The following is a part of a continued AccountingWEB series of articles examining unique and ingenious ways that states are finding to generate tax revenue.
When state governments face budget woes, legislators devise creative ways to raise revenue. One of the most unusual is the taxing of illegal drug transactions. A growing number of states now require drug dealers to purchase a drug tax stamp and affix it to the controlled substance. One of the first states to enact such a law was Kansas, which saw no reason not to tax drug dealers the same as any other business in the state.
Although the Kansas drug tax has been around since 1978, few drug dealers bother to buy a stamp. The state only collects hundreds of dollars a year from sales of the drug stamp. The far more important role of the drug tax is to allow state officials to prosecute convicted drug dealers for tax evasion. Dealers who fail to purchase the stamp face up to five years in prison and a fine up to $10,000.
If a dealer lacks the funds to pay the fine, the state can seize cash or property, such as cars and jewelry. The state then sells the property and keeps the proceeds. In all, Kansas raises about $1.5 million a year from the drug stamp, with the majority of the funds going back to fund law enforcement efforts and the rest going to the state.
The state requires a drug stamp, which is good for three months, as soon as the dealer takes possession of the substance. People who purchase the stamp do not have to give their name or address and the department of revenue does not share any information relating to the stamp with other departments. The state has compiled a list of frequently asked questions about the tax on its Web site.