Department of Revenue v. Williams ( 1992 )

No. 91-379 and 91-569
IN THE SUPREME COURT OF THE STATE OF MONTANA
1992
Plaintiff and Respondent,
THE STATE OF MONTANA,
DEPARTMENT OF REVENUE,
Defendant and Appellant.
No. 91-569
THE DEPARTMENT OF REVENUE,
Petitioner and Appellant,
-vs-
PAUL A. WILLIAMS, JR.,
Respondent and Respondent.
APPEALS FROM: District Courts of the Fourth ( 9 1 - 3 7 9 ) and First
( 9 1 - 5 6 9 ) Judicial Districts,
In and for the Counties of Missoula ( 9 1 - 3 7 9 ) and
Lewis & Clark ( 9 1 - 5 6 9 ) ,
The Honorable John S. Henson ( 9 1 - 3 7 9 ) , Judge
presiding and The Honorable Jeffrey M. Sherlock ( 9 1 -
5 6 9 ) , Judge presiding.
COUNSEL OF RECORD:
For Appellant:
R. Bruce McGinnis, Tax Counsel, Dept. of Revenue,
Helena, Montana ( 9 1 - 3 7 9 )
Paul Van Tricht argued, Tax Counsel, Dept. of
Revenue, Helena, Montana ( 9 1 - 5 6 9 )
For Respondent:
Clinton H. Kammerer argued, Kammerer Law Offices,
Missoula, Montana ( 9 1 - 3 7 9 )
Edmund F. Sheehy argued, Cannon & Sheehy, Helena,
Montana ( 9 1 - 5 6 9 )
Filed:
I
Clerk
Justice Fred J. Weber delivered the Opinion of the Court.
The Montana State Department of Revenue (DOR) appeals from two
separate District Court rulings wherein the courts determined that
the tax assessed by the DOR on Merlin L. Sorenson (Sorenson) and
Paul A. Williams, Jr. (Williams) violated double jeopardy. We have
combined these cases for appeal. We reverse.
The DOR assessed tax on Sorenson's possession of cocaine after
he pled guilty to criminal possession of cocaine. In a declaratory
action, the Fourth Judicial District Court granted summary judgment
in favor of Sorenson finding that Montana's Dangerous Drug Tax, 1 5
15-25-101, MCA et seq., is a criminal penalty and violates double
jeopardy .
Likewise, after Williams pled guilty to criminal possession of
marijuana, the DOR assessed tax on the marijuana Williams had in
his possession. The DOR petitioned the First Judicial District
Court to determine the constitutionality of Montana's Dangerous
Drug Tax. The court found the Drug Tax violated double jeopardy.
The DOR appeals these rulings and raises the following issues
for our review:
1. Is Montana's Drug Tax a multiple punishment which violates
double jeopardy?
2. Is Montana's Drug Tax Act unconstitutional on its face?
Both Sorenson and Williams pled guilty to possession of
dangerous drugs and received sentences and fines under Montana's
criminal code. Subsequently, the DOR assessed tax under Montana's
Dangerous Drug Tax Act, 5 5 15-25-101, MCA et seq. In both cases,
the District Courts held Montana's Drug Tax violated double
jeopardy.
Is Montana's Drug Tax a multiple punishment which violates
double jeopardy?
The Drug Tax clearly violates double jeopardy if it is a
criminal penalty. Double jeopardy protects citizens from a second
prosecution for the same offense after acquittal; a second
prosecution for the same offense after conviction; and multiple
punishments forthe same offense. North Carolina v. Pearce (1969),
395 U.S. 711, 717, 89 S. Ct. 2089, 23 L. Ed. 2d 656.
Next, the Drug Tax may violate double jeopardy if it is an
excessive civil sanction. United States v. Halper (1989), 490 U.S.
735, 109 S. Ct. 1892, 104 L. Ed. 2d 487. In Hal~er,the Court stated
that civil as well as criminal sanctions may constitute punishment
and violate double jeopardy when the sanction, as applied to the
individual, serves the goals of punishment rather than the remedial
purposes of compensating the government for its loss. H a l ~ e rat
448, 109 S. Ct. at 1901-1902, 104 L.Ed.2d at 501-502.
