PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

DAVID L. LYNN, JR.; ROBIN DIXON

LYNN; RODNEY LYNN; ROXANNE

LYNN; DAVID L. LYNN, SR.,

Plaintiffs-Appellants,

v.

DEBORAH WEST, in her individual

No. 96-1371

capacity and official capacity as an

agent of the State of North

Carolina; JANICE FAULKNER,

Secretary of Revenue, State of

North Carolina, in her official

capacity; STATE OF NORTH CAROLINA,

Defendants-Appellees.

Appeal from the United States District Court

for the Middle District of North Carolina, at Greensboro.

N. Carlton Tilley, Jr., District Judge.

(CA-94-577-2)

Argued: December 5, 1996

Decided: January 13, 1998

Before RUSSELL, WIDENER, and MICHAEL, Circuit Judges.

_________________________________________________________________

Affirmed in part and reversed in part by published opinion. Judge

Michael wrote the opinion, in which Judge Russell and Judge Widener joined.

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COUNSEL

ARGUED: Terry Goodwin Harn, Chapel Hill, North Carolina, for

Appellants. Christopher Edward Allen, Assistant Attorney General,

Raleigh, North Carolina, for Appellees.

_________________________________________________________________

OPINION

MICHAEL, Circuit Judge:

The main question in this case is whether a North Carolina tax on

illegal drugs is in reality a criminal penalty. North Carolina's Controlled Substance Tax (Drug Tax), N.C. Gen. Stat.§§ 105-113.105

through 105-113.113, imposes a special excise tax on"dealers" who

illegally possess a sufficient quantity of a "controlled substance," as

that term is defined in the state criminal code. The statute requires

drug dealers to submit a form reporting their illegal possession and to

pay the tax. In return, dealers are supposed to receive stamps to affix

to the drugs before they are resold. Payment of the Drug Tax does not

make possession or resale legal, however. It should come as no surprise that no drug dealer has ever filed a form and voluntarily paid

this tax.

In 1993 North Carolina assessed a $390,000 tax liability against

David Lynn, Jr. (Lynn) under the Drug Tax. Lynn and certain of his

relatives filed a lawsuit against the state and two of its tax officials

in the United States District Court for the Middle District of North

Carolina challenging the constitutionality of the tax and alleging civil

rights violations under 42 U.S.C. § 1983. The heart of the complaint

is that the Drug Tax is a criminal penalty, not a tax. The district court

properly dismissed part of the complaint for failure to state a claim

and on the grounds of Eleventh Amendment immunity, but it erred in

concluding that the Drug Tax is a true tax. This error led the court to

invoke the Tax Injunction Act, 28 U.S.C. § 1341, and dismiss the

claims for declaratory and injunctive relief. We hold that the Drug

Tax is in reality a criminal penalty under Department of Revenue v.

Kurth Ranch, 511 U.S. 767 (1994). Because the tax is a criminal penalty, federal court jurisdiction is not barred by the Tax Injunction Act.

 2
We further hold that the Drug Tax, like any other criminal penalty,

cannot be enforced without the constitutional safeguards that accompany criminal proceedings. We therefore affirm the district court in

part and reverse in part.

I.

On March 1, 1993, state law enforcement agents obtained a warrant

to search Lynn's residence in Reidsville, North Carolina. When both

state and federal agents executed the warrant later that day, they discovered 970 grams of cocaine. Lynn was thereafter convicted on federal drug charges in the United States District Court for the Middle

District of North Carolina. In that same proceeding the United States

also obtained an order of forfeiture for Lynn's house and furniture

under the corresponding criminal forfeiture statute, 21 U.S.C. § 853.

The cocaine seized at Lynn's house on March 1, 1993, was worth

about $25,000. On March 2, 1993, after receiving notice of the seizure from the Sheriff of Rockingham County, the North Carolina

Department of Revenue assessed a $389,125.20 Drug Tax liability

against Lynn for unpaid taxes, penalties, and interest. According to

the Department, Lynn owed a tax of $200 per gram on the 970 grams

of cocaine taken from his house ($194,000), plus a 100% penalty for

failure to pay the tax on time ($194,000), plus interest ($1,125.20).

On March 4, 1993, Janice Faulkner, the North Carolina Secretary of

Revenue, filed a Certificate of Tax Liability with the clerk of the

Superior Court of Rockingham County, where Lynn resided. See N.C.

Gen. Stat. § 105-242(c) (1996). On the same day the Department of

Revenue obtained a writ of execution in Rockingham County, directing the sheriff to seize Lynn's personal property in order to satisfy the

$389,000 assessment.

Around March 18, 1993, Lynn filed an objection to the assessment

with the Department of Revenue and requested an administrative

hearing under N.C. Gen. Stat. § 105-241.1. The administrative hearing was held on March 15, 1994, before an Assistant Secretary of

Revenue. The Assistant Secretary issued his decision on May 9, 1994,

sustaining the assessment and declaring it "to be final and immediately due and collectible." Lynn did not petition for a review of the

Assistant Secretary's decision before the Tax Review Board. See N.C.

 3
Gen. Stat. § 105-241.2 (1996). In the meantime, on April 12, 1994,

the Sheriff of Rockingham County (in an effort to collect the assessment) had already seized some items of Lynn's personal property,

including televisions and VCRs, stereo and Nintendo equipment, a

grandfather clock, and an oak cabinet.

The Revenue Department assigned further responsibility for collection of the Drug Tax assessment against Lynn to Deborah West, a

Revenue Enforcement Officer in the Controlled Substance Tax Division of the Department.1 In an effort to collect, West (in July and

August 1994) seized two cars originally purchased by Lynn, a 1992

Mitsubishi 3000GT and a 1976 Mercedes Benz 450SL. Robin Dixon

Lynn, Lynn's current wife, claims that a contract she and Lynn signed

in February 1993 gave her sole ownership of the Mitsubishi before it

was seized by West. Rodney Lynn, who is Lynn's brother, claims that

he owned the Mercedes when it was seized. The Department of Revenue also seized (and sold at public auction) a commercial building

belonging to Lynn. Roxanne Lynn, Lynn's ex-wife, claims an interest

in that building under a judgment lien from her divorce case against

Lynn. Lynn's father, David Lynn, Sr., claims that he owns some of

the seized property, presumably certain of the personal items taken by

the sheriff.

