Legal marijuana sales are taxed so heavily that the underground weed market has thrived as consumers choose lower prices over civil obedience. Little do these buyers and sellers know, however, that certain governments expect even illegal weed sales to contribute sales tax to state budgets. In fact, these governments have a separate sales tax just for scoring marijuana off the street – one that you have to pay in person at a government office, voluntarily. (No joke!) Why would anyone possibly do that? Read on to unlock a new fear – for a friend, of course, not a law-abiding citizen like yourself.
Governed by State Laws, Not Federal Laws
Paying the illegal marijuana tax gets you two things: temporary exemption from the additional charges pressed if you’re caught with illegal weed, and a nifty stamp to affix to your baggie. (Philatelists whose saliva glands were just stimulated will love knowing that the Smithsonian raised over $3 million selling 1930s marijuana tax stamps.)
The stamp originated at the federal level with the Marijuana Tax Stamp Act of 1937. The University of North Carolina at Greensboro provides an excellent analysis of the suspicious social-political context that gave rise to this act. In 1969, however, the act was overturned when it was declared unconstitutional because it violated Fifth Amendment protections against self-incrimination.
Not to be outwitted, the federal government switched to including drug deal proceeds in your mandatory reportable income. The Internal Revenue Service specifies, “Income from illegal activities, such as money from dealing illegal drugs, must be included in your income on Schedule 1 (Form 1040), line 8z, or on Schedule C (Form 1040) if from your self-employment activity.”
Photo courtesy of U.S. Bureau of Engraving and Printing; Imaging by Gwillhickers – U.S. Government; Dept. Internal Revenue; Smithsonian National Postal Museum, Public Domain
As for the drug stamps, only certain state governments require these. According to the National Organization for the Reform of Marijuana Laws, which provides hyperlinks to each state’s marijuana tax stamp laws here, these are:
- Alabama
- Connecticut
- Georgia
- Idaho
- Indiana
- Iowa
- Kansas
- Kentucky
- Louisiana
- Massachusetts
- Minnesota
- Nebraska
- Nevada
- North Carolina
- Oklahoma
- Rhode Island
- South Carolina
- Tennessee
- Texas
- Utah
The logic put forth when these laws were created, according to an article in “The New York Times” released during the height of their introduction, pertained less to punishing bad behavior than to grabbing easy cash. Proponents argued that it was easier to win civil penalties for nonpayment of a tax than to win criminal convictions for the underlying drug crime. Proving the logic to be sound to this day, North Carolina takes in roughly $8 million annually from drug stamps, mostly through post-drug-arrest drug stamp fees. Thus, since the 1980s/1990s (depending on the state), the drug tax stamp has basically been a way for prosecutors to increase the number of charges against people caught with drugs.
Photo courtesy of U.S. Government, Public domain, via Wikimedia Commons
Protection Against Self-Incrimination
To pay the government’s tax on controlled substances, you simply report to the state’s revenue department to purchase your illegal drug tax stamp. Sellers are expected to do this in advance and affix the stamps to their products before selling them, but if that’s not done, you’re responsible for picking up the slack.
Now, the idea of telling a government that you’ve broken the substance-control law but respect the tax law is a daunting one. Won’t they arrest you for having drugs when you show up to confess to having bought them and possessing them? Not necessarily, no.
According to the Tax Policy Center (TPC), state revenue agencies won’t rat you out to law enforcement if you’re a good enough citizen to buy your stamp. (That’s a paraphrase, yes.) This is in line with Fifth Amendment protection, and states don’t want a repeat of what happened at the federal level in ’69, losing that revenue. In Kansas, for instance, the following applies per K.S.A. 79-5204:
“In order to protect against any possible violation of the self-incrimination constitutional protection, 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.”
Even so, it’s still an admittedly sketchy proposition. It’s not like you could walk in there wearing a ski mask or hazmat suit to hide your identity, and odds are, you’d be on camera for the employees’ safety. Plus, since many bureaus don’t accept cash and require payment via check or debit card, you’re handing over all your personal info anyhow. And even if you can pay with cash, you might end up having to buy a “high-tech” tax stamp if states levy those to mitigate counterfeiting like they’ve done for tobacco.
So, there’s hardly an assurance of anonymity, even if your Fifth Amendment right has been codified in state legislation. Some people have used that argument to fight tax-stamp laws. Building on that, people who oppose this sales tax argue that it violates double-jeopardy laws. Others point to the statistics indicating that African Americans and Latinos are disproportionately affected.
Don’t forget, either, that the stamp doesn’t render illegal possession legal. What’s more, the stamps aren’t one-and-done and have expiration dates. In Kansas, for example, they’re good for only three months, as if to imply, “Spark one up the minute you get home from the drug DMV, buddy.” That said, the laws are positioned to be functionally mutually exclusive if you pay the tax and keep your stamps up to date. If you don’t, on the other hand, the opposite is true: The drug charges and tax charges combine forces.
Consequences of Failure to Pay
If you don’t go buy your stamp after you buy your hash, and you’re caught in possession of illegal weed, the associated tax evasion charge is applied as a two-for-one. And some states will charge you up to double what you owe for the unpaid tax – plus interest – even if you’re not convicted on criminal charges for drug possession.
The previously cited TPC article notes that a failure to buy your drug stamp is typically classified as a felony punishable by prison time, a fine or both. In Nebraska, it’s a Class IV felony punishable by up to five years in prison and/or a $10,000 fine, for instance. In Kansas, if someone is found with illegal drugs, no stamps, and not enough money to pay off the fines, the person can lose their property (sold at public auction) and have their bank accounts seized. So, if you’re in that position, your pot ends up being the lesser of two legal infractions – in a huge way!
The Main Takeaway
It might be tempting to think, as the cheeky idiom goes, “It’s only illegal if you get caught.” But the dangers you face if you do get caught are rather jaw-dropping, no? (Who knew!) And revenue agencies are entitled to come after you by issuing tax liens, seizing assets or garnishing wages, so it’s not like ignoring a parking ticket. Also, considering how many states are desperate to fill their coffers, the incentive to aggressively enforce this easily exploited, obscure law is compelling. So, if you – I mean, your law-breaking friend, not you – live in one of the states listed above, consider what’s at risk by snubbing the stamp. New fear, unlocked.
Kathleen Hearons is a writer, editor, linguist and voice over actor from Los Angeles. She specializes in creative writing and research-intensive analysis and reporting.
Sources:
Airi, Nikhita, and Aravind Boddupalli. “Why Do States Tax Illegal Drugs?.” Tax Policy Center, Urban Institute & Brookings Institution. https://www.taxpolicycenter.org/taxvox/why-do-states-tax-illegal-drugs.
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Catlin, Roger. “Before Reefer Madness, High Times and 4/20, There Was the Marijuana Revenue Stamp.” Smithsonian Magazine. https://www.smithsonianmag.com/smithsonian-institution/reefer-madness-high-times-and-420-there-was-marijuana-revenue-stamp-180958823/.
Detrano, Joseph. “Cannabis Black Market Thrives Despite Legalization.” Center of Alcohol & Substance Use Studies, Rutgers. https://www.urban.org/policy-centers/cross-center-initiatives/state-and-local-finance-initiative/state-and-local-backgrounders/marijuana-taxes.
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