The DOR contends that double jeopardy does not attach to
Montana's Drug Tax because the tax is an excise tax for raising
revenue, not a criminal penalty or civil sanction. Appellees
contend Montana's Drug Tax is a criminal penalty, and thus,
violates double jeopardy.
In United States v. Ward (1980), 448 U.S. 242, 100 S. Ct. 2636,
65 L. Ed. 2d 742, the Court held that a federal fine imposed for
failure to notify officials of an oil spill was a civil sanction,
not a criminal penalty, and did not violate double jeopardy.
First, the Court determined that Congress intended to establish a
3
civil penalty. Next, using criteria established in Kennedy v.
Mendosa (1963), 372 U.S. 144, 83 S. Ct. 554, 9 L. Ed. 2d 644, it
determined that the penalty was not so punitive in purpose or
effect that the civil remedy was transformed into a criminal
penalty. The Kennedy factors include whether the sanction:
involves an affirmative disability or restraint, has historically
been regarded as a punishment, requires a finding of scienter,
promotes retribution and deterrence, applies to criminal behavior,
has an alternate purpose, and is excessive in relation to the
alternate purpose. Kennedy at 168-169, 83 S. Ct. at 567-568, 9
The Supreme Court in Ward determined that Congress intended
to establish a civil penalty. Ward at 250-251, 100 S. Ct. at 2642,
65 L.Ed.2d at 750-751. Similarly, here the Montana Legislature
clearly intended to create a tax not a criminal sanction. In
Chapter 563, Montana Session Laws 1987, the following descriptive
paragraphs precede the wording of the "Dangerous Drug Tax Act"
itself:
WHEREAS, dangerous drugs are commodities having
considerable value, and the existence in Montana of a
large and profitable dangerous drug industry and
expensive trade in dangerous drugs is irrefutable: and
WHEREAS, the state does not endorse the
manufacturing of or trading in dangerous drugs and does
not consider the use of such drugs to be acceptable, but
it recognizes the economic impact upon the state of the
manufacturing and selling of dangerous drugs; and
WHEREAS, it is appropriate that some of the revenue
generated by this tax be devoted to continuing
investigative efforts directedtowardthe identification,
arrest, and prosecution of individuals involved in
conducting illegal continuing criminal enterprises that
affect the distribution of dangerous drugs in Montana.
THEREFORE, the Legislature of the State of Montana
does not wish to give credence to the notion that the
manufacturing, selling, and use of dangerous drugs is
legal or otherwise proper, but finds it appropriate in
view of the economic impact of such drugs to tax those
who profit from drug-related offenses and to dispose of
the tax proceeds through providing additional anticrime
initiatives without burdening law abiding taxpayers.
The intention of the Montana Legislature to enact a revenue
producing tax on drugs is clear. Thus, we conclude Montana's
Dangerous Drug Tax Act satisfies the first tier of the Ward
analysis.
Next, we analyze the tax under the Kennedv factors to
determine whether the tax is so punitive in either purpose or
effect as to negate the intention to create a tax. First, the tax
does not impose any affirmative disability or restraint upon the
taxpayer. The taxpayer is required to pay an assessment based on
the quantity of drugs in his possession, and is not subject to
incarceration or any other restraint of his liberty or privileges.
Next, the tax has a remedial purpose other than promoting
retribution and deterrence. Section 1 5 - 2 5 - 1 2 2 , MCA, earmarks the
use of the tax funds collected to defray the costs of drug abuse.
The tax collected is used for such things as youth evaluations,
chemical aftercare, chemical abuse assessments and juvenile
detention facilities. The tax collected is based on the quantity
of drugs possessed or stored by the taxpayer, and is not excessive
in relation to the remedial purposes addressed in 5 1 5 - 2 5 - 1 2 2 , MCA.