In October 1994 Lynn, along with his relatives and ex-wife mentioned above, went to federal court to try to block North Carolina

from collecting the Drug Tax assessment. They sued the state,

Enforcement Officer West, and Secretary Faulkner, seeking compensatory damages under 42 U.S.C. § 1983 for various constitutional violations. They also sought declaratory and injunctive relief on the

grounds that under Department of Revenue v. Kurth Ranch, 511 U.S.

767 (1994), further enforcement of the Drug Tax would violate the

Double Jeopardy Clause of the Fifth Amendment and the Due Process

Clause of the Fourteenth Amendment. The district court dismissed the

complaint for failure to state a claim under Fed. R. Civ. P. 12(b)(6)

_________________________________________________________________

1 See N.C. Gen. Stat. § 105-242(a)(2) (1996) ("The Secretary may issue

a warrant . . . to any revenue officer or other employee of the Department

of Revenue charged with the duty to collect taxes, commanding the officer or employee to levy upon and sell the taxpayer's personal property

. . . .").

 4
and for lack of subject matter jurisdiction under Rule 12(b)(1). The

district court concluded that (1) West, in her individual capacity, was

entitled to qualified immunity, (2) North Carolina was immune from

suit under the Eleventh Amendment, (3) West and Faulkner were

entitled to Eleventh Amendment immunity on the claims for damages

against them in their official capacities, and (4) the Tax Injunction

Act, 28 U.S.C. § 1341, precluded subject matter jurisdiction over

Lynn's claims for declaratory and injunctive relief. Lynn and the

other plaintiffs appeal.

II.

Roxanne Lynn, David Lynn, Sr., Robin Dixon Lynn, and Rodney

Lynn (the relatives) allege that West, a Revenue Enforcement Officer,

is liable for damages in her individual capacity because she afforded

them no due process before seizing their property to satisfy a tax

assessment against someone else. The relatives argue that West acted

outside her lawful authority and "is not protected by Qualified Immunity [because] her actions were not justified under state law and were

patently unreasonable under the circumstances of this case." Br. of

Appellants at 12. The district court held that West is protected by

qualified immunity and dismissed the § 1983 claims brought against

her in her individual capacity for failure to state a claim. We review

a dismissal for failure to state a claim de novo, construing the factual

allegations in the light most favorable to the plaintiffs. See Biggs v.

Meadows, 66 F.3d 56, 59 (4th Cir. 1995).

We agree that the complaint fails to state a claim against West in

her individual capacity. On West's motion to dismiss in district court

the parties fully developed their arguments on whether the relatives'

complaint states a claim for deprivation of a property interest under

state law. These arguments, which are repeated to us, make clear that

we do not need to reach the immunity question. Even accepting the

facts as alleged, and drawing all reasonable inferences in favor of the

relatives, the complaint does not indicate that West deprived them of

any of their property. As we will explain, the allegations of one of the

relatives reveal that her interest was not affected by anything that

West did. The other three do not allege anything to establish that they

had an ownership interest in any of the property seized. Because the

relatives cannot identify a property interest affected, they have not

 5
stated a claim under the Due Process Clause, and we need not consider whether the doctrine of qualified immunity applies to the claim.

See DiMeglio v. Haines, 45 F.3d 790, 799 (4th Cir. 1995) (noting that

claims directed at public officials may sometimes be dismissed at the

pleading stage without considering immunity because"it may be

readily apparent on the face of the plaintiff's complaint that, even

accepting the facts as he alleges them to be, he cannot possibly prevail on the merits of his claim under current law"); see also Dunbar

Corp. v. Lindsey, 905 F.2d 754, 759 (4th Cir. 1990) (analyzing Bivens

action by first asking whether plaintiff has a property right under state

law).

First, Roxanne Lynn complains that West violated her property

rights by arranging for the sale of David Lynn, Jr.'s commercial

building. The allegations in the complaint, however, do not permit

any reasonable inference that the sale affected her interest in the property. When she divorced Lynn in 1990, Roxanne Lynn was awarded

a judgment against Lynn that, among other things, required him to

pay her a certain sum. Roxanne Lynn alleges that the judgment

(which is recorded) operates to give her a lien against Lynn's property, including the commercial building. See N.C. Gen. Stat. § 1-234

(1996) ("[A] judgment . . . is a lien on the real property in the county

where the same is docketed . . . ."). Under North Carolina law the

Revenue Department's execution sale did not interfere with any interest Roxanne Lynn had as a lienholder; the sale was made subject to

duly recorded prior liens.2 As a result, the buyer took the property

subject to her lien. Because her interest in the building was preserved,

she has no claim that West took any steps to deprive her of her property.

Second, David Lynn, Sr. claims that West caused some of his property to be seized, but he has not identified the items of property that

allegedly belong to him. We can only assume, by process of elimina-

_________________________________________________________________

2 See N.C. Gen. Stat. § 105-241(d) (1996) ("A tax lien . . . is not

enforceable against . . . the holder of a duly recorded lien unless: (1) In

the case of real property, a certificate of tax liability or a judgment was

first docketed . . . . The priority of these claims and liens is determined

by the date and time of recording, docketing, levy, or bona fide purchase.") (emphasis added).

 6
tion, that he is referring to some of the televisions, VCRs, stereo

equipment, or other personal items taken from his son, the subject of

the Drug Tax assessment. Our assumption is not enough. Lynn, Sr.'s

conclusory allegation that West seized his (unidentified) belongings

fails to state a claim for deprivation of property.

Lastly, Robin Dixon Lynn and Rodney Lynn each claim that they

own one of the cars seized by West. Robin Dixon Lynn's allegations

regarding the 1992 Mitsubishi, however, do not reveal that she is the

owner of record. David Lynn, Jr. bought the car in the name of

Lynn's Auto Sales in September 1992. In February 1993 Lynn and

Robin Dixon (who was then engaged to Lynn) agreed in writing that

Robin would own the Mitsubishi. But the agreement (attached to the

complaint) states that title would not be placed in her name until she

began making payments on the car. Nothing in the pleadings suggests

that Robin Dixon Lynn ever began making payments or received title

to the car. Under North Carolina law ownership of a car does not

change hands until the certificate of title has been assigned and the

new owner makes application for a new title. See Nationwide Mut.

