428 Mass. 406 | Mass. | 1998
This is an appeal by the Commissioner of Revenue (commissioner), pursuant to G. L. c. 58A, § 13, from a decision of the Appellate Tax Board (board), abating a controlled substances tax (CST) assessed against Robert Mullins (taxpayer) pursuant to G. L. c. 64K. Relying primarily on the United States Supreme Court’s decision in Department of Revenue of Mont. v. Kurth Ranch, 511 U.S. 767 (1994) (Kurth Ranch), the board determined that the assessment constituted a “punishment” for purposes of the double jeopardy clause of the Fifth Amendment to the United States Constitution. Because the
1. General Laws c. 64K, inserted by St. 1993, c. 110, § 127, imposes a CST on “dealers” of marihuana and other controlled substances referenced in G. L. c. 94C. See G. L. c. 64K, § l. A “dealer” is defined as “a person who, in violation of Massachusetts law, manufactures, produces, ships, transports, or imports into the commonwealth or in any manner acquires or possesses,more than forty grams of marihuana,” or other specified amounts of controlled substances. Id. The statute prohibits possession by a dealer of any marihuana or controlled substance on which a tax is imposed unless the tax has been paid as evidenced by stamps. G. L. c. 64K, § 4. The rate of tax, established in § 8 of the statute, is $3.50 per gram of mari
The commissioner is charged with enforcing the statute, G. L. c. 64K, § 2, and the requisite payments are to be made by dealers through utilization of a form developed by the commissioner, subject to the proviso that “[djealers shall not be required to give their name, address, social security number or other identifying information on such form.” Id.
Additional features of the statute include that persons lawfully in possession of marihuana or a controlled substance are explicitly exempted from payment of the CST, G. L. c. 64K, § 6; payment of the tax does not provide immunity from prosecution pursuant to Massachusetts law, G. L. c. 64K, § 5; a one hundred per cent penalty is imposed on a dealer’s failure voluntarily to pay the CST immediately on acquisition or possession of the threshold quantity of contraband, G. L. c. 64K, § 9; and failure to pay the tax is a felony, id.
2. The board found the following facts.
The taxpayer also settled related civil forfeiture actions by forfeiting to the office of the district attorney for the Norfolk district approximately $120,000 in bank account deposits, his automobile, and cash in his home.
In February, 1994, the district attorney’s office advised the criminal investigation bureau of the Department of Revenue
No “dealer” has voluntarily complied with the G. L. c. 64K taxing scheme. In fact, the tax assessment at issue is one of only two assessments of tax deficiencies made pursuant to G. L. c. 64K since its enactment. In both instances, assessments were made against “dealers” who previously had been arrested for controlled substances offenses. Moreover, in each instance the matter was brought to the department’s attention by law enforcement personnel, and the tax applied to the specific contraband seized in connection with the criminal matter.
The commissioner is not otherwise engaged in administrative enforcement activity to improve compliance with the tax, independent of criminal law enforcement. Voluntary compliance is the only available mechanism for tax collection apart from postarrest assessments.
3. The double jeopardy clause of the Fifth Amendment to the United States Constitution prevents multiple punishments for the same offense. Powers v. Commonwealth, 426 Mass. 534, 537 (1998). See Luk v. Commonwealth, 421 Mass. 415, 419 (1995), citing North Carolina v. Pearce, 395 U.S. 711, 717 (1969).
In Kurth Ranch, the Montana department of revenue sought to assess a tax on the illegal possession of marihuana pursuant to Montana’s Dangerous Drug Tax Act after the State had imposed a criminal penalty for the same conduct. Kurth Ranch, supra at 769-770. Under Montana’s statute, the taxpayer had no obligation to pay any tax unless and until he was arrested. Id. at 771. In determining whether the tax had “punitive characteristics that subjected] it to the constraints of the Double Jeopardy Clause,” id. at 778-779, the Court examined four factors. The first factor was the “high rate of taxation” provided for in the statute, id. at 780-781, and the second was the “obvious deterrent purpose” of the tax. Id. The Court observed that, while
In concluding that a double jeopardy violation existed, the Court went on to rely on two “[o]ther unusual features . . . [which] set the Montana statute apart from most taxes,” id. at 781, namely (1) that the tax incorporated illegal conduct into the elements necessary for taxability such that the tax was conditioned on the commission of a crime, id. at 781-782, and, (2) that the tax was levied on “ ‘possession’ of goods that no longer exist and that the taxpayer never lawfully possessed.” Id. at 783. It was through the additional analysis triggered by these features of Montana’s drug tax that the Court was able to discern whether an imposition labeled as a tax “departs so far from normal revenue laws as to become a form of punishment.” Id. at 783.
