DEPARTMENT OF REVENUE OF MONTANA v. KURTH RANCH
Legal provision: Double Jeopardy
Argument of Paul Van Tricht
Chief Justice Rehnquist: We'll hear argument next 93-140... spectators are admonished the Court remains in session.
Save your talking until you get outside the courtroom.
We'll hear argument next in No. 93-144, Department of Revenue of Montana v. Kurth Ranch.
You're admonished not to talk while the Court is in session.
Mr. Van Tricht.
Mr. Tricht: Mr. Chief Justice, and if it please the Court:
Unknown Speaker: Counsel, before you get underway, straighten me out on a fact or two.
Does Montana have an income tax?
Mr. Tricht: --Yes, Your Honor, it does.
Unknown Speaker: Was this income subjected to that tax as well as to the marijuana tax?
Mr. Tricht: I do not know, Your Honor.
I was not privy to the income tax collection of Montana.
Unknown Speaker: So you don't know whether it was doubly taxed.
Mr. Tricht: We do not know, no.
I do not know.
Unknown Speaker: Is that hard to find out?
Mr. Tricht: In fact, it is, because under Montana law I can only have access to Montana income tax records if I am prosecuting an income tax case.
We have a very strict confidentiality provision which basically says that I cannot go down, and out of curiosity, or even in connect... conjunction with another case, look at the income tax returns.
It's similar to the Federal, although we have a fire law to protect the confidentiality of the income tax returns.
Unknown Speaker: Well, I'll ask opposing counsel then.
Could I ask you a slightly different question, following up on Justice Blackmun?
Would... under the Montana income tax law, would it be appropriate for this taxpayer to pay an... file an income tax return and pay the tax, whether he did it or not?
Is he subject to the law?
Mr. Tricht: Under the Montana income tax law the Kurths, the family or the individual members of the family, would be subject to income tax on the income earned from growing marijuana.
Unknown Speaker: Even if it was illegal income, it would still--
Mr. Tricht: Even if it was illegal income.
It's identical to the Federal law.
Unknown Speaker: --Before you say good morning and begin your argument, I'll have one more question.
Would there be a violation, a criminal violation for failure to pay the tax that's involved here?
Mr. Tricht: This tax?
Unknown Speaker: Yes.
Is there a separate crime for the failure to pay this tax?
Mr. Tricht: There is a criminal provision in the code.
There is referenced in the code a criminal provision, yes, Your Honor.
Unknown Speaker: So there could have been a criminal prosecution here for failure to pay the tax?
Mr. Tricht: Under my understanding of the Montana interpretation of double jeopardy, I don't think... under the State rule, I don't think that would be possible.
Unknown Speaker: Thank you.
Excuse me, would not be possible?
Mr. Tricht: As I understand Montana's Supreme Court's interpretation of the... of our double... constitutional double jeopardy provisions and the Montana constitution, I don't think it would be possible.
But I am not sure, Your Honor.
Unknown Speaker: So there's no sanction for failing to pay this tax.
It's sort of a... sort of a voluntary good faith tax.
Mr. Tricht: Well, Your Honor, this brings up--
Unknown Speaker: From people who have been growing marijuana, you sort of trust them to come up with it.
Mr. Tricht: --You... well, Your Honor, this brings up one point.
Under this Court's prior decisions in the Leary case and Marchetti, it is... we cannot really compel the filing of a tax return without running... potentially running a file of self-incrimination.
Unknown Speaker: But you can put them in jail if they don't, I mean.
Mr. Tricht: Oh, we can only actually enforce it if... we can only actually bring an enforcement action if there's not a payment of the tax assessment.
Your Honor, Montana has a tax of $100 an ounce on marijuana.
The tax assessment before this Court is $181,000 because the Kurth family had possessed 100... 1,800 ounces of marijuana.
The issue before the Court is rather quite simple; is the tax a tax or a penalty and is this... and does this particular tax assessment violate the Kurth's rights under the double jeopardy provision of the Fifth Amendment?
The lower Federal courts held that the tax was a penalty and that this assessment did violate the double jeopardy provisions of the Fifth Amendment.
This decision stands in contrast and in conflict to a prior Montana Supreme Court decision that held that this tax was not a penalty and therefore could not violate the double jeopardy provisions.
Montana... the lower Federal courts based their decision on this Court's decision in United States v. Halper.
