# IN THE SUPREME COU RT OF TEN NESSEE AT KNOX VILLE May 7, 20 08 Ses si on

STEVE N WATERS E T A L 

# . v. REAGAN FARR, COMMISS IO NER OF

REVENUE FOR TH E STAT E OF TENNE SSEE

Appeal by Per m ission from the Court of Appeals, Eastern Section

Chancery Court

for Lou don Cou nty No. 10710 F rank V. Willi am s, III, Chan cellor

No. E2006-02225-SC-R11- CV - F iled Jul y 24, 2009

Effe ctive J anuar

y 1, 2005, the Tenne ssee Gene ral Assembly enac ted a tax on t h e p o s s es sion of unauthori z ed s u b stance s for the purpose of g ener ating reve nues to assist state and local law enfor ceme nt ag encie s in their eff o rt s to combat drug crimes. Subsequently

, Steven Waters was assessed with taxes, p en al t y , and interest in the total amount of $55,316.84 by the Tenne ssee Depa r tme nt of Revenue afte r purcha sing near ly a kilogr am of coca ine from a confide ntial informant. I n a decla ratory jud gm en t s uit in the Chance ry Court of L oudon County
, Waters challeng ed the constitutionalit y of the statute on g rounds of self-inc rimination, double jeopar dy and due proce ss. The chanc ellor decla

red the statute unconstitutional and set aside the assessment. On direc t appea l, the Court of Appea ls aff

irmed, holding that the enac tment exceede d the Gene ral Assembly ’s taxi ng power under a rticle I I , section 28 of the T ennesse e Constituti on. I nitially , we hold that the statute imposing the tax on unauthorized substances does not violate the constitutional protec tions ag ainst self-inc rimination and double jeopar dy or abridg e the g uara ntee of proce dural due proce ss. Be cause , howeve r, the tax cannot be classified as either a tax o n m er ch an t s , a tax on peddler s or a tax on privileg es, as authorized by our state constitution, the judgme nt of the Court of Appea ls is aff irmed.

Tenn. R. App . P . 11 Appeal by Per m ission ; Judgme nt of th e Court of Ap peals Aff irm ed

G A R Y 

## R. W A D E 

## , J
., delivere d the opinion of the court, in which J A N I C E 

## M. H O L D E R 

## , C

. J

. , and W I L L I A M 

## M. B A R K E R 

## , J
., joined. W I L L I A M 

## C. K O C H 

## , J R 

## ., J

. filed a separ ate opinion c oncurr ing in part a nd dissenting in par

t, in which C O R N E L I A 

## A. C L A R K 

## , J ., joined.

Robert E. Cooper, J r., Attorney Gene ral an d R ep o rt er; Michae l E. Moore, Solicitor Gene ral; and Br ad H. Buc hanan, Assistant Att o rn ey General, for the appellant, Reag an Fa rr, Commi ssioner of Revenue for the State of

Tenne ssee. 1

I n a c c o r d a n c e w i t h T e n n e s s e e R u l e o f A p p e l l a t e P r o c e d u r e 1 9 ( c )

, R e a g a n F a r r , t h e c u r r e n t C o m m i s s i o n e r o f 1

R e v e n u e , h a s b e e n s u b s t i t u t e d a s a p a r t y i n t h i s a p p e a l i n t h e p l a c e o f h i s p r e d e c e s s o r , L o r e n L

. C h u m l e y

.

## A. Philip L omonaco, Knoxville, Tennessee , for the a ppellee, Steve n Waters.

OP INION

F acts On April 25, 2005, Steven Waters (“Water s”), a fifty -one- y ear -old resident of L oudon County
, was arre sted afte r purchasing near ly a kil og ram of coca ine from a confident i al i n fo rm ant

as part of a “re verse sting” conducte d by office rs in the Nar cotics Unit of the Knox County Sheriff’ s Offic e. Ba sed upon Waters’ possession of the coca ine, the Tenne ssee Depa rtment o f Revenue (“D epar tment of R ev en u e” ) s ubsequently issued an assessment under the newly enac ted tax on unauthorized substances. Wate rs t h en challeng ed the constitutionalit y of the tax by filing a 2 

## decla ratory judgme nt action ag ainst the Commi ssioner of Revenue of Tenne ssee (“Commissioner”).

By the t ime of hi s arr est, Waters, a c arpe nter spec ializi ng in trim and interior work in new homes, had worke d in and around L oudon County for twenty of his thirty -five y ear s in the trade

. The evidenc e in the re cord indica tes that at some point during this per iod of time, Waters beg an to use

coca ine on a “[w]eekend basis.” He claimed that the substance “[k] ind of made [hi m] fee l better,” and g ave him “a littl e burst” to make him “fe el b et t er about work.” Whil e explaining that he

re gu l ar ly purcha sed his coca ine in an are a “down off of Western Avenue ” in Knox County
, h e insisted that he had never sold the drug to any one. He believed that until his arr est, his wife, Naomi Waters, had be en unaw are of his use of the illeg al substance

.

On t he morning of April 25, 2005, Waters receive d a telephone call from an individual he had known for about a y ear and a half, and with wh o m h e had used coca ine in the past. The individual infor

med Waters that she ha d nine kilogr ams of “ne arly pure” coca ine from Miami a nd that she was “try ing to move it and g et out of town fa st.” She offe red to sell the c ocaine at a price of $17,000 per

kilogr am and a

rra ng ed to meet Water s in the parking lot of a bake ry

in Knox ville. After try ing a small amount of the coca ine as a sample, Waters acknow ledg ed the high quality of the d ru g but declined to purcha se. L ater that evening

, the woman telephoned ag ain and offere d t h e

coca ine at a reduc ed price of $12,000 per kilogr am. Waters, believing that the street value was far
g rea ter than the price , consente d to the terms. At the hearing , he explained that he ha d planned to use the c ocaine “a little at a time” and cla imed that he had no intention to either sell the substance
or g ive it to any

body else.

Unbeknownst to Waters, the individual from whom he had ag ree d to purcha se coca ine was

a confide ntial informant wo rki ng in cooper ation with the Nar cotics Unit of the Knox County Sheriff’ s Offic e (“Sher iff’s Offic e” ). Captain Be rnie L y on, a twenty -seve n-y ear veter an of the Sheriff’ s Offic e, testified that he had been acqua inted with the informant for approximately twenty
y ear s, that he had known her to use drug s in the past, and that he had instructed her to try to sell the

coca ine to Water s. Captain L y on further testified that the “g oing pr ice” for a g ram of coca ine “on

2 0 0 4 T e n n

. P u b

. A c t s 1 8 4 0 ( c o d i f i e d a t T e n n

. C o d e A n n

. § § 6 7

- 4

- 2 8 0 1 t o - 2 8 1 1 ( S u p p

. 2 0 0 4 ) )

. T h e t a x o n 2

u n a u t h o r i z e d s u b s t a n c e s b e c a m e e f f e c t i v e o n J a n u a r y 1
, 2 0 0 5
, l e s s t h a n f o u r m o n t h s p r i o r t o W a t e r s ’ a r r e s t

.



## -2-

## the street” was about $100 per g ram. After Waters had ag ree d on the purcha se price

, Captain L y on 3 

## and S erg eant J ames Hammond, t he supervisor of t he Narcotics Unit, provided the informant with a brick of cocaine from the drug vault at t he Sheriff ’s Off ice. The packa g e we ighe d 999.2 g rams, indicating that the estimated street value of the coca ine Waters had ag ree d to purcha se for $12,000 could have been a s high a s $99,200.

The office rs followed the informant to the parking lot of a restaur ant near the intersec tion of Walker S pring s Road and Kingston Pike in Knoxvi lle, wher e W ater s paid $12,0 00 for the drug s. When the informant and Waters drove their respe ctive vehicles awa y from the scene , Captain L y on followed the informant to retrie ve the money as Serg eant Hammond and sever al other office rs followed Waters. After about a quarte r of a mile, the office rs appre hended W at ers, sear ched his truck, and rec overe d the coca ine. Waters was then arr ested and taken to jail. At trial, both Captain L y on and Serg eant Hammond acknow ledg ed that there was no evidenc e sug g esting that Waters had

ever sold d ru g s or intended to sell any drug s, including the coca ine he had purcha sed from the informant.

I n acc ordanc e with a policy develope d in J anuar y of 2005, Kar en Phill ips, the drug technicia n at the Sheriff’ s Offic e, completed a form for the Depa rtment of Revenue documenting the arr est and the amount of coca ine seized. The form provided that 75% of the money collecte d from the tax on the co caine that Waters had possessed was to be distributed to the Sheriff’ s Offic e, with the

rema ining 25% pay able to the Depa rtment of Revenue

. On or about May 20, 2005, Eug ene J ohnson 4 

## of the Depa

rtment of Revenue ’s Unauthorized S u b stance Tax Reports office in Knoxvi lle handdelivere d to the Waters residenc e a Notice of Assessment and Demand for Pay ment (“A ssessment”) in the sum of $55,316.84, which included $49,940 in tax liability plus $ 5
, 3 7 6

. 84 in penalty and 5 

## interest. One wee k later, the Depa rtment of Revenue notified Waters by mail that it had filed a lien
ag ainst the residenc e he owned jointly with his wife in order to secur e pay ment of the tax. Fur

ther, the Depa rtment of Revenue sent a L evy No t ification and Notice of L evy to sever al banks in East Tenne ssee in an attempt to rec over any assets that those banks might have been holding for Waters.

C a p t a i n L y o n e x p l a i n e d t h a t s t r e e t d e a l e r s o f t e n d i l u t e t h e c o c a i n e “ s o t h e y c a n s t r e t c h t h e i r p o w d e r o u t a l i t t l e 3
b i t f u r t h e r

. ” H e a l s o s t a t e d t h a t h e h a d n o k n o w l e d g e o f t h e p u r i t y l e v e l o f t h e c o c a i n e s o l d t o W a t e r s , a n d t h a t t h e

s u b s t a n c e w a s n o t t e s t e d b y t h e T e n n e s s e e B u r e a u o f I n v e s t i g a t i o n o t h e r t h a n t o p r o v e t h a t i t w a s , i n f a c t , c o c a i n e

. W a t e r s t e s t i f

i e d t h a t t h e i n f

o r m a n t t o l d h i m t h e c o c a i n e w a s “ n e a r l y p u r e

. ”

S e e T e n n

. C o d e A n n

. § 6 7

- 4

- 2 8 0 9 ( b ) ( 2 ) ( S u p p

. 2 0 0 4 )

. 4

“ A n e x c i s e t a x i s l e v i e d o n u n a u t h o r i z e d s u b s t a n c e s p o s s e s s e d

, e i t h e r a c t i v e l y o r c o n s t r u c t i v e l y , b y d e a l e r s 5

a t t h e f o l l o w i n g r a t e s :

. . . ( 3 ) F i f t y d o l l a r s ( $ 5 0

. 0 0 ) f

o r e a c h g r a m , o r f

r a c t i o n t h e r e o f

, o f c o c a i n e

. ” T e n n

. C o d e A n n

. § 6 7

- 4

- 2 8 0 3 ( a ) ( S u p p

. 2 0 0 4 ) ( c o d i f i e d a s a m e n d e d a t T e n n

. C o d e A n n

. § 6 7

- 4

- 2 8 0 3 ( a ) ( 4 ) ( 2 0 0 6 ) )

. A l t h o u g h t h e c o c a i n e
t h a t W a t e r s p u r c h a s e d w e i g h e d 9 9 9

. 2 g r a m s , t h e a m o u n t o f t h e A s s e s s m e n t w a s a p p a r e n t l y b a s e d o n t h e 9 9 8

. 8 g r a m s
t h a t P h i l l i p s h a d w r i t t e n o n t h e d r u g t a x r e g i s t r a t i o n f o r m t h a t s h e f

a x e d t o t h e D e p a r t m e n t o f R e v e n u e

.



## -3-

## After

war ds, the Depa

rtment of Revenue rec eived approximately $3,800 from the chec king acc ount Waters had a t First Tenne ssee B ank. 6



## P roce dural Hi story On J uly 12, 2005, Waters and h i s wi fe

, wh o was subsequently dismiss ed as a party to the litigation, fil ed sui t in the C hance ry Court for L oudon Count y aga i nst the C ommissi oner, seeking decla ratory and injunctive relief

. The Offic e of the Attorney Gene ral was serve d with a copy of the 7 

## complaint, appea

red on behalf of the Commi ssioner, and repr esente d the Commi ssioner throug hout the cour se of these proce eding s. Waters alleg ed that Tenne ssee’ s tax on unauthorized substance s 8 

## violated the state and fede ral constitutional protec tions ag ainst self-inc rimination and double jeopar dy and also fa iled to affor d due proc ess of law

.

At the conclusion of the proce eding

, the trial court abate d the assessment, ruling that the tax

on unauthorized substances violated the s tate and fede ral constitutional prohibitions ag ainst compelled self-inc rimination, imposed a criminal rathe r than a civil penalty

, and authorized a tax far in excess of the amount Waters paid for the illega l drug s. The trial court further held that the De p ar t ment of Revenue ’s proce dures for assessment and collection of the tax on unauthoriz ed substances failed to satisfy the proce dural du e p rocess require ments of the state and fede ral constitutions. Be cause a jury had not been empane led in Waters’ criminal prosec ution, the trial court

W a t e r s t e s t i f

i e d t h a t t h e T e n n e s s e e D e p a r t m e n t o f S a f e t y t o o k p o s s e s s i o n o f h i s t r u c k a n d g a v e h i m t h e o p t i o n 6

o f p u r c h a s i n g i t b a c k f r o m t h e s t a t e f

o r i t s v a l u e o f $ 5
, 0 0 0

. C o u n s e l f o r t h e C o m m i s s i o n e r s t a t e d t h a t a n y t a k i n g o f
W a t e r s ’ t r u c k “ w a s n o t t o s a t i s f y t h i s t a x a s s e s s m e n t , ” a n d t h a t t h e D e p a r t m e n t o f R e v e n u e h a d n o k n o w l e d g e o f s u c h

t a k i n g

. N o r e p r e s e n t a t i v e o f t h e D e p a r t m e n t o f S a f e t y t e s t i f i e d

.

T h e C o m m i s s i o n e r a s s e r t s t h a t t h e p r o c e d u r e o u t l i n e d i n T e n n e s s e e C o d e A n n o t a t e d § 6 7

- 1

- 1 8 0 1 ( a ) ( 1 ) ( B ) 7 ( 2 0 0 6 ) p r o v i d e s a n i n d i v i d u a l w i t h a f a i r o p p o r t u n i t y t o c h a l l e n g e a n a s s e s s m e n t f o r p o s s e s s i o n o f u n a u t h o r i z e d

s u b s t a n c e s

. S e e T e n n

. C o d e A n n

. § 6 7

- 4

- 2 8 0 7 ( 2 0 0 6 & S u p p

. 2 0 0 8 )

. W h i l e w e a g r e e , a t a x p a y e r a l s o h a s t h e o p t i o n

o f p r e s e n t i n g a f

a c i a l c h a l l e n g e t o t h e c o n s t i t u t i o n a l i t y o f a t a x s t a t u t e b y f i l i n g a d e c l a r a t o r y j u d g m e n t a c t i o n

. C o l o n i a l
P i p e l i n e C o

. v

. M o r g a n , 2 6 3 S

. W

. 3 d 8 2 7
, 8 4 0 ( T e n n

. 2 0 0 8 )

.

N o t h i n g i n t h i s o p i n i o n c a s t s d o u b t u p o n t h e l o n g

- s t a n d i n g r e q u i r e m e n t i n t h i s s t a t e t h a t p a r t i e s w h o c h a l l e n g e 8

a s t a t u t e ’ s c o n s t i t u t i o n a l i t y t h r o u g h a d e c l a r a t o r y j u d g m e n t a c t i o n m u s t s e r v e n o t i c e o f t h e i r s u i t o n t h e O f f i c e o f t h e A t t o r n e y G e n e r a l

. T e n n

. C o d e A n n

. § 2 9

- 1 4

- 1 0 7 ( b ) ( 2 0 0 0 ) ; C u m m i n g s v

. S h i p p , 3 S

. W

. 2 d 1 0 6 2
, 1 0 6 3 ( T e n n

. 1 9 2 8 ) ;

s e e a l s o T e n n

. R

. C i v

. P

. 2 4

. 0 4 ( e x p a n d i n g t h e n o t i c e r e q u i r e m e n t b e y o n d d e c l a r a t o r y j u d g m e n t a c t i o n s )

. W a t e r s

c o m p l i e d w i t h t h i s r e q u i r e m e n t a n d g a v e p r o p e r n o t i c e o f h i s f e d e r a l a n d s t a t e c o n s t i t u t i o n a l c h a l l e n g e s b y s e r v i n g a c o p y

o f h i s c o m p l a i n t o n t h e A t t o r n e y G e n e r a l ’ s O f f i c e

. B r a d H

. B u c h a n a n , a n a t t o r n e y i n t h e O f f i c e ’ s T a x D i v i s i o n , f

i l e d

t h e a n s w e r t o t h e c o m p l a i n t a n d a p p e a r e d o n t h e C o m m i s s i o n e r ’ s b e h a l f a t t r i a l a n d d u r i n g t h i s a p p e a l

. T h u s , t h e
p e o p l e ’ s i n t e r e s t s h a v e b e e n a b l y r e p r e s e n t e d t h r o u g h o u t t h i s p r o c e e d i n g

. M o r e o v e r , t h e A t t o r n e y G e n e r a l ’ s O f f i c e , p e r h a p s i n a n e f

f o r t t o f a c i l i t a t e a r u l i n g o n t h e m e r i t s o f t h e c l a i m r a t h e r t h a n a n y p r o c e d u r a l d e f i c i e n c y , h a s n o t

c h a l l e n g e d t h e l a c k o f

j o i n d e r a s a p a r t y

. S e e C u m m i n g s v

. B e e l e r , 2 2 3 S

. W

. 2 d 9 1 3
, 9 1 6 ( T e n n

. 1 9 4 9 ) ( i n d i c a t i n g t h a t
t h e A t t o r n e y G e n e r a l b e n a m e d “ a p a r t y d e f e n d a n t i n a n y p r o c e e d i n g w h e r e t h e c o n s t i t u t i o n a l i t y o f t h e A c t o f t h e l e g i s l a t u r e i s b e f

o r e t h e C o u r t o n d e c l a r a t o r y j u d g m e n t s p r o c e e d i n g ” )

. U n d e r a l l o f t h e s e c i r c u m s t a n c e s , a n y i s s u e a s
t o j o i n d e r h a s b e e n w a i v e d

. S e e T e n n

. R

. A p p

. P

. 3 6 ( a )

.



## -4-

## found t hat W ater s had not y et bee n exposed to double jeopardy . An alleg ation of entrapment was

not addre ssed. 9



## On direc t appea l, the Court of Appea ls aff irmed t h e t rial court but based its ruling upon differ ent g rounds. The Court of Appea ls unanimously held that the tax on unauthorized substances exceede d the Tenne ssee Gene ral Assembly ’s power to impose a privileg e tax as provided in article I I
, section 28 of the Tenne ssee Constit ution. Waters v. Chumley

, No. E2006-02225-COA- R3-CV, 1 0 

## 2007 WL 2500370, at *2 (Tenn. C t

. App. Sept. 6, 2007). I n an opinion written by J udg e (now J ustice) Shar on G. L ee, the Court of Appea ls de scribed the leg islature’s power to ta x privileg es as “extremely broad” but not entirely unlimit ed, observing that the Gene ral Assembly may not le vy a privileg e tax that is “ arbitrary, capricious, or wholly unreasonable .” I d. (quoting Hooten v. Carson, 209 S.W .2d 273, 274 (Tenn. 1948)). “B eca use [t he L eg islature] seeks to levy a tax on the privileg e to eng ag e in an activity that

. . . has [been] previously decla red to be a crime, not a privil eg e,” the Court of Appea ls “nec essar ily conclude [d] that the Drug Tax is arbitrary

, ca p ri cious, and

unrea sonable, and there fore

, invalid under the Constit ution of this state.” I d. at *3. The Court of Appea ls also deter

mined that a tax on unauthorized substances was not “consistent with the rationale supporting the imposit ion of a privileg e tax, which holds that such a tax recompe nses the state for the secur e and nurturing environment it has provided the activity or occupation upon which the tax is levied.” I d. The opinion char acte rized the state’s proper role as one of deter renc e, rathe r than one of protec tion or sustenance , of individuals in Tennessee who possess illeg al substance s. I d.

The Court of Appea ls, while holding that the tax on unauthorized substances v i o lated the leg islature’s taxi ng power s under our state constitution, did not addre ss self-inc rimination or due
proce ss protections, the g rounds upon which the tr ial court ha d relied. B eca use this case involves important questions of const i tutional authority and statutory interpre tation, this Court g rante d the Commi ssioner’s a

pplication for pe rmission to appeal.

Stand ard of Review When called upon to construe a statute, we must fir st a scer tain and then g ive full eff ect to the Gene ral Assembly ’s intent and purp o s e. Waldschmidt v. Reassure Am. L ife I ns. Co., 271 S.W .3d 173, 176 (Tenn. 2008). Our chief conce rn is to car ry out the leg islature’s i ntent without either broade ning or restric ting the statute bey ond its intended scope. Houg hton v. Ara mark Educ.

B a s e d u p o n t h e e v e n t s o f A p r i l 2 5
, 2 0 0 5
, a K n o x C o u n t y g r a n d j u r y i n d i c t e d W a t e r s f o r p o s s e s s i o n o f

m o r e 9

t h a n t h r e e h u n d r e d g r a m s o f c o c a i n e w i t h i n t e n t t o d e l i v e r , a C l a s s A f e l o n y p r o v i d i n g f

o r a p r i s o n s e n t e n c e o f

b e t w e e n f i f t e e n a n d s i x t y y e a r s a n d a f i n e o f u p t o $ 5 0 0
, 0 0 0

. T e n n

. C o d e A n n

. § 3 9

- 1 7

- 4 1 7 ( j ) ( 5 ) ( S u p p

. 2 0 0 4 ) ; T e n n

. C o d e A n n

. § 4 0

- 3 5

- 1 1 1 ( b ) ( 1 ) ( 2 0 0 3 )

. W h i l e W a t e r s p u r s u e d h i s d e c l a r a t o r y j u d g m e n t a c t i o n i n t h e t r i a l c o u r t , t h e c r i m i n a l

p r o c e e d i n g s w e r e h e l d i n a b e y a n c e

. O n J a n u a r y 2 9
, 2 0 0 8
, W a t e r s p l e a d e d g u i l t y t o t h e l e s s e r

- i n c l u d e d o f f e n s e o f

p o s s e s s i o n w i t h i n t e n t t o d e l i v e r c o c a i n e , a C l a s s B f e l o n y , T e n n

. C o d e A n n

. § 3 9

- 1 7

- 4 1 7 ( a ) ( 4 )

, ( b ) ( S u p p

. 2 0 0 4 ) ; h e

w a s p l a c e d o n p r o b a t i o n f o r a t e r m o f e i g h t y e a r s a n d o r d e r e d t o p a y $ 3
, 4 2 7 i n f i n e s , c o u r t c o s t s , a n d f

e e s

.

