The bill drew chuckles and head shakes from state legislators used to considering more serious issues.
House File 3788 and its Senate companion would repeal a tax charged on the sale of illegal controlled substances, including marijuana. Under Minnesota law, people who sell illegal drugs are required to visit the state Department of Revenue building in St. Paul and purchase stamps. Those stamps, in turn, must be stuck onto the marijuana, cocaine or other drugs as proof of tax payment.
The fee? Sellers are expected to pay $3.50 per gram for cannabis, $200 per gram for controlled substances and $400 per dose for drugs not sold by weight. If a dealer has already paid a similar tax in another state, they can claim a credit on their Minnesota levy.
It wasn’t surprising to members of the Senate and House taxes committees that the state doesn’t raise much money from the tax. In fact, it raised $0.00 in fiscal year 2021 and $0.00 in fiscal year 2022, according to the Department of Revenue. The last time any revenue was collected was in 2014 when $1,000 was collected. According to a 2014 Star Tribune article, it was purchased by a dealer who thought it would provide immunity from prosecution. He was wrong.
“What were they thinking in 1986 where the Department of Revenue needed to tax illegal drugs?” asked Rep. Greg Davids, R-Preston. “Who did this? If it was the Democrats I could blame it on them. If it was the Republicans, I will remain completely silent.”
He joked that the bill to repeal the tax — introduced by Rep. Jessica Hanson, DFL-Burnsville and Sen. Clare Oumou Verbeten, DFL-St. Paul — was a tax break for illegal drug dealers. In the Senate, Sen. Matt Klein, DFL-Mendota Heights, was equally surprised at the concept behind the law.
“I find it fascinating that at any point in history someone actually purchased these, went to the Department of Revenue and said, ‘I have some illegal substances, can I pay the tax?’ ”
“It seemed so ridiculous, that you are supposed to go to the Department of Revenue and pay taxes on your illegal drugs,” Oumou Verbeten said after a Wednesday hearing. “Can you weigh these for me and tell me how much I owe?”
Oumou Verbeten told the Senate Taxes Committee that the tax law emerged from the national war on drugs in the mid-1980s. The purpose wasn’t to collect money up front but to give county attorneys an add-on charge when prosecuting drug cases. A state Department of Revenue official said the agency doesn’t initiate enforcement but reacts when local law enforcement presents a case.
There are also sales of stamps attributed to stamp collectors and souvenir hunters, the department said. Stamps bought in person can be purchased with cash and the clerks do not ask for any identifying information. Stamps can also be purchased by mailing a form into the department.
The department’s tax information page notes that it will not initiate criminal cases based on the purchase of stamps. But it makes clear it can cooperate with law enforcement and reminds stamp purchasers that simply paying the tax ahead of time does not provide immunity from criminal prosecution.
Rep. Steve Elkins, DFL-Bloomington, compared the use of the tax in criminal cases to the way notorious Prohibition-era gangster Al Capone was put in prison. It wasn’t for illegal alcohol sales, it was for tax evasion.
While the state has now legalized possession and use of cannabis, there are still possession amounts that remain illegal. Sales without a license and sales to minors, among other crimes, are also illegal. Hanson said prosecution of these crimes are a better way to enforce illegal sales than an unused tax statute.
As much fun as the committee members had with the bill, it does have a serious side. Oumou Verbeten and Hanson said the issue was brought to their attention by Kurtis Hanna, a lobbyist who has pushed for cannabis legalization for a decade. Hanna told them of his experience with similar laws in Iowa.
Fifteen years ago, Hanna was arrested for possession of three ounces of marijuana. The prosecutors charged him with both possession of a Schedule 1 substance and failure to affix a tax stamp to that substance.
“For each charge, there was a maximum of 10 years in jail, so combined it would be 20 years maximum,” Hanna said. While it is rare that anyone is sentenced to that much time, the additional tax evasion charge would have added to the penalty. The charges in Iowa were eventually dropped because police officers conducted a search of Hanna’s car without his permission and without a warrant.
Hanna said he has made it a campaign to get rid of the tax law. His research into the issue found that the federal government had a tax on illegal drugs from 1937 to 1969, when it was struck down by the U.S. Supreme Court. The legal reasoning was that it violated the 5th Amendment provisions against self-incrimination.
But when the Minnesota Supreme Court had a similar case in 1988, it found that the illegal drug tax was, well, legal.
“It was a jarring experience that I have just wanted to remedy for the next guy who comes along,” Hanna said. He was among the advocates who helped pass House File 100 last year and now works for a lobbying/government relations firm called Blunt Strategies.
“I’d had no interest in politics prior to that,” Hanna said. “There’s this quote from Pericles: ‘Just because you do not take an interest in politics doesn’t mean politics won’t take an interest in you.’ ”
Peter Callaghan
Peter Callaghan covers state government for MinnPost. Follow him on Twitter @CallaghanPeter or email him at pcallaghan@minnpost.com.