Ins. Co. v. Hayes, 174 S.E.2d 511, 517 (N.C. 1970); N.C. Gen. Stat.

§ 20-72 (1996). Therefore, Robin Dixon Lynn has not alleged anything to show that she had title to the Mitsubishi under North Carolina

law. See Dunbar Corp., 905 F.2d at 760 (noting that "North Carolina

law determines whether [the plaintiff] has any property rights protected by the Fifth Amendment's Due Process Clause.") Similarly,

Rodney Lynn claims that he owns the 1976 Mercedes, but his claim

of ownership also falls short. In 1989 David Lynn, Jr. bought the

Mercedes and registered it in his own name. In the face of this fact

Rodney Lynn does not indicate when and how record title was transferred to him.

In sum, we conclude that none of the relatives has alleged anything

to show that he or she has any property rights under state law that

were affected by West's actions. Accordingly, we affirm the district

court's conclusion that the relatives have failed to state a claim

against West in her personal capacity.

III.

Lynn, the central plaintiff, seeks monetary and prospective relief

from Enforcement Officer West and Secretary Faulkner in their offi-

 7
cial capacities and from the State of North Carolina itself. All three

defendants claim immunity under the Eleventh Amendment. The district court concluded that the Eleventh Amendment protects North

Carolina from all claims "and bars the[ ] official-capacity claims [for

monetary relief] against [ ] West and Faulkner." However, the court

recognized that the Eleventh Amendment does not bar Lynn's claims

for prospective relief against West and Faulkner in their official

capacities. We agree with these rulings.

The Eleventh Amendment provides as follows: "The judicial power

of the United States shall not be construed to extend to any suit in law

or equity, commenced or prosecuted against one of the United States

by Citizens of another State or by Citizens or Subjects of any Foreign

States." U.S. Const. amend. XI. The Eleventh Amendment applies to

suits in federal court brought by a state's own citizens even though

the language of the amendment would seem to limit its application to

suits brought by "Citizens of another State." See Puerto Rico Aqueduct & Sewer Auth. v. Metcalf & Eddy, Inc., 506 U.S. 139, 144

(1993); Harter v. Vernon, 101 F.3d 334, 337 (4th Cir. 1996).

Lynn has not suggested a valid reason, such as consent or congressional abrogation, why the Eleventh Amendment does not bar his suit

against North Carolina. See generally Atascadero State Hosp. v.

Scanlon, 473 U.S. 234, 238 (1985) ("[I]f a State waives its immunity

and consents to suit in federal court, the Eleventh Amendment does

not bar the action."); Fitzpatrick v. Bitzer , 427 U.S. 445, 456 (1976)

(holding that Congress has power to abrogate Eleventh Amendment

immunity under § 5 of the Fourteenth Amendment). Accordingly, we

affirm the district court's determination that the State of North Carolina is entitled to Eleventh Amendment immunity.

As noted, Lynn also sued West and Faulkner in their official capacities. Under Ex parte Young, 209 U.S. 123 (1908), there is "federal

jurisdiction over a suit against a state official when that suit seeks

only prospective injunctive relief in order to `end a continuing violation of federal law.'" Seminole Tribe of Florida v. Florida, 116 S. Ct.

1114, 1132 (1996) (quoting Green v. Mansour, 474 U.S. 64, 68

(1985)). Lynn seeks two forms of relief from West and Faulkner.

First, he seeks monetary damages for loss of property he claims was

seized in violation of the Fourteenth Amendment. Second, he seeks

 8
declaratory and injunctive relief. He asks for a judgment declaring the

Drug Tax to be unconstitutional because it (1) imposes multiple punishment in violation of the Double Jeopardy Clause, (2) amounts to

a criminal penalty imposed without the required due process safeguards, and (3) is a bill of attainder. If the tax's present enforcement

scheme is declared unconstitutional, Lynn seeks an injunction against

West and Faulkner to stop their continuing efforts to collect the

assessment.

The Eleventh Amendment bars Lynn's § 1983 claim for monetary

damages against West and Faulkner in their official capacities.

"[W]hen determining if an officer or entity enjoys Eleventh Amendment immunity a court must first establish whether the state treasury

will be affected by the law suit." Harter, 101 F.3d at 340. In the

action for monetary damages against West and Faulkner in their official capacities, North Carolina would pay any "final judgment

awarded in a court of competent jurisdiction against a State employee

. . . ." N.C. Gen. Stat. § 143-300.6(a) (1996). Therefore, the lawsuit

could affect the state treasury. See Barfield v. Blackwood, 7 F.3d

1140, 1146 (4th Cir. 1993) (noting effect on state treasury and concluding that N.C. Gen. Stat. § 143-300.6(a) does not waive Eleventh

Amendment immunity). "[W]hen the action is in essence one for the

recovery of money from the state, the state is the real, substantial

party in interest and is entitled to invoke its sovereign immunity from

suit even though individual officials are nominal defendants." Ford

Motor Co. v. Department of Treasury, 323 U.S. 459, 464 (1945).

Accordingly, we affirm the district court's conclusion that the Eleventh Amendment bars Lynn's § 1983 claim for monetary damages

against West and Faulkner in their official capacities.

To the extent Lynn seeks a declaratory judgment and an injunction

to block further enforcement of the Drug Tax, Ex parte Young does

permit his action against West and Faulkner in their official capacities. In Ex parte Young the Supreme Court held that the Eleventh

Amendment did not bar an action in federal court to enjoin the Attorney General of Minnesota from enforcing a statute claimed to violate

the Fourteenth Amendment. See Ex parte Young, 209 U.S. 123, 159-

60 (1908).

This holding has permitted the Civil War Amendments to

the Constitution to serve as a sword, rather than merely as

 9
a shield, for those whom they were designed to protect. But

the relief awarded in Ex parte Young was prospective only;

the Attorney General of Minnesota was enjoined to conform

his future conduct of that office to the requirement of the

Fourteenth Amendment.

Edelman v. Jordan, 415 U.S. 651, 664 (1974).

