Clifft v. Indiana Dept. of State Revenue

Citation641 N.E.2d 682
Decision Date11 October 1994
Docket NumberNo. 49T10-9308-TA-00064,49T10-9308-TA-00064
PartiesKevin and Monica CLIFFT, Petitioners, v. INDIANA DEPARTMENT OF STATE REVENUE and Kenneth L. Miller, Commissioner, Respondents.
CourtTax Court of Indiana

Andrew C. Maternowski, Dillon Law Office Indianapolis, for petitioners.

Pamela Carter, Atty. Gen. of Indiana and David A. Arthur, Deputy Atty. Gen., Indianapolis, for respondents.

FISHER, Judge.

Indiana levies a tax on the delivery, possession, and manufacture of controlled substances (the controlled substance excise tax or CSET). 1 The present appeal, before the court on the parties' cross motions for partial summary judgment, challenges the constitutionality of the CSET. Specifically, the petitioners, Kevin and Monica Clifft, raise the following issues:

I. Whether the CSET violates the privilege against self-incrimination under the Fifth Amendment to the United States Constitution.

II. Whether the CSET violates the Cliffts' equal protection rights under the Fourteenth Amendment to the United States Constitution.

III. Whether the CSET violates the Cliffts' due process rights under the Fourteenth Amendment to the United States Constitution.

IV. Whether the CSET violates the double jeopardy clause of the Fifth Amendment to the United States Constitution. 2


The CSET, which went into effect on July 1, 1992, is imposed on controlled substances that are:

(1) delivered;

(2) possessed; or

(3) manufactured;

in Indiana in violation of IC 35-48-4 or 21 U.S.C. 841 through 852. The tax does not apply to a controlled substance that is distributed, manufactured, or dispensed by a person registered under IC 35-48-3.

I.C. 6-7-3-5. Thus, a person becomes liable for the CSET "when the person receives delivery of, takes possession of, or manufactures a controlled substance in violation of IC 35-48-4 or 21 U.S.C. 841 through 852." IND.CODE 6-7-3-8. Failure to pay the tax when due gives rise "to a penalty of one hundred percent (100%) of the tax in addition to the tax." IND.CODE 6-7-3-11(a).

The amount of tax is based upon the weight and class of the substance. IND.CODE 6-7-3-6. Schedule I, II, and III substances are taxed at $40 per gram, while Schedule IV and V substances are taxed at $20 per gram and $10 per gram, respectively. Id. THC, the active ingredient in marijuana, is a schedule I substance. IND.CODE 35-48-2-4(d)(22).

On October 8, 1992, Indianapolis and Speedway police executed a search warrant for the Cliffts' home. In their search, the police discovered and confiscated six marijuana plants, baggies containing marijuana, and marijuana growing equipment. The Marion County Forensic Crime Laboratory weighed the marijuana, finding a total of 927 grams.

After law enforcement authorities shared their information with the Indiana Department of State Revenue (the Department), the Department assessed the Cliffts with CSET liability of $37,080, a 100% nonpayment penalty of $37,080, a 10 percent collection fee of $3,708, 3 and a clerk's charge of $3.00, for a total of $77,871.00. Interest began accruing immediately at the rate of $8.13 per day.

On January 14, 1993, the Marion Municipal Court accepted a plea agreement between Mrs. Clifft and the Marion County Prosecutor. Mrs. Clifft pled guilty to possession as a Class A misdemeanor and received a six month driver's license suspension plus 365 days of incarceration, with 363 days suspended. The charges against Mr. Clifft were dropped. At the time of the hearing before this court in November 1993, the Cliffts had made no payments toward their CSET liability.


Because this is an appeal from a final determination of the Department, the court hears the case de novo and is bound by neither the issues nor the evidence presented during the administrative proceedings. Indiana Waste Systems of Indiana, Inc. v. Indiana Dep't of State Revenue (1994), Ind.Tax, 633 N.E.2d 359, 362 (citing Maurer v. Indiana Dep't of State Revenue (1993), Ind.Tax, 607 N.E.2d 985, 986). In reviewing the parties' cross motions for partial summary judgment, the court is not to enter summary judgment unless there is no genuine issue of material fact and a party is entitled to judgment as a matter of law. Id. (citing Harlan Sprague Dawley v. Indiana Dep't of Revenue (1992), Ind.Tax, 605 N.E.2d 1222, 1225).

Because the Cliffts challenge the constitutionality of the CSET, they face a difficult burden. They must rebut the strong presumption that statutes are constitutional. See State Line Elevator, Inc. v. State Bd. of Tax Comm'rs (1988), Ind.Tax, 528 N.E.2d 501, 503.


The Cliffts first claim the CSET violates the privilege against self-incrimination under the Fifth Amendment to the United States Constitution. They maintain that the simple act of paying the CSET subjects taxpayers to "real and substantial" risks of incrimination. Counsel's argument is well made, but it cannot prevail.

