade. This method allows the government to generate revenue indirectly from the value associated with these substances.
How the Tax System Works Around the Inability to Sell Illegal Substances
- Revenue Stamps: Dealers are required to purchase revenue stamps, which signify that the tax on the unauthorized substances has been paid. These stamps must be affixed to the substances.
- Anonymous Compliance: Dealers can buy these stamps anonymously, ensuring their compliance without exposing their identity, which might otherwise deter them from purchasing the stamps.
- Seizure and Reporting: When law enforcement seizes unauthorized substances or arrests individuals in possession of these substances without the required stamps, they must report this to the Department of Revenue.
- Assessment and Collection: The Department of Revenue assesses the unpaid taxes, penalties, and interest on these substances. The dealer must pay this amount immediately. If they fail to do so, the Department uses legal procedures to collect the amount from the dealer’s assets.
Distribution of Tax Proceeds
The proceeds from the tax are allocated as follows:
- Law Enforcement Agencies: 75% of the tax proceeds are distributed to the state or local law enforcement agencies involved in the investigation that led to the tax assessment. This distribution is based on each agency’s contribution to the investigation.
- General Fund: The remaining 25% is credited to the state’s General Fund.
Exemptions and Confidentiality
Certain exemptions apply, such as for authorized possession or specific parts of marijuana. Additionally, information obtained through the tax administration process is confidential and cannot be used in criminal prosecutions related to the manufacturing, possession, transportation, distribution, or sale of unauthorized substances.
By implementing this tax system, North Carolina aims to generate additional revenue while also imposing financial penalties on those involved in the illegal drug trade. Why would a state house representative seek to repeal this tax?
