I, like many others, found myself scrambling this week to get my taxes filed on time. My home state of North Carolina is one of about 22 states that have taxes on illegal drugs. Several other states have had their illegal substances tax laws struck down in court, mostly due to their violation of the Double Jeopardy clause of the Constitution. The Reason Foundation did a really cool report on this issue last year, and DRCNet has published some good analysis about illegal substances taxes in The Chronicle.
I'm not very familiar with other state laws, but North Carolina's law was overhauled in 1995 to comply with a 1994 Supreme Court ruling, Montana v. Kurth Ranch, which struck down Montana's tax on illegal drugs. Some of the changes include ensuring that the purpose of the tax is generating revenue and not punishment, revising the tax structure to ensure the tax is never more than the retail value of the drug, and creating a smaller tax rate for unusable parts of the marijuana plant such as seeds and stalks. If you're interested in a more detailed explanation, check out this PDF.
The changes to NC's tax law were good changes. They represent very commonsense elements that should be involved in drug taxes, except for one very crucial point. You must be arrested to be subject to this tax. It's a testimony to how absurd our public policy regarding drugs is when just about the only people in the country who actually ask to be taxed are given such strong legal incentive not to pay.
The ideal solution is to legalize all drugs and collect the taxes from the peaceful, legal transactions. Check out LEAP's report by Jeffrey Miron of Harvard University which estimates that the tax revenue from legal drugs combined with the no longer having to pay to enforce current drug laws, will create a gross increase of about 76.8 billion dollars a year. That is roughly equal to the Department of Health and Human Service's entire budget. With that money, we could double what we spend on treatment and prevention programs, and still have money left over.