The Eleventh Amendment therefore does not bar Lynn's official

capacity claims for declaratory and injunctive relief. "Remedies

designed to end a continuing violation of federal law are necessary to

vindicate the federal interest in assuring the supremacy of that law."

Green v. Mansour, 474 U.S. 64, 68 (1985). Of course, a judgment

declaring that the Drug Tax is a criminal penalty could impact the

state treasury of North Carolina, at least until the state implements

enforcement procedures that conform to the requirements of the

United States Constitution.3 But some fiscal impact on the state treasury is the necessary result of prospective decrees forcing compliance

with the Constitution. Edelman, 415 U.S. at 668. "Such an ancillary

effect on the state treasury is a permissible and often an inevitable

consequence of the principle announced in Ex parte Young." Id. The

district court in this case correctly held that the doctrine of Ex parte

Young allows Lynn's action to the extent he seeks prospective relief,

specifically, a declaratory judgment and an injunction against "ongoing constitutional violations."

IV.

We now turn to Lynn's claim for prospective relief. Lynn argues

that under Department of Revenue v. Kurth Ranch , 511 U.S. 767

(1994), the Drug Tax must be called a criminal penalty, not a civil

_________________________________________________________________

3 North Carolina has been the most aggressive of the states in enforcing

its tax on illegal drugs. In 1993, for example, North Carolina collected

over six million dollars, more than ten times as much money as the next

highest state, Kansas. See Payoff From Taxing Drugs, News & Observer

(Raleigh, NC), June 7, 1994, at A1. At oral argument counsel for North

Carolina reported that the state had collected $26 million since 1990, all

through forced collections.

 10
tax. We agree and hold that the Drug Tax may not be enforced absent

the constitutional safeguards that attach to criminal proceedings.

In Kurth Ranch the Supreme Court examined Montana's Dangerous Drug Tax Act. The Kurth family had a ranch in central Montana.

They raised grain and livestock, but they also cultivated and sold marijuana. In 1987 Montana law enforcement officials raided the ranch,

arrested the Kurths, and confiscated the marijuana. Six members of

the Kurth family were charged with drug crimes under Montana law.

All eventually pled guilty; two Kurths went to prison, and the others

got suspended or deferred sentences. Kurth Ranch , 511 U.S. at 772.

The county attorney also brought a civil forfeiture action, which the

Kurth family settled by agreeing to forfeit certain cash and farm

equipment. Id. Next, the Montana Department of Revenue attempted

to collect $900,000 in taxes assessed against the Kurths under the

Montana Dangerous Drug Tax Act. Collection efforts were stayed

when the Kurths filed for Chapter 11 bankruptcy. Later, the bankruptcy court decided that the tax assessment was a form of double

jeopardy. After the district court and the court of appeals for the Ninth

Circuit affirmed, Montana brought the case to the Supreme Court. Id.

at 773-76.

The Supreme Court also affirmed, holding that assessment of the

Montana tax following state criminal proceedings violated the Double

Jeopardy Clause:

This drug tax is not the kind of remedial sanction that may

follow the first punishment of a criminal offense. Instead, it

is a second punishment within the contemplation of a constitutional protection that has deep roots in our history and

jurisprudence, and therefore must be imposed during the

first prosecution or not at all.

Id. at 784 (internal quotation marks and citation omitted). The Court

reached its holding by discussing four features that rendered the tax

a second punishment: (1) the high tax rate, id. at 780-81, (2) the deterrent purpose of the tax, id., (3) the fact that the tax was conditioned

on the commission of a crime, id. at 781-82, and (4) the fact that the

tax was levied on "`possession' of goods that no longer exist and that

the taxpayer never lawfully possessed," id. at 783. "Taken as a

 11
whole," the Court concluded, "this drug tax is a concoction of anomalies, too far removed in crucial respects from a standard tax assessment to escape characterization as punishment . . . ." Id.

The central question in this case, like that in Kurth Ranch, is

whether the tax in question is, despite its label, a criminal penalty.4

A "tax" can encompass any "pecuniary burden laid upon individuals

or property for the purpose of supporting the government." New Jersey v. Anderson, 203 U.S. 483, 492 (1906). The North Carolina Drug

Tax, as a pecuniary burden laid upon drug dealers, is in that sense a

tax. But the question here is whether the tax is so punitive that the

constitutional protections afforded to criminal defendants should

attach to its enforcement. "`[T]here comes a time in the extension of

the penalizing features of the so-called tax when it loses its character

as such and becomes a mere penalty with the characteristics of regulation and punishment.'" Kurth Ranch, 511 U.S. at 779 (quoting A.

Magnano Co. v. Hamilton, 292 U.S. 40, 46 (1934)). A penalty "may

be termed a duty or tax and yet be a penalty. Its name does not determine its nature."5 Fontenot v. Accardo, 278 F. 871, 874 (5th Cir.

1922). As we explain below, North Carolina's Drug Tax, like Montana's Dangerous Drug Tax, has enough punitive features that its

nature is that of a criminal penalty, not a civil tax.

The North Carolina Drug Tax shares the first two features of the

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4 Whether the statute imposes what amounts to a criminal sanction

remains the proper inquiry. See Hudson v. United States, 1997 WL

756641 at *6 & n.6 (U.S. Dec. 10, 1997) (acknowledging that Kurth

Ranch engaged in a proper analysis); see also id. at *10 (Stevens, J., concurring) (noting majority's reaffirmation of central holding of Kurth

Ranch); id. at *13 (Breyer, J., concurring) (same).

5 Kurth Ranch dictates that we analyze the tax according to its substantive effect, not its formal label. Id. at 779 (noting that "a tax is not

immune from double jeopardy scrutiny simply because it is a tax").

Accord Lipke v. Lederer, 259 U.S. 557, 561 (1922) ("The mere use of the

word `tax' in an act primarily designed to define and suppress crime is

not enough to show that within the true intendment of the term a tax was

laid."). Accordingly, the fact that North Carolina labels its tax an "excise

tax," while Montana characterized its tax as a"property tax," does not

affect our analysis.