“ R e v i e w g e n e r a l l y w i l l e x t e n d o n l y t o t h o s e i s s u e s p r e s e n t e d f o r r e v i e w , ” b u t a n a p p e l l a t e c o u r t “ m a y i n i t s 10
d i s c r e t i o n c o n s i d e r o t h e r i s s u e s i n o r d e r , a m o n g o t h e r r e a s o n s : ( 1 ) t o p r e v e n t n e e d l e s s l i t i g a t i o n , ( 2 ) t o p r e v e n t i n j u r y
t o t h e i n t e r e s t s o f

t h e p u b l i c , a n d ( 3 ) t o p r e v e n t p r e j u d i c e t o t h e j u d i c i a l p r o c e s s

. ” T e n n

. R

. A p p

. P

. 1 3 ( a )

. W e b e l i e v e
t h a t t h i s w a s a n a p p r o p r i a t e c i r c u m s t a n c e f o r t h e C o u r t o f A p p e a l s t o e x e r c i s e s u c h d i s c r e t i o n

.



## -5-

## Res., I nc., 90 S.W .3d 676, 678 (Tenn. 2002) (quoting Owens v. State, 908 S.W .2d 923, 926 (Tenn.

1995)). Every word in a statute “is presumed to have meaning and purpose, and should be g iven full eff ect if so doing does not violate the obvious intention of the L eg islature. ” I n re C.K.G., 173 S.W .3d 714, 722 (Tenn. 2005) (quoting Marsh v. Hende rson, 424 S.W .2d 193, 196 (Tenn. 1968)). When th e statutory lang uag e is clea r and unambig uous, we apply its plain meaning without complicating the task. Eastman Chem. Co. v. J ohnson, 151 S.W .3d 503, 507 (Tenn. 2004). When

a statute is ambig uous, howeve r, we may ref ere nce the broade r statutory scheme

, the history of the leg islati o n , o r o t h er source s to discern its meaning

. Colonial Pipeline, 263 S.W .3d at 836. We
presume that the Gene ral Assembly was awa re of its prior enac tments and knew the state of the law at the time it passed the leg islation. Owens, 908 S.W.2d at 926.

I ssues of constitutional interpre tation are questions of law, which we revie w de novo without
any presumption of corr ectne ss g iven to the leg al conclusions of the courts below. Colonial Pipeline, 263 S.W .3d at 836. I t is well-settled in Tenne ssee that “cour ts do not decide constitutional questions unless resolution is absolutely nece ssary

to determining the issues in the case and adjudicating the rig hts of the parties.” State v. Tay lor, 70 S.W .3d 717, 720 (Tenn. 2002) (citing Owens, 908 S.W .2d
at 926). Our char g e is to uphold the constitutionalit y of a statute wher ever possible. State v. Pickett, 211 S.W .3d 696, 700 (Tenn. 2007). “I n evalua ting the constitutionalit y of a statute, we beg in with the presumption that an ac t o f the Gene ral Assembly is constitutional.” I d. (quoting Gallahe r v. Elam, 104 S.W .3d 455, 459 (Tenn. 2003)); see also Vog el v. Wells Fa rg o Guar d Servs., 937 S.W .2d 856, 858 (Tenn. 1996) (“A statute comes to a court ‘clothed in a p resumpti on of constitutionalit y [si nce] the L eg islature does not intentionally pass an unconstitutio n al act.’ ” (quoting Cruz v. Chevrolet Gre y I ron, Div. of Gen. Motors Corp., 247 N.W.2d 764, 766 (Mich. 1976)) (alter ation in orig inal)). The presumption of constitutionalit y applies with even g rea ter forc e when a party bring s

a fac ial challeng e to the validity of a statute. Gallahe r, 104 S.W .3d at 459. I n such an instance, the challeng er must establish that n o s et o f ci rcumstanc es exis ts under which the statute, as written, would be valid. L y

nch v. City

of Jelli co, 205 S.W.3d 384, 390 (Tenn. 2006) (quoting Davis-Kidd Bookse llers, I nc. v. McWherter

, 866 S.W .2d 520, 525 (Tenn. 1993)); United States v. Salerno, 481 U.S. 739, 745 (1987).

History of Taxes on Unauthorized Su bstances Waters challeng es the const itutionalit y of Tenne ssee’ s taxi ng statute on unauthorized substances, both as t o i t s fa ci al v ali dity and as to the application of the statute to these specific circ umstances. I n considering his claims, it is helpful to examine the history of leg islation imposing taxes on unauthorized substances.

I. Taxes Levied by the Fe deral G overnm ent and Other States The taxi ng of illega l activities, including the possession a nd sale of illega l substanc es, has

a l o n g h i story at both the fede ral and state level. Over 150 y ear s ag o, the United States Supr em e Court held that Congr ess could require licenses for businesses that wer e otherwise forbidden by the laws of the states in which they wer e located and could impose penalties for the failure to purcha se such licenses. L icense Tax Cases, 72 U.S. 462 (1866). Throug hout the y ear s, our highe st Court has consistently upheld the principle that g ains from unlawful activities are taxable. See J ames v. United

-6-

## States, 366 U.S. 213, 221-22 (1961) (over ruling Comm’r of I nterna l Re venue v. Wil cox, 327 U.S. 404 (1946), to hold that embezzled funds are income taxable to the embezzler); Rutk i n v. United States, 343 U.S. 130, 137-38 (1952) (conc luding that money obtained by extorti on is taxable income, and observing that “[t] here has been a widespre ad and settled administrative and judicial rec og nition of the taxabili ty of unlawful g ains of many kinds under [t he I nterna l Revenue Code]”); United States

v. Sulli van, 274 U.S. 259, 263 (1927) (holding that the fede ral g overnme nt may tax income from a business that is illega l under fede ral law). W hile “[t] he Court has repe atedly indicated that the unlawfulne ss of an activity does not preve nt its taxation,” Marc hetti v. United States, 390 U.S. 39, 44 (1968), it also has established that this principle may rea ch its limit s when either the tax itself or the g overnme ntal proce dures to collect the tax collides with the taxpay er’ s const i t u t ional rig hts. Hay nes v. United States, 390 U.S. 85, 100 (1968) (holding that “the constitutional privileg e ag ainst self-inc rimination provides a full defe nse” to alleg ed violations of a firea rm reg istration require ment direc ted primarily at people who possessed the firea rm illega lly ); Grosso v. United States, 390 U.S. 62, 65-67 (1968) (holding that a fede ral occupa tional tax on wag ering

, which require d a g ambler to provide, upon thre at of c riminal prosec ution, information tha t he might re asonably have suppose d would b e m ad e available to prosec uting authorities, violated the g ambler’ s Fifth Amendment privileg e ag ainst self-incr imination); Marche tti, 390 U.S. at 48-49 (same).

The taxation of illega l dr

ug s at the fede ral level has followed a path simil ar to tha t of taxes

on other unlawful activities. I n fac t, “most domestic drug reg ulations prior to 1970 g ener ally came in the g uise of reve nue laws, with the Depa rtmen t o f t h e Trea sury serving as the Fe dera l Gover nment’s primary enfor cer .” Gonzales v. Raich, 545 U.S. 1, 10 (2005). The leading statute in this are a was the Har

rison Nar cotic Act of 1914, 38 Stat. 785 (re peale d 1970), which soug ht “to exert control over the possession and s al e of narc otics, specific ally coca ine and opiates, by requiring produce rs, distributors, and purcha sers to reg ister with the Fe dera l Gover nment, by assessing taxes
ag ainst parties so reg istered, a nd by reg ulating the issuance of

presc riptions.” Gonzales, 545 U.S.
at 10-11. Congr ess later passed the Marihuana Tax Act of 1937, 50 Stat. 551 (re peale d 1970), which “[l] ike the Har

rison Act

. . . did not outlaw the possession or sale of marijuana outrig ht” but imposed simil ar reg istration and repor ting require ments for individuals who produce d, imported, distributed, sold, or dealt m arijuana and “re quired the pay ment of annual taxes in addition to transfe r taxes whene ver the drug chang ed hands.” Gonzales, 545 U.S. at 11. The United States Supreme Court, 1 1 

## citing the case s prese rving taxes on other ty pes of illeg al ac tiviti es, upheld the consti tutionality of b o t h t h e Harrison Act and the Marihuana Tax Act. United S tates v. Sanchez, 340 U.S. 42, 4 4 -4 5 (1950) (upholding Marihuana Tax Act and noting that “[i] t is bey ond serious question that a tax does
not cea se to be valid mere ly beca use it reg ulates, discourag es, or even definitely deter s the activities taxed”); United States v. Dore mus, 249 U.S. 86 (1919) (upholding Har rison Act).

Both the Har

rison Act and the Marihuana Tax Act wer e repe aled by the Comprehensive Drug Abuse Prevention and Control Act of 1970, Pub. L

. No. 91-513, 84 Stat. 1236 (1970). Prior to the

“ [ W ] h i l e t h e M a r i h u a n a T a x A c t d i d n o t d e c l a r e t h e d r u g i l l e g a l p e r s e , t h e o n e r o u s a d m i n i s t r a t i v e 11

r e q u i r e m e n t s , t h e p r o h i b i t i v e l y e x p e n s i v e t a x e s , a n d t h e r i s k s a t t e n d a n t o n c o m p l i a n c e p r a c t i c a l l y c u r t a i l e d t h e m a r i j u a n a
t r a d e

. ” G o n z a l e s , 5 4 5 U

. S

. a t 1 1

.



## -7-

## repe al of the Marihuana Tax Act, howeve r, the Supreme Court had the opportunity to once aga in

consider its const i t u t i o n al ramifica tions. Dr. Timothy L ear y , a former Har

vard profe ssor and notorious advoca

te for psy chede lic drug s, was convicted of knowing ly transporting

, conce aling and fac ilitating the transporta tion and conce alment of marijuana without pay ing the transfe r tax require d by the Marihuana Tax Act. L ear y v. United States, 395 U.S

. 6
, 1 1 (1 9 69). L ear y challeng ed his conviction, and the Court conclude d that “re ad acc ording to its terms, the Marihuana Tax Act compelled [L ear

y ] to expose himself to a ‘re al and appre ciable risk’ of self-inc rimination, within in the m eaning of our decisions i n M ar ch et t i

, Grosso and Hay nes.” L ear

y , 395 U.S. at 16. Be cause L ear y ’s invocation of the privileg e ag ainst self-inc rimination was proper and constituted a complete defe nse to the char g e of violating the Marihuana Tax Act, the Court reve rsed his conviction. I d. at 29. Although the 1970 Act was intended to repla ce the drug tax laws with “a compre hensive reg ime
to combat the international and interstate traff ic in illicit drug s,” Gonzales, 545 U.S. at 12, the shift in fede ral policy was also, at least in pa rt, a response to the Supreme Court’s reje ction in the L ear y

case of the feder al t axation scheme for ill eg al drugs. I d. at 11-12; F rey v. United States, 558 F.2d 270, 271 (5th Cir. 1977) (noting that althoug h L ear y did not hol d t h e M ar ihuana Tax Act to be unconstitutional, it “dea lt the

. . . Act a crippling blow in holding its order form requi rement amounted to self-inc rimination”). Since the 1970 Act beca me eff ective, the fede ral g overnme nt has used the criminal laws, rathe r than the tax code, to reg ulate the possession and trade of illega l drug s.

Although the taxation of illicit substances has fallen out of favor at the federal level, a number of states h av e passed drug stamp taxes, so named for the stamps that individuals who
possess or sell an unauthorized substance are required t o p u rchase from their state’s reve nue depar tment and af

fix to the substance. Unlike the fede ral drug tax laws, whic h wer e the pr imary 1 2 

## method of enfor cement ag ainst the drug trade

, the state drug stamp taxes co-e x ist with criminal
statutes that punish the possession and sale of drug s throug h the penal sy stem. The state drug stamp taxes, however, do sha

re one signific ant cha

rac teristic wit h their federa l counter parts, in that their constitutionalit y

has bee n challeng ed re peate dly in the courts.

Thirty of the other forty -nine states have p as s ed statutes that tax the possession or sale of unauthorized substances. Twenty -one of these thirty states have drug stamp taxi ng statutes that are still codified, while nine of the s t ates have subsequently repe aled leg islation requiring drug

1 3

S t a t e s , l i k e t h e f

e d e r a l g o v e r n m e n t , h a v e t a x e d i l l e g a l a c t i v i t i e s f o r m a n y y e a r s

. T h i s C o u r t h a s h e l d t h a t 12
i l l e g a l a c t i v i t y m a y b e t a x e d

, F o s t e r v

. S p e e d

, 1 1 1 S

. W

. 9 2 5
, 9 2 5

- 2 6 ( T e n n

. 1 9 0 8 )

, a n d t h a t t h e t a x a t i o n o f a n i l l e g a l

a c t i v i t y d o e s n o t g i v e t h e t a x p a y e r a l i c e n s e t o v i o l a t e t h e c r i m i n a l l a w s o f t h i s s t a t e

. B l a u f e l d v

. S t a t e , 5 3 S

. W

. 1 0 9 0
, 1 0 9 1

- 9 2 ( T e n n

. 1 8 9 9 ) ; P a l m e r v

. S t a t e , 1 3 S

. W

. 2 3 3
, 2 3 5 ( T e n n

. 1 8 9 0 )

. T h e d e c i s i o n i n F o s t e r d r e w u p o n a t r e a t i s e o n
t a x a t i o n w r i t t e n b y n o t e d c o n s t i t u t i o n a l s c h o l a r a n d M i c h i g a n S u p r e m e C o u r t J u s t i c e T h o m a s M

. C o o l e y

. S e e T h o m a s M

. C o o l e y , A T r e a t i s e o n t h e L a w o f T a x a t i o n 2 4 2 ( 3 d e d

. 1 9 0 3 ) ( n o t i n g t h a t “ o n e p u r p o s e o f t a x a t i o n s o m e t i m e s i s t o d i s c o u r a g e a b u s i n e s s , a n d p e r h a p s p u t i t o u t o f e x i s t e n c e ” )

. S e e a l s o Y o u n g b l o o d v

. S e x t o n , 3 2 M i c h

. 4 0 6
, 4 2 2 ( 1 8 7 5 ) ( C o o l e y , J

. )

.

A l a

. C o d e § § 4 0

- 1 7 A

- 1 t o

- 1 6 ( 2 0 0 3 ) ; C o n n

. G e n

. S t a t

. § § 1 2

- 6 5 0 t o

- 6 6 0 ( 2 0 0 8 ) ; G a

. C o d e A n n

. § § 4 8

- 1 5

- 1 13

t o

- 1 1 ( 2 0 0 5 ) ; I d a h o C o d e A n n

. § § 6 3

- 4 2 0 1 t o - 4 2 1 1 ( 2 0 0 7 ) ( a s a m e n d e d b y 1 9 9 0 I d a h o S e s s

. L a w s , c h

. 1 7 9
, § 1 ) ; 3 5
I l l

. C o m p

. S t a t

. 5 2 0 / 1

- 5 2 0 / 2 6 ( 2 0 0 6 ) ; I n d

. C o d e § § 6

- 7

- 3

- 1 t o

- 2 0 ( 2 0 0 7 ) ; I o w a C o d e A n n

. § § 4 5 3 B

. 1

- . 1 6 ( 2 0 0 6 ) ; K a n

. 

## (continued...)

-8-

## stamps. Of the twenty -three other state drug stamp taxes that have been considere d by state 1 4 

## appellate courts, eleve n have been upheld as constitutional. Twelve of the state drug stamp taxes, 1 5 

## howeve r, have been found to violate fede ral and state constitutional protec tions, most commonly the Fifth Amendment rig hts ag ainst self-inc rimination or double jeopar dy and their state equivalents. 1 6


## Four states have rec ently considere d, but reje cted, the idea of a tax on unauthorize d s u b s t ances, 1 7



## (...continued) 13

S t a t

. A n n

. § § 7 9

- 5 2 0 1 t o - 5 2 1 2 ( 1 9 9 7 & S u p p

. 2 0 0 8 ) ; K y

. R e v

. S t a t

. A n n

. § § 1 3 8

. 8 7 0

- . 8 8 9 ( 2 0 0 6 ) ; L a

. R e v

. S t a t

. A n n

. § § 4 7 : 2 6 0 1

- : 2 6 1 0 ( S u p p

. 2 0 0 9 ) ; M a s s

. G e n

. L a w s c h

. 6 4 K
, § § 1

- 1 4 ( 2 0 0 1 ) ; M i n n

. S t a t

. § § 2 9 7 D

. 0 1

- . 1 3 ( 2 0 0 7 ) ; N e b

. R e v

. S t a t

. § § 7 7

- 4 3 0 1 t o

- 4 3 1 6 ( 2 0 0 3 ) ; N e v

. R e v

. S t a t

. § § 3 7 2 A

. 0 1 0

- . 1 3 0 ( 1 9 9 7 ) ; N

. C

. G e n

. S t a t

. § § 1 0 5

- 1 1 3

. 1 0 5 t o

. 1 1 3 ( 2 0 0 7 ) ( a s a m e n d e d b y 1 9 9 5 N

. C

. S e s s

. L a w s , c h

. 3 4 0
, § 1
, e f f

. O c t

. 1
, 1 9 9 5 ; 1 9 9 7 N

. C

. S e s s

. L a w s c h

. 2 9 2
, § 1
,
e f f

. O c t

. 1
, 1 9 9 7 ; 1 9 9 8 N

. C

. S e s s

. L a w s c h

. 2 1 8
, e f f

. O c t

. 3 1
, 1 9 9 8 ) ; O k l a

. S t a t

. t i t

. 6 8
, § § 4 5 0

. 1

- . 9 ( 2 0 0 1 ) ; R

. I

. G e n

. L a w s § § 4 4

- 4 9

- 1 t o - 1 6 ( 2 0 0 5 ) ; S

. C

. C o d e A n n

. § § 1 2

- 2 1

- 5 0 1 0 t o

- 6 0 5 0 ( 2 0 0 0 ) ; T e x

. T a x C o d e A n n

. § § 1 5 9

. 0 0 1

- . 3 0 1 ( 2 0 0 8 ) ; U t a h C o d e A n n

. § § 5 9

- 1 9

- 1 0 1 t o

- 1 0 7 ( 2 0 0 8 ) ; W i s

. S t a t

. § § 1 3 9

. 8 7

- . 9 6 ( 2 0 0 9 ) ( a s a m e n d e d b y 1 9 9 7 W i s

. S e s s

. L a w s 2 7
, § 2 9 7 9 m , e f

f

. J a n

. 1
, 1 9 9 8 )

.

A r i z

. R e v

. S t a t

. § 4 2

- 3 4 0 1 t o

- 3 4 0 6 ( r e p e a l e d b y 1 9 9 8 A r i z

. S e s s

. L a w s 1 9 9 8
, C h

. 1
, § 1 5 7
, e f f

. J a n

. 1
, 1 9 9 9 ) ; 14
C o l o

. R e v

. S t a t

. § § 3 9

- 2 8

. 7

- 1 0 1 t o

- 1 0 9 ( r e p e a l e d b y 1 9 9 6 C o l o

. S e s s

. L a w s 1 9 9 6
, S

. B

. 9 6

- 1 3 3
, § 2
, e f f

. M a r

. 2 5
, 1 9 9 6 ) ; F l a

. S t a t

. § 2 1 2

. 0 5 0 5 ( r e p e a l e d b y 1 9 9 5 F l a

. L a w s 1 9 9 5
, c

. 9 5

- 1 4 0
, § 7
, e f f

. J u l y 1 0
, 1 9 9 5 ) ; M e

. R e v

. S t a t

. A n n

. t i t

. 3 6
, § § 4 4 3 3

- 4 4 3 6 ( r e p e a l e d b y 1 9 9 5 M e

. L a w s 1 9 9 5
, c

. 2 8 1
, § 2 4
, e f f

. J u n e 2 1
, 1 9 9 5 ) ; M i c h

. C o m p

. L a w s § § 3 3 5

. 3 0 1

- . 3 0 7 ( r e p e a l e d b y 1 9 7 8 M i c h

. P u b

. A c t s 1 9 7 8
, N o

. 3 6 8
, § 2 5 1 0 1
, e f f

. S e p t

. 3 0
, 1 9 7 8 ) ; M o n t

. C o d e A n n

. § § 1 5

- 2 5

- 1 0 1 t o

- 1 2 3 ( r e p e a l e d b y 1 9 9 5 M o n t

. L a w s S e c

. 7 4
, C h

. 1 8 ; S e c

. 4
, C h

. 4 4 6 ) ; N

. M

. S t a t

. § § 7

- 1 8 A

- 1 t o - 7 ( r e p e a l e d b y 1 9 9 5 N

. M

. L a w s 1 9 9 5
, c h

. 1 0 1
, § 1
, e f f

. J u l y 1
, 1 9 9 5 ) ; N

. D

. C e n t

. C o d e § § 5 7

- 3 6

. 1

- 0 1 t o

- 1 6 ( r e p e a l e d b y 1 9 9 5 N

. D

. L a w s , c h

. 5 4 5
, § 2
, e f f

. A u g

. 1
, 1 9 9 5 ) ; S

. D

. C o d i f i e d L a w s § 1 0

- 5 0 A ( r e p e a l e d b y 1 9 8 7 S

. D

. S e s s

. L a w s 1 9 8 7
, c h 1 1 1
, § § 1

- 1 5 )

.

S e e M i l n e r v

. S t a t e , 6 5 8 S o

. 2 d 5 0 0 ( A l a

. C i v

. A p p

. 1 9 9 4 ) ; C o v e l l i v

. C o m m ’ r o f R e v e n u e S e r v s

. , 6 6 8 A

. 2 d 15
6 9 9 ( C o n n

. 1 9 9 5 )

, v a c a t e d

, C o v e l l i v

. C r y s t a l

, 5 1 8 U

. S

. 1 0 3 1
, a f f ’ d o n r e m a n d

, C o v e l l i v

. C o m m ’ r o f R e v e n u e S e r v s

. , 6 8 3 A

. 2 d 7 3 7 ( C o n n

. 1 9 9 6 )

, c e r t

. d e n i e d

, C o v e l l i v

. C r y s t a l

, 5 2 0 U

. S

. 1 1 7 4 ( 1 9 9 7 ) ; S t a t e v

. L a n g e , 5 3 1 N

. W

. 2 d 1 0 8 ( I o w a 1 9 9 5 ) ; S t a t e v

. G u l l e d g e , 8 9 6 P

. 2 d 3 7 8 ( K a n

. 1 9 9 5 ) ; C o m m o n w e a l t h v

. B i r d

, 9 7 9 S

. W

. 2 d 9 1 5 ( K y

. 1 9 9 8 ) ; S i s s o n

v

. T r i p l e t t , 4 2 8 N

. W

. 2 d 5 6 5 ( M i n n

. 1 9 8 8 ) ; S t a t e v

. S t u b b l e f i e l d

, 5 4 3 N

. W

. 2 d 7 4 3 ( N e b

. 1 9 9 6 ) ; S t a t e v

. B a l l e n g e r , 4 7 2 S

. E

. 2 d 5 7 2 ( N

. C

. C t

. A p p

. 1 9 9 6 )

, a f f ’ d p e r c u r i a m , 4 8 1 S

. E

. 2 d 8 4 ( N

. C

. 1 9 9 7 ) ; W h i t e v

. S t a t e , 9 0 0 P

. 2 d 9 8 2 ( O k l a

. C r i m

. A p p

. 1 9 9 5 ) ; M c M u l l i n v

. S

. C

. D e p ’ t o f R e v e n u e & T a x a t i o n , 4 6 9 S

. E

. 2 d 6 0 0 ( S

. C

. 1 9 9 6 ) ; E x p a r t e W a r d

, 9 6 4 S

. W

. 2 d 6 1 7 ( T e x

. C r i m

. A p p

. 1 9 9 8 )

.