That the CST imposes a high rate of taxation and has a deterrent purpose is evident in G. L. c. 64K, and cannot be persuasively controverted by the commissioner.
The CST is clearly conditioned on the commission of a crime. While assessment of the CST does not specifically depend on arrest, criminal activity is required before the tax is imposed as the statute makes the tax exclusively applicable to illegal activity. In particular, only acquisitions or possession over threshold quantities “in violation of Massachusetts law” result in “dealer” status under the act, and thus subject the individual to the CST. G. L. c. 64K, § 1. Moreover, lawful possession of marihuana
Conditioning the tax on unlawful possession is “significant of penal and prohibitory intent.” Kurth Ranch, supra at 781, quoting United States v. Constantine, 296 U.S. 287, 295 (1935).
The commissioner relies on the decisions of other courts that have distinguished Kurth Ranch on the basis that the Montana statute specifically imposed the tax after the taxpayer was arrested for possession of the contraband, rather than “immediately upon . . . possession” as provided in G. L. c. 64K,
Thus, as in Kurth Ranch, “the tax.assessment not only hinges on the commission of a crime, it also is exacted only after the taxpayer has been arrested for the precise conduct that gives
The fourth Kurth Ranch factor is also present in c. 64K because the tax has no logical relationship to lawful possession. No “dealer” has any ownership interest the law recognizes in goods the mere possession of which is criminal. See generally United States v. Jeffers, 342 U.S. 48, 52-54 (1951). Thus, the CST is levied on the possession of goods that the taxpayer never lawfully possessed in the first place. Furthermore, in practice, G. L. c. 64K is applied in such a manner that assessment invariably follows confiscation of the taxable contraband, and thus, as in Kurth Ranch, taxes the possession of contraband that no longer exists at the time the assessment is imposed. Such a tax “has an unmistakable punitive character.” Kurth Ranch, supra at 783. Because the tax is basically “imposed on criminals and no others, [it] departs so far from normal revenue laws as to become a form of punishment.” Id.
“If payment of the Drug Tax conferred legal ownership, then the tax would amount to nothing more than an expensive licensing or excise fee. The fact that it does not is another strong indication that the tax is a criminal penalty.” Lynn v. West, supra at 592, comparing Regal Drug Corp. v. Wardell, 260 U.S. 386, 392 (1922) (holding that tax on liquor during Prohibition is penalty); Lipke v. Lederer, 259 U.S. 557, 561 (1922) (same); and Fontenot v. Accardo, 278 F. 871, 875 (5th Cir. 1922) (same), with Sonzinsky v. United States, 300 U.S. 506, 513-514 (1937) (upholding license tax on firearms and distinguishing cases where subject of tax is criminal); and United States v. Doremus, 249 U.S. 86, 94 (1919) (upholding constitutionality of Harrison
4. We are unpersuaded by the commissioner’s contention that the CST does not constitute the “same offense” as the offense for which the taxpayer entered a guilty plea in his criminal case (G. L. c. 94C, § 32C [a]).
The CST punishes any “dealer” who “possesses” more than forty grams of marihuana and fails to pay the tax on the contraband. A “dealer” is obviously someone who intends to sell or distribute his or her product. Thus, the CST punishes a person who possesses more than forty grams of marihuana and intends to sell or distribute it. This is the precise crime to which the taxpayer pleaded guilty. That crime and the activity to which the CST is applied are so closely related in fact as to constitute in substance an identical offense for purposes of double jeopardy.
5. Our conclusion does not render G. L. c. 64K invalid, but only requires that taxes assessed under the statute be considered punishment for double jeopardy purposes. The Fifth Amendment does not prevent imposition of the tax; it merely restricts the ability of the Commonwealth to assess the tax against those
6. Because the CST constitutes punishment within the meaning of the double jeopardy clause, the decision of the board must be affirmed.
So ordered.
In this case, the taxpayer received a notice of assessment of the controlled substances tax (CST) from the Department of Revenue (department) after criminal proceedings had commenced. Therefore, we are not confronted with the question whether assessment of the tax may bar a subsequent criminal prosecution. Compare Clifft v. Indiana Dep’t of State Revenue, 660 N.E.2d 310 (Ind. 1995), with Ex parte Ward, 964 S.W.2d 617 (Tex. Crim. App. 1998). In any event, that question is not likely to be raised given the nature of G. L. c. 64K.