Next, several state courts as well as federal courts have
upheld the legitimacy of a tax on the transfer or possession of
dangerous drugs. In United States v. Sanchez ( 1 9 5 0 ) , 3 4 0 U.S. 42,
71 S. Ct. 1 0 8 , 95 L.Ed 47, the Court determined that taxes on
illegal activities are not necessarily penal or unconstitutional.
5
"A tax does not cease to be valid merely because it regulates,
discourages or deters the activities taxed, even though the revenue
raised by the tax is negligible." Sanchez at 44, 71 S. Ct. at 110,
95 L. Ed. 49. Similarly, in State v. Berberich (Kan. 1991), 811
P.2d 1192, and Harris v. State, Department of Revenue (Fla.App. 1
Dist. 1990) , 563 So. 2d 97, both courts upheld the validity of their
state marijuana taxes as legitimate exercises of taxing power, not
improper penalties or fines. Thus, we conclude a tax on dangerous
drugs has not been historically regarded as a punishment.
Finally, the tax is based on possession and storage of
dangerous drugs. Where possession gives rise to the tax, we
conclude that the Act does not involve a finding of scienter.
Respondents argue that the scienter factor is not material
where the crime, criminal possession of dangerous drugs under Title
45, MCA, similarly requires no scienter. Respondents claim double
jeopardy is violated under the Act because the taxpayer is subject
to both a criminal penalty and a tax for the same conduct. We
disagree.
In Helvering v. Mitchell (1938), 303 U.S. 391, 399, 58 S. Ct.
630, 633, 82 L. Ed. 917, 922, the Court allowed both a civil and
criminal penalty for the same act or omission. It held that double
jeopardy did not attach to a tax fraud penalty where Congress had
created a civil procedure for collecting the penalty and the
amount of the penalty was remedial. Helvering at 401-404, 58 S. Ct.
634-636, 82 L. Ed. 923-925. Here, as in Helverinq, the tax is
remedial and collected through a separate administrative procedure.
Thus, although the conduct of possessing dangerous drugs subjects
the taxpayers to both a criminal penalty and a tax, we conclude
6
that it is not so punitive in purpose or effect that it negates the
legislative intent to create a civil sanction.
Williams contends Montana's Dangerous Drug Tax is derived from
the taxpayer's criminal conviction. Thus, it is a criminal penalty
and violates double jeopardy. Williams emphasizes that the tax is
not imposed on persons in legal possession of drugs. Next he
points out the tax may be collected as part of the fine imposed in
a criminal conviction, or recovered from forfeited property.
Finally, unlike other compliance based tax reporting, Title 15,
MCA, does not provide for taxpayer compliance prior to arrest.
Rather, under 15-25-113, MCA, law enforcement officers are
required to report to the DOR the names of persons subject to the
tax. We do not find merit in these contentions.
Here, the assessment of the drug tax does not rest on a
criminal conviction. As previously discussed, both civil and
criminal penalties may attach to the same act or omission.
Helverinq, 303 U.S. 399, 58 S.Ct. at 633, 8 2 L. Ed. 922. Further,
we do not conclude that the method of reporting the tax due on the
possession of dangerous drugs or the method of collecting the
amount of tax authorized by statute or administrative rules
transforms this tax into a criminal penalty.
We conclude Montana's Dangerous Drug Tax is not derived from
a criminal conviction.
Both respondents contend Montana's Dangerous Drug Tax is a
criminal penalty. However, in the alternative, if this Court finds
the tax is not a criminal penalty, they contend it violates double
jeopardy under Hal~er. In HalDer the Court held that a civil
sanction violates double jeopardy when it serves the goals of
7
punishment rather than the remedial purposes of compensating the
government for its loss. Hal~er490 U.S. at 448, 109 S. Ct. 1901-
1902, 104 L. Ed. 2d at 501-502. In that case, Halper, a medical
service manager submitted sixty-five inflated claims to medicare
demanding a $12 payment on each claim, when the company was
actually entitled to $3 per claim. Halper received a $2000 penalty
for each false claim totalling $130,000. The Court concluded that
the tremendous disparity between the government's damages of $585
and the civil penalty of $130,000 served the goals of punishment
and violated double jeopardy. Haluer, 490 U.S. at 452, 109 S.Ct.
at 1904, 104 L. Ed. 2d at 504.