S e e S t a t e v

. M a u r e l l o , 9 3 2 P

. 2 d 8 5 1 ( C o l o

. C t

. A p p

. 1 9 9 7 ) ( d o u b l e j e o p a r d y ) ; F l a

. D e p ’ t o f R e v e n u e v

. H e r r e , 16
6 3 4 S o

. 2 d 6 1 8 ( F l a

. 1 9 9 4 ) ( s e l f

- i n c r i m i n a t i o n ) ; S t a t e v

. S m i t h

, 8 1 3 P

. 2 d 8 8 8 ( I d a h o 1 9 9 1 ) ( s e l f

- i n c r i m i n a t i o n ) ; W i l s o n

v

. D e p ’ t o f R e v e n u e , 6 6 2 N

. E

. 2 d 4 1 5 ( I l l

. 1 9 9 6 ) ( d o u b l e j e o p a r d y ) ; B r y a n t v

. S t a t e , 6 6 0 N

. E

. 2 d 2 9 0 ( I n d

. 1 9 9 5 ) ( d o u b l e j e o p a r d y ) ; C o m m ’ r o f R e v e n u e v

. M u l l i n s , 7 0 2 N

. E

. 2 d 1 ( M a s s

. 1 9 9 8 ) ( d o u b l e j e o p a r d y ) ; D e p ’ t o f R e v e n u e v

. K u r t h
R a n c h

, 5 1 1 U

. S

. 7 6 7 ( 1 9 9 4 ) ( d o u b l e j e o p a r d y ) ; D e s i m o n e v

. S t a t e , 9 9 6 P

. 2 d 4 0 5 ( N e v

. 2 0 0 0 ) ( d o u b l e j e o p a r d y ) ; N

. M

. T a x a t i o n & R e v e n u e D e p ’ t v

. W h i t e n e r , 8 6 9 P

. 2 d 8 2 9 ( N

. M

. C t

. A p p

. 1 9 9 3 ) ( d o u b l e j e o p a r d y ) ; S t a t e v

. R o b e r t s , 3 8 4
N

. W

. 2 d 6 8 8 ( S

. D

. 1 9 8 6 ) ( s e l f

- i n c r i m i n a t i o n ) ; B r u n n e r v

. C o l l e c t i o n D i v

. , 9 4 5 P

. 2 d 6 8 7 ( U t a h 1 9 9 7 ) ( d o u b l e j e o p a r d y ) ; S t a t e v

. H a l l

, 5 5 7 N

. W

. 2 d 7 7 8 ( W i s

. 1 9 9 7 ) ( s e l f

- i n c r i m i n a t i o n )

.

T h e s e f o u r s t a t e s a r e A r k a n s a s , s e e A r k a n s a s N e w s B u r e a u , B i l l t o T a x I l l e g a l D r u g s S t a l l s i n H o u s e 17
C o m m i t t e e ( M a r

. 2 1
, 2 0 0 7 )

, h t t p : / / w w w

. m p p

. o r g / s t a t e s / a r k a n s a s / n e w s / b i l l

- t o

- t a x

- i l l e g a l

- d r u g s

- s t a l l s

. h t m l ; M i s s i s s i p p i

,
s e e T e n n e s s e e D r u g D e a l e r s R e q u i r e d t o B u y T a x S t a m p s ( J u l y 1 3
, 2 0 0 5 )

, h t t p : / / w w w

. r e d o r b i t

. c o m / n e w s / h e a l t h / 1 7 3 1 7 2 /

t e n n e s s e e

_ d r u g

_ d e a l e r s

_ r e q u i r e d

_ t o

_ b u y

_ t a x

_ s t a m p s / ; N e w Y o r k

, s e e K e i t h B

. R i c h b u r g , N e w Y o r k ‘ C r a c k T a x ’
P r o p o s a l I s D e r i d e d

, W a s h i n g t o n P o s t , F e b

. 1 7
, 2 0 0 8
, a t A 0 5 ; a n d V i r g i n i a , s e e B a d B i l l s : D r u g T a x D i e s i n V i r g i n i a L e g i s l a t u r e , 4 7 2 D r u g W a r C h r o n i c l e ( F e b

. 9
, 2 0 0 7 )

, a v a i l a b l e a t h t t p : / / s t o p t h e d r u g w a r

. o r g / c h r o n i c l e / 4 7 2 / 

## (continued...)

-9-

## while the rema ining fiftee n states and the District of Columbi a do not appea r to have proposed such leg islation. 1 8



## B. Tenn essee ’s Tax on Unau thorize d Su bstances I t was in this leg islative environment that the Tenne ssee Gene ral Assembly considere d and passed a tax on unauthorized substances in 2004. The statute is codified in Chapter 4 of Title 67 1 9 

## of the Tenne ssee Code Annotated, which is entitled “Privileg e and Ex cis e Taxes.” The stated purpose of

the statute is “to g ener ate r evenue for state and local law enforce ment ag encie s for use by those ag encie s to investiga te, combat, preve nt and reduc e drug crimes, and for the g ener al fund.” Tenn. C o de Ann. § 67-4-2801 (2006). The statute levies “[a]n excise tax

. . . on unauthorized substances possessed, either actua lly or constructively

, by deale rs” at specifie d rate s for a varie ty of

enumer ated substances, including marijuana stems and stalks, marijuana plants, coca ine, “any other controlled substance or low-stree t-value drug ,” and illicit alcoholic bever ag es. Tenn. Code Ann. § 67-4-2803. “ Dea ler” is defined in the statute as “any of the following : (A) A pe rson who ac tually

or co n s t ructively possesses more than [t he presc ribed amounts of the enumer ated unauthorized substances]; or (B ) A person who

. . . possesses an illicit alcoholic bever ag e for sale.” Tenn. Code Ann. § 67-4-2802( 3) (2006). Significa ntly

, the statute define s “dea ler” only in terms of possession and levies the tax onl y

on unauthorized substance s possessed.

The enac tme n t p re s cr i bes a clea r proce dure for compliance

. Those in possession of the illegal d ru gs ar e require d to purcha se tax stamps issued by the Depa rtment of Revenue and
perma nently aff ix those stamps to the unauthorized substances in their possession in order to verify that they have paid the nec essar y tax. Tenn. Code Ann. §§ 67-4-2805( a), - 2806 (2006). “The tax is pay able wi thin forty -eig ht (48) hours afte r t he dealer acquire s actua l or constructive possession of a non-tax-paid unauthorized substance” ; o t h er wi se, “the tax will become delinquent and shall

acc rue penalty and int ere st.” Tenn. Code Ann. § 67-4-2806 (2006). The Department of Revenue will assess a tax ag ainst any “dea ler who possesses an unauthorized substance to which a stamp has
not been aff

ix ed.” Tenn. Code Ann. § 67-4-2807. “The deale r may seek revie w of the assessment

as provided in” Tenne ssee Code Annotated s ection 67-1-1801, et seq. I d. I f a local or state law enfor ceme nt ag ency in Tenne ssee seizes an unauthorized substance to wh i ch a tax stamp has not been a ffixed, the ag ency

must make a repor

t to the Commissioner within forty -eig ht hours. Tenn.

(...continued) 17
d r u g

_ t a x

_ b i l l

_ d i e s

_ i n

_ v i r g i n i a

_ l e g i s l a t u r e

.

T h e s t a t e s t h a t a p p a r e n t l y h a v e n o t f o r m a l l y p r o p o s e d o r o t h e r w i s e c o n s i d e r e d l e g i s l a t i o n t o t a x t h e p o s s e s s i o n 18

o r s a l e o f u n a u t h o r i z e d d r u g s i n c l u d e A l a s k a , C a l i f o r n i a , D e l a w a r e , H a w a i i

, M a r y l a n d

, M i s s o u r i

, N e w H a m p s h i r e , N e w J e r s e y , O h i o , O r e g o n , P e n n s y l v a n i a , V e r m o n t , W a s h i n g t o n , W e s t V i r g i n i a a n d W y o m i n g

.

B o t h t h e H o u s e s p o n s o r , C h a r l e s C u r t i s s ( D

- S p a r t a ) a n d t h e S e n a t e s p o n s o r , R a n d y M c N a l l y ( R

- O a k R i d g e )

, 19

s t r e s s e d t h a t s i m i l a r t a x e s h a d b e e n e n a c t e d i n “ t w e n t y

- s e v e n o t h e r s t a t e s ” a n d t h a t t h e l a n g u a g e o f t h e T e n n e s s e e l e g i s l a t i o n w a s p a t t e r n e d a f t e r t h e e x i s t i n g t a x i n N o r t h C a r o l i n a

. S e e , e

. g

. , S t a t e m e n t o f R e p

. C u r t i s s , H o u s e S e s s i o n , M a y 1 9
, 2 0 0 4 ; S t a t e m e n t o f S e n

. M c N a l l y , S e n a t e S e s s i o n , M a y 1 0
, 2 0 0 4

. S e n a t o r M c N a l l y a l s o o b s e r v e d t h a t “ t h e

r e a s o n f o r

. . . t h e t h r e s h o l d f

i g u r e s t h a t t r i g g e r t h e t a x [ a r e ] t h a t ’ s w h a t w a s u s e d i n t h e N o r t h C a r o l i n a s t a t u t e t h a t h a d b e e n s u c c e s s f

u l l y d e f e n d e d i n c o u r t

. ” S t a t e m e n t o f S e n

. M c N a l l y , S e n a t e S e s s i o n , M a y 2 0
, 2 0 0 4

.



## -10-

## Code Ann. § 67-4-2805( b). The “state or local law enfor ceme nt age n cy that conducte d the

investiga tion of a deale r that led to the assessment” will rec eive 75% of the tax proce eds when such

a repor t is made, with the rema ining 25% to be paid into the g ener al fund. Tenn. Code Ann. § 67-4- 2809(b)( 2).

Acc ording to a spokesper son for the Depa rtment of Revenue
, the enac tment of the tax on unauthorized substances require d the cre ation of a ten-pe rson tax ag ency at a one-time cost of $1.2 milli on. Cruz, Tenne ssee Targ ets Dea lers, Users with New L evy , The Tenne ssean, Dec

. 29, 2004, at 1A. The Depa

rtment of Reve nue foreca st the annual costs of enforce ment to be $800,000. I d. Data f rom the De partment of Re venue indicates that the total collec tions made under T ennesse e’s unauthorized substances tax were $298.30 in fiscal y ear (“F Y”) 2005, $884,851.49 in FY 2006, 2 0 

## $1,578,182.26 in FY 2007, $1,794,808.47 in FY 2008, and $756,819.59 throug h the first half of FY 2009. See Collections Summaries for June 2005, J une 2006, J une 2007, J une 2008 & Dec. 2008, available at http:// www.tenne ssee.g ov/reve nue/statistics/archives.htm#summ ariesarc h. The total
amount of collections over the first four y ear s of the tax’s exis tence was, t h er ef o re , j ust over $5 milli on. Of this $5 milli on in total collections, $3,07 0

. 6 7
, o r 0.06%, came from the voluntary

2 1 

## purcha se of tax stamps. I d. The rema ining 99.94% of collections came about afte r law enfor ceme nt
ag encie s s ei z ed unauthorized substances and the Depa rtment of Revenue subsequently levied assessments, pena lties and interest. I d.

Analysis Some initial commentar

y is in order befor e we beg in our analy sis. The use, possession, and sale of ill ega l drug s place an enormous burden upon our st ate and nation. The Office of National Drug Control Pol icy

estimated that betwee n 1988 and 2000, Americ ans spent betwee n $54 billion and $154 billion annually on illicit drugs. I n an ef fort to deter crime, our Gene ral Assembly has 2 2



## presc ribed leng thy sentenc es and hefty fines for individuals convicted of manufa cturing

, delivering

, or selling illega l drug s, or possessing illega l drug s for the purpose of manufa cture , delivery

, or sale. Tenn. Code Ann. § 39-17-417( b)-( j) (2006 & Supp. 2008)

. For example, the possession of 300 or

more g rams of coca ine with the intent to sell is a Class A felony with a fine of up to $500,000. Tenn. Code Ann. § 39-17-417(

j)(5). The possession of twenty -six g rams or more of coca ine with the intent to sell is a Class B felony

, subjecting the offe nder to a fine of up to $200,000. Te nn. Code Ann. § 39-17-417( I ). The possession of 0.5 g rams or more of coca ine with the intent to sell is a Class B

T e n n e s s e e ’ s f

i s c a l y e a r b e g i n s o n J u l y 1 a n d e x t e n d s t h r o u g h J u n e 3 0 o f t h e f o l l o w i n g y e a r

. B e c a u s e t h e t a x 20

o n u n a u t h o r i z e d s u b s t a n c e s b e c a m e e f f e c t i v e o n J a n u a r y 1
, 2 0 0 5
, t h e D e p a r t m e n t o f R e v e n u e m a d e c o l l e c t i o n s u n d e r
t h e t a x f o r o n l y t h e l a s t s i x m o n t h s o f F Y 2 0 0 5

.

T h e f i s c a l n o t e o n t h e S e n a t e v e r s i o n o f t h e l e g i s l a t i o n ( S

. B

. 2 4 1 9 ) p r o j e c t e d t h a t a n n u a l c o l l e c t i o n s u n d e r 21

t h e u n a u t h o r i z e d s u b s t a n c e s t a x w o u l d b e a p p r o x i m a t e l y $ 3

. 6 m i l l i o n

. S t a t e m e n t o f S e n

. M c N a l l y , S e n a t e F i n a n c e , W a y s & M e a n s C o m m i t t e e , A p r

. 6
, 2 0 0 4 ; s e e a l s o C r u z , T e n n e s s e e T a r g e t s D e a l e r s , U s e r s w i t h N e w L e v y , T h e T e n n e s s e a n , D e c

. 2 9
, 2 0 0 4
, a t 1 A



## .

O f f i c e o f N a t i o n a l D r u g C o n t r o l P o l i c y , W h a t A m e r i c a ’ s U s e r s S p e n d o n I l l e g a l D r u g s : 1 9 8 8

- 2 0 0 0
, a t 3 ( D e c

. 22

2 0 0 1 )

, a v a i l a b l e a t h t t p : / / w w w

. w h i t e h o u s e d r u g p o l i c y

. g o v / p u b l i c a t i o n s / p d f / a m e r i c a n

_ u s e r s

_ s p e n d

_ 2 0 0 2

. p d f

.



## -11-

## felony with a fine of as much as $100,000. Tenn. Code Ann. § 39-17-417( c)( 1). The cost for jails,

prisons, and law enfor ceme nt is substantial, and the expense of health car e and social service s is

enormous, but the rea l tr ag edy lies in the waste or loss of human life and its inevitably deleter ious eff ect upon family and friends. I n this context, our leg islature i s wo rt hy of commendation for its eff ort to defr ay th e co s t s incident to the strug g le ag ainst illega l drug s. Even under these circ umstances, howeve r, it is our duty to dispassionately apply the rule of law in a fair and impartial

manner , unsway ed by g enuine public conce rns, partisan interests, or fea r of c riticism. Tenn. Sup. Ct. R. 10, C anon 3(B )(2)

.

I. F ederal and State Constitutional Issu es Waters’ complaint contested the constitutionalit y of the unauthorized substances tax in light of the rig ht ag ainst self-inc rimination, the protec tion ag ainst double jeopar dy

, and the g uara ntee of
proce dural due proce ss. The trial court ruled on eac h of these issues, but the Court of Appea ls did
not addre ss them. As a means of avoiding any delay occa sioned by further litigation involving the same issues, we will consider these constitutional challeng es.

A. Self-In crim ination Waters contends that the tax on unauthorized substances violates his rig ht ag ainst compelled self-inc rimination under the fede ral and state constitutions. The trial court ag ree d, holding that the
tax “re quires that [W ater s] expose himself. I t require s that he take some action to say in some way that I am i n t h e proce ss or have committed a crime.” As indicated, the Court of Appea ls did not addre ss the issue.

The Fifth Amendment to the United States Constit ution provides, in part, that “[n] o person

. . . shall be compelled in any criminal case to be a witness ag ainst himself.” U.S. Const. amend. V. The Fifth Amendm en t p rivileg e ag ainst self-inc rimination applies to the states throug h the Four teenth Amendment. State v. Roge rs, 188 S.W .3d 593, 605 n.4 (Tenn. 2006) (citing Malloy v. Hog an, 378 U.S. 1
, 6 (1964))

. The Tenne ssee Constit ution simil arly g uara ntees “[t] hat in all criminal prosec utions, the acc used

. . . shal l n o t b e co mpelled to g ive evidenc e ag ainst himself.” Tenn. Const. ar

t. I
, § 9. Wit h reg ard to se lf-incr imination, this Court ha s “tra ditionally interpre ted article I
, § 9 to be no broade r than the Fifth Amendment.” State v. Martin, 950 S.W .2d 20, 23 (Tenn. 1997). Both the fede ral and state provisions “prote ct the acc used from being compelled to provide evidenc e of a testimonial or communicative nature ” that might later be used ag ainst him in a criminal

case

. I d.; see also Fisher v. United States, 425 U.S. 391, 408 (1976); State v. Walton, 41 S.W .3d 75, 87 (Tenn. 2001). Where the evidenc e is not of a testimonial or communicative nature , the protec tion
ag ainst self-incr imination is inapplicable. State v. Cole, 155 S.W.3d 885, 898-99 (Tenn. 2005)

.

As not ed

, t h e Un i ted States Supreme Court has previously found cer tain taxes on illega l activity to violate the Fifth Amendment protec tion ag ains t self-inc rimination. I n Marc hetti, the Court addre ssed the applicability of the privileg e in the context of an ex t en s i v e reg istration require ment rela ted to a fede ral occupational tax on wag ering

. T h e s t atutory scheme require d bookmaker s to submit a reg istration form to the I nterna l Revenue Service (“I RS”), which also serve d

as a tax return, indicating that they wer e eng ag ed in the business of acc epting wag ers and including

-12-

## both their persona l information and that of their ag ents and employ ees. Marc hetti, 390 U.S. at 42.

The I RS made this information available to state and fede ral law enfor ceme nt authorities, who
reg ularly used it in criminal prosec utions for g ambling offe nses. I d. at 47-48. Fur ther, bookmaker s

wer e require d to post a reve nue stamp, which denoted pay ment of the tax, “‘c onspicuously ’ in their principal plac es of business, or . . . on the ir persons.” I d. at 47.

I n Marc hetti, the hi g h Court ruled that the “centra l standard for the privileg e’s application has been whether the claimant is confr onted by substantial and ‘re al,’ and not mere l y t ri fl i n g o r imag inary

, hazards of incrimination.” I d. at 53. Although the Court reiter ated that the g overnme nt
may g ener ally tax illega l activities, it held that “eve ry portion of [t he statutory ] require ments” of the
tax on wag ering “had the d ir e c t a n d u n mi s takable conseque nce of incriminating ” the individuals who paid the tax. I d. at 49. Be cause reg istrants could “re asonably expect that reg istration and pay ment of the occupational ta x [would] signific antly enhanc e the likelihood of their prosec ution f or future acts, and [ wo u ld] rea dily provide evidenc e which [would] fac ilitate their convictions,” the
reg istration require ments violated the privileg e ag ainst self-inc rimination. I d. at 54; see also Grosso, 390 U.S. at 65-67. Simi larly

, in L ear y , the Court held t hat the transfe r tax provisions of the 2 3 

## Marihuana Tax Act “cr eate d a ‘re al and appre ciable’ hazard of incrimination” beca use compliance with those provisions would have require d Dr. L ear y to identify himself as a member of a “sele ctive
g roup inhere ntly

suspect of c riminal activities.” 395 U.S. at 18.

I n revie wing the constitutio n al i t y of their states’ drug stamp taxes, other state courts have deter mined that Marc hetti cre ated three “cr iteria for deter mining the constitutionalit y of a tax statute challeng ed on fifth amendment g rounds.” Sisson v. Triplett, 428 N.W.2d 565, 571 (Minn. 1988);

see also Br iney v. State Dep’ t of Revenue
, 594 So.2d 120, 122 (Ala. Civ. App. 1991); Whit e v. State, 900 P.2d 982, 988-89 (Okla. Crim. App. 1995); State v. Ha ll, 557 N.W.2d 778, 784 (Wis. 1997). The thre e Mar chetti “pr ong s” ar e as f ollows:

(1) whether the reg

ulated activity is in an are a “per meated with criminal sta t u t es , ” and the tax aimed at individuals “inhere ntly suspect of c riminal activities”[;]

(2) whether an individual is require d, under pain of criminal prosec ution, to provide information which the individual might rea sonably suppose would be available to
prosec uting a

uthorities[ ; and]

“ T a k i n g i t s c u e f

r o m t h e l a n g u a g e ” i n M a r c h e t t i a n d G r o s s o , C o n g r e s s m a d e s e v e r a l c h a n g e s t o t h e f e d e r a l 23

t a x o n w a g e r i n g i n 1 9 7 4
, i n c l u d i n g : ( 1 ) d e l e t i n g t h e r e q u i r e m e n t t h a t r e g i s t r a n t s c o n s p i c u o u s l y d i s p l a y t h e i r t a x s t a m p

o r p r o d u c e i t u p o n d e m a n d ; ( 2 ) n o l o n g e r r e q u i r i n g l o c a l I R S o f f i c e s t o p r o v i d e w a g e r i n g t a x i n f o r m a t i o n t o l o c a l l a w

e n f o r c e m e n t a g e n c i e s ; a n d ( 3 ) e n a c t i n g s p e c i f i c r e s t r i c t i o n s u p o n t h e d i s c l o s u r e a n d u s e o f w a g e r i n g t a x i n f o r m a t i o n

. U n i t e d S t a t e s v

. S a h a d i

, 5 5 5 F

. 2 d 2 3
, 2 5 ( 2 d C i r

. 1 9 7 7 )

. “ T h e 1 9 7 4 r e v i s i o n s o f t h e f e d e r a l w a g e r i n g t a x l a w s a n d t h e

c o n c o m i t a n t c h a n g e i n T r e a s u r y D e p a r t m e n t p r a c t i c e s

. . . e l i m i n a t e d t h e ‘ r e a l a n d a p p r e c i a b l e ’ h a z a r d s o f

s e l f

- i n c r i m i n a t i o n t h a t e x i s t e d u n d e r t h e p r i o r l a w

. ” U n i t e d S t a t e s v

. U

. S

. C u r r e n c y , 6 2 6 F

. 2 d 1 1
, 1 3 ( 6 t h C i r

. 1 9 8 0 ) ( q u o t i n g S a h a d i

, 5 5 5 F

. 2 d a t 2 7 )



## .

-13-

## (3) whether such information would prove a signific ant link in a chain of evidence tending to establish guilt.

Sisson, 428 N.W.2d at 571 (quoting Marc hetti, 390 U.S. at 47-48). When apply ing either these three specific elements or the broade r “ce ntral standard” of whether compliance wi t h t h e t ax cre ates substantial and rea l hazards of incrimination, some state courts have held that t h e information taxpay ers wer e require d to provide under their states’ drug stamp taxes violated the privileg e ag ainst self-inc rimination. See, e.g ., Fla. Dep’ t of Revenue v

. Herre, 634 So.2d 618, 620 (F la. 1994) (holding that the confide ntiality provisions of the drug tax statute wer e undermined by a provision allowin g the Depa

rtment of Revenue to rele ase taxpay ers’ information “to state and fede ral law enfor ceme nt officia ls as long as those officia ls prese nt a subpoena” ); State v. Roberts, 384 N.W.2d 688, 691 (S.D. 1986) (“We believe the clea r import of [t he drug stamp tax statute] is to incriminate, and thus the chapte r is u n co n s t i t u t ional.”); Hall, 557 N.W.2d at 787 (holding that the statute’s purcha se and aff

ix ation require ments both unconstitutionally compelled s elf-inc rimination). Conversely

, other courts have upheld state drug stamp taxes in the fac e of constitutional challeng es based on the privileg e ag ainst self-inc rimination afte r deter mining that the information obtained by

reve nue authorit i es as a result of the pay ment of the tax (1) was confide ntial, (2) could not be divulge d to the law enfor ceme nt authorities, an d (3) could not be used in subsequent criminal
prosec utions except t hose for violations of the tax statute itself. See, e.g ., Br iney

, 594 So.2d at 122-23 (obser

ving that the statute contained “nothing less t h an an absolute exclusionary rule, wher eby any information that the Depa rtment improperly discloses is inadmissible unless it is obtained from an other source ”); State v. Durra nt, 769 P.2d 1174, 1183 (Ka n. 1989); Sisson, 428 N.W.2d at 574 (Minn. 1988); State v. Gar za, 496 N.W.2d 448, 455 (Ne b. 1993); Whit e, 900 P.2d at 988-91; Z issi v. S tate Ta x Comm’n, 842 P.2d 848, 857 (Utah 1992).