A. Case Law

It is well settled that, standing alone, the illegality of an activity, such as the unauthorized possession of marijuana or other controlled substances, does not preclude taxation of the activity. Department of Revenue v. Kurth Ranch (1994), 511 U.S. 767, ----, 114 S.Ct. 1937, 1945, 128 L.Ed.2d 767, 778 (and cases cited therein). Instead, when a state or the federal government seeks to tax illegal activity, the inquiry focuses on whether the relevant imposition and collection methods are consistent with the privilege. See MARCHETTI V. UNITED STATES (1968), 390 U.S. 39, 44, 88 S.CT. 697, 700, 19 L.ED.2D 889, 895. 4 See also Leary v. United States (1969), 395 U.S. 6, 12, 89 S.Ct. 1532, 1535, 23 L.Ed.2d 57, 68; Haynes v. United States (1968), 390 U.S. 85, 90, 88 S.Ct. 722, 726, 19 L.Ed.2d 923, 928; Grosso v. United States (1968), 390 U.S. 62, 65, 88 S.Ct. 709, 712, 19 L.Ed.2d 906, 910-11. To violate the privilege under Marchetti and its progeny, the taxing obligations must create " 'real and appreciable,' and not merely 'imaginary and unsubstantial,' hazards of self-incrimination." Marchetti at 48, 88 S.Ct. at 702, 19 L.Ed.2d at 898 (citing Regina v. Boyes, 1 B & S 311, 330).

Each of the cited cases involved the taxation of illegal activity: gambling in Marchetti and Grosso; possession of sawed off shotguns In Marchetti, the Internal Revenue Code created a wagering occupational tax for professional gamblers. People liable for the tax were required to register each year with the director of their local Internal Revenue district. The registration required disclosure of the registrant's name, residence and business address, a statement indicating whether the registrant was in the business of accepting wagers, and a list of the names and addresses of the registrant's agents and employees. Marchetti, 390 U.S. at 42, 88 S.Ct. at 699, 19 L.Ed.2d at 894. Upon paying the occupational tax, registrants received revenue stamps, which they were obliged to post conspicuously at their principal place of business. In the absence of a principal place of business, registrants were to carry the stamps on their person subject to inspection on demand by Treasury officers. Registrants were also to maintain daily records and keep them available for inspection by Treasury officers. In turn, each principal Internal Revenue office was required to maintain a publicly available list of all registrants and to share certified copies of the list on request with any state or local prosecutor. Id. at 43, 88 S.Ct. at 700, 19 L.Ed.2d at 895.

                in Haynes;  possession of marijuana in Leary.   In all of them, the United States Supreme Court held the tax imposition and collection methods subjected the individuals involved to "real and appreciable" hazards of self-incrimination

In Grosso, a companion case to Marchetti, the issue was the status of the wagering excise tax, not the wagering occupation tax. People engaged in the wagering business, and only those people, had to pay the wagering excise tax and file a return, disclosing "in the most direct fashion the fact of the taxpayer's wagering activities." Grosso at 65, 88 S.Ct. at 712, 19 L.Ed.2d at 910. There was no prohibition on the use of the information in the return, and the IRS, under no direct command either to disclose or withhold information, shared return information with law enforcement officials. Id. at 65-66, 88 S.Ct. at 712-13, 19 L.Ed.2d at 910-11.

In Haynes, the petitioner was convicted of failure to register a sawed-off shotgun with the Treasury Department as required by the National Firearms Act (the NFA). The NFA was designed to impose a tax on weapons used principally by people engaged in crime. Haynes at 87, 88 S.Ct. at 725, 19 L.Ed.2d at 926-27. Registration of sawed-off shotguns and other generally illegal weapons was required only if the registrant acquired the weapon unlawfully. The registration form required disclosure of the registrant's birth date, social security number, and record of felony convictions. The Court stated the registration requirement was "directed principally at those persons who have obtained possession of a firearm without complying with the [NFA's] other requirements, and who therefore are immediately threatened by criminal prosecution." Id. at 96, 88 S.Ct. at 730, 19 L.Ed.2d at 932.

Finally, in Leary, the Court analyzed the Marihuana Tax Act, which had two main elements, a tax on transfers of marijuana and an occupational tax on those who engaged in marijuana dealing. Transfers of marijuana required an order form, which was to contain the names and addresses of the transferor and transferee, their registration numbers under the occupational tax requirements, and the amount of marijuana transferred. The IRS was required to keep the information contained on order forms available to state and local prosecutors. 395 U.S. at 14-15, 89 S.Ct. at 1536-37, 23 L.Ed.2d at 69-70.

The constitutional infirmities that plagued the statutory schemes in the Marchetti...

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