We do not find Haluer controlling. The court in HalPer
limited its ruling to similar cases. It stated: "What we announce
now is a rule for the rare case, where a fixed-penalty provision
subjects a prolific but small-gauge offender to a sanction
overwhelmingly disproportionate to the damages he has caused."
Halper at 449, 109 S. Ct. at 1902, 104 L.Ed.2d at 502. Halper
involved a civil sanction and a fixed penalty per offense which was
not based on remedial costs. As mentioned, the penalty was $2000
for each event regardless of how small the dollar amount was in
terms of cost to the government. In contrast, the Montana
Dangerous Drug Tax is an excise tax based on the quantity of drugs
in the taxpayer's possession.
We note that both District Courts held the tax was excessive
and punitive, not remedial, because the DOR failed to provide a
summation of the costs of prosecution and societal costs of drug
use. However, unlike the civil sanction in Halper where such proof
may be required, a tax requires no proof of remedial costs on the
8
part of the state. Commonwealth Edison Co. v. State of Montana
(l98O), 189 Mont. 191, 615 P.2d 847. In Commonwealth this Court
held that the state is not required to defend the validity of an
excise tax by offering a summation of the costs of governmental
benefits. Commonwealth, 189 Mont. at 207, 615 P.2d at 855-856.
Finally, respondents contend the tax was excessive. Sorenson
was assessed a tax of $200 per gram, or $4,216 for his possession
of 21.08 grams of cocaine. Similarly, Williams was assessed a tax
of $100 per ounce, or $1,260 for his possession of 12.6 ounces of
marijuana. We do not conclude that this tax is excessive. It is
neither a fixed penalty as in Halper, nor is the amount of tax so
grossly disproportionate as to transform this tax into a criminal
penalty which violates double jeopardy. We also note that the
foregoing rates of tax on various drugs are comparable to those in
other states and also comparable to the amounts in effect for many
years during the effective period of the Federal Drug Tax Act which
has now been repealed.
We hold that Montana's Dangerous Drug Tax is not a multiple
punishment and does not violates double jeopardy.
II
Is Montana's Drug Tax Act unconstitutional on its face?
The court in Williams held that Montana's Dangerous Drug Tax
Act, on its face, violated the double jeopardy clause of the Fifth
Amendment to the United States Constitution. We disagree. As
stated previously, the tax is not a criminal penalty and does not
rest on a criminal conviction. Further, under the Halper analysis
the tax does not serve the goals of punishment. Neither is the tax
excessive or grossly disproportionate to the harm suffered by the
9
government. Finally, the reporting procedures outlined in 5 15-25-
113, MCA, do not relate the tax to a criminal conviction. Rather,
they protect the taxpayer's Fifth Amendment right against self-
incrimination.
We hold Montana's Dangerous Drug Tax Act is constitutional on
its face.
Reversed.
We Concur: /'-"
,A
y -.
i/ Chief Justice
Justices
Justice William E. Hunt, Sr., dissenting.
I dissent. Once again the majority uses the club of the "drug
crisis" to crack the shield of the Bill of Rights. Montana's Drug
Tax Act clearly violates a constitutional right against double
jeopardy through the use of multiple punishments.
As the United States Supreme Court stated in HalRer, the
labels of "criminal" and llcivil"
are not of "paramount importance."
United States v. Halper (1989), 490 U.S. 438, 447, 109 S. Ct. 1892,
1901, 104 L. Ed. 2d 487, 501. To determine whether a civil penalty
amounts to a criminal penalty "requires a particular assessment of
the penalty imposed and the purposes that the penalty may fairly be
said to serve." HalRer, 490 U.S. at 448.
In HalRer, the United States Supreme Court held that:
[Ulnder the Double Jeopardy Clause a defendant who
already has been punished in a criminal prosecution may
not be subjected to an additional civil sanction to the
extent that the second sanction may not be fairly
characterized as remedial, but only as a deterrent or
retribution.
HalRer, 490 U.S. at 448-49. Both Williams and Sorenson were
previously convicted and punished before the DOR assessed the tax.