The Tenne ssee Gene ral Assembly included specific lang uag e in this state’s tax on unauthorized substances in an eff ort to avoid a proce ss violative of the privileg e ag ainst selfincrimination. By the terms of the leg islation, all information reg arding possession of unauthorized substances that is obtained in connec tion with th e voluntary pay ment of the tax must rema in “conf idential and, unless independe ntly obtained, may not be used in a criminal prosec ution.” Tenn. Code Ann. § 67-4-2808 (Supp. 2004). Either disclosure or the i m p ro per inspection of tax 2 4 

## information by a Depa

rtment of Revenue employ ee constitutes a criminal offe nse. Tenn. Code Ann. §§ 67-1-1709( a), (c) (2006). Finally

, “[d] eale rs are not require d to g ive their name, addre ss, social

secur ity number, or other identify ing inf o rm at i on on the form” they fill out to reque st the s tamps, and “[t] axes may be paid and stamps may be issued either by mail or in person.” Tenn. Code Ann. § 67-4-2805( a). Our c omparison of these provisions with those enacte d in other states lea ds us to

T h e t r i a l c o u r t e x p r e s s e d c o n c e r n s a b o u t t h e p h r a s e “ u n l e s s i n d e p e n d e n t l y o b t a i n e d

, ” s t a t i n g t h a t “ t h e 24

a r g u m e n t t h a t [ W a t e r s ] c a n d o t h i s a n d s u f f e r n o c o n s e q u e n c e s , u n l e s s t h e i n f o r m a t i o n a b o u t w h a t h e h a s d o n e i s i n d e p e n d e n t l y o b t a i n e d

, a l w a y s r u n s t h e r i s k t h a t

. . . i t ’ s o b t a i n e d b y s o m e o n e w h o ’ s n o t

. . . a n e m p l o y e e o f t h e s t a t e

o r e n g a g e d i n l a w e n f

o r c e m e n t , b u t o b t a i n e d f r o m s o m e p r i v a t e p e r s o n , p e r h a p s i n h i s o w n h o m e o r a f r i e n d o r s o m e o n e i n t h e c o m m u n i t y , w h o t h e n r e p o r t s i t

. ” O f n o t e i s t h a t t h e G e n e r a l A s s e m b l y r e m o v e d t h i s e x c e p t i o n t o t h e

c o n f i d e n t i a l i t y r e q u i r e m e n t i n 2 0 0 7 b y d e l e t i n g t h e p h r a s e f r o m t h e s t a t u t e

. 2 0 0 7 T e n n

. P u b

. A c t s 9 7 7 ( c o d i f i e d a t T e n n

. C o d e A n n

. § 6 7

- 4

- 2 8 0 8 ( S u p p

. 2 0 0 8 ) )

.



## -14-

## conclude that Tenne ssee’ s drug stamp tax is more closely alig ned with those statutory provisions that

have sur vived constitutional challeng es g rounded in the pr ivilege ag ainst self-incr imination.

Waters relies upon the Wis consin Supreme Court’s opinion in Hall as supp o rt fo r his contention that Tenne ssee’ s tax on unauthorized substances violates his rig ht ag ainst selfincrimination. I n that case , Wis consin’s hi g hest court held that both the act of pur chasing the tax stamps and the require ments t h at the stamps be aff ix ed to and display ed upon the illega l drug s violated the privileg e ag ainst self-inc rimination. Hall, 557 N.W.2d at 785-87. Wis consin’s law, “on its fac e, only provide[d] a deal er with protec tion from direc t–not deriva tive–use of information obtained by the [Department of Revenue ] throug h compliance with the statute. I d. at 787. I n our 2 5 

## view, Tenne ssee’ s tax is differ ent. Most signific antly

, Wis consin’s taxi ng s t at u te contained no protec tions ag ainst the disclosure of the taxpay er’ s information, either to la w enfor ceme nt of

fice rs

or in subsequent criminal proce eding s unrela ted to the pay ment of the tax. I n contra st, the provisions of Tenne ssee Code Annotated section 67-4-2808 do contain such safe g uards. Fur ther, althoug h the Tenne ssee statute require s that the s t am p s be aff ix ed, our statute provides that “[s] tamps issued pursuant to this part may not be used in a criminal prosec u t i o n other than a prosec ution for a violation of this part.” Tenn. Code Ann. 67-4-2808. Thus, while a possessor o f i l l ega l d ru gs in Tenne ssee is require d to purcha se and aff ix the revenue stamp, the s tate may not use t he presence of the stamp as evidenc e in a criminal prosec ution for the possession or sale of illega l drug s. Contra Hall, 557 N.W.2d at 78 6 (c h ara cter izi ng Wis consin’s affix ation require ment as “an incriminating testimonial communication that the deale r knowing ly and intentional l y p o s s esses a particula r quantity of unlawf

ul drug s”).

I n summary , Tenne ssee’ s tax on unauthorized substances ensure s that the acquisition of drug stamps is anony

mous, that any in fo rm at ion obtained by the Depa rtment of Revenue must rema in confide ntial and cannot be disclosed to law enfor ceme nt, and that t h e p o s s es sion or use of drug stamps ma

y not be used as part of cr iminal investigation or prosec ution. Thus, the pay ment of the
tax under these circ u m s t an ces does not cre ate a substantial, rea l and appre ciable hazard of selfincrimination. Moreove r, although t he tax is aimed at individuals “inher ently suspect of cr iminal activities,” the confide ntiality provisions of the statute ensure that the information is not to be used in a criminal prosec ution, will not be made available to law enfor ceme nt or prosec uting authorities, and ca n n o t b ecome a si g nificant li nk in a chain of evidence tending to establish a viol ation of t he criminal laws prohibiting d ru g p o ssession and sale. I n conseque nce, the imposit ion of the tax on

N o t a b l y , t h e W i s c o n s i n l e g i s l a t u r e f o l l o w e d t h e s u g g e s t i o n o f i t s s t a t e ’ s s u p r e m e c o u r t i n H a l l a n d a d o p t e d

, 25

“ a l m o s t v e r b a t i m , ” t h e c o n f i d e n t i a l i t y p r o v i s i o n s i n t h e d r u g t a x s t a t u t e o f i t s n e i g h b o r , M i n n e s o t a

. S t a t e v

. J o n e s , 6 5 1
N

. W

. 2 d 3 0 5
, 3 1 5 ( W i s

. C t

. A p p

. 2 0 0 2 ) ( c i t i n g H a l l

, 5 5 7 N

. W

. 2 d a t 7 9 1 ; 1 9 9 7 W i s

. S e s s

. L a w s 2 7
, § 2 9 7 9 m , e f f

. J a n

. 1
, 1 9 9 8 )

. T h e C o u r t o f A p p e a l s o f W i s c o n s i n s u b s e q u e n t l y h e l d t h a t t h e a m e n d e d l a n g u a g e s h o u l d b e c o n s t r u e d

c o n s i s t e n t l y w i t h t h e W i s c o n s i n l e g i s l a t u r e ’ s i n t e n t f o r i t t o “ r e m e d y t h e c o m p e l l e d s e l f

- i n c r i m i n a t i o n p r o b l e m i d e n t i f i e d i n H a l l

. ” J o n e s , 6 5 1 N

. W

. 2 d a t 3 1 5

. T h e I d a h o l e g i s l a t u r e l i k e w i s e a d d e d a c o n f i d e n t i a l i t y p r o v i s i o n t o i t s d r u g t a x

s t a t u t e i n o r d e r t o p a s s c o n s t i t u t i o n a l m u s t e r

. S t a t e v

. S m i t h

, 8 1 3 P

. 2 d 8 8 8
, 8 9 0 ( I d a h o 1 9 9 1 ) ( h o l d i n g t h a t t h e

a m e n d m e n t s o f 1 9 9 0 I d a h o S e s s

. L a w s , c h

. 1 7 9
, § 1 c u r e d t h e s e l f

- i n c r i m i n a t i o n d e f

i c i e n c i e s i n t h e o r i g i n a l s t a t u t e ) ; H a r m s v

. C o n w a y , N o

. C V 0 6

- 3 4

- S

- L M B
, 2 0 0 7 W L 2 2 6 5 1 1 6
, a t * 6 ( D

. I d a h o A u g

. 6
, 2 0 0 7 ) ( s a m e )

.



## -15-

## Waters does not viola t e h is privileg e ag ainst self-inc rimination under either the United States or

Tenne ssee Constitution.

B. Doub le Jeopardy Waters also asser

ted that T en nessee ’s tax on unauthorized substances violated state and fede ral constitutional prote ctions ag ainst double jeopar dy

. At the conclusion of the hear ing on the decla ratory judgme nt suit, th e tr ia l c o u rt deter mined that the statute imposed a criminal penalty rathe r than a civil sanction and assessed a tax far in excess of the amount Waters paid for the illega l drug s, both of which are key components in a double jeopar dy analy sis. Be cause , howeve r, a jury had not been empane led in a criminal prosec ution, the trial court held that Waters had not y et been exposed to double jeopar dy

.

J eopar dy attache s when a g uilty plea is unco n d i t i o n al l y acc epted by a trial court. State v. Todd, 654 S.W .2d 379, 383 (Tenn. 1983). Her e, Waters enter ed a g uilty plea to the criminal char g e

on J anuar y 29, 2008, well afte r the assessment of the tax. Be cause it is undisputed that Waters was eventua lly exposed to criminal punishment for his misdeeds, howeve r, principles of judicial eff iciency sug g est that we a ddress the double jeopar dy claim.

Both the Fifth Amendment to the United States Constit ution a nd article I
, section 10 of the Tenne ssee Constit ution provide that no person shall, “for the same offe nce

. . . be twice put in jeopar dy of life or limb.” “Thre e fundame ntal protec tions are encompa ssed in the p ri nciple of double jeopar dy : ‘(1) protec ti o n a g a in s t a s e c ond prosec ution afte r an acquittal; (2) protec tion ag ainst

a second prosec ution afte r conviction; and (3) protec tion ag ainst multipl e punishments for the same offe nse.’” State v. Thompson,

__ S.W .3d __, __, 2009 WL 1228309, at *6 (Tenn. 2009) (quoting State v. Denton, 938 S.W .2d at 373, 378 (Tenn. 1996)). As to the third of these protec tions, the one that might apply in this case , the United States Supreme Court has “long rec og nized that the Double J eopar dy Clause does not prohibit the imposit ion of all additional sanctions that could, ‘in common parla nce,’ be descr ibed as punishment.” Hudson v. United States, 522 U.S. 93, 98-99 (1997) (quoting United States ex rel. Marc us v. Hess, 317 U.S. 537, 549 (1943)) ; see also Moore v. I llinois

, 55 U.S. 13, 19 (1852). I nstead, “[t] he Clause protec ts only aga i n s t the imposit ion of multipl e criminal punishments for the same offe nse, and then o n l y when such occur s in succe ssive
proce ed i n gs

. ” Huds on, 522 U.S. at 99 (interna l citations omitted); see also State v. Conley

, 639 S.W .2d 435, 436 (Tenn. 1982) (“[N]ot eve ry depriva tion visited upon one who violates the state’s laws is to be considere d ‘punishment’ for purposes of apply ing the double jeopar dy clause .”); Metro. Gov’t of Nashville & Davids on County v. Miles, 524 S.W .2d 656, 660 (Tenn. 1975) (“[O]nly actions i n t en ded to authorize criminal punishment as distinguished from reme dial actions subject t h e defe ndant to ‘jeopa

rdy .’” (quoting Cushway v. State Ba r, 170 S.E.2d 732, 736 (Ga

. Ct. App. 1969)))

.

The key issue for our consideration, t h er ef o re, is whether the imposit ion of the tax on unauthorized substances qualifies as a “civil” or “cr iminal” penalty

. I f the latter, Waters could not lawfully have been subjected to a second “ prosec ution.” To answe r this question, we will employ
two simil ar and overla

pping tests that wer e develope d by the Uni ted States Supreme Court and

-16-

## applied rec ently to the unauthorized substances tax by our Court of Criminal Appea ls. See State v.

Shields, No. W 2007-01861-CCA-R9-CD, 2008 WL 4491739 (Tenn. Crim. App. Oc t. 7, 2008).

The first of these tests is a two-prong ed, multi-factore d analy sis used to deter mine whether
any action by the state is criminal or civil in nature

. This deter mination is, “at least initially

, a matter of statutory construction.” That is, w e must a scer tain “whe ther the leg islature, ‘in establishing the penalizi n g m ec h anism, indicated either expressly or impliedly a pref ere nce for one label or the other.’” Hudson, 522 U.S. at 99 (quoting United States v. Ward, 448 U.S. 242, 248 (1980))

. I f the leg islature intended to establish a criminal punishment

, t h en the inquiry ends, beca use the punishment qualifies as a crimin al penalty for purposes of double jeopar dy

. I f, howeve r, the leg islature intended to establish a civil penalty

, our duty is to revie w the statutory scheme to ensure that it is not “ so punitive[ ,] either in pur pose or eff

ect,” as to turn the intended civil sanction into a criminal punishment. Hudson, 522 U.S. at 99 (quoting Ward, 448 U.S. at 248-49). The following fac tors g uide our c onsideration:

(1) “ [w] hether

the sanc tion involves an aff irmative disability

or re straint”;

(2) “ whether

it has historically

been r eg arde d as a punishment”;

(3) “ whether

it comes into play

only on a findingof scienter ”;

(4) “whe ther its opera tion will promote the t ra ditional aims of punishment

- retribution and de terre nce” ;

(5) “ whether

the beha vior to which it applies is alrea dy a cr ime”;

(6) “whe ther an alterna tive purpose to which it may rationally b e connec ted is assig nable f

or it”; and

(7) “ whether

it appear s excessive in relation to the alter native purpose assig ned.”

Hudson, 522 U.S. at 99-100 (quoting Kenne dy v. Mendoza-Mar tinez, 372 U.S. 144, 168-69 (1963)) ;

see also Shields, 2008 WL 4491739, at *2. No one of these g uideposts should be considere d dispositi ve, “as they ‘may often point in differ ent di rec tions.’” Hudson, 522 U.S. at 101 (quoting Kenne dy

, 372 U.S. at 169). Howeve r, “‘only the clea rest proof’ will suffice to overr ide leg islative intent a nd transfor

m w hat has been denominated a civil re medy into a criminal penalty .” Hudson, 522 U.S. at 100 (quoting Ward, 448 U.S. at 249). 2 6

T h e t w o

- p r o n g e d H u d s o n / K e n n e d y a n a l y s i s i s a n a l o g o u s t o t h e t e s t f o r d e t e r m i n i n g w h e t h e r f o r f e i t u r e 26

c o n s t i t u t e s c r i m i n a l p u n i s h m e n t t h a t w a s s e t f o r t h i n U n i t e d S t a t e s v

. U r s e r y , 5 1 8 U

. S

. 2 6 7
, 2 8 8 ( 1 9 9 6 )

, a n d a p p l i e d

u n d e r T e n n e s s e e l a w b y t h i s C o u r t i n S t u a r t v

. S t a t e D e p ’ t o f S a f e t y , 9 6 3 S

. W

. 2 d 2 8
, 3 2

- 3 4 ( T e n n

. 1 9 9 8 )

.


## -17-

## Our a naly sis does not end with our consideration of the Hudson/Kenne dy fac tors. Our tax

on unauthorized substances must be compar ed with the taxi ng statute that was at issue in Depa rtment of Revenue v. Kurth Ranch, 511 U.S. 767 (1994). I n Kurth Ranch, the United States Supreme Court, for the first time, invalidated a tax statute on the g rounds that it abridg ed the Fifth Amendment rig ht
ag ainst double jeopar dy . I d. at 780-83. The Court observed tha t Montana’s Dang erous Drug Tax Act had a “re marka

bly high” tax rate and was intended, “bey ond question,” to deter the possession 2 7 

## of marijuana

. I d. at 780-81. The Montana statute also exhibi ted two “unusual fea tures” that “set [i t]
apar t from most taxes” and, the Court ruled, crosse d t h e l i n e b etween a civil tax and criminal punishment. I d. at 781. First, Montana’s drug stamp tax “not only hinge [d] on the commission of

a crime,” but also was exacted only afte r the arr est of the taxpay er “for the prec ise conduct that g ives rise to the t ax obliga

tion in the first place .” I d

. S ec o n d, the t ax was im posed “on ‘possession’ of
g oods that no longe r exist[ ed] and that the taxpay er never lawfully possessed.” I d. at 783. Whil e

none of the four fea tures was nece ssarily dispositi ve, their combi nation cre ated a tax that was “a

concoc tio n o f an o malies, too far -re moved in cruc ial respe cts from a standard tax assessment to

esca pe cha rac terization as punishment for the purpose of double jeopa rdy analy sis.” I d.

After the Kurth Ranch opini on, sever al s tate courts rul ed that their st ate drug stamp taxes, when considere d along with the criminal laws prohibiting possession and sale of u n au t h o rized substances, violated double jeopar dy principles. See, e.g ., Wil son v. Dep’ t of Revenue
, 662 N.E.2d 415, 419-21 (I ll. 1996) ; B ry ant v. State, 660 N.E.2d 290, 296-97 (I nd. 1995); Comm’r of Revenue

v. Mullins, 702 N.E.2d 1, 5-8 (Mass. 1998); Desimone v. State, 996 P.2d 405, 410-11 (Ne v. 2000); Br unner v. Collection Div., 945 P.2d 687, 689-91 (Utah 1997). Other state courts, howeve r, conclude d that their tax on illega l dr ug s did not contain the “unusua l fea tures” of the Montana ta x and rejecte d double j eopar dy challeng es based upon Kurth R anch. See, e.g.
, M i l n er v

. State, 658 So.2d 500, 502 (Ala. Civ. App. 1994); Covelli v. Comm’r of Revenue Servs., 668 A.2d 699, 703-07 (Conn. 1995), v ac ated, Covelli v. Cry stal, 518 U.S. 1031 (1996), aff ’d on rema

nd, Covelli v. Comm’r of Revenue Servs., 683 A.2d 737 (Conn. 1996), cer t. de nied, Covelli v. Cry stal, 520 U.S. 1174 (1997); State v. L ang e, 531 N.W.2d 108, 116-17 (I owa 1995); State v. Gulledg e, 896 P.2d 378, 389 (Ka n. 1995); Commonwealth v. Bird, 979 S.W .2d 915, 917 (Ky . 1998); State v. Stubblefield, 543 N.W.2d 743, 748 (Neb. 1996); State v. B alleng er, 472 S.E.2d 572, 575 (N.C. Ct. App. 1996), aff ’d per curia m 481 S.E.2d 84 (N.C. 1997); McMullin v. S.C. Dep’ t of Revenue and Taxation, 469 S.E.2d 600, 602-03 (S.C. 1996).

The Hudson case , which was decide d afte r Kurth Ranch, overr uled United States v. Halper

, 490 U.S. 435 (1989), a decision relied upon by the Kurth Ranch majority

. Neve rtheless, the Hudson Court rea ffirme d the vitality of Kurth Ranch, indicating by footnote that “a Kennedy -like test” had been applied in Kurth Ranch befor e striking down the drug tax as “the fu n ct i o n al eq u i valent of a

succe ssive criminal prosec ution.” Hudson, 522 U.S. at 102 n.6 (quoting Kurth Ranch, 511 U.S. at 784); see also Shields, 2008 WL 4491739, at *2 n.1. Moreove r, while Hudson dealt with the civil

or criminal nature of state actions in g ener al, Kurth Ranch considere d the propriety of the very ty pe of law–a state drug stamp tax–t hat is at issue here

. We will, there fore

, consider both whether

M o n t

. C o d e A n n

. § § 1 5

- 2 5

- 1 0 1 t o

- 1 2 3 ( r e p e a l e d b y 1 9 9 5 M o n t

. L a w s § 7 4
, c h

. 1 8 ; § 4
, c h

. 4 4 6 )



## . 27



## -18-

## Tenne ssee’ s tax on unauthorized substances is a civil sanction rathe r than a criminal penalty under

the Hudson/ Kenne dy fac tors and whe ther the ta x is sufficiently distinguishable from the M ontana drug stamp tax that the Supreme Court invalidate d in Kurth Ranch.