 12
Montana tax examined in Kurth Ranch: a high rate of taxation and a

deterrent purpose. These features tend to show that the Drug Tax is

punitive, although standing alone they might not be enough. Many

taxes that are presumed valid, such as those on cigarettes and alcohol,

are also high and motivated in part by deterrence. See Kurth Ranch,

511 U.S. at 780-81; United States v. Sanchez, 340 U.S. 42, 46 (1950)

(upholding federal tax on marijuana). In Kurth Ranch the Court noted

that Montana had taxed the drugs at about 400 percent of their market

value. Id. at 780 n.17. Neither Montana nor the United States could

offer an example of a tax on cigarettes, alcohol, or anything else that

approached this rate. Id. The remarkably high tax rate, the Court concluded, was "at least consistent with a punitive character." Id. at 780.

The deterrence factor, the Court said, was "beyond question." Id.

The rate of taxation imposed by the North Carolina Drug Tax

yields an even higher penalty than the tax in Kurth Ranch. Here, Lynn

was assessed a $194,000 tax for his possession of 970 grams of

cocaine, a rate of about $200,000 per kilogram. The parties in this

case have not estimated the market value of the cocaine seized from

Lynn. A review of several federal cases, however, indicates that the

market value for a kilogram of cocaine is about $25,000. See, e.g.,

United States v. Anderson, 76 F.3d 685, 692 (6th Cir. 1996) (affirming trial court finding that market price was $22,500 per kilogram);

United States v. Sureff, 15 F.3d 225, 228 (2d Cir. 1994) (concluding

that defendant's statement "24 or 25" referred to sales price of kilogram of cocaine, in thousands); United States v. Hicks, 948 F.2d 877,

880 n.1 (4th Cir. 1991) (affirming sentence based on $32,000 per

kilogram). Based on this estimate the Drug Tax imposes a liability of

eight times the market value of the substance. North Carolina also

assessed a $194,000 penalty for Lynn's failure to pay the tax within

48 hours of when he came into possession of the cocaine. The addition of the penalty makes the effective rate of taxation 1,600 percent,

or sixteen times, the market value.6 This shows that, like in Kurth

_________________________________________________________________

6 Purity levels are irrelevant in determining the amount of the tax. For

assessment purposes a "quantity of marijuana or other controlled substance is measured by the weight of the substance whether pure or

impure or dilute[.]" N.C. Gen. Stat. § 105-113.107 (1996). The record in

this case does not reveal the purity level of the cocaine found at Lynn's

house.

 13
Ranch, the tax rate has no rational relationship to the market value of

the drugs. In addition, the extremely high tax is"beyond question"

intended "to deter people from possessing [illegal drugs]." Kurth

Ranch, 511 U.S. at 780. Although the high tax rate and deterrent purpose lend support to the argument that the Drug Tax is a criminal penalty, "these features, in and of themselves, do not necessarily render

the tax punitive." Id. at 781. We will therefore look at other features

of the tax.

The Drug Tax also has the third feature discussed in Kurth Ranch:

it is conditioned on the commission of a crime. In Kurth Ranch the

Court explained that "[p]ersons who have been arrested for possessing

marijuana constitute the entire class of taxpayers subject to the Montana tax." Kurth Ranch, 511 U.S. at 781-82. The situation is the same

with North Carolina's Drug Tax. Counsel for North Carolina

explained at oral argument that when a drug arrest or seizure is made,

law enforcement officers send an arrest or seizure report to the

Department of Revenue. The Department then assesses the tax liability and seizes any assets not already seized under federal and state

criminal or civil drug forfeiture laws. Because an assessment of tax

liability operates more broadly than an order of forfeiture, the Department can levy upon the remaining property of the taxpayer without

proving the property's connection to a drug crime. 7

_________________________________________________________________

7 The Drug Tax goes much further than state and federal drug forfeiture

laws. The Supreme Court has said that most in rem civil forfeiture proceedings are properly characterized as civil, not criminal, and that in rem

forfeiture proceedings generally do not violate the Double Jeopardy

Clause when brought after a criminal prosecution. See, e.g., United

States v. Ursery, 116 S. Ct. 2135, 2149 (1996). North Carolina's tax on

illegal drugs takes asset confiscation to a different level. An assessment

of Drug Tax liability, unlike an order of forfeiture, can be satisfied out

of any property owned by the defendant, not just property linked to a

drug crime. See N.C. Gen. Stat. § 105-113.111 (1996) ("The Secretary

shall use all means available to collect the tax, penalty, and interest from

any property in which the dealer has a legal, equitable, or beneficial

interest."). Thus, unlike the in rem civil forfeiture situation, the Drug Tax

sweeps too broadly to take advantage of the legal fiction that the property

itself is guilty.

 14
The Drug Tax is imposed on "dealers," i.e. , persons who possess

sufficient quantities of a "controlled substance" as that term is defined

in the criminal code of North Carolina. North Carolina argues that

dealers not yet arrested for drug crimes could, theoretically, pay the

Drug Tax. See State v. Ballenger, 472 S.E.2d 572, 574-75 (N.C. Ct.

App. 1996) (emphasizing that Drug Tax is not predicated upon

whether taxpayer has been arrested or charged); cf. State v. Ballenger,

481 S.E.2d 84, 84 (N.C. 1997) (affirming Court of Appeals without

explanation) (per curiam). The statute requires drug dealers to report

the tax on a form prescribed by the Secretary of Revenue. See N.C.