Montana's basic position is that the Halper decision does not apply because this tax is a true tax and not a penalty, and we believe it's a true tax based upon two factors: one, the legislature intended to create a tax and, two, this Court's past decisions on similar tax upheld Federal taxes of a similar nature.
Unknown Speaker: Mr. Van Tricht, just as a matter of Montana procedure, why wasn't this tax made part of the plea and sentencing proceeding, the criminal proceedings against the Kurth family?
Mr. Tricht: --By the time... by the time... the assessment procedures had not been completed by the time there was the criminal sentencing proceedings.
That there was a contest.
The Kurths... there was a initial tax assessment, the Kurths contested that assessment, and administrative proceedings began before the Department of Revenue which would have resulted in a final decision.
That... those... that process was never completed.
The Kurths filed bankruptcy and the Montana Department of Revenue filed a proof of claim and a motion for relief from the automatic stay.
That was denied and then we went into the adversary proceedings.
So by the time... by the time the bankruptcy court issued its decision upon the last... on the assessment itself, Richard Kurth was already out of jail.
So there was no way to merge the two, if it were desired.
Unknown Speaker: It sounds, from what you describe, that it is... it would not be the common pattern to have the two merged.
Mr. Tricht: In my experience they have never been merged.
Unknown Speaker: If they were merged you wouldn't have a problem, I assume.
Mr. Tricht: Well, actually merger would create a great deal of problems because we're talking about an apples and oranges proceeding.
The criminal proceedings have a much different procedural process--
Unknown Speaker: But you wouldn't have this problem.
Mr. Tricht: --Yes, we wouldn't have this problem, but we would have a great deal more problems in--
Unknown Speaker: Well, this was settled by plea, wasn't it?
There was no trial.
Mr. Tricht: --Yes, Your Honor, it was.
Unknown Speaker: Criminal.
So you could have... if you had the two together, you could have negotiated both at the same time and had them... you wouldn't... I don't understand what the impediments would be if you didn't... if you were dealing by a plea rather than trial.
Mr. Tricht: Well, the impediment in this case was the fact that we hadn't completed our assessment procedure.
We didn't... we hadn't... the Department, itself had an initial assessment and then the proceedings would have gone on through a... through an adversary proceeding before a hearing officer of the Department, which would have resulted in a final assessment.
So we really didn't... the Department really hadn't nailed down the final assessment on this particular tax at that time.
Unknown Speaker: Mr. Van Tricht, if the legislature in Montana had passed its law saying that anyone found in possession of marijuana, that there will be a civil sanction imposed of $100 an ounce, do you think then we would be required to look at the Halper decision to determine its validity?
Mr. Tricht: Yes, Your Honor, because--
Unknown Speaker: Do you think it makes any difference that precisely the same thing is done, only it's called a tax?
Mr. Tricht: --Yes, I do, Your Honor, because there's a different--
Unknown Speaker: Why?
Mr. Tricht: --There's a different intent by the legislature.
In one action they're intending to create a tax, in another act they're intending to create a penalty or sanction.
Unknown Speaker: Well, I don't see how the change of a word could alter the analysis?
Mr. Tricht: I believe--
Unknown Speaker: Calling it a sanction or a tax.
Mr. Tricht: --I believe it does in this case, Your Honor, because of this Court's past decisions which upheld similar or nearly identical Federal taxes.
Unknown Speaker: Do you think we could ever view a tax as a sanction?
Mr. Tricht: Yes, Your Honor.
Unknown Speaker: So it isn't just the use of the word.
Mr. Tricht: No, Your Honor.
It's the structure, the entire statute itself that the Court has to analyze in the determination of whether it is a tax or a sanction.
And in this... and the Court also has to look at past... its past decisions on similar Federal taxes in that analysis.
Unknown Speaker: Why doesn't the reference to structure go against you?
Isn't it a very odd structure for a supposed tax to have two different valuation provisions and say we'll pick the one that brings in the most?
That's not the usual structure for a tax.
Mr. Tricht: Your Honor, it's... it's not the normal structure, but there's a least one Federal tax that has the same structure, and that's the tax on small cigars which is 12.5 percent or $30 per thousand cigars, whichever is greater.
Unknown Speaker: Is that so.
Mr. Tricht: So there... it is a... not a normal, but it is not an unusual.
It has been done in the past.
Unknown Speaker: Mr. Van Tricht, is it one or the other?
It can't be a little bit of both.
I mean you say it... we have to decide whether it's a tax or a punishment.
