Cannabis legalization is a contentious issue in the United States, with an increasing number of states permitting the sale and use of marijuana for medical and recreational purposes. Despite federal classification of marijuana as a Schedule I drug, many states are forging ahead with their own cannabis markets.
A primary argument supporting legalization is the potential for states to generate substantial revenue through marijuana sales taxes. In 2022, states reported a combined $15.16 billion in tax revenue from recreational cannabis sales, with California alone contributing over $1 billion annually.
However, what about states that have not yet legalized marijuana? Are they missing out on a lucrative opportunity to bolster their budgets? And what about states that have limited legalization to medical use only? Are they foregoing potential revenue from recreational sales? In this blog post, we delve into how a city in North Carolina, a state with no legal marijuana use, is making millions through a unique tax, and the implications for marijuana policy at the state and national levels.
The Unauthorized Substances Tax
North Carolina stands as one of the few states that has yet to legalize marijuana for any purpose, maintaining strict laws with severe penalties for possession, cultivation, sale, and distribution. Nevertheless, the state has found a way to profit from illegal substances through the Unauthorized Substances Tax (USUB tax), an excise tax on controlled substances, including marijuana. Enacted in 1989, this tax is intended to generate funds for state and local law enforcement agencies.
The USUB tax is not a criminal tax, and payment does not legalize the possession or sale of the substance. The tax, imposed in addition to criminal penalties, is not voluntary, with assessments made by the Department of Revenue based on information from law enforcement agencies about seized substances. Failure to pay can result in civil penalties, such as liens, seizures, and garnishments.
Revenue Generation
In the fiscal year 2018-2019, the USUB tax yielded $11.9 million in revenue, with marijuana contributing $8.9 million, cocaine $2.6 million, and other substances $0.4 million. The revenue distribution goes to 514 state and local law enforcement agencies, with Asheville, a liberal city in western North Carolina, receiving $1,015,492 in the same fiscal year, primarily from marijuana.
Asheville, with a population of around 92,000 and a median household income of $50,000, utilizes the USUB tax revenue to fund various programs and initiatives by its police department, including drug education, prevention, and treatment, crime prevention, community policing, equipment, training, and overtime.
Pros and Cons of the USUB Tax
The USUB tax has faced legal challenges but has been upheld by both the North Carolina Supreme Court and the U.S. Supreme Court. Supporters argue that it serves as a legitimate means to recover enforcement costs, deter drug use, and fund law enforcement and public safety programs. Critics, on the other hand, contend that the tax is unfair, ineffective, and unconstitutional, potentially violating due process and equal protection clauses.
Some argue that the state should consider legalizing, regulating, and taxing marijuana, redirecting revenue to more productive purposes like education, healthcare, and infrastructure, as opposed to profiting from illegal drugs.
Conclusion
The USUB tax in North Carolina is a distinctive and controversial policy that has been in effect for over three decades, generating millions in revenue, particularly from marijuana. Asheville, a city benefitting significantly from this tax, employs the funds for various law enforcement initiatives.
While the tax faces criticism, its impact on North Carolinians, especially those in Asheville, underscores the complex interplay between marijuana policy, taxation, and law enforcement in the state. The future of the USUB tax and North Carolina’s stance on marijuana legalization remains uncertain, leaving the state at an intriguing crossroads.