Clearly, the facts of this case fit the mandate of HalRer because
the Montana Drug Tax is a civil sanction which violates double
jeopardy by serving the goals of punishment rather than the
remedial purpose of compensating the government for its loss.
Not only does the tax serve the goals of punishment, it fails
to bear any rational relationship to the goal of restoring to the
State its losses incurred when enforcing its drug laws,
particularly when considering the excessive criminal fines imposed
by § 45-9-101 through -127, MCA. In addition, the DOR failed to
provide any evidence which would establish the societal cost of
prosecuting these cases. Indeed, the majority bestows upon the DOR
an unfettered license to impose an arbitrary, unequal, and unfair
tax.
Although there is evidence that the legislature intended to
create a civil penalty, the purpose and effect of the statute is
still punishment and deterrence. The Montana Drug Tax Act has
previously been litigated in the federal system. As United States
Bankruptcy Court Judge for the District of Montana, John L.
Peterson, ruled:
The punitive nature of the tax is evident here, because
drug tax laws have historically been regarded as penal in
nature, the Montana Act promotes the traditional aims of
punishment -- retribution and deterrence, the tax applies
to behavior which is already a crime, the tax allows for
sanctions by restraint of Debtors' property, the tax
requires a finding of illegal possession of dangerous
drugs and therefore a finding of scienter, the tax will
promote elimination of illegal drug possession, and the
tax appears excessive in relation to the alternate
purpose assigned, especially in the absence of any record
developed by the State as to societal costs. Finally,
the tax follows arrest for possession of illegal drugs
and the tax report is made by law enforcement officers,
not the taxpayer, who may or may not sign the report.
All these aspects of the Drug Tax Act lead to the
inescapable conclusion that it has deterrence and
punishment as its purpose.
Drummond, Trustee et al. v. Department of Revenue (1990), 8 MBR
288. The Federal District Court affirmed the holding and reasoning
of Judge Peterson. In re Kurth Ranch (D. Mont. April 23, 1991),
The majority attempts to hide behind the veil of facts of
these cases to justify that the tax imposed is reasonable and not
excessive. In Judge Peterson's case, the DOR attempted to impose
a tax assessment in excess of $800,000 on the bankrupt estate of
the Kurths. The DOR levied a tax on drugs that were not even
defined in the statute. Nor did the DOR provide any rational
explanation regarding how it determined the value of the drugs
seized. Judge Peterson correctly found that tax to be so grossly
disproportionate as to transform it into a criminal penalty. He
recognized quite clearly, as did State District Court Judge John S.
Henson in Sorenson, State District Court Judge Jeffrey D. Sherlock,
in Williams, and Federal District Court Judge Paul G. Hatfield, in
affirming Judge Peterson, that a criminal penalty by any other name
is still a criminal penalty.
For these reasons I would hold that the Montana Drug Tax Act
is unconstitutional on its face and would affirm the lower court's
decision. /
Justice Terry N. Trieweiler concurs in the foregoing dissent
of Justice William E. Hunt, Sr.
July 21, 1992
CERTIFICATE OF SERVICE
I hereby certify that the following order was sent by United States mail, prepaid, to the following
named:
R. Bruce McGinnis
Dept. of Revenue
Mitchell Bldg.
Helena, MT 59620
Clinton H. Kammerer
Kammerer Law Offices
101 E. Broadway, Ste. 200
Missoula, MT 59802
ED SMITH
&+-.
CLERK OF THE SUPREME COURT
STATEAOFMONTANA
BY:
Depu
July 21, 1992
CERTIFICATE OF SERVICE
I hereby certify that the following order was sent by United States mail, prepaid, to the following
named:
PAUL VAN TRICHT, Tax Counsel
Department of Revenue
Office of Legal Affairs
Mitchell Building
Helena, MT 59620
Edmund F. Sheehy
CANNON & SHEEHY
P.O. Box 5717
Helena, MT 59604
ED SMITH
CLERK OF THE SUPREME COURT
STATE OF MONTANA
BY:
Depu