What if it's a tax and also a punishment, who wins?
Mr. Tricht: Well, Your Honor--
Unknown Speaker: Does its being a punishment exclude its being a tax or its being a tax exclude its being a punishment?
Mr. Tricht: --For the purposes of analyzing under Halper, it makes a difference, Your Honor, because we're dealing about the Halper decision and Halper was talking about penalties and not taxes.
Unknown Speaker: But Halper also said it was a very narrowly confined decision.
Mr. Tricht: Yes, Your Honor.
Unknown Speaker: So, why... why don't you take the position that even though there may be some sanction or penal effect, if there's... if it's also arguably a tax, you win?
Mr. Tricht: Well, Your Honor, this Court has often recognized that a tax has both regulatory and... effects and not... effects other than its... just its purely revenue-raising effect.
And so there are certain aspects in a tax which to some people may seem nontax.
Like, for example, a high tax on alcohol may have the purpose of discouraging alcoholic consumption.
But I don't think that that... that that is a collateral issue which does not change the basic intent of Congress or the legislature to enact the revenue-raising measure.
Unknown Speaker: May I ask another question about the way this tax works?
What is the taxable event?
Is there an assessment date, a particular date when they... when you do it, or is it always triggered to the criminal proceeding?
Mr. Tricht: Your Honor, the taxable... the taxable event is the coming into possession of the marijuana.
Unknown Speaker: The coming into possession of marijuana?
Mr. Tricht: Yes.
Unknown Speaker: And is he allowed to retain possession of the marijuana or does the State take possession of it when it finds it?
Mr. Tricht: Well, if the State became aware of the possession, then it's contraband and it would be seized, unless there was some--
Unknown Speaker: But you couldn't... obviously couldn't tax it without being aware of it, so I suppose that as soon as it has the right to tax it also has the right to seize it.
And then is it on... is it being taxed on his prior possession, or is it taxing on something that he no longer owns?
It's a little bit unusual to be taxing some... an ad valorem property tax on something that the person is not permitted to own.
Mr. Tricht: --Well, Your Honor, Montana fully recognizes this is an illegal activity that it's taxing, and the statute's structure fully recognizes that and the rules recognize that.
Unknown Speaker: So it's a tax on the prior... the fact that he previously owned the marijuana.
Because at the time you levy it, you already have the marijuana, I gather.
Mr. Tricht: Yes, yes, yes.
Unknown Speaker: So you're... he's being taxed for... because of the fact that he previously had in his possession marijuana?
Mr. Tricht: Yes, Your Honor.
Unknown Speaker: And, I see.
How do you apply a... how, in theory at least, should you apply a possession tax on something which is growing when the tax is not keyed to a given day?
I mean every time his plant comes up with a few new shoots should... in theory, should he file a tax return?
Mr. Tricht: Well, Your Honor, if he had a plant and it grew to a certain, you know... a pound, he would owe a tax.
If it added another pound, he would owe a tax on that additional pound.
Unknown Speaker: So the taxable event is the accretion of a pound of weight to his agricultural product.
Mr. Tricht: We tax the possession once and it's... and each time... each new possession of a different amount of marijuana--
Unknown Speaker: Each new pound.
Mr. Tricht: --Or new marijuana is the taxable event.
There's no... once the tax is due on the old marijuana, there's no additional tax on that marijuana.
Unknown Speaker: So in theory literally every time a new pound is added by nature's processes, he would be taxable on that.
Mr. Tricht: Yes, sir.
Unknown Speaker: Could the State generate additional revenue by allowing it to... allowing him to retain possession for a while under supervision--
--So that he wouldn't dispose of it, and then increase the taxable corpus.
Mr. Tricht: In that event the State would get more... additional revenue, Your Honor.
Unknown Speaker: Strange tax.
There are some really nice questions here.
I mean what if the plant gets sick and it dies down a little bit.
And then it grows back up.
Is that the original pound or is that a new pound?
I don't know.
Mr. Tricht: Well, Your Honor, this brings--
Unknown Speaker: I'm glad I don't have to administer this tax.
Mr. Tricht: --Your Honor, this brings up one point.
We tax the dried weight of the marijuana at this point.
We have... we had an extended bit of litigation upon whether we were taxing the wet or the dry weight of marijuana, and we tax the dry weight.
Unknown Speaker: But this... there's one portion of this, what you call shake, where it's at 800 percent, the tax, is it not?
