Cannabis Taxes

The most eye-poppingly ridiculous claim by Proposition 19 supporters is that the ballot measure legalizing cannabis would create tax revenues for the state and municipalities if they set up such regulatory schemes. There's a variety of reasons why this probably won't happen while 'marijuana' is still a Schedule I drug under the federal Controlled Substances Act. The reason that it California won't tax cannabis is, however, certainly not the one provided by the U.S. Senator Dianne Feinstein and LA County Sheriff Lee Baca in the Mercury News.

In the article, they claim that taxing marijuana sales is unconstitutional because the Supreme Court said so in Leary v. United States 395 U.S. 6 (1969). This is emphatically not what the Supreme Court said.

The marijuana tax statute contained two separate taxes: a transfer tax each time marijuana was sold, and an 'occupational' tax which was a nominal tax, but required the registration by name and place of business with the IRS for anybody who "dealt" in marijuana. The transfer tax also required paperwork showing to whom and from whom the marijuana was transferred. The law further required that all information collected under this statute would be available to law enforcement officials. Failure to provide this information indirectly to a prosecutor was punishable by criminal sanction. Dr. Timothy Leary was convicted of the crime of not divulging to the IRS and therefore federal and state law enforcement officials that he had bought marijuana. The issue in Leary was whether this provision violated the fifth amendment protection against compelled self-incrimination.

The court held that a conviction based on the marijuana tax statute must be reversed. This is an entirely different outcome than the Supreme Court declaring the statute unconstitutional. The statute compels a tax through a criminal penalty. The judicially-enforced penalty is unconstitutional, but the tax isn't necessarily so. The federal government can still tax marijuana, but a prosecutor cannot add on a charge to a possession case in which she asks the judge to impose an additional sentence for failing to provide self-incriminating evidence. Senator Feinstein and Sheriff Baca do not see this distinction.

They also clearly didn't read Justice Harlan's opinion, which rests heavily upon findings that the purpose of the statute was to provide evidence to prosecutors pursuing convictions of those involved in the 1930s marijuana economy. The library of names, transactions, and addresses was designed to be shared with the Treasury Department (who was still the big dog in federal law enforcement), state, and local police agencies. The conviction was set aside because the tax could not be designed and mandated under criminal penalty to produce a store of self-incrimination available to every level of government. Assuming state and local taxes under Proposition 19 do not explicitly attempt to collect the information on criminal targets for prosecution, Leary would have absolutely no relevance to them.

Because proposition 19 also prohibits the seizure of cannabis plants, seeds, and products by state officials and prevents state courts from entertaining cannabis charges, there is no possibility that tax information collected by the State of California would land in prosecutors' files. That is, unless the federal government successfully subpoenas the tax records from the state. State and local governments who wish to tax marijuana should then protect their taxpayers by applying a general tax to marijuana so general tax receipts and any documents filed by the taxpayer did not incriminate them. Doing less, and then punishing by criminal sanction, could--if state courts were as ill-advised as Dianne Feinstein and Sheriff Baca--invalidate the taxation statutes.