Inside the North Carolina law requiring drug dealers to pay taxes

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WINSTON-SALEM, N.C. -- In North Carolina, drug dealers are expected to pay taxes on their profits. However, many either don’t know they’re supposed to, or don’t pay altogether. But, when they’re caught with the drugs, the civil portion of their penalty means they’re going to owe. Big time.

The Department of Revenue says the “Unauthorized Substance Tax” is an excise tax on controlled substances, illicit spirituous liquor, mash and illicit mixed beverages. Individuals are required to acquire tax stamps for the respective substance, which are then permanently affixed to the substance.

Marijuana is taxed at a rate of $3.50 a gram when a person possesses more than 42.5 grams. Cocaine’s tax rate is $50 per gram when there are seven or more grams. Any other controlled substance sold by weight – heroin, crack cocaine, etc. – is taxed $200 for each gram when someone possesses seven or more grams.

Any other controlled substance not sold by weight is taxed $200 for each 10 dosage units, any low street value drug not sold by weight is taxed $50 for each 10 dosage units.

Illicit spirituous liquor sold by the drink is taxed $31.70 per gallon, illicit spirituous liquor not sold by the drink holds a tax rate of $12.80 for each gallon, mash is taxed at a rate of $1.28 per gallon and illicit mixed beverages are taxed $20 on each four liters “and a proportional sum on lesser quantities.”

The Department of Revenue says any information obtained because of the law is confidential. Individuals who purchase stamps are not required to give their name, address, social security number or other identifying information.

Revenue employees who divulge information regarding stamp purchasers to law enforcement shall be guilty of a Class 1 misdemeanor.

“To me, that’s crazy. That’s a setup,” said a woman who spoke with FOX8, but didn’t want to be identified. “How is anybody gonna walk in and buy a drug tax and then you’re not gonna be looked at?”

The woman says she was looking for some extra cash when she picked up a package containing 13 pounds of marijuana.

“It was going through the mail and the mail lady smelled it and called the police,” she said.

When she was arrested, she was charged with attempted trafficking. She was then contacted by the Department of Revenue, which told her she owed more than $20,000 in taxes on the marijuana.

“$20,000, $8,000 in penalties and I accrued almost $800 in interest while I was locked up,” she said.

Today, she owes more than $29,000.

“I’m not ever gonna get out from underneath this, ever, not unless I win the lottery and become a millionaire,” she said.

Seventy-five percent of the money collected is returned to the state or local law enforcement agency who made the seizure. The remaining 25 percent is credited to the General Fund.

“Use it for our protection, use it for equipment, use it for training, whatever the needs are of the police department so that we can be safe and go home to our families,” said Cpl. Jerome Paul, of the Winston-Salem Police Department.

The Winston-Salem Police Department received $441,018.97 from 2016-2018 because of the law. In 2018, it had $160,795.10 returned.

Greensboro police collected $274,110.95 due to the law in 2018.

“You just gotta pay your debt to society,” Paul said.

If someone does not pay the tax, the Department of Revenue can seize possessions to pay back the debt.

“I’ve seen gold teeth taken out of peoples’ house, gold chains, necklaces,” Paul detailed.

The woman who was arrested says as a result, she does not keep any valuables in her name.

“Anything that’s in your name, they have the capability of taking,” she said.

Below are the amounts law enforcement agencies from Alamance, Davidson, Forsyth, Guilford and Randolph counties collected due to the law from 2016-2018:

Alamance County

  • Alamance County Sheriffs Office - $82,520.21
  • Burlington Police Department - $89,080.54
  • Graham Police Department - $9,295.96

Davidson County

  • Davidson County Sheriffs Office - $91,579.58
  • Davidson Police Department - $5,103.48
  • Lexington Police Department - $53,846.86
  • Randleman Police Department - $5,779.53
  • Thomasville Police Department - $72,665.53

Forsyth County

  • Forsyth County Sheriffs Office - $75,517.54
  • Kernersville Police Department - $49,302.93
  • Winston-Salem Police Department - $441,018.97

Guilford County

  • Archdale Police Department - $21,056.80
  • Greensboro Police Department - $679,587.11
  • Guilford County Sheriffs Office - $262,321.01
  • High Point Police Department - $121,560.56
  • UNC Greensboro Police Department - $8,964.42

Randolph County

  • Asheboro Police Department - $52,748.06
  • Randolph County Sheriffs Office $165,674.55

Below are the total taxes collected statewide from 7/1/10 – 6/30/18:

  • 7/1/10 – 6/30/11 - $8,286,553.59
  • 7/1/11 – 6/30/12 - $8,402,176.01
  • 7/1/12 – 6/30/13 - $8,176,726.64
  • 7/1/13 – 6/30/14 - $7,635,230.67
  • 7/1/14 – 6/30/15 - $6,586,782.94
  • 7/1/15 – 6/30/16 - $7,607,812.15
  • 7/1/16 – 6/30/17 - $7,991,867.99
  • 7/1/17 – 6/30/18 - $8.848.255.05

Statewide in 2018, 21 marijuana stamps were purchased, one cocaine stamp was purchased and one low street value substance stamp was purchased, the revenue department says.

The department says 2,806 marijuana stamps were purchased in 2011 and 117 cocaine stamps were purchased in 2005.

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