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.


Presidential Candidate Senator Ted Cruz To Visit Chattanooga Aug. 10

Senator Ted Cruz, a candidate for the Republican nomination for president, will be visiting Chattanooga on  Monday, Aug. 10 at 9 a.m . His stop in Chattanooga at the Hamilton County Republican Party Headquarters will be the first leg in a whirlwind bus tour across Tennessee and several other states.   His “Biscuits & Gravy” morning stop in Chattanooga will ... (click for more)

Latest Hamilton County Jail Booking Report

Here is the latest jail booking report from Hamilton County: ABRAHAM, CHRISTIAN  4921 FRONTAGE ROAD CLEVELAND, 37321  Age at Arrest: 22 years old Arresting Agency: Chattanooga DRIVING ON REVOKED, SUSPENDED OR CANCELLED LICENSE SPEEDING SEAT BELT LAW VIOLATION --- ADAMS, MARDARREIUS FOOQUON  707 RICHARDSON STREET ROSSVILLE, 30741  Age at ... (click for more)

Chattanooga's Memorial Day - And Response

It is recorded in the Fourth Chapter of the Book of Joshua, that after the nation had crossed the River Jordan, Joshua would receive a divine commandment to choose 12 men from among the people and tell them to take 12 stones from the middle of the river.  Each man placed a stone on their shoulder which represented one of the tribes of Israel, and served as a memorial ... (click for more)

Roy Exum: My Garden In August 2015

Those in the know tell me the month of August is National Peach Month, so as I take a stroll through garden, I am paying particular attention to the poppy and the gladiolus because they are the “birth flowers" of this month. But as we dole out our months Orchids and Onions, let’s substitute a peach and a pit, that hard seed you find when you bite into a peach. A PEACH to the ... (click for more)

CFC Hosts Indiana, Officials Hoping For 9,999+

 The Chattanooga Football Club is set to host the NPSL national semifinal match Saturday night at Finley Stadium.  CFC will take on the Indiana Fire who won the Midwest Region championship.   The game is set to kickoff at 7:30 p.m. Saturday.   Last year, Chattanooga hosted Sacramento in a national semifinal game and drew more almost 9,000 fans.  Chattanooga ... (click for more)

Chattanooga Christian School Adds Fitness and Wellness Center

Blend together a 5,000 square foot fitness/wellness area with state-of-the-art team meeting rooms, varsity locker rooms, coaches’ offices, public restrooms and a large concession area able to handle fans viewing three sporting events simultaneously and one has the Powerhouse. Collier Construction is putting the finishing touches on the new, 14,000 square foot fitness and wellness ... (click for more)