There was a disparity between the rate applicable to the marijuana and the rate applicable to the shake, is that not so?
Mr. Tricht: Your Honor, the Kurths were producing two... they had 1,800 ounces of marijuana.
Of that 2,000... 200 ounces were what's called bud marijuana which was sold at wholesale at $1,800 a pound.
The remainder... and it was sold in smaller retail quantities... that's... retail quantity is a quarter ounce... it would go anywhere from $200 to $400 an ounce in small quantities.
The remainder, the 1,600 ounce, the remaining 1,600 ounces was shake, and that's the stems and the leaves of the marijuana plant.
At wholesale that shake sold for $200 a pound, at retail it sold for $250 to $500 a pound, and if it was... if it were sold in smaller quantities it would... like a quarter ounce, in quarter ounce quantities, it would sell anywhere from $60 to $120 an ounce.
Unknown Speaker: Well what was the tax on that $200 to $500 a pound?
Mr. Tricht: The tax on the shake was $100 an ounce.
The tax on the stems and leaves was $100 an ounce.
Unknown Speaker: And the value of that was how much an ounce?
Mr. Tricht: The value of that... the value... the value of marijuana is dependant upon what is the--
Unknown Speaker: But I thought there was a separate value... there were two separate commodities.
The shake sold for some... whatever oil it eventually could make and the other sold as marijuana.
Is that wrong?
Mr. Tricht: --Well, both of them... both the shake and the marijuana bud are marijuana.
Both the shake and the marijuana bud were being sold in Chouteau County.
Unknown Speaker: But for different purposes, and one was more expensive than the other.
Mr. Tricht: Well, shake of the quality that the... that we have here were being sold for the purposes of making marijuana cigarettes and smoking, in addition to making marijuana oil.
The Kurths didn't sell shake, but shake of that... of a similar quantity that the Kurths possessed was being sold in Montana at that time, in quarter ounces and ounces and pound portions.
Unknown Speaker: I'm just trying to get an understanding of what was the tax on that commodity in relation to the value of that commodity, the market value of it.
Mr. Tricht: The tax on that commodity, taking the lowest price, would be eight times the value.
If you... if you--
Unknown Speaker: The tax was eight times the value.
Mr. Tricht: --Yes.
If you... if you determine the value at another--
Unknown Speaker: And that's a tax that's eight times the value.
I heard that the power to tax is the power to destroy; it seems that would clearly apply to something eight times the value.
Mr. Tricht: --But remember, Your Honor, we're taxing the entire... all marijuana.
As in any circumstances, you're going to have... if you tax any type of product, you're going to have low-value product and high-value product and all the way down the stream.
Unknown Speaker: But I thought there's only two that were at issue here, the marijuana that was... and the shake.
Mr. Tricht: --Yes, that's the only issue.
Unknown Speaker: And the different rates applicable to each.
What was the rate applicable to the... to the marijuana?
Mr. Tricht: Well--
Unknown Speaker: What was the tax?
Mr. Tricht: --The tax is $100 an ounce applicable to marijuana, whether it's marijuana bud or shake.
Unknown Speaker: Yes, but the bud... the marijuana bud is a much more expensive commodity, isn't it?
Mr. Tricht: Considerably more expensive, Your Honor.
Unknown Speaker: And what is the ratio of tax to value in the case of marijuana bud?
Mr. Tricht: Tax to marijuana bud, the rate... the... in all instances the tax is less than the value.
It starts... the value starts at a minimum of about $1,800 a pound and then goes up, and it could go up considerably.
As I said, the record shows values in... up to $400 a ounce.
Unknown Speaker: I assume that you don't collect this tax on every piece of... on the usual percent.
I assume there's more evasion of this tax than there is of most taxes in your State, isn't there?
Mr. Tricht: Yes, Your Honor.
Unknown Speaker: So to get the same net tax on all the marijuana, you... eight times the ones you catch probably isn't... isn't so outrageous, is it?
Mr. Tricht: Your Honor, in this particular instance the Kurths were engaged in growing marijuana since January of 1986.
Unknown Speaker: Right.
Mr. Tricht: The only tax they are now being assessed with is the tax... is the amount they had in October of 1987.
Unknown Speaker: That you happened to catch him with.
So he's probably paying a very modest, reasonable tax upon his total marijuana output.
Mr. Tricht: Yes, Your Honor.
I thank the Court.
