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Edited for length by Pete Edwards

A report released by the Tennessee Center for Policy Research, a Nashville based

nonpartisan research organization, says that the Tennessee Department of Revenue exaggerated the success of the unauthorized substances tax program. At most, the tax on individuals in possession of illegal drugs or alcohol brought in only 25% of the estimate released by the Department. Worse, the tax failed to pay for its own administrative costs.

In a press release issued in January this year, the Department of Revenue claimed it collected over $1.7 million from the unauthorized substances tax but this figure has been thrown into question following a revue of "Monthly Revenue Collections" statistics available on the Department's own website. The "Monthly Revenue Collections"

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publications reflect that the state collected only $339,854.62 - not $1.7 million - through the unauthorized substances tax in 2005, the first year the law came into effect.

"Even if $1.4 million magically appeared in the Department of Revenue's accounts, the unauthorized substances tax still cost taxpayers hundreds of thousands more to administer than it generated in revenue," said Drew Johnson president of the Tennessee Center for Policy Research.

The tax cost Tennesseans $376,400 in startup expenses and $802,568 in recurring operational costs in 2005. Using the Department of Revenue's questionable $1.7 million collection figure, the tax cost Tennesseans three quarters of a million dollars more to administer the 11-employee program than it generated for the state because the program allocates three quarters of the tax revenue to the local law enforcement agencies involved in the arrests that generate the tax.

The tax was created to generate revenue for the state general fund and state and local law enforcement agencies and requires that individuals in possession of illegal drugs or alcohol pay a tax by purchasing a drug stamp or face severe fines if arrested.

The law, that went into effect at the beginning of January 2005, allowed the state of Tennessee to begin assessing an excise tax on illegal drugs. From moonshine to marijuana, and even including prescription drugs procured illegally, the tax is required to be paid. According to the Daily Tennessean, Tennessee became the 23rd state to enact the tax. While proponents of the new law are touting its revenue enhancing aspects, collections appear to prove the opposite.

But according to state Sen. Randy McNally (R-Oak Ridge), the law's sponsor, the tax should have more than covered the costs to the state. He told the Tennessean in 2005 he projected collecting as much as $3.6 million in one year. The idea, he said, was to recoup some of the costs of prosecuting and jailing drug offenders.

"People felt good that we could do something other than have to spend taxpayer money on housing drug dealers," he said.

Under the law, persons in possession of illegal drugs have 48 hours to report to a state revenue office to pay the tax and get a tax stamp, which must be affixed to the drugs in question. People who comply with the law need not provide their name, address, or other identifying information, and under Tennessee law, the tax office is barred from providing information about drug tax payers to law enforcement authorities.

But Tennessee officials don't think that will be the primary way the tax will be assessed. In North Carolina, which has had a similar law for 14 years, only 79 people out of the 72,000 assessed voluntarily bought tax stamps. The rest were taxed after being arrested on drug charges. Under the Tennessee law, upon making a drug arrest, police have 48 hours to contact the tax office, which will then assess the tax, as well as additional fines for not having paid it in the first place. If suspects cannot immediately pay the tax, the state will seize and sell off any assets to pay off the liability.

Of the $1.7 million the Department of Revenue claimed it collected they failed to mention that only one quarter of that amount-$428,641-ever reached state coffers because the rest goes to local law enforcement agencies.

The Tennessee Center for Policy Research http://www.tennesspolicy.org
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