Drug Tax: North Carolina Unauthorized Substance Tax Assessments

Did you know that in addition to criminal consequences, North Carolina also taxes illegal drugs? It’s true: although infrequently (and maybe never) paid by drug dealers at the time of sale or receipt, the NC Department of Revenue taxes the sale or possession of unauthorized substances. The issue usually only comes up when an individual is arrested and charged with a drug trafficking or possession crime, at which point an unexpected tax assessment may arrive in the mail. The tax, interest, and penalties can total hundreds of thousands of dollars and should be taken seriously, separate and apart from any criminal charges.

So, what do you need to know if you’ve received an NC drug tax? The following frequently asked questions may be helpful as you determine how to navigate this tricky legal issue.

What is the Unauthorized Substance Tax?

North Carolina General Statute §§ 105-113.105 through 105-113.113 governs the unauthorized substance tax and permits the State to impose an excise tax on illegal drugs and liquor. Depending on the particular illegal substance, there are different tax rates imposed according to the weight or dosage units allegedly possessed. Taxable unauthorized substances can include illegal liquor (“moonshine” or “bootleg”), marijuana, cocaine, anabolic steroids, illegally sold prescription drugs, and just about any other substance as defined by the NC Controlled Substance Act.

What should I do if I receive a notice of Unauthorized Substance Tax Assessment?

So, what should you do if you receive an unauthorized substance tax assessment? First, take it seriously! The same way that you probably hired an attorney to represent you when you were charged with a drug crime, you should hire an attorney to assist with the tax issue.

While the two issues are related, they are two entirely separate proceedings. If you have criminal charges, they will be heard in either state or federal criminal court typically prosecuted by either the District Attorney’s Office or the United States Attorney’s Office. The tax assessment, on the other hand, is an administrative matter involving the NC Department of Revenue. DO NOT assume that your criminal attorney is aware that you received notice of a tax assessment, even though it may be related to the drugs you were charged with selling or possessing. The tax assessment is likely not part of the criminal file and, unless you share this information with your attorney, they will likely have no way of knowing about it.

Second, there is a very strict 45-day deadline to file a request for review with the NC Department of Revenue. This deadline is important and will be enforced! Failure to request review in writing within 45 days will forfeit the opportunity to contest the assessment and result in the tax becoming final which the State can pursue through civil action and/or garnishments.

How do I challenge an Unauthorized Substance Tax Assessment?

As discussed above, in order to contest an assessment, you will need to request a review in writing within 45 days of the notice. If you have timely requested a review, the assessment may be rescinded or you or your attorney will be given an opportunity to provide information to investigators at the Department of Revenue demonstrating why the tax assessment is incorrect or otherwise improper.

An experienced attorney will be able to review your particular case and help identify potential challenges to the assessment which may include questions about the weight amount, issues regarding the particular substance identified, whether you meet the statutory definition of “dealer,” and if statutory exceptions are applicable.
Often, a conference will be scheduled which is usually an informal hearing over the phone. While the process can take several months, it may be possible during that period of time to reach a settlement. If settlement is not possible, a Final Notice of Determination will be issued by the Department of Revenue and further proceedings must be appealed to the Office of Administrative Hearings.
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If you have received notice of tax assessment for an unauthorized substance, contact an experienced attorney immediately to discuss your options. It is important that you comply with all response deadlines and that the matter is handled in a way that does not interfere with your criminal case if you have also been charged with drug crimes.