Gen. Stat. § 105-113.108 (1996). After payment, the Secretary is supposed to send the dealers stamps to affix to the drugs. See id. Presumably in an attempt to avoid conflict with the Fifth Amendment SelfIncrimination Clause, the Drug Tax statute provides that information

obtained from the form cannot be used in a criminal prosecution. See

id. § 105-113.112. Counsel for North Carolina admitted at oral argument, however, that he does not know of any dealer who has in fact

self-reported and paid his Drug Tax bill. Counsel also admitted that

the Secretary has not prepared a form for reporting and paying the

tax, even though the statute says she is to "prescribe" one. Nor does

North Carolina collect the tax from those who legitimately possess

drugs, such as doctors who use morphine (a "controlled substance")

in medical treatment. See id. § 90-89(b) (listing morphine as Schedule

I controlled substance); see also id. § 105-113.107A (exempting from

Drug Tax any "dealer who is authorized by law to possess the substance"). Once again, as in Kurth Ranch, persons arrested for drug

crimes constitute the entire class of taxpayers generating revenue

under the North Carolina Drug Tax. See also Kurth Ranch, 511 U.S.

at 788 n.2 (Rehnquist J., dissenting) (commenting, after counsel for

Montana described a Minnesota tax similar to the North Carolina

Drug Tax, "Not surprisingly, when asked at oral argument `Does

Minnesota collect any money off that scheme . . . . Not too many

stamps being sold?', counsel for respondents admitted, amidst laughter, that he did not know the answer."). The theoretical possibility that

a drug dealer could voluntarily pay the Drug Tax does not take the

tax out of the criminal penalty category. The unused statutory reporting and payment scheme, while clever, is not enough to distinguish

Kurth Ranch. The Drug Tax is still based on a criminal act.

The Drug Tax also has the fourth feature present in Kurth Ranch:

the tax has no relationship to lawful possession. As the Court

 15
explained, "[a] tax on `possession' of goods that no longer exist and

that the taxpayer never lawfully possessed has an unmistakable punitive character." Id. at 783. In this case, as with the Montana tax, the

taxpayer (Lynn) had no property right in the drugs, which had been

confiscated by the time the Department of Revenue made its assessment. See 21 U.S.C. § 881(a)(1) (providing that "no property right

shall exist in" controlled substances); J.A. 59 (Notice of Assessment

dated March 2, 1993).

Kurth Ranch's consideration of lawful possession alludes to the

distinction between license taxes and criminal penalties. A license fee

exacts a cost for the "privilege of carrying on" a "lawful business or

occupation." Black's Law Dictionary 921 (6th ed. 1990); Fontenot v.

Accardo, 278 F. 871, 875 (5th Cir. 1922) (explaining that tax on

liquor imposed during Prohibition was a criminal penalty, not license

fee on "lawful business or occupation"). Payment of a license fee confers lawful possession. For example, tobacco and alcohol manufacturers, wholesalers, and retailers must pay steep taxes as a condition to

legal operation of their businesses. See, e.g., N.C. Gen. Stat. § 105-

113.74 (1996) (describing alcohol license taxes). In addition, lawful

possession of cigarettes is conditioned on having tax stamps affixed

to the product. See, e.g., id. § 105-113.31 (possession of non-tax-paid

cigarettes). In the case of marijuana or cocaine, however, payment of

the Drug Tax does not confer a legal privilege to engage in drug dealing. Nor is payment of the tax simply a condition precedent to lawful

possession. See id. § 105-113.105 ("Nothing in this Article may in

any manner provide immunity from criminal prosecution for a person

who possesses an illegal substance.").

In this context the Supreme Court has often cited the feature of

lawful possession to distinguish between a license tax and a criminal

penalty. In United States v. Sanchez, 340 U.S. 42, 46 (1950), for

example, the Supreme Court upheld the federal Marihuana Tax Act,

which imposed a $100 per ounce tax on transferees of marijuana who

were not registered with the Treasury Department. 8 The rate of taxation on legally registered transferees, however, was only $1 per

_________________________________________________________________

8 The Marihuana Tax Act was repealed by the Comprehensive Drug

Abuse Prevention and Control Act of 1970, Pub. L. No. 91-513, 84 Stat.

1236, 1292.

 16
ounce. At the time, many states allowed state-licensed manufacturers

and wholesalers to process and sell marijuana. Many state laws also

allowed possession by apothecaries, researchers, physicians, dentists,

persons for whom marijuana had been prescribed, and others. See

Leary v. United States, 395 U.S. 6, 16-17 (1969). The Sanchez Court

noted that by requiring transferees to register with the Treasury

Department, the tax "implements the congressional purpose of

restricting traffic in marihuana to accepted industrial and medicinal

channels." Sanchez, 340 U.S. at 44. Cf. Minor v. United States, 396

U.S. 87, 97, 97-98 n.12 (1969) (noting that of the 400,000 registered

narcotics dealers in 1967, only four were reported during that year for

a violation of the narcotics laws). In this case, unlike Sanchez, there

is no legislative intent to allow cocaine trafficking within any "accepted [ ] channels."

If payment of the Drug Tax conferred legal ownership, then the tax

would amount to nothing more than an expensive licensing or excise

fee. The fact that it does not is another strong indication that the tax

is a criminal penalty. Compare Regal Drug Corp. v. Wardell, 260

U.S. 386, 392 (1922) (holding that tax on liquor during Prohibition

is penalty); Lipke v. Lederer, 259 U.S. 557, 561 (1922) (same); and

Fontenot v. Accardo, 278 F. 871, 875 (5th Cir. 1922) (same), with

Sonzinsky v. United States, 300 U.S. 506, 513-14 (1937) (upholding

license tax on firearms and distinguishing cases where subject of the

tax is criminal); and United States v. Doremus , 249 U.S. 86, 94

(1919) (upholding constitutionality of Harrison Narcotic Drug Act,

which imposed tax on "lawful business" in coca and opium; noting

that license tax provisions "tend to keep the traffic aboveboard and

subject to inspection by those authorized to collect the revenue"). We

therefore conclude that the Drug Tax also shares the fourth feature

examined in Kurth Ranch, the absence of a relationship to lawful possession.

The Kurth Ranch Court did not indicate that the features it cited

were meant to be exclusive. However, the Drug Tax contains no features that allow us to distinguish Kurth Ranch . The rate of taxation

is even steeper than the tax in Kurth Ranch. Unlike the application of

a normal income tax on illegal activity, the Drug Tax is enforced only

against criminals.9 And unlike the marijuana tax upheld in Sanchez,

_________________________________________________________________

9 Kurth Ranch does not affect the proper characterization of a tax on

illegal income as civil in nature. The income tax subjects criminals, such

 17
the Drug Tax does not contemplate lawful dealings in the product that

is the subject of the tax. The Drug Tax singles out a class of persons

who have engaged in criminal activity and subjects the class to a rate

of taxation far beyond that faced by any legitimate taxpayer. As the

Supreme Court said when it held that a Prohibition era tax was a

criminal penalty,

[C]ertainly we cannot conclude . . . that penalties for crime

should be enforced through the secret findings and summary

action of executive officers. The guarantees of due process

of law and trial by jury are not to be forgotten or disregarded.