1. Hud son/Kennedy Analysi s As stated, un d er Huds on, the threshold inquiry is whether our Gene ral Assembly char acte rized the tax on unauthorized substances as civil rathe r than criminal in nature

. I n our view, the statute passes this qualify ing standard. I nitially

, the terms of Tenne ssee Code Annotated section 67-4-2801 specific ally provide that the purpose of the taxi ng statute is “to g ener ate reve nue for state and local law enfor ceme nt ag encie s for use by those age n cies to investiga te, combat, preve nt and reduc e drug crimes, and for the g ener al fund.” Secondly

, the tax is pay able within forty -eig ht hours of the acquisition of the unauthorized substance, whether actua l or constructive. Tenn. Code Ann. § 67-4-2806. Thirdly

, the leg islation include s a statement that the enfor ceme nt of the tax shall not interfe re with criminal prosec utions. See Tenn. Code Ann. § 67-4-2801 (“N othing in this part may in any manner provide im munity fro m cr i m i nal prosecution for a person who possesses an illega l substance.” ); Tenn. Code Ann. § 67-4-2810 (2006) (“The provisi o n s o f t his part shall not be construed to confe r any immunit y from criminal prosec ution or conviction for a violation of title 39, chapte r 17, part 4, upon any person who voluntarily pay s the tax imposed by this p ar t o r who otherwise complies with the provisions of this part.” ). Finally

, the leg islative history buttresses the plain lang uag e of the statute by indicating that the Gene ral Assembly intended to cr eate a civil sanction. 2 8



## Next, we shall consider eac h of the seven Hudson/Kenne dy g uideposts. The first two fac tors

are rela ted: “[w]hether the sanction involves an aff irmative disability or restra int” and “whe ther it has historically been reg arde d as a punishment.” Fr o m a h i s t orica l perspe ctive, money penalties have not be en viewe d as punishment. Hudson, 522 U.S. at 104 (citing Helver ing v. Mitche ll, 303 U.S. 39 1
, 4 0 0 (1 9 3 8 )). “[A]ffirmative disability or restra int,” in the ordinary use of the term, is something akin to “the ‘infamous punishment’ of imprisonment.” Hudson, 522 U.S. at 104 (quoting Flemming v. Nestor, 363 U.S. 603, 617 (1960))

. As our Court of Criminal Appea ls has conclude d, “[p] ay ment of a tax bear s littl e rese mblance to the depriva tion of one’s liberty when incar cer ated.” Shields, 2008 WL 4491739, at *3. The first two fac tors, there fore

, weig h in favor of the tax being classified a s a civil reme dy rathe r than a

criminal pena lty

.

T h e t hird fac tor is whether the tax on unauthorized substances comes into play only o n a finding of scienter
, or knowledge of wrongdoing

. I f so, the l eg islation is more li kely to implicate double jeopar dy principles. Tenne ssee’ s taxi ng statute does not contain a scienter require ment. To the contra ry , it imposes strict liability on “dea lers,” who are define d only in terms of their possession

I n r e s p o n s e t o a q u e r y f r o m R e p r e s e n t a t i v e B o b M c K e e ( R

- N i o t a ) a s t o w h e t h e r t h e p r o p o s e d t a x o n 28

u n a u t h o r i z e d s u b s t a n c e s “ j u s t a d d s a n o t h e r l e v e l o f p u n i s h m e n t , ” R e p

. C u r t i s s r e s p o n d e d t h a t t h e t a x w o u l d b e “ g o i n g

a t t h e m f r o m t h e c i v i l s i d e

. . . . ” S t a t e m e n t o f R e p

. C u r t i s s , H o u s e F i n a n c e , W a y s & M e a n s C o m m i t t e e , M a y 1 8
, 2 0 0 4

.


## -19-

## of cer

t ai n s p ecif

ied amounts of unauthorized substances. Tenn. Code Ann. § 67-4-2801. This supports a finding that the tax qualifies as a c ivil sanction. 2 9



## The fourth Hudson/Kenne dy g ui d epost addre sses whether the opera tion of the tax on unauthorized substances “will promote the traditional aims of punishment,” namely retribution and deter renc e. This prese nts a more difficult question for this Court. On one hand, the stated purpose of the tax is to g ener ate reve nue for state and local law enfor ceme nt ag encie s in order to reduc e the
costs o f co m b at i n g illega l drug s. Tenn. Code Ann. § 67-4-2801. This would sug g est that the purpose of

the tax is neither de terre nce nor retribution. On the other hand, deter renc e is “ [t ]he a ct

or proce ss of discourag ing cer tain behavior

, particula

rly by fea r,” Bla ck’s L aw Dictionary 481 (8th ed. 2004), and by this definition, the i mpositi on of t ax on unauthorized substance s has a deterre nt
purpose on the possession of those substances that is simil ar to that of other “sin taxes” that
g overnme nts en ac t. I mportantly

, howeve r, the Supreme Court has expressly indicated that 3 0 

## “dete rre nce ‘may serve civil as well as criminal g oals.’” Hudson, 522 U.S. at 105 (quoting Urser y , 518 U.S. at 292). Ba sed upon this direc tive, we believe that the fourth fac tor is either neutra l or mildly retributive, which would sug g est a purpose more criminal in nature in the doubl e j eopar dy analy sis.

Be cause possession of the amount of the controlled substances presc ribed in Tenne ssee Code Annotated section 67-4-2802( 3) is a crime in Tenne ssee, the fifth fac tor is more clea rly an indication that the taxi ng statute imposes a criminal penalty

. Of course , the United States Supreme Court held in Hudson that the fact that the conduc t for which money penalties and debar ment sanctions were imposed was alr eady

a crime was “insuffic ient to r ender [t hem] criminally

punitive particular ly

in the double jeopar dy context.” 522 U.S. at 105 (citations omitted). Even though both the fourth and fifth fac tors wer e sug g estive of a criminal penalty in Hudson, the Court never theless conclude d that “ther e simply [was] very littl e showing

, to say nothing of the ‘cle are st proof’ require d by W ard ,” that
t h e p en alt ies and sanctions in question wer e more criminal than civil, there by implicating doub l e jeopar dy . I d.

The six th fac tor considers whether th ere exis ts an alterna tive purpose to which the tax on unauthorized substances may rationally be connec ted. We have alre ady observe d that the tax is both

T h e d i s s e n t ’ s p r o p o s e d c o n s t r u c t i o n o f t h e t a x i n g s t a t u t e w o u l d a t t a c h a n i n f e r e n c e o f s c i e n t e r

– a n i n t e n t t o 29

s e l l o r d i s t r i b u t e c o n t r o l l e d s u b s t a n c e s

– t o t h e p o s s e s s i o n o f c e r t a i n q u a n t i t i e s o f t h o s e s u b s t a n c e s

. S u c h a r e a d i n g w o u l d

s u g g e s t t h a t t h e t a x i s m o r e a c r i m i n a l p u n i s h m e n t t h a n a c i v i l p e n a l t y , a t l e a s t w i t h r e g a r d t o t h i s t h i r d f a c t o r o f t h e H u d s o n / K e n n e d y t e s t

.

S e e , e

. g

. , S a m a n t h a K

. G r a f f

, S t a t e T a x a t i o n o f O n l i n e T o b a c c o S a l e s : C i r c u m v e n t i n g t h e A r c h a i c B r i g h t L i n e 30

P e n n e d B y Q u i l l

, 5 8 F l a

. L

. R e v

. 3 7 5
, 3 7 9 ( 2 0 0 6 ) ( n o t i n g t h a t s i n t a x e s “ d e t e r b u y e r s f r o m i n d u l g i n g i n h a r m f u l p r o d u c t s b y m a k i n g t h o s e p r o d u c t s m o r e e x p e n s i v e t o o b t a i n ” ) ; E d u a r d o M o i s é s P e ñ a l v e r , R e g u l a t o r y T a k i n g s , 1 0 4 C o l u m

. L

. R e v

. 2 1 8 2
, 2 2 0 3 n

. 9 4 ( 2 0 0 4 ) ( “ B e c a u s e t h e a c t i v i t i e s c o v e r e d b y s i n t a x e s a r e t y p i c a l l y f r o w n e d u p o n ( o f

t e n , t h o u g h n o t

a l w a y s , b e c a u s e o f t h e i r p e r c e i v e d h a r m f u l e f f e c t s )

, s i n t a x e s a r e o f

t e n a i m e d a s m u c h a t d i s c o u r a g i n g t h e t a r g e t e d b e h a v i o r b y m a k i n g i t m o r e e x p e n s i v e a s t h e y a r e a t r a i s i n g r e v e n u e

. ” ) ; s e e a l s o K u r t h R a n c h

, 5 1 1 U

. S

. a t 7 9 1 ( R e h n q u i s t , C

. J

. , d i s s e n t i n g ) ( a r g u i n g t h a t “ [ w ] h e n c o m p a r e d t o s i m i l a r t y p e s o f ‘ s i n ’ t a x e s o n i t e m s s u c h a s a l c o h o l a n d

c i g a r e t t e s , ” t h e M o n t a n a d r u g s t a m p t a x w a s n o t “ s o h i g h t h a t i t c a n o n l y b e e x p l a i n e d a s s e r v i n g a p u n i t i v e p u r p o s e ” )

.



## -20-

## a civil t ax i n g m easure contributing to the g ener al reve nue fund and a civil reme dial measure

desig ned to mitigate ag ainst the enormous costs of law enfor ceme nt rela ted to drug control for state and local g overnme nt. I n fac t, the se dual purposes a ppear to be the driving forc es behind the ta x

. When a law enfor ceme nt ag ency conducts an investiga tion that leads to a tax assessment, the ag ency

rec eives 75% of t he revenue reg ardle ss o f wh et h er any criminal charg es are filed. The remaining 25% become s a part of the State’s g ener al fund. Tenn. Code Ann. § 67-4-2809( b)(2 ). Al l o f the funds voluntarily paid under Tenne ssee’ s tax on unauthorized substances g o direc tly into the g ener al fund. Tenn. Code Ann. § 67-4-2809( c). Be cause the g ener ation of reve nue is a leg itimate, alterna tive purpose, this six th fac tor weig hs in favor of the tax being c lassified as c ivil in nature.

The seventh and final Hudson/Kenne dy g uidepos t is whether the tax on unauthorized substances appea

rs excessive in r elation to the civil pur pose assig ned to it. Waters asser ts that the tax is excessive beca

use he paid $12,000 for the kilogr am of coca ine and was then assessed with a tax, penalties and interest totaling over $55,000. The trial court ag ree d, holding that the tax was “an
att em p t t o fo rc e h i m t o pay an amount of money

. . . far in excess of value of the item that he obtained, . . . a kilo of c ocaine , for whic h he paid $12,000.”

I nitially

, the amount of that Waters paid for the coca ine, $12,000, was not the “value of the item that he obtained.” The unre futed testimony at the hea

ring established the street value for the

coca ine at approximately $100 per g ram. The “re tail” marke t value of the kilogr am of coca ine, then, approximated $100,000. Thus, the tax rate of $50 per g ram set b y s ection 67-4-2803( a)( 4) 3 1 

## translates to a

pproxi mately

50% of the ma

rket va lue of the pr oduct.

I n o u r v i ew, a tax of $50 per g ram of coca ine is not excessive when compar ed to its civil
purpose – g ener ating reve nue to fund the drug control eff orts of law enfor ceme nt. I n her dissenting opinion in Kurth Ranch, J ustice O’Connor wrote that “[t] he State and Fe dera l Gover nments spend
vast su m s on drug control activities,” and that the state “has a leg itimate nonpunitive interest in defr ay ing the costs of such a ctivities.” 511 U.S. at 794 (O’Connor, J
., dissenting)

. Gover nmental expenditures for drug control at the t ime of Ku rt h Ranch were significa nt. I d. (obser

ving that the Bur eau of J ustice Statist ics at the United States Depa rtment of J ustice estimated that approximately $27 billion was spent on drug control in 1991). Today

, we can safe ly specula te that law enfor ceme nt
costs attributable to dr

ug control are even g rea ter. Given the enormity of these costs, Waters has 3 2

T h e w h o l e s a l e p r i c e o f p o w d e r c o c a i n e i n D e c e m b e r 2 0 0 6 i n K n o x v i l l e w a s b e t w e e n $ 2 0
, 0 0 0 a n d $ 2 4
, 0 0 0 31

p e r k i l o g r a m , o r $ 2 0 t o $ 2 4 p e r g r a m

. U

. S

. D e p ’ t o f J u s t i c e , N a t i o n a l I l l i c i t D r u g P r i c e s : D e c e m b e r 2 0 0 6
, T a b l e 3 : P o w d e r C o c a i n e , a t 1 0 ( F e b

. 2 0 0 7 )

, a v a i l a b l e a t h t t p : / / w w w

. m e t h a d o n e s u p p o r t

. o r g / D r u g P r i c e s

. p d f

. T h i s w h o l e s a l e v a l u e i s a p p r o x i m a t e l y d o u b l e t h e p r i c e o f $ 1 2
, 0 0 0
, o r $ 1 2 p e r g r a m , t h a t W a t e r s p a i d f o r t h e d r u g s

.

F o r e x a m p l e , t h e f

e d e r a l e x e c u t i v e b r a n c h h a s r e q u e s t e d o v e r $ 1 5 b i l l i o n t o s u p p o r t i t s N a t i o n a l D r u g C o n t r o l 32

S t r a t e g y i n F Y 2 0 1 0
, a p p r o x i m a t e l y $ 3

. 5 b i l l i o n o f w h i c h i s t a r g e t e d t o w a r d s d o m e s t i c l a w e n f o r c e m e n t

. T h e s e f

i g u r e s

r e p r e s e n t a n i n c r e a s e f r o m t h e f

i n a l b u d g e t o f $ 1 3

. 3 b i l l i o n f o r t h e e n t i r e p r o g r a m a n d $ 3

. 5 b i l l i o n f o r d o m e s t i c l a w

e n f o r c e m e n t i n F Y 2 0 0 8

. O f f i c e o f N a t i o n a l D r u g C o n t r o l P o l i c y , N a t i o n a l D r u g C o n t r o l S t r a t e g y : F Y 2 0 1 0 B u d g e t S u m m a r y , T a b l e 1 : F e d e r a l D r u g C o n t r o l S p e n d i n g b y F u n c t i o n , a v a i l a b l e a t 

## (continued...)

-21-

## failed to clea rly establish that the amount of the tax on unauthorized substances is excessive. Thus, the seve nth fac tor weig hs in favor of the classific ation of the leg islation as a civil reme dy

.
Having considere d the Hudson/Kenne dy g uideposts, we h ave deter mined that five of the fac tors weig h in favor of the tax on unauthorized substances being classified as a civil sanction, one fac tor weig hs toward the tax being a criminal penalty

, and one fac tor is either neutra l or marg inally on the side of the statute qualify ing as a criminal penalty

. As the Court of Criminal Appe als ruled in Shields, we hold “that the leg islative intent that the tax is c ivil ra ther than criminal in nature has
not been overc ome by

. . . ‘the clea rest proof,’ ” as is require d under law. 2008 WL 4491739, at *7. By application of the Hudson/Kenne dy standard, Tenne ssee’ s tax on unauthorized substances does not, theref

ore, qua lify

as a c riminal punishment.

2. Kurt h Ranch Anal ysis We now turn to whether Tenne ssee’ s tax on unauthorized substances is sufficiently di s t i n gu i s hable from the Montana tax that the Supreme Court invalidated in Kurth Ranch. I f our taxi ng statute contains the “unusual fea tures” prese nt in t h e M o n t ana tax, then the assessment qualifies as c riminal for double je opardy purposes.

I n Kurth R anch, the Supreme Court observe d that Montana had enac ted a rate of taxation of more than 400% of the marke t va lue of marijuana and 800% of the value of “shake ” (the stems, leave s, an d other loose parts of the marijuana plant). 511 U.S. at 774 & n.12, 780 & n.17. I t char acte rized the tax ra te as “re marka bly high” and as “unriva led” by any other jurisdiction. I d. at

(...continued) 32

h t t p : / / w w w

. w h i t e h o u s e d r u g p o l i c y

. g o v / p u b l i c a t i o n s / p o l i c y / 1 0 b u d g e t / i n d e x

. h t m l ( l a s t v i s i t e d J u n e 9
, 2 0 0 9 )

. I n F Y 2 0 0 6
, t o t a l f e d e r a l c r i m i n a l j u s t i c e e x p e n d i t u r e s e x c e e d e d $ 3 6 b i l l i o n

. T h a t a m o u n t w a s d w a r f e d b y s t a t e a n d l o c a l s p e n d i n g

o n l a w e n f

o r c e m e n t i n 2 0 0 6
, w h i c h w a s a p p r o x i m a t e l y $ 6 9 b i l l i o n a n d $ 1 0 4 b i l l i o n , r e s p e c t i v e l y

. U

. S

. D e p a r t m e n t o f
J u s t i c e , O f

f i c e o f J u s t i c e P r o g r a m s , B u r e a u o f J u s t i c e S t a t i s t i c s , D i r e c t E x p e n d i t u r e b y L e v e l o f G o v e r n m e n t , 1 9 8 2

- 2 0 0 6
, a v a i l a b l e a t h t t p : / / w w w

. o j p

. u s d o j

. g o v / b j s / g l a n c e / t a b l e s / e x p g o v t a b

. h t m ( l a s t v i s i t e d J u n e 9
, 2 0 0 9 )

.

T h e S t a t e o f T e n n e s s e e a n d i t s l o c a l c o m m u n i t i e s h a v e n o t b e e n i m m u n e f r o m t h e s e h i g h c o s t s

. I n 2 0 0 0
, t h e e x p e n d i t u r e s

o f t h e T e n n e s s e e D e p a r t m e n t o f S a f e t y w e r e n e a r l y $ 1 4 0 m i l l i o n

. I n a d d i t i o n , t h e c o m b i n e d e x p e n d i t u r e s o f t h e S h e l b y C o u n t y S h e r i f

f ’ s D e p a r t m e n t a n d M e m p h i s P o l i c e D e p a r t m e n t e x c e e d e d $ 2 3 3 m i l l i o n , t h e e x p e n d i t u r e s o f t h e N a s h v i l l e / D a v i d s o n C o u n t y M e t r o p o l i t a n P o l i c e D e p a r t m e n t e x c e e d e d $ 1 0 1 m i l l i o n , t h e c o m b i n e d e x p e n d i t u r e s o f t h e K n o x C o u n t y S h e r i f

f ’ s D e p a r t m e n t a n d K n o x v i l l e P o l i c e D e p a r t m e n t e x c e e d e d $ 5 0 m i l l i o n , a n d t h e c o m b i n e d

e x p e n d i t u r e s o f t h e H a m i l t o n C o u n t y S h e r i f f ’ s D e p a r t m e n t a n d C h a t t a n o o g a P o l i c e D e p a r t m e n t w e r e n e a r l y $ 4 7 m i l l i o n

. B r i a n A

. R e a v e s & M a t t h e w J

. H i c k m a n , B u r e a u o f J u s t i c e S t a t i s t i c s , L a w E n f o r c e m e n t M a n a g e m e n t a n d A d m i n i s t r a t i v e S t a t i s t i c s , 2 0 0 0 : D a t a f

o r I n d i v i d u a l S t a t e a n d L o c a l A g e n c i e s w i t h 1 0 0 o r M o r e O f f i c e r s 5 8

- 5 9
, 2 4 5 ( 2 0 0 4 )

, a v a i l a b l e

a t h t t p : / / w w w

. o j p

. u s d o j

. g o v / b j s / p u b / p d f / l e m a 0 0 2 a

. p d f a n d h t t p : / / w w w

. o j p

. u s d o j

. g o v / b j s / p u b / p d f / l e m a 0 0 2 b

. p d f

. “ S t a t e

a n d l o c a l g o v e r n m e n t e x p e n d i t u r e s f o r d r u g e n f

o r c e m e n t a r e s u b s t a n t i a l b u t m o r e d i f f i c u l t t o d e t e r m i n e w i t h p r e c i s i o n

. ”
J u a n R

. T o r r u e l l a , T h e “ W a r o n D r u g s ” : O n e J u d g e ’ s A t t e m p t a t a R a t i o n a l D i s c u s s i o n , 1 4 Y a l e J

. o n R e g

. 2 3 5
, 2 4 2 ( 1 9 9 7 )

.

A s n o t e d

, t h e t o t a l a m o u n t o f r e v e n u e s f r o m t h e t a x o n u n a u t h o r i z e d s u b s t a n c e s o v e r t h e f i r s t f o u r y e a r s o f t h e t a x 's

e x i s t e n c e w a s j u s t o v e r $ 5 m i l l i o n

.



## -22-

## 780 & n

. 1 7

. The Court also found it to be “bey ond question” “[t] hat the Montana L eg islature

intended the tax to deter pe ople from possessing marijuana .” I d. at 780.

Of note is that the 50% tax rate on coca ine imposed by our leg islation is far less than the rate s of taxation considere d by the high cour t in Kurth Ranch. Fur ther, as we have observe d, the Tenne ssee Gene ral Assembly passed the tax on unauthorized substances, at least in part, to deter the possession of illega l drug s. We do not find these fac ts to be dispositi ve, howeve r, beca use the Court expressly indicated that “neither a high rate of tax at i o n n or an obvious deter rent purpose automatically marks this tax as a form of punishment.” I n fac t, “many taxes that are presumed valid, such as taxes on cig are ttes and alcohol, are also both high [i n amount] and motivated to some extent by an interest in deter

renc e.” I d. at 780-81. “Thus, while a high tax rate and deter rent purpose lend 3 3 

## support to the char acte rization of the drug tax as punishment, the se fea tures, in and of themselves, do not nece ssarily

rende r the tax puniti ve.” I d. at 781.

The two “unusual fea tures” that led the Court to invalidate the Montana Dang erous Drug Tax

as v i o lative of the rig ht ag ainst double jeopar dy are of even g rea ter signific ance that the rate o f taxation or any deter

rent purposes. First, the Montana tax “not only hinge [d] on the commission of

a cr ime,” but also wa s “exacted only afte r the taxpay er ha [d] been a rre sted for the prec ise conduc t that g [ave] rise to the tax obligation in the first place .” Kurth Ranch, 511 U.S. a t 781. That is, the Mon t an a taxpay er had “no obliga tion to file a return or pay any tax unless and until he [was]

arr ested,” id. at 771, meaning that those “ar rested for possessing marijuana constitute[d] the entire class of taxpay ers subject to the Montana tax.” I d. at 782. The second “unusual fea tu re ” o f the Montana tax was that it only applied to drug s that had been seized afte r an arr est. I n conseque nce, the tax was levied only upon g oods that the taxpay er neither owned nor possessed at the time it was imposed. I d. at 783. The Court observe d that “[a] tax on ‘possession’ of g oods that no longe r exis t and that the taxpay er never lawfully possessed has an unmistakable punitiv e ch ar ac t er.” I d. The Court also found i t “cur ious” that one of the two alterna tive measure s of t he Mont ana tax was the marke t va lue of marijuana

, a substance that, of course , could not be lawfully sold. I d. at 783 n.23.

