Supreme Court Rules Statute Taxing Unauthorized Substances Unconstitutional

Friday, July 24, 2009

In a 3-2 decision, the Tennessee Supreme Court upheld rulings by the Loudon County Chancery Court and the Eastern Section of the Court of Appeals, each of which had struck down a statute designed to impose a tax on controlled substances.

In an opinion that left open the prospect of remedial legislation, the state’s highest court ruled that the current statutory language could not be classified as a tax on “merchants, peddlers, and privileges,” which constitutes the extent of the state’s power to tax under article II, section 28 of the Tennessee Constitution.

In the case of Waters v. Farr, Justice Gary R. Wade, who wrote for a majority composed of Chief Justice Janice M. Holder and former Chief Justice William M. Barker, first observed that the statute at issue was designed to impose a tax only upon those who “possess” illegal substances and not upon sellers or those with the intent to sell – “merchants” or “peddlers.” The Court also concluded that because the possession of controlled drugs was a crime and specifically prohibited by statute, the taxing statute did not fall within the “privilege” category of the state’s taxing powers. Finally, the Court rejected claims that the legislation violated constitutional due process and federal and state protections against self-incrimination and double jeopardy, therefore giving the General Assembly the ability to further refine the statute to bring it within the state’s taxing powers.

Steven Waters, then 51 years of age, paid $12,000 for almost 1,000 grams of cocaine from an undercover agent in Knox County in April of 2005, and was subsequently assessed a tax of more than $55,000. Later, the contents of his bank account were seized by the Department of Revenue.

Although Waters was eventually convicted and sentenced for his purchase of the illegal drugs, he first filed suit challenging the constitutionality of the taxing statute.

In 2006, Chancellor Frank Williams ruled that the legislation failed to afford due process to Waters and breached his right not to incriminate himself.

The Court of Appeals unanimously affirmed the Chancellor’s decision but on different grounds, holding that the constitution permitted only a tax on “privileges”, and, because possession of controlled substances was a crime, the state had not granted Waters any “privilege” to possess cocaine.

On appeal to the Tennessee Supreme Court, the state had argued that even if the authority to tax did not fall within the “privilege” powers, Waters might be classified as a “merchant” or “peddler” – separate grounds for taxing authority by the state – an issue not addressed in either the Loudon Chancery Court or the Court of Appeals. Justice William C. Koch, Jr., joined by Justice Cornelia A. Clark, would have upheld the new tax.

In an opinion concurring in part and dissenting in part, Justices Koch and Clark disagreed with the majority opinion that determined the tax exceeded the legislature’s power to tax “merchants” or “peddlers.”

The dissenting justices concluded that the tax could be constitutionally applied to drug dealers under the merchants and peddlers clause of article II, section 28 of the Tennessee Constitution.

Several other state legislatures have attempted to establish a tax on the possession or sale of controlled substances with mixed results.

Constitutional challenges have often been successful, but Tennessee’s General Assembly crafted a statutory scheme similar to one that has been upheld in North Carolina. The state constitution in North Carolina does not have a “merchants, peddlers, and privileges” clause, but does explicitly permit a state income tax.



Latest Hamilton County Jail Booking Report

Here is the latest jail booking report from Hamilton County: BOMAR, KELLY LYNN  9690 HOSTA LN OOLTEWAH, 37363  Age at Arrest: 50 years old Arresting Agency: Chattanooga VANDALISM/MALICIOUS MISCHIEF DISORDERLY CONDUCT PUBLIC INTOXICATION --- BOYER, CHARLES OVERTON  77710 LEE HIGHWAY APT 128 CHATTANOOGA, 37421  Age at Arrest: 37 years old ... (click for more)

Old Photos: Fort Oglethorpe

Liberal Conspiracy Afoot

According to Roy Exum’s Sunday column, there are now upwards of six or seven Democrats in Hamilton County, and all of them have secretly maneuvered their way onto the boards of a couple of dozen local organizations. Unlike Republicans, some of them serve on multiple boards and some of them serve with one another on the same boards. This is outrageous. We all know that boards and ... (click for more)

Roy Exum: Is This Civil War II?

Jack Minzey, by all accounts, was a beloved professor at Eastern Michigan and, as the head of the university’s School of Education, wrote many books and papers. Some were on the Civil War – he was an avid student of our nation’s worst moment – and his beliefs how to better public education will be quoted for years. Dr. Minzey died at age 89 last month and just last week, the ... (click for more)

Six Chattanooga Baseball, Softball Teams Open State Play This Week

The state tournament matchups in baseball and softball have been announced. Only thing left is for the fortunate teams that have reached the 2018 TSSAA Spring Fling in Murfreesboro, Tennessee, to make a final push toward possible championships, the most prized trophies in high school sports. While only two local baseball teams -- Baylor and McCallie -- are ... (click for more)

Lookouts Fall (3-2) In 10th Inning Walk-Offs By Biloxi Saturday & Sunday

The Biloxi Shuckers (26-17) grabbed their second walk-off victory of the season in extra innings on Saturday night against the Chattanooga Lookouts (28-15) with a 3-2 win. The Lookouts have a 3 1/2 game lead over second-place Jackson in the North Division, while Biloxi has a 3 1/2 game lead over Mobile in the South Divisioon The Shuckers scored two runs to counter Chattanooga's ... (click for more)