Unknown Speaker: Thank you, Mr. Van Tricht.
Mr. Feldman, we'll hear from you.
Argument of James A. Feldman
Mr. Feldman: Mr. Chief Justice, and may it please the Court:
In Halper against the United States this Court extended the Double Jeopardy Clause for the first time to civil measures, but the Court made clear that it is not the case that any civil obligation, including fines, money damages, attorneys fees, court costs, all of which can carry the sting of punishment, as the Court recognized, from the standpoint of the defendant... the Court made clear that it is not the case that any of those things are punishments for purposes of the Double Jeopardy Clause.
Rather, it's only when a civil measure cannot be explained in terms of a nonpenal purpose, it is only in that case that it should be seen or can be seen as punishment for purposes of the Double Jeopardy Clause.
Unknown Speaker: So you think it can be mixed.
Can it be a tax and a punishment both?
And in that case, what, the tax prevails?
Mr. Feldman: Yes, I do.
I think that the question that the Court asked in Halper is quite clear.
There was a civil penalty that was imposed in that case.
The Court said... it was labeled a penalty.
I think there was very little question that one of the things the legislature had in mind was penalizing the people who had submitted the false claims.
But the Court said insofar as it can be explained in terms of a compensatory purpose, we're... that doesn't raise a double jeopardy problem.
And, in fact, I believe the case was remanded to the district court for determination of whether it could be explained in terms of a compensatory purpose.
Unknown Speaker: Well, but that... but that means that if there is any... to the... contrariwise, to the extent that there is any penal purpose, it is invalid, and that means it must be totally nonpenal.
Mr. Feldman: I don't believe... I don't believe if... that... what the Court said several times in the course of the Halper opinion was if it bore a rational relationship to a nonpenal purpose, then it is not a penalty.
And that relates to... or it's not a penalty for double jeopardy purposes.
That relates to, I think, the Chief Justice's point that he was making in his question before, that--
Unknown Speaker: So that means that in this case if they labeled it a penalty your case would be just as strong.
It wouldn't really make any difference whether they call it a tax or a penalty.
Mr. Feldman: --I think the difference... I think that there wouldn't be... well, I think this would be the difference.
When you get to the question of what is the nonpenal purpose that's served, they are different, generally speaking, with respect to civil penalties, which is what was at issue in Halper, and with respect to taxes.
The purpose of a civil penalty... one of the purposes of a civil penalty is compensating the Government for costs that it imposes when the activity is carried out.
That's not generally the purpose of a tax.
In fact, if taxes were measured by whether they compensate the Government for particular... for particular costs that the taxpayer imposes on the Government or particular benefits that the taxpayer receives from the Government... if taxes were imposed on that basis, they all would be seen to be penalties because almost none of them can be justified like that.
The question with a tax is does it have a revenue-raising purpose.
The State of Montana looked around and as it said in its... in the preamble to the statute here and in entrusting its collection to the department of taxation and numerous other incidents of this tax, they saw an economic activity being carried on within the State and they thought that that activity, although it was illegal, that they should be permitted to tax that in the same way as the State of Montana and other Governments commonly tax other similar items.
The example we give in our brief is cigarettes.
Unknown Speaker: Well, do you think it would be constitutional to pass a statute that says that everybody that's convicted of a felony shall, in addition to whatever punishment the judge imposes, 1 year after his conviction pay a tax of $1,000?
Mr. Feldman: No, I don't think--
Unknown Speaker: So what's the difference?
Mr. Feldman: --Well, I think it would... it would be constitutional for... that would be... I think that in that case it would be likely that you would see that as a criminal penalty.
I don't think--
Unknown Speaker: Because the class of persons who are subject to the tax is limited to those who have already been convicted of a crime.
But isn't that precisely the kind of class we have here?
Mr. Feldman: --I think that the lesson of Halper was the question that's asked... and the reason why Halper emphasized that it was a case... it was an unusual case and it was a rare case, was the analysis turns on the purpose that's underlying the statute.
The purpose here was raising revenue.
Unknown Speaker: Well, what I'm really asking is do you think the State can constitutionally tax a class of taxpayers which is defined by the fact that they have all been convicted of a particular crime, without running into some kind of double jeopardy problem?
Mr. Feldman: I think that you have... I think the question is looking at the purpose in each case.