We note at the outset that courts that have relied on Department of Revenue of Mont. v. Kurth Ranch, 511 U.S. 767 (1994) (Kurth Ranch), in considering whether drug tax statutes similar to the Massachusetts tax are punitive for purposes of the double jeopardy clause of the Federal Constitution are divided. Compare Lynn v. West, 134 F.3d 582 (4th Cir.), cert. denied, 119 S. Ct. 47 (1998) (finding drug tax punitive although double jeopardy question not at issue); People v. Maurello, 932 P.2d 851 (Colo. App. 1997) (finding drug tax punitive for purposes of double jeopardy); Wilson v. Department of Revenue, 169 Ill. 2d 306 (1996); Bryant v. State, 660 N.E.2d 290 (Ind. 1995) (same), cert. denied, 519 U.S. 926 (1996); Desimone v. State, 111 Nev. 1221 (1995) (same), vacated and remanded, 518 U.S. 1030 (1996), and Brunner v. Collection Div. of the Utah State Tax Comm’n, 945 P.2d 687 (Utah 1997), with Milner v. State, 658 So. 2d 500 (Ala. Civ. App. 1994) (upholding drug tax); Covelli v. Commissioner of Revenue Servs., 235 Conn. 539 (1995) (same), vacated and remanded, 518 U.S. 1031, aff'd after remand, 239 Conn. 257 (1996), cert. denied, 520 U.S. 1174 (1997); State v. Lange, 531 N.W.2d 108 (Iowa 1995) (same); State v. Gulledge, 257 Kan. 915 (1995) (same); State v. Stubblefield, 249 Neb. 436 (1996); State v. Ballenger, 123 N.C. App. 179 (1996); McMullin v. South Carolina Dep’t of Revenue & Taxation, 321 S.C. 475 (1996) (same).
The parties presented the matter to the board on cross motions for summary judgment, in part, on the ground that the relevant subsidiary facts are undisputed.
The board rested its decision exclusively on Federal grounds.
We previously have stated that Hudson v. United States, 522 U.S. 93 (1997) , “clarified the proper analysis for determining whether civil sanctions constitute punishment.” Powers v. Commonwealth, 426 Mass. 534, 537-538 (1998) . In Hudson, the United States Supreme Court reaffirmed a traditional two-part analysis for determining whether a particular sanction is civil or criminal. Id. at 96, citing United States v. Ward, 448 U.S. 242, 248-249 (1980). A court “must first ask whether the Legislature, ‘in establishing the penalizing mechanism, indicated either expressly or impliedly a preference for one label or the other.’ ” Powers v. Commonwealth, supra at 538, quoting Hudson v. United States, supra at 99. If the Legislature intended a civil sanction, then the second step is “to determine whether the statutory scheme was ‘so punitive either in purpose or effect’ so as to ‘transform] what was clearly intended as a civil remedy into a criminal penalty.’ ” Id. at 538-539, quoting Hudson v. United States, supra at 99. A court must “look only to ‘the statute on its face’ to determine whether a penalty is criminal in nature,” Hudson v. United States, supra at 104, quoting Kennedy v. Mendoza-Martinez, 372 U.S. 144, 169 (1963), and “ ‘only the clearest proof’ will suffice to override legislative intent.” Id. at 100, quoting United States v. Ward, supra at 249.
Summarizing the analysis applied in Kurth Ranch, the Court in United States v. Ursery, 518 U.S. 267, 282 (1996), stated: “We first established that the fact that Montana had labeled the civil sanction a ‘tax’ did not end our analysis. We then turned to consider whether the tax was so punitive as to constitute a punishment subject to the Double Jeopardy Clause.” Thus, the analysis utilized in Kurth Ranch, in effect, encompasses the two-part test of
It appears that the United States Court of Appeals for the Fourth Circuit is the only court (State or Federal) that has reviewed a statute similar to G. L. c. 64K after the Supreme Court’s decision in Hudson. In that case, the court relied on Kurth Ranch to conclude the statute was punitive, merely alluding to Hudson in two footnotes. See Lynn v. West, 134 F.3d 582 (4th Cir.), cert. denied, 119 S. Ct. 47 (1998).
The board’s decision was issued prior to the release of the Supreme Court’s opinion in Hudson v. United States, supra, and thus, the board did not have the benefit of that decision in ruling on the taxpayer’s application for abatement. While the commissioner asserts that the board applied the wrong legal standard in determining that the CST imposed a second punishment for the taxpayer’s criminal offense because the board failed to employ the analytical approach set forth in Hudson, he also recognizes the distinction drawn by the Supreme Court in analyzing civil penalty and tax statutes. In particular, the commissioner’s brief notes that “Hudson’s, description of Kurth Ranch as ‘Kennedy-like’ in its analysis . . . suggests that the Kurth Ranch elements supplement the Kennedy factors in the tax setting.”
