The Rise And Fall Of Tennessee's Crack Tax

When you file your taxes, you might run into a box prompting you to pay additional tax on any illegal income you have. The government may not know about this income of yours. But the logic says you pay the tax anyway, in case they find out about it later and pile tax evasion on top of your other crimes. Leave the box empty, and they may even charge you for tax evasion on the income without proving the crimes, making you a modern Al Capone.

Some laws tax illegal income with extra specificity, and here’s where it gets really weird. In 2005, Tennessee enacted a new tax on illegal drugs. The foundation for this tax, claimed lawmakers, lay in a national tax on marijuana passed in 1937. However, marijuana was legal in 1937—the law aimed to effectively ban the drug by making it so expensive, but they weren’t asking anyone to come forward and admit owning illegal substances.

Tennessee's 2005 law taxed marijuana at the rate of $2.50 per gram and cocaine at $50 per gram. And while few people volunteer illegal income taxes to the IRS, people did pay Tennessee’s “crack tax.” For the first couple years, it brought in more than $1.5 million annually. That’s less than the $43 million they estimated they were owed, but it was $1.5 million more than we’d expect people would pay.

So, did Tennessee authorities accept the money and then let the indiscreet drug users alone after that? Absolutely not. They now had a list of self-admitted criminals, and they made full use of this information. This meant going even further than, say, starting investigations against them. At times, they just launched raids and seized the users’ property without awaiting any conviction.

In 2009, the state supreme court declared the law unconstitutional. It violated your Fifth Amendment right against self-incrimination, they ruled. That meant the 2,788 people who’d paid money under the law were eligible for refunds, and the first 16 people who did so got $3.7 million.

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