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Analysis: The Death of Taxes on Illegal Drugs

Until the most recent legislative session, the state had a tax on illegal drugs, adding tax evasion to the list of things that could put buyers and sellers into jail. Those drugs remain illegal, but the transactions are now tax-free.

Sample tax stamps for controlled substances and "marihuana" available for sale until last year from the Texas Comptroller of Public Accounts.

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Illegal drugs in Texas are no longer taxable.

That said exactly what you think it said. Until the most recent legislative session, the state had a tax on illegal drugs, adding tax evasion to the list of things that could put buyers and sellers into jail. Selling and buying those drugs remains illegal, but now the transactions are tax-free.

The tax went to its unheralded death last September, part of a legislative weeding of the state’s tax laws.

It was a headline-grabber back in the day, passing in the Legislature’s 1989 session, when Texas lawmakers were looking for ways to make a political and policy statement. This fell between the eras of “just say no” and “zero tolerance.”  The gubernatorial election that featured Republican Clayton Williams Jr. touting “the joys of busting rocks” as a punishment for young criminals was just around the corner.

Popping drug dealers, always a popular political idea, was particularly strong at the time. And the story then was all about Al Capone, the famous Chicago gangster nabbed not for his violence — the St. Valentine’s Day Massacre was attributed to him — or for smuggling booze during Prohibition, but for tax evasion.

Former state Rep. Billy Clemons of Lufkin sailed the tax through the House and Senate in 1989 and got a signature from then-Gov. Bill Clements, a Republican. It was a political no-brainer.

Maybe they approved the law for the headlines. But the explanation they gave for adding tax stamps to packaging for illegal drugs was to give law enforcement another brick to throw at drug dealers. It remained illegal to sell drugs — that never changed. The idea was that dealers would have to buy the stamps or be liable for tax evasion — in addition to the other criminal penalties — if they were caught with unstamped drugs.

Bob Bullock, the comptroller at the time, made a splash unveiling the stamps, which were printed on silver foil and featured drawings of Death or a Jolly Roger and the words Death-Drug-Taxes connected by arrows.

Some of the stamps were sold, presumably to collectors. But you never know, unless you were involved in a transaction.

The legislation set the rates, too: $3.50 per gram for marijuana, $200 per gram for other substances and so on. The actual law called for a tax on “marihuana” and controlled substances; that odd spelling for pot is a remnant from older state laws.

A lot of the law's intended zing was undone by the Texas Court of Criminal Appeals, which ruled in a 1996 case where a man was caught with marijuana and billed by the state for $49,070 in taxes. He argued that the taxes amounted to punishment and that jail time on drug charges would amount to unconstitutional double jeopardy. The court agreed, essentially telling police and prosecutors to choose between the tax and the charges when punishing people for drug possession.

So the law came in with a bang and then was mostly forgotten, leaving the books last year with barely a sigh.

Hardly anyone who voted to repeal the tax even knew it was in there. If they did, give them some brownie points. All they had to go on was “Chapter 159, Tax Code,” the fourth of seven items in a list under this innocuous heading: “Section 36. The following are repealed:”

A little thing like that can kill a whole section of the state’s lengthy tax code, which was the point of last year’s legislation. Incoming comptroller Glenn Hegar offered lawmakers a laundry list of unused and outmoded sections of the tax code to excise, and excise they did.

They didn’t necessarily know what they were excising — just that it was a chance to kill some taxes, to thin the rules and to say, truthfully, that they had actually unpassed some laws.

Texas is not showing much appetite for legalizing marijuana as Colorado and some other states have done, although efforts to lessen the penalties for small amounts have found some traction. It’s not like this has suddenly become a drug-friendly Legislature.

Besides, if that trend catches on and Texas allows vendors to open marijuana stands to compete with liquor stores, they can always turn around and put a tax on “marihuana” back in place.

It was done once before — after Al Capone was put in prison and Prohibition was repealed.

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State government 84th Legislative Session Glenn Hegar Texas Legislature