Unauthorized Substance Tax Assessment
In North Carolina, if you possess more than certain quantities of controlled substances, you are obligated to pay excise taxes to the State. 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.
The assessment commonly arises out of criminal matters where law enforcement officers discover controlled substances that do not bear necessary revenue stamps. Law enforcement officers are obligated to report these discoveries to the Secretary of Revenue pursuant to North Carolina General Statute 105-113.108(b).
Once the Revenue Department learns of these nontaxed possessions, it commonly issues assessments. The assessment includes the applicable tax, penalties, and interest based on personal knowledge or information that may be available. The Secretary will notify the possessor in writing of these amounts, which is mailed to the possessor’s last known address, or served on the possessor in person.
As far as applicable taxes, harvested marijuana stems and stalks that have been separated from and are not mixed with any other parts of the marijuana plant are taxed at a rate of 40 cents per gram, or fraction thereof. When it comes to the remaining portion of the plant, a tax rate of $3.50 is imposed. Cocaine is taxed at a rate of $50.00 for each gram. Any “low-street-value” drug that is sold by weight is also subject to the $50/gram rate. All remaining drugs that are sold by weight are subject to a $200/gram rate. Regarding drugs sold by quantity, a rate of fifty dollars is assessed for each 10 units, or fraction thereof, of any “low-street-value” drug. The rate rises to $200/10 dosage units (or fraction thereof) for all other quantity driven drugs.
The Department of Revenue commonly assesses three penalties. The first is for failure to file a return. The Secretary assesses a penalty of five percent (5%) of the amount of the tax if the failure is for not more than one month. An additional five percent (5%) may be assessed for each additional month, or fraction thereof, for which the tax is not paid, not to exceed twenty-five percent (25%). The second penalty is for failure to pay the tax. This penalty is equal to ten percent (10%) of the assessed tax. The third penalty is a large tax deficiency. In the case of a tax other than individual income tax, if a taxpayer understates tax liability by twenty-five percent (25%) or more, the Secretary shall assess a penalty equal to twenty-five percent (25%) of the deficiency.
A possessor may pursue four courses of action upon receipt of the assessment.
The first option is to pay the assessment in full. Doing so avoids accrual of any further penalties and ensures the State does not take action to levy the possessor’s property or assets.
The second option is to make an Offer in Compromise. This topic will be discussed further in a later blog. In short, it is an opportunity to negotiate a lower assessment or payments with the Department of Revenue. This option may require that the possessor initially post bond to prevent the State from levying against the possessor’s property while the process proceeds.
The third option is to seek a review of the assessment. This is often the course of action when a party disputes the assessment. A dispute may arise over weight, possession, or substance. Keep in mind that collection against the possessor’s property may commence while this process is ongoing. The possessor may suspend such activity by posting a bond with the Department of Revenue. This topic will also be discussed further in a later blog.
The last option is to do nothing. This is not advisable whereas the State can take the possessor’s property and assets.
We will further discuss Offers in Compromise and Review of Assessments in upcoming blogs.