B y w a y o f c o m p a r i s o n , T e n n e s s e e r a i s e d i t s s t a t e e x c i s e t a x o n c i g a r e t t e s f r o m $ 0

. 2 0 t o $ 0

. 6 2 p e r p a c k 33

e f f e c t i v e J u l y 1
, 2 0 0 7

. 2 0 0 7 T e n n

. P u b

. A c t s 4 8 8

- 8 9

. C o n s i d e r i n g a l l s u c h s t a t e t a x e s a s o f J u l y 1
, 2 0 0 9
, T e n n e s s e e ’ s
t a x r a n k s t h i r t y

- n i n t h a m o n g t h e f i f t y s t a t e s a n d t h e D i s t r i c t o f C o l u m b i a , a n d i s l e s s t h a n h a l f o f t h e a v e r a g e s t a t e e x c i s e
t a x o f $ 1

. 2 7 p e r p a c k

. C a m p a i g n f o r T o b a c c o

- F r e e K i d s , S t a t e C i g a r e t t e E x c i s e T a x R a t e s & R a n k i n g s ( u p d a t e d M a y 2 8
, 2 0 0 9 )

, a v a i l a b l e a t h t t p : / / w w w

. t o b a c c o f r e e k i d s

. o r g / r e s e a r c h / f

a c t s h e e t s / i n d e x

. p h p ? C a t e g o r y I D = 1 8

. T h e a v e r a g e r e t a i l

p r i c e p e r p a c k o f c i g a r e t t e s i n T e n n e s s e e w i t h a l l t a x e s i n c l u d e d

, i n c l u d i n g t h e $ 1

. 0 1 p e r p a c k f e d e r a l t a x , i s $ 4

. 3 6

. C a m p a i g n f

o r T o b a c c o

- F r e e K i d s , S t a t e E x c i s e a n d S a l e s T a x e s P e r P a c k o f C i g a r e t t e s : T o t a l A m o u n t s a n d S t a t e R a n k i n g s ( u p d a t e d M a y 2 8
, 2 0 0 9 )

, a v a i l a b l e a t h t t p : / / w w w

. t o b a c c o f r e e k i d s

. o r g / r e s e a r c h / f

a c t s h e e t s / i n d e x

. p h p ? C a t e g o r y I D = 1 8

. T h u s , e v e n T e n n e s s e e ’ s c o m p a r a t i v e l y s m a l l c i g a r e t t e e x c i s e t a x a m o u n t s t o o v e r 1 4 % o f t h e a v e r a g e

r e t a i l p r i c e p e r p a c k

. W h e n o n e t a k e s i n t o a c c o u n t t h e T e n n e s s e e s a l e s t a x o f 8

. 5 %
, w h i c h a l s o a p p l i e s t o c i g a r e t t e s , s e e i d

. , s t a t e t a x e s a r e r e s p o n s i b l e f o r 2 2 % o f t h e a v e r a g e r e t a i l p r i c e p e r p a c k o f c i g a r e t t e s i n T e n n e s s e e

.



## -23-

## Be cause Tenne ssee’ s tax on unauthorized substances was modeled afte r the drug stamp tax

in our neighboring state of North C arolina, that state’s ex perie nce with its statute in the wake of 3 4 

## Kurth Ranch is particula

rly instructive. The North Carolina drug stamp tax was first enac t ed in 1989. The Fourth C i rc u it Court of Appeals, invoking Kurth Ranch, held that the original version of North Carolina’s drug tax statute was a criminal penalty rathe r than a civil tax. L y nn v. West, 134 F.3d 582, 589-93 (4th Cir

. 1 9 98), cer t. denied 525 U.S. 813 (1998). The tax has since been 3 5 

## amende d t h ree times. Moreove r, North Carolina’s courts have distinguished their state’s drug 3 6 

## stamp tax from the Montana tax i nvalidated in Kur

th Ranch:

The North Carolina Controlled Substance T ax , as it was in eff ect at all times pertinent to this case

. . . contains neither of the “ unusual features” upon w hich t he Supreme Court relied in Kurth Ranch to conclude that Montana’s dang erous drug tax constituted punishment for double jeopar dy purposes. The No rt h C arolina Controlled Substance Tax is not predic ated upon whether the taxpay er in possession of the controlled substance has been arr ested or char g ed with criminal conduct, nor is it assessed on proper

ty that nece ssarily has been confiscated or destroy ed.

. . . The
tax obliga tion is not conting ent upon the deale r’s arr est which, in the normal course of events, would result in the confiscation and destruction of the substance. The deale r can satisfy his tax obliga tion by pay ing the tax upon acquisition of the substance and by then permanent l y aff ix ing thereto stamps issued by the S ecr etar y of Revenue to indicate pay ment. So long as the stamps rema in aff ix ed, no additional
tax is there afte r due ev en though the substance may be handled by other deale rs. Be cause the North Carolina tax become s pay able within forty -eig ht hours after the taxpay er comes into possession of the substance, it is not a tax on confiscated g oods,

S u p r a n o t e 1 9 ; B o n n a d e l a C r u z , T e n n e s s e e T a r g e t s D e a l e r s , U s e r s w i t h N e w L e v y , T h e T e n n e s s e a n , D e c

. 34

2 9
, 2 0 0 4
, a t 1 A

.

L y n n a d d r e s s e d N o r t h C a r o l i n a ’ s d r u g s t a m p t a x i n t h e c o n t e x t o f a s u i t c l a i m i n g a d e p r i v a t i o n o f c i v i l r i g h t s 35

u n d e r 4 2 U

. S

. C

. § 1 9 8 3

. 1 3 4 F

. 3 d a t 5 8 3

- 8 4

. T h e F o u r t h C i r c u i t ’ s u l t i m a t e h o l d i n g w a s t h a t b e c a u s e N o r t h C a r o l i n a ’ s d r u g t a x i s a c r i m i n a l p e n a l t y , a l l p r o c e e d i n g s t o e n f o r c e i t m u s t i n c l u d e t h e c o n s t i t u t i o n a l s a f e g u a r d s t h a t a t t a c h t o

c r i m i n a l p r o c e e d i n g s

. I d

. a t 5 9 3

.

N

. C

. G e n

. S t a t

. § § 1 0 5

- 1 1 3

. 1 0 5 t o

. 1 1 3 ( a s a m e n d e d b y 1 9 9 5 N

. C

. S e s s

. L a w s , c h

. 3 4 0
, § 1
, e f f

. O c t

. 1
, 1 9 9 5 ; 36

1 9 9 7 N

. C

. S e s s

. L a w s c h

. 2 9 2
, § 1
, e f f

. O c t

. 1
, 1 9 9 7 ; 1 9 9 8 N

. C

. S e s s

. L a w s c h

. 2 1 8
, e f f

. O c t

. 3 1
, 1 9 9 8 )

. T h e N o r t h C a r o l i n a G e n e r a l A s s e m b l y d e s i g n e d a m e n d m e n t s t o t h e s t a t u t e i n b o t h 1 9 9 5 a n d 1 9 9 8 s p e c i f i c a l l y t o a d d r e s s t h e

c o n c e r n s o f t h e S u p r e m e C o u r t a n d t h e F o u r t h C i r c u i t a n d t o m a k e t h e s t a t u t e l e s s p u n i t i v e f o r d o u b l e j e o p a r d y p u r p o s e s

. T h e p r e a m b l e t o t h e 1 9 9 8 a m e n d m e n t s t o t h e l a w s t a t e s , i n p a r t :

W h e r e a s , u p o n f

u r t h e r c h a l l e n g e i n t h e f e d e r a l c o u r t s , t h e c o n t r o l l e d s u b s t a n c e t a x w a s f o u n d i n 1 9 9 8

t o b e a c r i m i n a l p e n a l t y , a n d t h e U n i t e d S t a t e s S u p r e m e C o u r t l e t t h e f e d e r a l r u l i n g s t a n d

. . . i t i s , t h e r e f o r e , t h e i n t e n t o f t h e N o r t h C a r o l i n a G e n e r a l A s s e m b l y t o m o d i f y t h e t a x i n a c c o r d a n c e w i t h t h e

r e c e n t f e d e r a l c o u r t r u l i n g , s o t h a t t h e t a x m a y c o n t i n u e t o b e a s s e s s e d i n a m a n n e r c o n s i s t e n t w i t h t h e l a w a s i n t e r p r e t e d b y t h e f e d e r a l c o u r t s

.

N

. C

. S e s s

. L a w s 1 9 9 8

- 2 1 8

.



## -24-

## as was the case wit h the M ontana tax , which became due onl y upon the t axpay er’ s

arr est for posse ssion of the substance

. . . .

* * *

We hold th at t h e North Carolina Controlled Substance Tax does not have such fundame ntally punitive char acte ristics as to rende r it violati v e o f the prohibition
ag ainst multipl e punishments for the same offe nse contained in the Double J eopar dy Clause.

Ba lleng er, 472 S.E.2d at 574-75 (empha sis added) (i n te r n al citations omitted); see also Shields, 2008 WL 4491739, at *6 (discussing the interpre tation of the North Carolina tax). Subsequent opinions have rea ffirme d Ba lleng er and indicated that the Fourth Circuit’s char acte rization of the North Carolina drug stamp tax as a criminal penalty is not binding on their state’s courts. Most rec ently

, 3 7



## a fede ral district court held that the amende d No rth Carolina statute is a civil tax, not a criminal penalty

. Houg h v. Mozi ng o, No. 1:04 CV 609, 2005 WL 1168462, at *7-8 (M.D

. N. C

. Ap r. 29, 2005); see also Nivens v. Gilchrist, 319 F.3d 151, 155- 58 (4th Cir. 2003) (discussing at leng th the amendments to North Carolina’s drug stamp tax and holding that L y nn was not controlling in a case involving the post-1995 ve rsion of the tax).

The u nauthorized substances tax in Tenne ssee contains the same provisions that have distinguished the North Carolina drug stamp tax from the invalidated Montana tax. L ike the North Carolina law, those “dea lers” in Tenne s s ee who acquir e actua l or constructive possession of an unauthorized substance on which taxes have not been paid are require d to purcha se tax stamps from the Depa rtment of Revenue within forty -eig ht hours and perma nently aff ix those stamps to the unauthorized substanc es in their possession. Compare Tenn. Code Ann. § 67-4-2806 with N.C. Gen. Stat. § 105-113.109. Thus, unlike the Montana tax, Tenne ssee’ s statutory scheme require s prompt
pay ment of t he t ax u p o n coming into possession of t he unauthoriz ed subst ance

. Tenne ssee’ s tax, there fore

, is not conting ent on an arr est. To the contra ry , a “de aler ” owe s the tax even if he or she is never arr ested. I n fac t, the Depa rtment of Revenue may as s es s t h e t ax even if no criminal 3 8

N

. C

. S c h

. B d s

. A s s ’ n v

. M o o r e , 6 1 4 S

. E

. 2 d 5 0 4
, 5 1 5

- 1 6 ( N

. C

. 2 0 0 5 ) ( r e a f f i r m i n g B a l l e n g e r ) ; S t a t e v

. C r e a s o n , 37

4 7 3 S

. E

. 2 d 7 7 1
, 7 7 2 ( N

. C

. C t

. A p p

. 1 9 9 6 )

, a f f ’ d p e r c u r i a m 4 8 4 S

. E

. 2 d 5 2 5 ( N

. C

. 1 9 9 7 ) ( s a m e ) ; S t a t e v

. A d a m s , 5 1 3 S

. E

. 2 d 5 8 8
, 5 8 9 ( N

. C

. C t

. A p p

. 1 9 9 9 ) ( a f f i r m i n g B a l l e n g e r a n d C r e a s o n i n l i g h t o f t h e F o u r t h C i r c u i t ’ s d e c i s i o n i n L y n n ,
w h i c h i s n o t b i n d i n g o n N o r t h C a r o l i n a s t a t e c o u r t s ) ; M i l l i g a n v

. S t a t e , 5 2 2 S

. E

. 2 d 3 3 0
, 3 3 1

- 3 2 & n

. 2 ( N

. C

. C t

. A p p

. 1 9 9 9 ) ( r e i t e r a t i n g t h a t t h e d r u g t a x i s n o t a c r i m i n a l p e n a l t y a n d L y n n i s n o t b i n d i n g )



## .

T h e l e g i s l a t i v e h i s t o r y e s t a b l i s h e s t h a t t h e b i l l ’ s s p o n s o r s d i d n o t a n t i c i p a t e t h a t m a n y d r u g d e a l e r s w o u l d p a y 38

t h e t a x a h e a d o f a r r e s t a n d p r o s e c u t i o n

. M o r e o v e r , D e p a r t m e n t o f R e v e n u e s t a t i s t i c s r e v e a l t h a t o n l y a v e r y s m a l l f r a c t i o n o f c o l l e c t i o n s s t e m f r o m t h e v o l u n t a r y p u r c h a s e o f d r u g s t a m p s

. H o w e v e r , t h e f a c t t h a t “ m a n y d e a l e r s r e f u s e
t o p a y t h e t a x d o e s n o t t r a n s f o r m t h e t a x i n t o o n e a s s e s s e d o n l y u p o n c r i m i n a l p r o s e c u t i o n

. ” S i m p s o n v

. B o u k e r , 2 4 9
F

. 3 d 1 2 0 4
, 1 2 1 1 ( 1 0 t h C i r

. 2 0 0 1 ) ( a d d r e s s i n g K a n s a s ’ s d r u g s t a m p t a x i n t h e c o n t e x t o f a p e t i t i o n f o r w r i t o f h a b e a s

c o r p u s a n d h o l d i n g t h a t S t a t e v

. J e n s e n , 9 1 5 P

. 2 d 1 0 9 ( K a n

. 1 9 9 6 )

, w h i c h u p h e l d t h e t a x i n l i g h t o f K u r t h R a n c h

, w a s

a l s o c o n s i s t e n t w i t h t h e a n a l y s i s i n H u d s o n )

. “ T h e p r a c t i c a l i t i e s s u r r o u n d i n g t h e i m p o s i t i o n o f t h e t a x

. . . m e r e l y r e f l e c t 

## (continued...)

-25-

## prosec ution is forthcoming

. Fur thermore

, Tenne ssee’ s tax o n u n au t h orized substances does not 3 9 

## apply , as the Montana

tax di d, only to items that have alre ady been seized and are no longe r in the taxpay er’ s possession. I nstead, the tax is imposed upon deale rs who are in possession of more than a certain specified amount of an unauthorized substance, r eg ardle ss of whethe r t hat s ubstance has been seized. See Tenn. Code Ann. § 67-4-2803. The amounts presc ribed under section 67-4-2803 also are not based, as Montana’s tax on marijuana was in part, on the “mar ket value” of those illega l substances. I n short, our statute taxi ng u n authorized substances contains neither of the “unusual fea tures” that wer e prese nt in the Montana drug stamp tax considere d in Kurt h R an ch. I t may , there fore , be prope rly

classified a s a civil measur e ra ther than a criminal punishment.

After car eful considera

tion of the tests set forth by the United States Supreme Court in both Hudson and Kurth Ranch, our conclusion is that Tenne ssee’ s tax on unauthorized substances is not

a criminal punishment for purposes of the d o u ble jeopar dy clause of the fede ral and state constitutions. The trial court’s conclusion that the tax is a criminal penalty was err oneous. Thus,

4 0


## Wat er s ’ p l ea of g uilty to the criminal char g es ag ainst him, which occur red subsequent to the imposit ion of the tax by the Depa rtment of Revenue
, did not implicate double jeopar dy principles.

C. P roce dural Due Pr ocess Be cause Waters’ assets wer e “seized without notice or opportunity to object,” the trial court held that the Depa

rtment of Revenue ’s proce dures for assessment and collection of the tax on unauthorized substances failed t o satisfy the procedura l due process requirements of the s tate and fede ral constitutions. Our next considera tion, there fore

, is whether the Depa rtment of R evenue ’s
proce dure violates the due proce ss clause s of the Four teenth Amendment to the United States Constit ution and article I
, section 8 of the Tenne s s ee C o nstitut ion. I nitially

, beca use the taxi ng statute qualifies as civil in nature rathe r t han cr i minal, the enforce ment of t he tax does not trig g er the constitutional safe g uards that acc ompany criminal proce eding s. Contra L y nn, 134 F.3d at 593. I n conseque nce, we will consider only whether the tax meets the p ro ce d ural due proce ss require ments for a

civil tax

.

I n proce eding s challeng ing the imposit ion of a tax, the g overnme nt must allow the taxpay er to be hear d in a meaning ful way

. Specifica lly

, “[t] o satisfy the require ments of t h e Du e P ro cess Clause

. . . the State must provide taxpay ers with, not o n l y a fair opportunity to challeng e the

(...continued) 38

t h e r e a l i t y o f a t t e m p t i n g t o t a x a n i l l e g a l a c t i v i t y

. T h e t a x p a y e r ’ s v o l u n t a r y c h o i c e t o i g n o r e h i s o r h e r t a x o b l i g a t i o n s

s h o u l d n o t b e t h e d e t e r m i n a t i v e f a c t o r i n e v a l u a t i n g w h e t h e r [ t h e ] t a x c o n s t i t u t e s p u n i s h m e n t i n t h e d o u b l e j e o p a r d y

c o n t e x t

. ” C o v e l l i

, 6 6 8 A

. 2 d a t 7 0 6

. B u t s e e L y n n , 1 3 4 F

. 3 d a t 5 9 1 ( “ T h e t h e o r e t i c a l p o s s i b i l i t y t h a t a d r u g d e a l e r c o u l d

v o l u n t a r i l y p a y t h e D r u g T a x d o e s n o t t a k e t h e t a x o u t o f t h e c r i m i n a l p e n a l t y c a t e g o r y

. ” )

.

D u r i n g t h e l e g i s l a t i v e d e b a t e , R e p r e s e n t a t i v e T o m m y H e a d ( D

- C l a r k s v i l l e ) s t a t e d t h a t “ i t i s a p o s s i b i l i t y t h a t 39

y o u c a n n o t c o n v i c t s o m e o n e o f a d r u g o f

f e n s e b u t c a n c o l l e c t t h e t a x

. ” S t a t e m e n t o f R e p

. H e a d

, H o u s e F i n a n c e , W a y s & M e a n s C o m m i t t e e , M a y 1 8
, 2 0 0 4

.

O u r h o l d i n g a l s o d i s p o s e s o f a n y s u b s t a n t i v e d u e p r o c e s s c l a i m t h a t W a t e r s h a s m a d e b a s e d u p o n t h e t a x b e i n g 40

a c r i m i n a l p u n i s h m e n t r a t h e r t h a n a c i v i l r e m e d y

.



## -26-

## acc urac y and leg al val i dity of their tax obliga tion, but also a ‘cle ar and cer tain reme dy ’ for any

err oneous or unlawful tax collection to ensure that the opportunity to contest the tax is a meaning ful one.” McKe sson Corp. v. Div. of Al co h o l i c Be vera g es and Tobac co, 496 U.S. 18, 39 (1990) (quoting Atchison, Topeka & Santa Fe Ry

. Co. v. O’Connor, 223 U.S. 280, 285 (1912)) (footnotes omitted). This opportunity to contest, howeve r, need not prec ede the assessment and collection of the tax:

[I ]t is well established that a State need n o t provide prede privation proce ss for the exaction of taxes. Allowing taxpay ers to litigate their tax liabiliti es prior to pay ment might threa ten a go v ernment’s financ ial secur ity

, both by cre ating unpredic table interim reve nue shortfalls ag ainst which the State canno t ea s i l y prepa re, and by making the ultimate collection of va lidly imposed tax es more dif

ficult.

McKe sson, 4 96 U.S. at 37; acc ord Harper v. Va. Dep’t of Taxation, 509 U.S. 86, 100-01 (1993). This Court has applied similar principles, holding that

the state has the power to assess taxes and fix methods for the collection there of, and it does not matter if these reme dies be summary i n t h ei r n ature , so long as the taxpay er is in some way , at some stag e of the proce eding s, g iven an opportunity to be hea rd and ha ve his rig hts determined be fore some compete nt tribunal.

E. Tenn. B rew ing Co. v. Currie r, 150 S.W. 541, 544 (Tenn. 1912).

The tax on unauthorized s u b s tance s is assessed in the same manner as other taxes in Tenne ssee, and deale rs may seek revie w of an assessment for possession of unauthorized substances

as provided in Tenne ssee Code Annotated section 67-1-1801, et seq. Tenn. Code Ann. § 67-4-2807. “[I ]f the taxpay er ag ainst whom the assessment is made believes the assessment to be unjust, illega l or i ncorr ect,” his reme dies are to either “pay the t ax and file a claim for r efund of

the tax” or “file suit ag ainst the commissioner

. . . chall en gi n g al l o r any portion of the assessment of such tax, including any interest and penalty associate d with the tax.” Tenn. Code Ann. § 67-1-1801( a)( 1)(A)

- (B ). Be cause he prese nted a fac ial challeng e to the constitutionalit y of the tax o n u n au t h o ri zed substances, Waters also had the option, which he exercised, of filing a decla ratory judgme nt action in the chanc ery

court. Colonial Pipeline, 263 S.W .3d at 840.

Waters does not dispute the State’s arg ument that the proce ss for challeng ing an assessment under Tenne ssee Code Annotated sections 67-4-2807 and 67-1-1801 complies with the due proce ss require ments outlined in M cK es s o n , East Tenne ssee Br ewing Co., and their prog eny

. To the
contra ry , his proce dural due proce ss arg ument relies entirely on a holding that the the tax constitutes

a criminal penalty

. Having alre ady reje cted t h e fo u n d at i o n for his arg ument, we hold that the statutory proce dure for appea ling an imposit ion of the tax on unauthor i z ed s u b s t ance s does not violate the due pr ocess c lauses of the fede ral a nd state constitutions.

-27-

## Whil e we have conclude d that the tax on unauthorized substances does not violate Waters’

rig hts ag ains t s e lf

- in c r im ina

tion and double jeopar dy and is otherwise compliant with proce dural due
proce ss, this does not fully resolve the question of constitutionalit y

. We must also deter mine, as the Court of Appea ls did, whether the ta x exceeds the G ener al Assembly ’s taxi ng power under article I I , section 28 of the T ennesse e Constituti on.

II. Th e G eneral Asse m bly’s Taxi ng Power U nder Art icle II, Sect ion 28 The power to tax belong s to the State in its sovere ign capa city

, and the exercise of the taxi ng power is exclusive to the leg is l at u re

. W ater house v. Bd. of President & Dirs. of Cleveland Pub. Schs., 68 Tenn. 398, 400 (1876); see also Sears, Roebuck & C o

. v. Woods, 708 S.W .2d 374, 383 (Tenn. 1986); Ba

nk of Commerce & Trust Co. v. Senter, 260 S.W

. 144, 146 (Tenn. 1924). Be cause taxes produce the reve nue by which the g overnme nt opera tes, the leg islature has wide discretion in the adoption of tax measure s, and its judgme nt must be acc orded g rea t respe ct. Gene sco, I nc. v. Woods, 578 S.W .2d 639, 641 (Tenn. 1979), superse ded on other g rounds by 1980 Tenn. Pub. Acts 1278 (codifie d at Tenn. Code Ann. § 67-1-801( a)( 2) (2006)) ; see al s o Ve rt re es v. State Bd. of Elections, 214 S.W

. 737, 740 (Tenn. 1919) (“[A] constitutional lim it a ti o n upon the power of taxation will never be inferr ed or implied.

