Unauthorized Substance Tax Assessment Reviews
In North Carolina, if you possess more than certain quantities of controlled substances, you are obligated to pay excise taxes to the State. Rarely are these taxes timely paid because we are talking about illegal drugs. No one wants to report to the State government that they have illicit drugs, much less pay taxes to the State for them.
However, if you do not pay the tax within 48 hours of coming into possession of the controlled substance, you may be subject to a tax assessment. These assessments are discussed in a prior posting which can be found here. Even though the State is lawfully authorized to levy these assessments, the Tax Man doesn’t always get them right.
If you receive an unauthorized substance tax assessment, you may seek a review of the assessment with the Department of Revenue. This is often the course of action when a party disputes the assessment. For the purpose of this blog, we will call that party the Tax Fighter. The Tax Fighter in many circumstances may dispute the assessment of issues such as the accurate weight of the substance, whether the Tax Fighter was possessed the unauthorized substance, or whether the substance was truly what the State believed it to be. Keep in mind that collection against the Tax Fighter’s property may commence while this process is ongoing. The TF may suspend such activity by posting a bond with the Department of Revenue. This topic will also be discussed further in a later blog.
If a Tax Fighter seeks review of the proposed assessment, they must submit a written request for review within 45 days after the date of the original written notice. Common reasons for review include disputes over possession, weights, and substance. Failure to file the request within the 45 day period may result in the assessment becoming final and collectible without notice.
Upon timely submission of a written request for review, the review will result in at least one of three actions by the Department of Revenue. The assessment may be removed. The Tax Fighter may be requested to provide additional information. A conference between the TF and the Department may be scheduled. If the assessment is not removed or otherwise settled, by law a conference must be scheduled.
In the event a conference is scheduled, it is often an informal proceeding over the phone. The conference may be continued once and for no more than 30 days from the original conference date. The request for a continuance must be received by the Department at least five days before the scheduled conference. Rules of evidence do not apply at the conference and testimony is not under oath.
The entire process may take up to nine months to complete. It may take longer if mutually agreed upon by both parties. Upon completion of a conference, if a settlement is not reached or if there is not an agreement that more time is needed to resolve the matter, the Department will consider that it is unable to resolve the objection and will proceed to issue a Notice of Final Determination. The Notice of Final Determination must state the basis for the determination and inform the taxpayer of the procedure for contesting the determination. Should the TF seek to contest the matter beyond the review, it is strongly recommended that they consult counsel and pay close attention to filing deadlines.
Additional opportunities exist for possessors to make an Offer in Compromise in the event they cannot afford the total tax assessment. For those seeking to make an Offer in Compromise, the North Carolina Department of Revenue publishes information that may be found here.