Lipke v. Lederer, 259 U.S. 557, 562 (1922). Accordingly, we hold

that the Drug Tax is a criminal penalty.10 

_________________________________________________________________

as drug dealers, bookmakers, and moonshiners, to the same tax obligations faced by law-abiding taxpayers. See Thomas v. Commissioner, 62

F.3d 97, 101 (4th Cir. 1995) (noting that taxpayer who failed to pay

income tax on illegal drug income "is being treated no differently than

any other person who has failed to pay income tax. .. . Unlike the defendants in Kurth Ranch, who were taxed because of their illegal activity,

Thomas would face this tax liability regardless of the source of his

income."). Taxing illegal income is simply an application of the broad

scope of Internal Revenue Code § 61, which defines income as all

income "from whatever source derived."

10 In Hudson v. United States , 1997 WL 756641 (U.S. Dec. 10, 1997),

the Supreme Court applied "traditional double jeopardy principles" and

concluded that certain administrative sanctions (monetary penalties and

disbarment) under the banking laws were not criminal punishment. Id. at

*7. The Court in Hudson noted that the "clearest proof" of a sanction's

punitive form and effect is required to overcome an indication of legislative intent to impose a civil sanction. Id. at *5, *7, *8, citing United

States v. Ward, 448 U.S. 242, 249 (1980). This does not appear to make

the challenger's burden any tougher than it already was. In any event, the

crucial aspects of the North Carolina Drug Tax do provide clearest proof

of punitive intent: although nominally labeled an"excise tax," the Drug

Tax is enforced only against those arrested for drug crimes, and --

unlike routine license and excise taxes -- payment of the tax confers no

legal privilege to possess or sell. See supra at 14-17.

 18
V.

This case does not raise the same double jeopardy concerns as

Kurth Ranch. In Kurth Ranch characterization of the tax as a criminal

penalty triggered the protections of the Double Jeopardy Clause. In

this case the Double Jeopardy Clause does not apply because it does

not bar successive prosecutions by different sovereigns. See Abbate

v. United States, 359 U.S. 187, 195 (1959). Only the United States

prosecuted Lynn for cocaine possession, so the Double Jeopardy

Clause does not bar North Carolina's enforcement of the Drug Tax

even though it is a criminal penalty. Because the United States

brought the prior criminal prosecution, North Carolina remained free

to impose its own criminal sanctions.

VI.

Because the Drug Tax is in reality a criminal penalty, its enforcement must conform to the constitutional safeguards that accompany

criminal proceedings. See Carbon Fuel Co. v. United Mine Workers,

517 F.2d 1348, 1349 (4th Cir. 1975) (holding that because contempt

proceedings were properly characterized as criminal, not civil, judgment must be reversed because of denial of due process); see also

Bush Ranch, Inc. v. E. I. DuPont de Nemours & Co. , 99 F.3d 363, 369

(11th Cir. 1996) ("[W]e must reverse the contempt order because the

district court did not afford DuPont the procedural protections the

Constitution requires for the imposition of criminal contempt sanctions."). "Some governmental exactions are so punitive that they may

only be imposed in a criminal proceeding." Kurth Ranch, 511 U.S. at

793 (O'Connor, J., dissenting) (citing United States v. Ward, 448 U.S.

242, 248-49 (1980)). This conclusion is consistent with the holding

in Kurth Ranch. As Justice Scalia noted in his dissent there, the

majority's holding relied on the basic notion that the tax was equivalent to a criminal prosecution. "Assessment of a criminal punishment

in a civil tax proceeding would violate not only the Double Jeopardy

Clause, but all of the criminal-procedure guarantees of the Fifth and

Sixth Amendments." Kurth Ranch, 511 U.S. at 807 (Scalia, J., dissenting). Accord id., 511 U.S. at 797 (O'Connor, J., dissenting)

("[P]resumably the State cannot tax anyone for possession of illegal

drugs without providing the full panoply of criminal procedure protections found in the Fifth and Sixth Amendments, given the Court's

 19
holding that `[t]he proceeding Montana initiated to collect a tax on the

possession of drugs was the functional equivalent of a successive

criminal prosecution.'"). Enforcing a criminal punishment in a civil

proceeding is incompatible with the important constitutional distinctions between civil and criminal procedure:

Civil Procedure is incompatible with the accepted rules and

constitutional guaranties governing the trial of criminal

prosecutions, and where civil procedure is prescribed for the

enforcement of remedial sanctions, those rules and guaranties do not apply. Thus the determination of the facts upon

which liability is based may be by an administrative agency

instead of a jury, or if the prescribed proceeding is in the

form of a civil suit, a verdict may be directed against the

defendant; there is no burden upon the Government to prove

its case beyond a reasonable doubt, and it may appeal from

an adverse decision; furthermore, the defendant has no constitutional right to be confronted with the witnesses against

him, or to refuse to testify; and finally, in the civil enforcement of a remedial sanction there can be no double jeopardy.

Helvering v. Mitchell, 303 U.S. 391, 402-04 (1938) (Brandeis, J.)

(footnotes omitted). North Carolina cannot treat the imposition of its

Drug Tax as if it is a civil sanction. It is a criminal penalty, and a taxpayer pursued for Drug Tax liability must be afforded all of the constitutional safeguards due a criminal defendant. 11

_________________________________________________________________

11 Lynn also challenges the constitutionality of the Drug Tax by arguing

that it is a bill of attainder passed by a state in violation of Article I, section 10 of the United States Constitution. A legislative act is an unconstitutional bill of attainder if it singles out an individual or narrow class of

persons for punishment without a judicial proceeding. See, e.g., United

States v. Brown, 381 U.S. 437, 449-456 (1965). Because we hold that the

Drug Tax is in reality a criminal penalty, future enforcement of the tax

must be accompanied by appropriate judicial proceedings. Accordingly,

we have no occasion to consider whether the Drug Tax is a bill of attainder.