. . . [T] he leg islative power in this respe ct can only be restra ined by a d i s t i nct and positive expression in the fundame ntal law.”)

. The leg islature’s power to tax, howeve r, is not altog ether unrestra ined, as courts may invalidate a tax statute if it r uns afoul of the fede ra l o r s tate constitution. Sears, Roebuck & Co., 708 S.W .2d at 383; Evans v. McCabe, 52 S.W .2d 159, 160 (Tenn. 1932)

.
A. History of Article II, Section 28 Be fore deter

mining whether the tax on unauthorized substances is a valid exercise of the Gene ral Assembly ’s taxi ng power , we must first revie w the history and scope of the power g rante d by article I I
, section 28 of the Tenne ssee Constit ution, and specific ally the provision in that section perta ining to mer chants, pe ddlers, and pr ivilege s:

The L eg islature shall have power to tax merc hants, peddler s, and privileg es, in such

m anner as t hey may from ti me t o time direc t, and the L eg islature may levy a gro s s

rec eipts tax on merc hants and busin es s es in lieu of ad valore m taxes on the inventori es of merc handise held by such merc hants and businesses for sale or exchang e. The portion of a Merc hant’s Capital used in the purcha se of merc handise 4 1 

## sold by him to non-re sidents an d s en t b ey ond the S tate, shall not be tax ed at a rate highe r than the a d valore m tax on proper ty

.

Tenn. Const. art. I I
, § 28. This lang uag e finds its orig in in the ear liest day s of our statehood, when the leg islature first perc eived commerc e as a potential source of reve nue. I n 1803, the General Assembly imposed a tax upon, inter alia, “re tail stores, pedler s and hawke rs within this state.” 1803 Tenn. Pub. Acts 28. Be fore selling “any article of merc handize,” these taxpay ers wer e require d to

T h e v e r s i o n o f

a r t i c l e I I
, s e c t i o n 2 8 t h a t a p p e a r s i n t h e 2 0 0 7 R e p l a c e m e n t o f t h e T e n n e s s e e C o d e A n n o t a t e d 41

e r r o n e o u s l y s u b s t i t u t e s t h e w o r d “ p u r p o s e ” f o r t h e w o r d “ p u r c h a s e

. ”



## -28-

## pay twenty -five dolla rs for a one-y ear license to the cler k of the county in which they wer e doing business. I d. at 28-29. I n 1819, the Gene ral Assembly incre ased the license tax on “any hawke r or pedlar ” to fifty dollars and deter mined that they should pay the same fifty -dollar tax for eac h wag on

or ca rriag e they

used in their business. 1819 Tenn. Pub. Acts 61-62. 4 2



## By the beg inning of the 1830s, controve rsy over taxation was brew ing in Tenne ssee. Article I , section 26 of the T ennesse e Constituti on of 1796 re quired land to be taxed in a uniform manne r based on acr eag e. As a result, productive and fer tile far mland could be taxed at no highe r rate than 4 3



## non-ar able land. The Constit utional Convention of 1834 fundame ntally altere d t h e s t ructure of
taxat i o n i n Tenne ssee. Specifica lly

, article I I
, section 28 of the Tenne ssee Constit ution of 1834 provides as f

ollows:

All lands liable to taxation, held by deed, g rant, or entry , town lots, bank stock, slaves betwee n the ag es of twelve and fifty y ear s, and such other proper ty as the L eg islature
may from time to time deem expedient, shall be taxable. All proper ty shall be taxed

acc ording to its value; that value to be asce rtained in such manner as the L eg islature shall direc t, so that the same shall be equal and uniform throug hout the State. No other specie s of proper

ty from which a tax may be collecte d, shall be taxed h i g her than any other specie s of prop er t y o f eq u al value. But the L eg islature shall have
power to tax merc hants, pedlars

, and privil eg es, i n such m anner as t hey may , from time to tim e, dire ct. A tax on white polls shall be laid, in such ma nner a nd of such an amount, as ma

y be pre scribed by

law.

J ournal of t h e C o n v ention of the State of Tenne ssee, Convened for the Purpose of Revising And A me nding the Constit ution There of 396 (Na shville, W. Hase ll Hunt & Co. 1834) (“1834 Co n v e n ti o n J ournal” ) (emphasis added) . The c hang e to taxation of real pr operty based upon its value, instead of its acr eag e, was not the only signific ant modification to T ennesse e’s approa ch to taxation in the 1834 Constit ution. An amendment offe red by J ohn A. McKinney expressly authoriz i n g the 4 4 

## leg islature to “tax merc hants, pedlar s, and privileg es, in such manner as they may , from time to time, direc t” ref

lected the g rowing economic diversity in this stat e. The 1834 Constit ution made the 4 5

T h r e e y e a r s l a t e r , t h e G e n e r a l A s s e m b l y r e d u c e d t h e t a x o n p e d d l e r s t o t w e n t y

- f i v e d o l l a r s p e r w a g o n o r 42

c a r r i a g e

. 1 8 2 2 T e n n

. P u b

. A c t s 1 0

- 1 1

.

W i l l i a m L y o n s e t a l

. , G o v e r n m e n t a n d P o l i t i c s i n T e n n e s s e e 3 0 ( 2 0 0 1 ) ; R o b e r t E

. C o r l e w , T e n n e s s e e : A 43
S h o r t H i s t o r y 1 6 5 ( 2 d e d

. 1 9 9 0 ) ( “ F o r m a n y y e a r s t h e t a x a t i o n c l a u s e

– w h i c h p r o v i d e d f o r e q u a l t a x a t i o n o f a l l l a n d ( e x c e p t t o w n l o t s , f

o r w h i c h t a x e s m i g h t b e a s h i g h a s t h o s e f o r 2 0 0 a c r e s o f l a n d )

– h a d b e e n a t h o r n i n t h e f l e s h o f s m a l l
f a r m e r s w h o o c c u p i e d l a n d l e s s v a l u a b l e t h a n t h a t o f o t h e r s , e s p e c i a l l y i n t h e v a l l e y a n d b a s i n a r e a s

. ” )



## .

M c K i n n e y , a d e l e g a t e f r o m H a w k i n s C o u n t y , w a s a l s o a d r i v i n g f o r c e i n t h e d e b a t e o v e r m o d i f y i n g t h e 44

t a x a t i o n o f l a n d f

r o m a c r e a g e

- b a s e d t a x a t i o n t o v a l u e

- b a s e d t a x a t i o n

. 1 8 3 4 C o n v e n t i o n J o u r n a l

, a t 4 ; 1 S t a n l e y J

. F o l m s b e e e t a l

. , H i s t o r y o f T e n n e s s e e 3 0 2 ( 1 9 6 0 )

.

L e w i s L

. L a s k a , T h e T e n n e s s e e S t a t e C o n s t i t u t i o n 7 ( 1 9 9 0 )

. 45



## -29-

## “[c]onti n u an ce o f t he prac tice of taxi ng ‘merc hants, peddler s, and privileg es’

. . . permissive,” 4 6



## rathe r than subject to the require ment elsewhe re in the section that proper ty be taxed at an equal rate based upon va lue.

Although t axation was not one of the driving forc es for the Constit utional Convention of 1870, that convention did modify the Gene ral Assembly ’s taxi n g p o wer in article I I
, section 28. Severa l deleg ates, repr esenting the conce rns of commerc ial inte re s t s , agg ressively challeng ed the exemption from the principle of equality i n t ax at ion that was embodied in article I I
, section 28 of the Constitut ion of 1834. Their c oncer ns are ref lected by the ar g uments of J oseph B . Heiskell: 4 7



## We think that the principles of constitutional g overnme nt require that ever y class of

men shall be entitled to the same protec tion ag ainst oppression and ag ainst unequal burthens which are g uara nteed to other classes. T h e p ro vision inserted by the Convention, borrowe d from the Constit ution of 1834, decla res that all men shall be taxed equally except merc hants and pe ddlers. Why they should be si ng led out and sub j ec t ed to a rule of taxation absolutely prohibited as to any other citizen, the subscriber s cannot we ll perce ive.

J ournal of the Procee dings of the C o n v en t ion of Deleg ates 300 (Na shville, J ones, Purvis & Co., 1870) (“1870 Convention J ournal” ) (empha sis added)

. See also Fr iedman Br os. v. Mathes, 55 Tenn. (8 Heisk.) 488, 493 (1872) (“[T] his proviso was int ended as a palp able discrimination ag ainst the
occupations and classes there in mentioned, and [] t h e p o we r of taxation as to them, is left to the sound discretion of the leg islative depar tment.”); Adams v. May or of Somerville, 39 Tenn. (2 Hea d) 363, 365-66 (1859) (noting the key distinction in the 1834 Constit ution betwee n taxation of proper ty and taxation of privileg es).

The 1870 Convention declined to extend the prin ci p l e o f eq uality to the taxation of

merc hants, peddler s, and p r iv ile g es. See L og an’s Supermarke ts, I nc. v. Atkins, 304 S.W .2d 628, 630 (Tenn. 1957) (citing case s for the proposition that “the L eg islature is not bound by the rule of uniformity presc ribed in case s of taxes on proper ty ”). I t did, how ever , propose to amend article I I
, section 28 to addre ss the conce rns expressed by Heiskell and others. 1870 Convention J ournal, a t 369-70. As finally adopted and ratified, article I I
, section 28 empower ed the Gene ral Assembly to

tax Merc hants, Peddlers, and privileg es, in such manner as they may fr o m time to time direc t. The portion of a Merc hant’s Capital used in t h e p u rc hase of Merc handise sold by him to non-re sidents and s en t bey ond the State, shall not be taxed at a ra te hig her tha

n the ad valorem tax on property

.

W a l l a c e M c C l u r e , S t a t e C o n s t i t u t i o n

- M a k i n g W i t h E s p e c i a l R e f e r e n c e t o T e n n e s s e e 5 3 ( 1 9 1 6 )

. 46

H e i s k e l l w a s a d e l e g a t e f r o m S h e l b y C o u n t y

. H e s e r v e d a s A t t o r n e y G e n e r a l a n d R e p o r t e r o f T e n n e s s e e f r o m 47

1 8 7 0 t o 1 8 7 8

. R i l e y C

. D a r n e l l

, S e c r e t a r y o f S t a t e , T e n n e s s e e B l u e B o o k 2 0 0 7

- 2 0 0 8 5 0 8

.



## -30-

## 1870 Convention J ournal, at 421-22. A mere two y ear s afte r the Convention of 1870 completed its

work, this Court addre ssed the sig nificanc e of the amendments to ar ticle I I , section 28:

There was in the Convention of 1870, a very ener g etic opposition to eng raf ting upon the New Constit ution, the clause of the Old Constit ution which seeme d to opera te so harshly and invidiousl y ag ainst the commerc ial community

. We r efe r to tha t c lause which excludes merc hants, peddler s, and privileg es, from the protec tion of the princi p l e of equality

. When, howeve r, i t was finally adopted, a solemn protest was
prese nted ag ainst it by

the re prese ntatives of lar g e commer cial constituenc ies. And shortly there afte r, the clause now in question was broug ht forwa rd and adopted. And this was intended as a limit ation up o n the g ener al power confe rre d by the Constit ution of 1834, and was reg arde d as a g rea t triumph in behalf of the merc hant.

Fr iedman B ros., 55 Tenn. a t 496-97 (empha sis added).

Although article I I
, section 28 rema ined unchang ed for over one hundred y ear s, it was amende d in 1972, 1982 and 2006. The amendment ratified in 1972 slightly alt er ed t h e l an g uag e reg arding the taxation of merc hants, peddler s, and privileg es. The J o u rn al and Deba tes of the C o n stitut ional Convention 854 (1971). As noted, the curr ent version of article I I
, section 2 8 expli citly empower s the Gene ral Assembly to tax “mer chants, p ed dlers, and privileg es, in such

manner as they may from time to time direc t.” I n the past, this Court has observe d that the inclusion of the phrase “in such manner as they may from time to time direc t” ref lected the fra

mers’ intent to
g ive the Genera l As s em b l y broad discretion to tax merc hants, peddler s, and privileg es. Kelly v. Dwy er, 75 Tenn. 180, 188-89 (1881); Fr iedman Br os., 55 Tenn. at 493; Jenkins v. Ewin, 55 Tenn. (8 Heisk.) 456, 479 (1872). The question prese nted in this case , of cou rs e, i s whether the tax on unauthorized substance s fa l l s within the leg islature’s taxi ng power as define d by our state constitution. 4 8



## B. Taxes on Merc hants an d Pe ddl ers The Commi ssioner arg ues that the Court of Appea ls err ed by focusing only on a lack of constitutional authority to tax possession of unauthorized substances as a privileg e, there by failing
to addre ss the possibili ty that the Gene ral Assembly

, by the enac tment of the tax, proper ly exercised its c orre sponding power to tax merc hants and peddler s. The Commi ssioner equate s the statutory 4 9 

## definition of “dea lers” in Tenne ssee Code Annotated section 67-4-2802( 3) with the “mer chants” and

B e c a u s e T e n n e s s e e ’ s t a x o n u n a u t h o r i z e d s u b s t a n c e s w a s b a s e d u p o n t h e e x i s t i n g t a x i n N o r t h C a r o l i n a , i t 48
i s w o r t h n o t i n g t h a t n o n e o f t h e d e c i s i o n s u p h o l d i n g t h a t t a x l a w a d d r e s s w h e t h e r i t e x c e e d s t h e N o r t h C a r o l i n a G e n e r a l
A s s e m b l y ’ s t a x i n g p o w e r u n d e r t h a t s t a t e ’ s c o n s t i t u t i o n

. N e i t h e r a r t i c l e I I o f t h e N o r t h C a r o l i n a C o n s t i t u t i o n , w h i c h

c o n c e r n s t h e p o w e r s o f l e g i s l a t u r e , n o r a r t i c l e V o f t h a t d o c u m e n t , w h i c h a d d r e s s e s f i n a n c e a n d t a x e s , i n c l u d e t h e

“ m e r c h a n t s , p e d d l e r s a n d p r i v i l e g e s ” p r o v i s i o n t h a t i s a p a r t o f a r t i c l e I I
, s e c t i o n 2 8 o f t h e T e n n e s s e e C o n s t i t u t i o n

.

T h e C o m m i s s i o n e r r a i s e s t h i s a r g u m e n t f o r t h e f i r s t t i m e i n t h i s C o u r t

. A s n o t e d

, t h e t r i a l c o u r t ’ s o r d e r w a s 49
b a s e d u p o n t h e s e l f

- i n c r i m i n a t i o n a n d d u e p r o c e s s i s s u e s , a n d t h e C o u r t o f A p p e a l s , w i t h o u t r e q u e s t i n g e i t h e r p a r t y t o f u l l y b r i e f t h e a r t i c l e I I
, s e c t i o n 2 8 i s s u e , b a s e d i t s d e c i s i o n u p o n t h e l e g i s l a t u r e ’ s p o w e r t o t a x p r i v i l e g e s d e s c r i b e d i n
t h a t s e c t i o n

.



## -31-

## “peddle rs” lang uag e of article I I
, s ec t i o n 2 8 as those terms are commonly define d or have been

interpre ted by

the prior de cisions of this Court. He further claims that the leg islative purpose wa s to targ et those merc hants and peddler s who traff ic in illicit substances and “ensure that this unfortunate ly expansive sector of commerc e is taxed and thus does not esca pe the sort of tax burden that is placed on a

nd borne by

leg itimate commerc e.”

I ndeed, the leg islature has an authority to tax merc han t s an d p ed dlers that is separ ate and distinct from its power to tax privileg es. Article I I
, section 28 rec og nizes the leg islature’s authority
to tax merc hants, even if those merc hants are not exercising a privileg e. J enkins, 55 Tenn. at 474. I n J enkins, this Court made the following observa tion:

Upon well settled principles of construing constitutional or statutory provisions, the

enumer ation o f “m er chants” and “peddle rs” as distinct objects of taxation, would
g ener ally be taken as excluding the intention of embra cing them under the term “privileg es,” w hich is also desig nated a s a distinct subject for ta x ation. The powe r to tax “me rc h an t s ” and “peddle rs” is as distinctly rec og nized by these terms as objects of taxation as in the term “privileg es , ” an d the fac t that the fra mers of the Constit ution specifie d merc hants and peddler s as distinct objects, would seem to indicate that they did not use the word “privileg es” as including in i t s definition, either “m er ch an t s” or “peddle rs,” but that they intended they might be taxed as

merc hants and pe ddlers, and not a s privileg es.

I d. at 473-74. L ater , in Kelly

, 75 Tenn. at 189-90, the Court held that a merc hant who sells g roce ries
at reta il and alcoholic bever ag es at wholesale may b e t ax ed as a merc hant, or for the privileg e of having a wholesale r’s license to sell alcoholic bever ag es, or both. The unauthorized substances tax, there fore

, falls within the Gene ral Assembly ’s taxi ng power under article I I , section 28 if it can be classified a s either a

merc hants and pe ddlers tax or a tax on privilege s.

Traditionall y , m er chants and peddler s have been trea ted as two distinct classes of trade rs, “the one stationary

, the other migr atory .” State v. Sprinkle, 26 Tenn. (7 Hum .) 36, 39 (1846). A “mer chant” is “[o] ne whose business is buy ing and selling g oods for profit.” Bla ck’s L aw Dictionary 1008 (8th ed. 2004). “[I ]t seems the business of buy ing and selling should be t h e p u rsuit and

avocation of a party , by which he makes his living, in order that he shall be reg arde d as a merc hant.” State v. Smit h, 24 Tenn. (5 Hum.) 394, 396 (1844); see also Tenn. Club of Memphis v. Dwy er, 79 Tenn. 452, 462 (1883); S imons v. L ovell, 54 T enn. (7 Heisk.) 510, 517 (1872). Peddlers have an
occupation simil ar to merc hants, with the chief differenc e being that a merc hant sells g oods at a fix ed and perma

nent place of business, while a peddler has a more itinerant mode of doing business. Sprinkle, 26 Tenn. at 38-39; Gre er v. Bumpa ss, 8 Tenn. (1 Mart. & Yer .) 94, 98 (1827) (desc ribing “the stationary merc hant, wit h merc handis e o n h i s shelves” and “the hawke r or pedler

, with them in his pack” ). A peddler is a person who t rave ls from place to place for the pur pose of selling hi s g oods. 1819 Tenn. Pub. Ac t s

. 6 1 -62 (re fer ring to “itener ant pedlar s”); Swift & Co. v. State, 55 S.W .2d 267, 268 (Tenn. 1932) (“[T]he distinctive fea ture of peddling is the concur renc e of selling and deliver ing.” ); Woolm an v. State, 32 Tenn. (2 Swan) 353, 354 (1852) ( “B y the term ‘pe ddler,’

we understand one who trave ls about the country , on foot or in some kind of vehicle, or in any other

-32-

## manner , and sells g ood s o r small commodities by reta il.”); Bla ck’s L aw Dictionary 1131 (6th ed.

1990).

Given the ordinary meaning of the terms “mer chant” and “peddle r, ” w e c a nn o t f ault the Court of Appea ls for failing to consider whether the tax on unauthorized substances is a tax on merc hants and peddler s, beca

use such an interpre tati o n runs counter to the taxi ng statute’s definition of “dea ler.” The leg islation define s “dea ler” only in terms of actua l or constructive possession, and not in terms of the purcha se and sale of g oods. Tenn. Code Ann. § 67-4-2802( 3). Moreove r, the statute levies a tax only “on unauthorized substances possessed.” Tenn. Code Ann. § 67-4-2803 (empha sis added)

. The plain lang uag e of the statute, there fore

, place s a tax only upon the control or possession of illega l substances and not upon their transfe r or sale. There is no ref ere nce in the statute to either the sal e o f t h ose substances or the intent to sell, whether at a fix ed location or in an itinerant
capa city

. Thus, the term “dea ler,” as define d by the leg islation, doe s not f all within the tr aditional meaning of a merc hant or a peddler and, there fore

, exceeds the broad taxi ng authority aff orded the Gene ral Asse mbly

.

W e h av e carefully revie wed the leg islative history associate d with the passag e of the unauthorized substances tax. As sug g ested by the dissent, some members of the Gene ral Assembly did express a desire t o i m p o se a tax on illicit drug transac tions as opposed to mere possession; howeve r, a car dinal rule of statutory interpre tation prec ludes the consideratio n of leg islative
commentar

y to interpre t statutory lang uag e when that lang uag e is clea r and unambig uous. See, e.g ., Waldschmidt, 271 S.W .3d at 176. I n this inst ance , the specific terms of the statute levy a tax only
upon the possession of the unauthorized substances and not upon a seller or one who possesses with the intent to sell. Mo re over, the specific purpose of the statute is to raise reve nue for law enfor ceme nt, not to tax the il l ega l drug trade

. Unlike the dissent, we do not believe the “pivotal question” in this statutory analy sis “is whether am o n g all the individuals possessing a substantial quantity of coca ine there are any individ u al s wh o s el l

, barte r, or trade or intend to sell, barte r, or trade the cocaine.” I nstead, the dispositi v e issue under this section of the Tennessee Const itution is whether there is any cre dible interpre tation of the plain lang uag e of the statute that could sustain the tax on possession as a merc hants and peddler s tax. Although we are re q u i re d to make ever y presumption in favor of the statute’s constitutionalit y , the lang uag e employ ed i n s ec t i o n 67-4-2802( 3) def

ining those subjec t to the tax require s us to answer this question in the neg ative.

By rea dily acknow ledg ing that the statute “fa ils to expressly anticipate that an individual in possession of a lar g e quantity of an una uthorized substance mig ht not be a mer chant or peddler of the substance” under article I I
, section 28, the dissent conce des the conflict betwee n the statute and

our state constitution. The dissent w ould r emedy this proble m by eff ectively amending the statute
to cre ate a rebuttable presumption that individuals who possess the quantitie s of unauthorized substances specifie d in section 67-4-2802( 3) do so for purposes of barte r, sale or trade

. The dissent’s rationale is that section 67-4-2807, which permits the taxpay er to seek revie w of the assessment as provided in Tenne ssee Code Annotated section 67-1-1801, et seq., require s the taxpay er to either to
pay the t ax and file a claim for refund or file sui t ag ai n s t t h e C o m m i s sioner in chanc ery court. A showing that the taxpay er mere ly possessed the unauthorized substances for persona l use, the dissent
arg ues, would indicate that the t ax p ay er i s n eit her a merc hant nor a peddler and that the s tatute i s

-33-

## unconstitutional as applied. This approa ch would ignor e tradi t i o n al p rinciples of statutory

construction, which prohibit “ame ndments” to a statute by judicial direc tive. Under Tenne ssee Code Annotated section 67-1-1801( a)( 1), the objective in a ch al leng e to an assessment is to deter mine whether it is “unjust, illega l, or incorre ct.” The dissent’s approa ch would open the door for a slew of as-a pplied challeng es, in which courts would be require d to consider whether taxpay ers, including thos e wh o are clea

rly in violation of the statute’s plain lang uag e, should avoid assessment based
upon a lack of evidenc e of either a sale or an intent to sell. I n summary , any reme dy for the taxi ng statute’s constitutional deficie ncy is for the leg islature, not the judicial bra nch, to deve lop.