The board properly relied on Kurth Ranch, and specifically analyzed the applicable provisions of G. L. c. 64K in applying the Kurth Ranch test. That the board additionally relied on the commissioner’s administration of the statute does not render the analysis improper where the statute’s voluntary payment option appears to be a mere fiction because the commissioner does not otherwise enforce the statute except on receipt of a referral from a law enforcement agency.
United States v. Ursery, 518 U.S. 267, 282 (1996), confirms this reading of Kurth Ranch. The Ursery Court summarized the Kurth Ranch holding by noting that “[readily apparent] differences between the marijuana tax imposed by Montana and the typical revenue-raising tax” marked the Montana act as punishment. Id.
The rate of tax on marihuana at $3.50 per gram is equivalent to that imposed by the Montana Dangerous Drug Tax Act. See Kurth Ranch, supra at 770. With 28.349 grams in one ounce, the Massachusetts tax rate totals $99.22 per ounce, compared to $100 per ounce under Montana’s drug tax.
Although the Court in Kurth Ranch specifically stated that “[a]s a general matter, the unlawfulness of an activity does not prevent its taxation,” Kurth Ranch, supra at 778, the Court found it “significant that the same sovereign that criminalized the activity also imposed the tax.” Id. at 782 n.22. The Court noted, “most of our cases confirming that the unlawfulness of an activity does not prevent its taxation involve taxes on acts prohibited by other sovereigns.” Id., citing United States v. Constantine, 296 U.S. 287, 293 (1935) (involving a Federal excise tax on retail liquor sales that violated State law); James v. United States, 366 U.S. 213, 214 (1961) (involving Federal tax on embezzled money imposed on man who had pleaded guilty in State court to conspiracy to embezzle); Marchetti v. United States, 390 U.S. 39, 44-47 (1968) (involving Federal tax on gambling activities primarily prohibited under State law). The Court further noted “[t]he importance of the distinction between same sovereign proceedings and dual sovereign proceedings also is borne out by our cases holding that the Constitution does not prohibit successive prosecutions by different sovereigns based on the same conduct.” Kurth Ranch, supra at 782-783 n.22.
In this regard, the Court contrasted such a tax with other taxes imposed to deter disfavored (though legal) activities as well as to raise money, such as cigarette and alcohol taxes. Kurth Ranch, supra at 782.
In United States v. Sanchez, 340 U.S. 42, 44 (1950), the Court noted that the tax “implements the congressional purpose of restricting traffic in marihuana to accepted industrial and medicinal channels.” In any event, no double jeopardy challenge was at issue in that case.
The Supreme Court’s remand order calls United States v. Ursery, supra (which did not implicate double jeopardy), to the attention of the Nevada Supreme Court. Desimone v. State, 111 Nev. 1221 (1995), vacated and remanded, 518 U.S. 1030 (1996), remains persuasive in its analysis of CSTs under Kurth Ranch.
As Chief Justice Rehnquist wrote in his dissent in Kurth Ranch: “Because the activity sought to be taxed is illegal, individuals cannot be expected to voluntarily identify themselves as subject to the tax.” Kurth Ranch, supra at 788 n.2 (Rehnquist, C.J., dissenting).
This feature of the CST as it has operated since G. L. c. 64K was enacted distinguishes the tax from traditional income taxes exacted on illegal activities. A taxpayer who fails to pay income tax on income from illegal activities is treated no differently from any other person who fails to pay a tax on income from whatever source derived. The taxpayer is not taxed merely because of his illegal activity, as.is the case with the CST.
GeneraI Laws c. 94C, § 32C (a), provides that “[a]ny person who knowingly or intentionally manufactures, distributes, dispenses or cultivates, or possesses with intent to manufacture, distribute, dispense or cultivate [marihuana] shall be [punished as specified].”
In concluding "that the CST and the crime of which the taxpayer was convicted are the functional equivalent of each other, we have considered and rejected the commissioner’s argument that the “more than forty grams” provision in the CST creates a distinct element which makes violation of the statute an independent crime.
Our conclusion is dictated by the circumstances of this case. Because there was no dispute as to the quantity of marihuana that was found in the taxpayer’s possession, the substantive facts supporting imposition of the CST are identical to those which the Commonwealth had to prove in the criminal matter, except for the additional factor of knowledge or intent in the criminal case that distinguishes the greater from the lesser offense.