 20
VII.

The district court never reached the issue of whether the Drug Tax

is a criminal penalty under Kurth Ranch. The court reasoned that

because the Drug Tax is a "tax under State law," see 28 U.S.C.

§ 1341, the Tax Injunction Act prevents a district court from exercising subject matter jurisdiction over Lynn's claims for declaratory and

injunctive relief. We disagree because a tax on illegal drugs that

reaches the level of a criminal penalty under Kurth Ranch is not properly characterized as a "tax under State law."

The Tax Injunction Act provides:

The district courts shall not enjoin, suspend or restrain the

assessment, levy or collection of any tax under State law

where a plain, speedy and efficient remedy may be had in

the courts of such State.

28 U.S.C. § 1341. The Tax Injunction Act prohibits district court

jurisdiction over an action if (1) the action is to"enjoin, suspend or

restrain the assessment, levy or collection" of a state tax, (2) the tax

is a "tax under State law," and (3) the state provides a "plain, speedy

and efficient remedy" in its own courts. See International Lotto Fund

v. Virginia State Lottery Dep't, 20 F.3d 589, 593 (4th Cir. 1994); San

Juan Cellular Tel. Co. v. Public Serv. Comm'n, 967 F.2d 683, 685

(1st Cir. 1992).

The first element of the Tax Injunction Act is present. An injunction against the continued enforcement of the Drug Tax against Lynn

would "enjoin" the "collection" of what has been labeled a state tax.

Declaratory relief concerning state taxes is also barred by the Tax

Injunction Act. See California v. Grace Brethren Church, 457 U.S.

393, 408 (1982). See also Great Lakes Dredge & Dock Co. v.

Huffman, 319 U.S. 293, 299 (1943) ("[T]hose considerations which

have led federal courts of equity to refuse to enjoin the collection of

state taxes, save in exceptional cases, require a like restraint in the use

of the declaratory judgment procedure.").

The Drug Tax lacks the second element, however. A criminal pen-

 21
alty, however labeled, is not a "tax under State law" for Tax Injunction Act purposes. The Act "was initially `predicated upon the

desirability of freeing, from interference by the federal courts, state

procedures which authorize litigation challenging a tax only after the

tax has been paid.'" International Lotto Fund , 20 F.3d at 593 (quoting

Great Lakes, 319 U.S. at 301). The policy considerations that support

the Tax Injunction Act do not extend to state criminal prosecutions,

which raise different constitutional concerns than those present in

assessing and collecting an ordinary state tax. See Steffel v.

Thompson, 415 U.S. 452, 472 n.20 (1974) (noting that there is no statutory counterpart of Tax Injunction Act applicable to state criminal

prosecutions).12

The few cases that address the issue confirm that federal courts

have jurisdiction to examine a tax that is in reality a criminal penalty.

"[I]n such a setting, where the so-called tax has clearly punitive qualities, it may, if invalid, be enjoined." Denton v. City of Carrollton, 235

F.2d 481, 485 (5th Cir. 1956) (citations omitted) (holding that despite

Tax Injunction Act district court should have considered constitutional questions arising from steep license tax on labor organizers).

Cf. Lipke v. Lederer, 259 U.S. 557, 561-62 (1922) (holding that

because Prohibition era tax on liquor was a penalty, statutory mandate

that "[n]o suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court" did not apply); Regal

Drug Corp. v. Wardell, 260 U.S. 386, 392 (1922) (same).13 Accord-

_________________________________________________________________

12 We reiterate that the Eleventh Amendment, discussed supra, operates

to protect the state treasury from direct interference by the federal courts.

At issue in this case is the future enforcement of a criminal penalty, not

the ancillary effect on the financing of state government. Cf. Edelman v.

Jordan, 415 U.S. 651, 668 (1974) ("Such an ancillary effect on the state

treasury is a permissible and often an inevitable consequence of the principle announced in Ex Parte Young[.]"); Green v. Mansour, 474 U.S. 64,

68 (1985) ("[T]he availability of prospective relief . . . gives life to the

Supremacy Clause. Remedies designed to end a continuing violation of

federal law are necessary to vindicate the federal interest in assuring the

supremacy of that law.").

13 The district court relied on a series of cases distinguishing taxes from

regulatory fees, which are not subject to the Tax Injunction Act. See, e.g.,

Bidart Bros. v. California Apple Comm'n, 73 F.3d 925, 931 (9th Cir.

 22
ingly, we reverse the district court's holding that jurisdiction is barred

by the Tax Injunction Act. The Tax Injunction Act does not apply to

state taxes that are in reality criminal penalties. 14

VIII.

For the foregoing reasons we hold that the Controlled Substance

Tax is a criminal penalty, and we reverse the district court on that

point. North Carolina's enforcement scheme must provide the constitutional safeguards that attach to criminal prosecutions. We do not

believe, however, that a remand is necessary in this case. In their

complaint the plaintiffs ask for monetary damages, declaratory relief,

and injunctive relief. Their request for monetary damages is barred by

the Eleventh Amendment and for failure to state a claim, and we

affirm the district court on those determinations. Although we have

declared that the Drug Tax is a criminal penalty, we do not believe

that injunctive relief is necessary at the present time. Even though

North Carolina has only partially satisfied its Drug Tax assessment

against Lynn, there is no pending state proceeding to be enjoined. Nor

is there any indication that North Carolina will not comply with this

opinion in the future. The judgment of the district court is therefore

AFFIRMED IN PART AND REVERSED IN PART.

_________________________________________________________________

1996) (considering as factors "(1) the entity that imposes the assessment;

(2) the parties upon whom the assessment is imposed; and (3) whether

the assessment is expended for general public purposes, or used for the

regulation or benefit of the parties upon whom the assessment is

imposed"). The district court concluded that the Drug Tax was not a regulatory fee. The cases discussing regulatory fees do not help in the analysis in this case, however. Regulatory fees are civil and remedial in

nature. A criminal penalty raises different constitutional concerns that

outweigh the state's interest in the orderly administration of taxes. We

simply note that no court has held that a criminal penalty, although

labeled as a tax, falls within the ambit of the Tax Injunction Act.

14 Because the Drug Tax is not a"tax under State law," we need not

consider the third element, that is, whether Lynn has a "plain, speedy and

efficient remedy" in state court.

 23