Our opinion today is solely based upon well-e stablished principles of statutory construction,
not the fac ts of this case

. Neve rtheless, the rec ord below do es illust rate the difficulty with classify ing the unauthorized substances tax as a p ro p er levy under the merc hants and peddler s provision. The proof introduced at trial established Waters’ livelihood as car pentry , and not, absent infere nces from his possession of a larg e amount of the drug

, as a “mer chant” or “peddle r” of

coca ine. Waters was subject to tax liability

, howeve r, upon his possession of the requisite amount

5 0 

## of cocaine to qualify as a “d ea l er ” as t h e term i s define d in the l eg islation. An i ndividual may be subject t o the unauthoriz ed subst ance s tax, as written, even if the evidence does not establish that he or she qualifies as a

merc hant or a

peddler of the substanc es.

Our analy sis of the applicability of the merc hants and peddler s provision of article I I
, section 28 might be differ ent if the leg islature had statutorily define d “dea lers” as those who sell or intend
t o sell unauthorized substances, rathe r than those in possession of the illega l drug s. As written

, 5 1 

## howeve r, the statute does not authorize a tax on persons who sell, barte r, or exchang e unauthorized substances f

or value

. I nstead, the plain lang uag e plac es a ta x on those who mere ly possess illega l drug s. I n conseque nce, the tax does not fall within the merc hants and peddler s classifica tion under article I I , section 28.

C. P rivilege Taxes Be cause it is not a

tax on m erc hants and pe ddlers, the tax on unauthorized substances may only be sustained, if at all, as a tax on privileg es under article I I
, section 28. I ndeed

, the tax on

A l t h o u g h W a t e r s p l e a d e d g u i l t y i n J a n u a r y 2 0 0 8 t o t h e C l a s s B f e l o n y o f p o s s e s s i o n o f c o c a i n e w i t h i n t e n t 50

t o d e l i v e r , t h i s p l e a w a s e n t e r e d t h i r t y

- t w o m o n t h s a f t e r W a t e r s w a s a s s e s s e d w i t h t h e t a x a n d s e v e n t e e n m o n t h s a f t e r t h e h e a r i n g o n h i s d e c l a r a t o r y j u d g m e n t a c t i o n

.

U n l i k e T e n n e s s e e , a n u m b e r o f o t h e r s t a t e s h a v e i n c l u d e d i n d i v i d u a l s w h o s e l l o r t r a n s f e r d r u g s a s a m o n g 51

t h o s e s u b j e c t t o t h e t a x

. S e e , e

. g

. , A l a

. C o d e § 4 0

- 1 7 A

- 1 ( 3 ) ( d e f i n i n g “ d e a l e r ” a s “ [ a ] p e r s o n w h o

. . . m a n u f a c t u r e s , p r o d u c e s , s h i p s , s e l l s , u s e s , d i s t r i b u t e s , t r a n s p o r t s , o r i m p o r t s

. . . o r i n a n y m a n n e r a c q u i r e s o r p o s s e s s e s ” m a r i j u a n a o r

a c o n t r o l l e d s u b s t a n c e ) ; K y

. R e v

. S t a t

. A n n

. § 1 3 8

. 8 7 0 ( 4 ) ( d e f i n i n g “ t a x a b l e a c t i v i t y ” a s “ p r o d u c i n g , c u l t i v a t i n g ,
m a n u f a c t u r i n g , i m p o r t i n g , t r a n s p o r t i n g , d i s t r i b u t i n g , a c q u i r i n g , p u r c h a s i n g , s t o r i n g , s e l l i n g , u s i n g , o r o t h e r w i s e
p o s s e s s i n g ” m a r i

j u a n a o r a c o n t r o l l e d s u b s t a n c e )

. O t h e r s t a t e s a p p e a r t o h a v e f o c u s e d t h e i r d r u g s t a m p t a x s t a t u t e s

e x c l u s i v e l y o n t h e s a l e o r t r a n s f e r o f t h e d r u g s

. S e e 3 5 I l l

. C o m p

. S t a t

. 5 2 0 / 2 ( d e f i n i n g “ d e a l e r ” a s “ a p e r s o n w h o

. . .
m a n u f a c t u r e s , p r o d u c e s , s h i p s , t r a n s p o r t s , i m p o r t s , s e l l s o r t r a n s f e r s o r p o s s e s s e s w i t h i n t e n t t o d e l i v e r t o a n o t h e r p e r s o n ”

t h e c a n n a b i s o r c o n t r o l l e d s u b s t a n c e ) ; N e v

. R e v

. S t a t

. § 3 7 2 A

. 0 7 0 ( 1 ) ( i m p o s i n g t a x o n t h o s e w h o “ s e l l

, o f f e r t o s e l l o r
p o s s e s s w i t h i n t e n t t o s e l l a c o n t r o l l e d s u b s t a n c e ” w i t h o u t f i r s t r e g i s t e r i n g a s a d e a l e r a n d p a y i n g t h e p r e s c r i b e d t a x )

.



## -34-

## unauthorized substances

, as wr i t t en, is more defe nsible as a tax on privileg es than as a tax on

merc hants and peddlers. The langua g e of the s tatute s ug g ests that the l eg islature int ended the t ax to be one on privileg es. First, the statute was codified under T i tle 67, Chapter 4; that chapte r of 5 2 

## the Tenne ssee Code Annotated is entitled “Privileg e and Ex cise Taxes.” The design at i on is signific ant beca

use we have used the terms “privileg e tax” and “excise tax” intercha ng eably

. Senter, 260 S.W

. at 148 (“Whether the tax be char acte rized in the statute as a privileg e tax or an excise tax is but a choice of sy

nony mous words, for an excise tax is an indirect or privileg e tax.”); see also Foster & Creig hton Co. v. Gra ham, 285 S.W

. 570, 573 (Tenn. 1926). Secondly

, section 67-4-2803 of the statute is entit l ed “E x ci s e t ax – Methods of measuring quantities.” Fur ther, there also are internal ref

ere nces in the leg islation to the unauthorized substances tax as an “excise tax.” I n our 5 3 

## view, the use of the te rm “excise tax” is a strong indication that the Gene ral Assembly intended to
tax the “privileg e” of possessing unauthorized substances as empower ed by article I I
, section 28 of our constitution.

As an initial matter, privileg es desig nate a larg er and more indefinite class of objects of taxation than merc hants and peddler s. Phill ips v. L ewis, 3 Tenn. Cases 230, 240 (1877). The “fixed leg islative and judicial definition” of the term “privileg e” as adopted in the 1870 Constit ution wa s set forth by

Chief J ustice A.O.P. Nicholson in J enkins:

What are pr ivilege s, is a question of construc tion dependent upon the g ener al law. We have define d it in sever al case s to be, the exercise of an occupation or business, which require a license from some proper authority

, desig nated by a g ener al law, and
not open to all, or any one, without s u ch l i ce n se. I t is a power of the L eg islature alone to cr eate privileg es, and f orbid their exerc ise without license.

55 Tenn. at 475 (quoting May or of Columbi a v. Guest, 40 Tenn. (3 Hea d) 413, 414 (1859)) ; see also Wil tse & Pratt v. State, 55 Tenn. (8 Heisk.) 544, 547 (1873) ( noting “ that the word pr ivilege s was adopted and reta ined in the Const itution of 1870, in the sense in which it was used in the Constit ution of 1834, as asce rtained and settled by judicial interpre tation”). The ear liest case s to consider the topic define d a “privileg e” as any activity or occupation t h at co u l d not be enjoy ed without leg al authority

, which is confe rre d by way of a license from the state that require s pay ment. See, e.g ., Cate v. State, 35 Tenn. (3 Sneed) 120, 121-22 (1855); Mabry v. Tarve r, 20 Tenn. (1 Hum.) 93, 98 (1839) (holding that a privileg e “is the license or permission, upon the specifie d terms, to do that which in g ener al is prohibited”).

Numerous opinions of this Court from the nineteenth and ear ly twentieth centur ies sug g ested that the leg islature’s power to tax privileg es under article I I
, section 2 8 wa s v irtually without limit ation. I n one case , for example, this Court held that “[t] he power of the L eg islature to decla re

B y c o n t r a s t , n e i t h e r t h e w o r d “ m e r c h a n t ” n o r t h e w o r d “ p e d d l e r ” a p p e a r s a n y w h e r e i n t h e s t a t u t e

. 52

S e e T e n n

. C o d e A n n

. § 6 7

- 4

- 2 8 0 1 ( “ T h e p u r p o s e o f t h i s p a r t i s t o l e v y a n e x c i s e t a x t o g e n e r a t e r e v e n u e f o r 53

s t a t e a n d l o c a l l a w e n f o r c e m e n t a g e n c i e s

. . . . ” ) ; T e n n

. C o d e A n n

. § 6 7

- 4

- 2 8 0 3 ( a ) ( “ A n e x c i s e t a x i s l e v i e d o n

u n a u t h o r i z e d s u b s t a n c e s p o s s e s s e d

, e i t h e r a c t i v e l y o r c o n s t r u c t i v e l y , b y d e a l e r s

. . . . ” )

.



## -35-

## and tax privileg es is unlimit ed,” and “[i] ts discretion in this reg ard cannot be restra ined or controlled

by the courts.” H.G. Hill Co. v. Whit ice, 258 S.W

. 407, 409 (Tenn. 1924); see e.g ., Kurth v. State, 5 S.W

. 593, 594 (Tenn. 1887) (“A privileg e is whateve r the leg islature choose to decla re a privileg e, and to tax as such.”); J enkins, 55 Tenn. at 4 79 (“[T]he power of t he L eg islature to tax merc hants, peddlar s, and privileg es, was unlimit ed and unrestric ted, and might be exercised in any manner and mode in their discretion.”)

. Certainly

, the leg islature has taxed manifold activities and occupations throug h the privi leg e tax

. See, e.g., Ma dison Suburban Util. Dist. of Davidson County v. Carson, 232 S.W .2d 277, 280 (Tenn. 1950) (use tax); Hooten, 209 S.W .2d at 275 (sales tax); Humphries v. Carter
, 112 S.W .2d 833, 834 (Tenn. 1938) (license to opera te nurser y or g ree nhouse); Corn v. For t, 95 S.W .2d 620, 623-24 (Tenn. 1936) (tax on corpor ate capital) ; Foster & Creig hton Co., 285 S.W

. at 573 (tax on stor age an d sale of g asoline); Senter, 260 S.W

. at 147 (cor porate excise tax); Knoxvi lle & Ohio R.R. Co. v. Har ris, 43 S.W

. 115, 119-20 (Tenn. 1897) (tax on opera tion of railroa ds). 5 4



## Given the vast discretion that the leg islature has historically enjoy ed in taxi ng privileg es, the question natura lly arises as to whether there exis t s any outer boundary on its power to classify activities or occupa

tions as proper subjects of taxation. More rec ent case s have define d the term “privileg e” with g rea ter prec ision and, in our assessment, have established perimete rs on the taxi ng authority of the state.

Whil e ear lier decisions descr ibed a privileg e mere ly as a license by the leg islature to do that wh i ch is otherwise prohibited, our more rec ent case s have considere d the privileg e tax as compensa tion from the taxpay ers to the state in r eturn for the protec tive environment that the state has provided for the activity or occupa tion in question. I n Senter, the Court upheld an excise tax on corpor ate income. I n so doing, it stressed the fac t that corpor ations opera ting in Tenne ssee do so under the state’s prote ction:

Taxation of the privileg e is upon the occupation or activity car ried on amid the social, economic, and industrial environment, under protec tion of the s t at e. Wit hout the opportunity and protec tion aff orded by the state, none of those classed and taxed as privileg es could e x ist; every element that e nters into the composition of a civilized
state supplies them sustenance and streng th; and i t is often true that the visible
proper ty attendant upon the exercise of the privileg e is inconseque ntial as compar ed to the ear nings or profits flowing from the lice nsed ac tivity or occ upation.

Ex cising the result of an occupation or act i vity in the m odern state may be li kened
to the ancie nt custom of huntsmen sharing with the dispensing g ods of bounty a small portion of the ca

ptured g ame.

W e a l s o h a v e m a d e c l e a r t h a t t h e p r i v i l e g e t a x c a n a p p l y t o a s i n g l e a c t o r t r a n s a c t i o n , S e v e n S p r i n g s W a t e r 54
C o

. v

. K e n n e d y , 2 9 9 S

. W

. 7 9 2
, 7 9 3 ( T e n n

. 1 9 2 7 ) ; S t a t e e x r e l

. O r m e s v

. T e n n

. F i n a n c e C o

. , 2 6 9 S

. W

. 1 1 1 9
, 1 1 1 9

- 2 0 ( T e n n

. 1 9 2 5 )

, a n d i s n o t l i m i t e d t o a b u s i n e s s o r p u r s u i t o f a n o c c u p a t i o n

. K n o x t e n n T h e a t r e s v

. D a n c e , 2 0 8 S

. W

. 2 d 5 3 6
, 5 3 8 ( T e n n

. 1 9 4 8 ) ( p u r c h a s e o f t h e a t e r t i c k e t s ) ; O g i l v i e v

. H a l e y , 2 1 0 S

. W

. 6 4 5
, 6 4 7 ( T e n n

. 1 9 1 9 ) ( o p e r a t i o n o f

a u t o m o b i l e s f

o r p l e a s u r e )

.



## -36-

## Senter, 260 S.W

. at 146 (interna l ci t at i o n o mitted). Simi larly

, in upholding a tax on corpor ate

capital, this Court has furthe r obser ved as f ollows:

Since a corpor ation can exis t only subject to the will of the sovere ign, i t s rig ht to exis t or to do business in c orpora te form is subjec t to such terms and restric tions a s the s t ate may place upon the rig ht, including the pay ment of such taxes as the

sovere ign ma

y exact for the pr ivilege of existi ng or of doing business.

Corn, 95 S.W .2d at 623. The power to tax privileg es, there fore

, is restric ted to those activities and
occupations to which the state aff ords some measure of protec tion and support. I n other words, “the L eg islature cannot name something to be a taxable privileg e unless it is first a privileg e.” J ack Cole Co. v. MacF arla

nd, 337 S.W .2d 453, 455 (Tenn. 1960). A second signific ant limit ation is tha t the leg islature may not i m p o s e a privileg e tax that is “ar bitrary

, capr icious or wholly unrea sonable.” Hooten, 209 S.W .2d at 274; see, e.g ., Corn, 95 S.W .2d at 62 4 (i m p o s ition of privileg e tax “on a simple partne rship, composed of individuals, and excepting the single individuals, who may , p erha ps, be eng ag ed in the same kind of business as the partne rship

. . . is arbitra ry an d
capr icious”). 5 5



## By enac ting the tax on illega l substances, the leg islature did not tax an activity or occupation
to which Tenne ssee has provided “sustenanc e and streng th.” Nor does the tax compensa te the state for an activity that occur s under its protec tion. To the contra ry , the Gene ral Assembly has strictly 5 6



## p ro h i b i t ed the possession of all of the substances included in the definition of “unauthor ize d substances” in Tenn. Code Ann. § 67-4-2802( 10). The legislature ’s wholesale p ro h i b i t ion on the possession of unauthorized substances cannot be re co n cil ed with the classifica tion of the same activity as a pr ivilege . There is a sound basis for the pr onounceme nt by the Court of Appe als that the Gene ral Asse mbly

may not, e ven under its broad taxing power in article I I , section 28, impose a privileg e tax on conduct that is wholly prohibited.

Despite the inarg uable logic in the proposition that an unlawful act does not qualify as a privileg e, the Commi ssioner contends that our centur y -old decision in Foster v. Speed, 111 S.W

. 925 (Tenn. 1908), provides a basis for upholding the tax on unauthorized substances as a privileg e tax.

O t h e r c a s e s h a v e f

o u n d t h e G e n e r a l A s s e m b l y ’ s a b i l i t y t o t a x p r i v i l e g e s t o b e l i m i t e d f o r r e a s o n s n o t 55

a p p l i c a b l e t o t h e t a x o n u n a u t h o r i z e d s u b s t a n c e s

. A s s u c h

, w e n e e d n o t a d d r e s s t h e m h e r e

. S e e E v a n s v

. M c C a b e , 5 2 S

. W

. 2 d a t 1 6 2 ( h o l d i n g t h a t “ [ a ] r e s t r a i n t u p o n t h e p o w e r t o t a x i n c o m e s

. . . i s i n e v i t a b l y i m p l i c i t i n s e c t i o n 2 8 o f a r t i c l e 2
, ” s p e c i f

i c a l l y t h e c l a u s e t a x i n g i n c o m e d e r i v e d f r o m s t o c k s a n d b o n d s t h a t a r e n o t t a x e d a d v a l o r e m ) ; G a l l a g h e r v

. B u t l e r , 3 7 8 S

. W

. 2 d 1 6 1
, 1 6 7 ( T e n n

. 1 9 6 4 ) ( r e a f f i r m i n g E v a n s ) ; s e e a l s o J a c k C o l e , 3 3 7 S

. W

. 2 d a t 4 5 6 ( “ S i n c e t h e r i g h t
t o r e c e i v e i n c o m e o r e a r n i n g s i s a r i g h t b e l o n g i n g t o e v e r y p e r s o n , t h i s r i g h t c a n n o t b e t a x e d a s p r i v i l e g e

. ” )

.

T h e l e g i s l a t i v e h i s t o r y s u p p o r t s t h i s p r o p o s i t i o n

. D u r i n g d e b a t e o n t h e H o u s e f l o o r , w h e n R e p r e s e n t a t i v e 56
S u s a n L y n n ( R

- M t

. J u l i e t ) w a n t e d i t “ s a i d f o r t h e r e c o r d ” t h a t t h e G e n e r a l A s s e m b l y w a s n o t “ r e c o g n i z i n g

. . . o r l e g i t i m i z i n g t h i s i n d u s t r y ” b y t a x i n g i t , R e p r e s e n t a t i v e C u r t i s s r e s p o n d e d t h a t i t w a s “ c e r t a i n l y n o t t h e i n t e n t i o n o f t h i s l e g i s l a t i o n t o l e g i t i m i z e d r u g t r a f f i c k i n g o r t h e s a l e o f a n y i l l e g a l s u b s t a n c e i n t h e S t a t e o f T e n n e s s e e

. ” S t a t e m e n t o f R e p

. C u r t i s s , H o u s e S e s s i o n , M a y 1 9
, 2 0 0 4

.


## -37-

## Foster opera ted a reta il liquor store in a location in Shelby County wher e, due to the proxi mity to a

school, it was illega l to sell liquor. The cler k of court iss u ed a distress war rant ag ainst Foster ’s business beca

use he had failed to pay t h e tax on the reta il sale of liquor imposed by the g ener al

reve nue law of 1903. Foster paid the tax but then filed suit to rec over the amount paid, arg uing that “the L eg islature did not intend to license and tax a business which could not be conducte d lawfully .” Foster
, 111 S.W

. at 925. The Court unanimously upheld the taxation of Foster ’s b u siness even though its location was unlawful. I d. at 925-26; see also Carpente r v. State, 113 S.W

. 1042 (Tenn. 1908) (r eaf

firming Foster ).

Our ruling in Foster is distinguishable on the fac ts. Whil e Foster ’s business was opera ting unlawfully beca

use of its location, the reta il sale of liquor was not, per se, an illega l activity

. On the other hand, the pos session of an unauthorized substance as define d in Tenne ssee Code Annotated section 67-4-2802( 10) viola t es t h e gener al law reg ardle ss of its location. Our extensive rese arc h confirms that this Court has never upheld the constitutionalit y of a statute taxi ng completely illega l
acts under the privileg e power s. Be cause the Gene ral Assembly may not impose a privileg e tax on

an activity that it has otherwise decla red to be unlawful, the tax on unauthorized substances exceeds even the broad ta x ing a

uthority of the Ge nera l Assembly under a rticle I I , section 28.

Our c harg e, as state d, is to uphold t he constitutionality of a statute w heneve r possible, and to tha t e nd we have held that if a statute is partially unconstitutional, “it would be our duty to e lide the provision objected to rathe r than to strike down the taxi ng statute.” I nt’l Har vester Co. v. Carr, 466 S

. W

. 2 d 2 07, 212-13 (Tenn. 1971). These circ umstances, howeve r, have g ener ally involved broad, omnibus taxi ng statutes in which one provision is unconstitutional, but the rema inder of the
statute is sound. I d. at 213 (citing case s). I n these s i t u at i o n s , courts ty pically have chosen not to invalidate the entire statute, but have taken “a more rea sonable view

. . . that the part o f the law providing for the improper exemption should be decla red void.” I d. I n this instance, howeve r, there is no way for us to strike down any particula r o ff en d i n g provision within the statute without invalidating the entire tax. We cannot transfor m a tax on possessors of subst ance s into a tax on

merc hants and peddler s, or classify an illega l activity to be a privileg e, absent “ame nding” the statute by judicial fiat. I n our view, it is just such an “ame ndment” by the judiciary that would rea liz e the 5 7 

## dissent’s fea

r o f “ s h o r t-circ uiting the democr atic proce ss.” Our only principled alterna tive, there fore

, is to declare the entire statute unconstitutional.

Conclusion The statute taxi ng the possession of unauthorized substances does not violate the fede ral and
state constitutional protec ti o n s ag ainst self-inc rimination and double jeopar dy or abridg e the
g uara ntee of proce dural due proce ss. For differ ent reasons, howeve r, t he statutory scheme cannot be char acte rized as imposing either a tax on merc hants, a tax on peddler s, or a tax on privileg es, as authorized under our state constitution. Obviously , this state prohibits the possession of coca ine.

T h e d i s s e n t s u g g e s t s t h a t a “ d e l i c a t e o p e r a t i o n ” m i g h t s a v e t h e l e g i s l a t i o n f r o m t h e s t a t e c o n s t i t u t i o n ’ s 57
l i m i t a t i o n s o n t h e l e g i s l a t u r e ’ s b r o a d t a x i n g p o w e r s

. N o w h e r e , h o w e v e r , d o e s t h e d i s s e n t i d e n t i f y a n y s p e c i f

i c ,
o b j e c t i o n a b l e p o r t i o n o f t h e s t a t u t e t h a t m i g h t b e r e m o v e d i n o r d e r t o b r i n g t h e s t a t u t e w i t h i n t h e b o u n d a r i e s o f a r t i c l e I I
, s e c t i o n 2 8

.



## -38-

## As observe d by our Court of Appea ls, the possession of an illega l substance is no privileg e. Fur ther, the leg islation a t issue taxes only possessors and makes no ref ere nce to one who sells or, by virtue of the quantity of the coca ine or other fac tors, display s the intent to sell. Finally

, we are not inclined
to aug ment a statute in an eff ort to make it fit within the fra mework of th e co n s t i t u tion. That responsibility

falls within the capa

ble hands of the Gene ral Asse mbly

.

The judgme nt of the Court of Appea ls is aff irmed. Costs are taxed to Reag an Fa rr in his
capa city as the Commi ssioner of Revenue for the State of Tenne ssee, for which execution may issue if nec essar

y

.

____________________________ GARY R. WADE, J USTI CE

-39-