RALEIGH (November 3, 2022) – Yesterday, the Fair Chance Criminal Justice Project of the North Carolina Justice Center released a report about the N.C. Unauthorized Substances Tax (N.C. Drug Tax). The report, “Nothing to do with Grace, Nothing to do with Justice”: The Human Impact of North Carolina’s Unauthorized Substances Tax, examines the history and operation of the N.C. Drug Tax.
The study seeks to answer the question, “How does North Carolina’s Unauthorized Substances Tax impact those against whom it is assessed?” and includes in-depth qualitative interviews with 12 people experiencing the devastating financial consequences of N.C. Drug Tax assessments.
The N.C. Drug Tax is a tax levied against a person in actual or constructive possession of certain illegal substances. Under the law, a person is required to purchase tax stamps within 48 hours of possessing the illegal substance. If law enforcement finds the person in possession of an illegal substance without the tax stamp(s), the North Carolina Department of Revenue can assess back taxes, penalties, and interest against the person. The person can be assessed a Drug Tax even if the criminal charges are dismissed or the person is found not guilty.
From the interviews and other research, the following information emerged:
- Almost all the revenue generated from the N.C. Drug Tax stems from the failure to purchase tax stamps. Only 0.01 percent of the revenue comes from stamp purchases, the remaining 99.9 percent of N.C. Drug Tax revenue comes from outsized assessments for back taxes, penalties, and interest.
- The N.C. Drug Tax extracts millions of dollars from low-income communities and communities of color every year. Annually, approximately $6 million to $11 million are collected from people facing the N.C. Drug Tax. Individually, the average drug tax is $8,872, but some end up owing millions. The state uses debilitating tactics such as taking money from a person’s bank accounts, garnishing people’s wages, and seizing people’s property to pay down debts.
- The N.C. Drug Tax discourages people from joining labor markets, using banks, filing taxes, starting businesses, buying houses, and conducting other activities that contribute to the economy; therefore, the N.C. Drug Tax harms the state economy and all the North Carolinians who rely on it.
- For all the harmful human impacts created by the N.C. Drug Tax, the state government and local law enforcement agencies received relatively little monetary gain. The revenue from the N.C. Drug Tax accounts for less than 0.01 percent of the money that goes to the General Fund and less than 2.5 percent of the budgets of the top-earning law enforcement agencies each year.