Opinion ID: 1353617
Heading Depth: 1
Heading Rank: 3

Heading: Monies Collected by the Secretary of Revenue under the State Unauthorized Substances Excise Tax

Text: Plaintiffs contend that the Court of Appeals erred in holding that monies collected pursuant to Article 2D of Chapter 105, entitled Unauthorized Substances Taxes, were not required to be paid to public schools under Article IX, Section 7. The unauthorized substances tax is an excise tax on certain substances, including controlled substances and illicit spiritous liquor possessed by dealers. N.C.G.S. § 105-113.107 (2003). One definition of dealer is someone who actually or constructively possesses more than 42.5 grams of marijuana, seven or more grams of any other controlled substance that is sold by weight, or 10 or more dosage units of any other controlled substance that is not sold by weight. Id. § 105-113.106(3)a. (2003). The tax rate varies with the substance and ranges from forty cents for each gram of harvested marijuana to two hundred dollars for each gram of any controlled substance other than marijuana or cocaine that is sold by weight. Id. § 105-113.107(a)(1), (2). Dealers are required to pay the amount due under the statute within forty-eight hours after receipt of the substance. Id. § 105-113.109 (2003). After payment the dealer is issued a revenue stamp to be affixed to the substance to show that the tax has been paid. Id. § 105-113.108(a) (2003). Dealers are not required to give their name, address, social security number, or other identifying information. Id. Information obtained in collecting the unauthorized substances tax is confidential and may not be disclosed or used in a criminal prosecution, except for prosecution for violation of Article 2D of Chapter 105. N.C.G.S. § 105-113.112 (2003). Once the tax due on an unauthorized substance has been paid, no additional tax is due under [Article 2D] even though the unauthorized substance may be handled by other dealers. Id. § 105-113.109. The statute also permits the Secretary of Revenue to impose any applicable penalties and interest authorized by Article 9 of Chapter 105 on any person who fails to timely pay the unauthorized substance excise tax. N.C.G.S. § 105-113.110A (2003). Plaintiffs argue that, when considered in light of this Court's construction of the term penal laws in Mussallam, the tax is a penalty for purposes of Article IX, Section 7. Plaintiffs also contend that the criteria set forth in Dep't of Revenue v. Kurth Ranch, 511 U.S. 767, 114 S.Ct. 1937, 128 L.Ed.2d 767 (1994), and applied in Lynn v. West, 134 F.3d 582 (4th Cir.), cert. denied, 525 U.S. 813, 119 S.Ct. 47, 142 L.Ed.2d 36 (1998), should be applied in determining whether the tax is more in the nature of a penalty. We disagree. The section titled Purpose in Article 2D states: The purpose of this Article is to levy an excise tax to generate revenue for State and local law enforcement agencies and for the General Fund. Nothing in this Article may in any manner provide immunity from criminal prosecution for a person who possesses an illegal substance. N.C.G.S. § 105-113.105 (2003). In a previous decision construing the predecessor statute, the North Carolina Controlled Substance Tax, N.C.G.S. §§ 105-113.105 through -113.113 (1992), which contained the same essential provisions as the current statute, this Court affirmed the opinion of the Court of Appeals, which held that the same excise tax at issue in this case was not a penalty and collection of the tax did not bar subsequent prosecution under the Double Jeopardy Clause of the United States Constitution or the Law of the Land Clause of the North Carolina Constitution. State v. Ballenger, 123 N.C.App. 179, 472 S.E.2d 572, (1996), aff'd per curiam, 345 N.C. 626, 481 S.E.2d 84, cert. denied, 522 U.S. 817, 118 S.Ct. 68, 139 L.Ed.2d 29 (1997). In Ballenger, the Court of Appeals analyzed the provisions of Chapter 105, Article 2D in light of the factors enunciated in Kurth Ranch and noted that the North Carolina tax did not have either of the unusual features which the Supreme Court considered significant in concluding that the Montana tax on dangerous drugs constituted punishment for double jeopardy purposes. Id. at 183, 472 S.E.2d at 574. Specifically, the North Carolina tax does not require that the person in possession of the substances be arrested, nor is [the tax] assessed on property that necessarily has been confiscated or destroyed. Id. The Court of Appeals concluded that the North Carolina statute is a legitimate and remedial effort to recover revenue from those persons who would otherwise escape taxation when engaging in the highly profitable, but illicit and sometimes deadly activity of possessing, delivering, selling or manufacturing large quantities of controlled drugs. Id. at 184, 472 S.E.2d at 575. Today we reaffirm this holding as it applies to the North Carolina Unauthorized Substances Taxes law. Plaintiffs are correct that Article IX, Section 7 applies to both civil and criminal penalties. However, the test is whether the tax is intended to penalize the wrongdoer rather than compensate a particular party. Mussallam, 321 N.C. at 509, 364 S.E.2d at 367. Applying the test established in Mussallam, we hold that the excise tax on unauthorized substances is not a penalty subject to the provisions of Article IX, Section 7 and affirm the decision of the Court of Appeals on this issue. We do note, however, that the unauthorized substances tax is subject to the same penalties and interest payments as applied to other taxes collected by the Department of Revenue. N.C.G.S. § 105-113.110A. Thus, penalties collected for late or otherwise improper payments of the unauthorized substances tax must be treated in the same manner as penalties discussed in Section II of this opinion. Such payments are properly classified as penalties to be disbursed to public school systems pursuant to Article IX, Section 7.