I think where the tax... I'll answer the question--
Unknown Speaker: Well, they want to... they do it because they want to raise money and they think this is an easily defined class, we get $1,000 a head out of every burglar, we get that money... and there are a lot of burglars around, so we'll raise a lot of money.
Mr. Feldman: --I think where it's tied to a certain--
Unknown Speaker: It's a sin tax.
They're all bad actors.
Nobody's going to complain about that kind of a tax.
We want to discourage burglary.
Mr. Feldman: --I think where it's tied to a criminal conviction, that it would be so close... and this would... is really related to maybe more the Austin case than the Halper case.
It's so close to what historically has been seen as a criminal punishment that I think it would be very difficult for a State--
Unknown Speaker: Well, do any people pay this marijuana tax except people who are convicted of possession of marijuana?
Mr. Feldman: --No, that's not true.
The State... the State... in the first place, the State supreme court has specifically said that a conviction is not required for payment of this tax.
Unknown Speaker: But as a practical matter, do they find people who are growing marijuana and they don't convict them of the crime?
Mr. Feldman: I don't know.
There may be... it may be the case that there are people they find growing marijuana that for one reason or another they don't think ought to be prosecuted, or they don't have resources for prosecuting.
I don't really know the decisions the State of Montana makes.
As a matter of fact, it's had very little opportunity to put this tax into effect because I understand that once the bankruptcy court came out with its decision in this case, it stopped trying to enforce it.
But in any event, I think that the crucial point is that the State... the State entrusted its collection to the Department of Revenue, earmarked its proceeds for the kinds of purposes that tax revenues are ordinarily used in Montana--
Unknown Speaker: Of course, you could always do that with my burglary tax too.
You can do all those things.
Mr. Feldman: --Right.
And, as I said, I think in that case where it would be specifically tied to a criminal conviction, I think a State would have a very hard time getting out from under the historical understanding of that kind of thing as punishment.
But this Court has... consistently recognizes that taxes are not ordinarily seen as punishment, there's no general historical record that they are, and that taxes on illegal activities are permissible.
Just as someone selling... as we say in our brief, just as someone selling cigarettes in Montana is subject to paying a State tax, so in the same way somebody selling an illegal substance, the State of Montana looked around and say that there were people who were gaining substantial economic wealth within the State, that it was an industry that was carried on in the State, and that they too should shoulder the burdens of paying State tax.
Unknown Speaker: You said in your brief, to describe what would be permissible, that this has to be within the general range of sin... similar taxes, has to be something that is an ordinary kind of tax, and you give the sin tax as an example.
How does one know whether the rates that are here are within the general range of sin taxes?
Mr. Feldman: Actually, there are really two inquiries we suggested in our brief.
The first is where it's a tax of general applicability in that it falls on both legal and illegal activities, we don't think there should have to be any further inquiry.
Unknown Speaker: Yeah, I know, but that's not at issue here.
Mr. Feldman: That doesn't apply to this case.
The second principle is really kind of a corollary to that, it's where it's a tax that's similar in kind to the kinds of taxes that are ordinarily imposed on legal items, it also... that confirms the legislative intent that this is a revenue-raising measure.
In this case, under our analysis, the primary commercial product or the primary product that they're talking about is the buds.
That's what these people were really selling.
The tax was at an 80 percent rate.
That's actually not at all far off from the kinds of taxes that are imposed in some jurisdictions and the Federal Government may be considering imposing on cigarettes.
And especially when you keep in mind the Court's statement in Halper that all you really need is a rational relation to a nonpenal purpose, it doesn't have to exactly... you don't require a court to kind of look at it penny by penny or--
Unknown Speaker: In terms of the total amount that we're dealing with here, the 80 percent rate was on how much and the higher rate was on high much?
Mr. Feldman: --Well, I believe in this particular case the 80 percent rate was on 200 or 250 ounces.
Unknown Speaker: And the higher rate was on... the eight times was on much more, wasn't it?
Mr. Feldman: That's correct.
But I view that, or we view that as an artifact of the fact that this other product was simply an extremely low grade, hardly viable commercial product, and got swept within the minimum provision of the tax.
The crucial... and the record I think is clear on this, that what they were selling was marijuana buds, and it was that commercial activity that the State of Montana chose to tax.
Now, there are mechanisms that the State adopted--
Unknown Speaker: Well, wouldn't one say that to the extent that the product was not the buds but the shake, that it wasn't... that that rate was not within the general range of such taxes.
Mr. Feldman: --I think if you saw the main focus of the tax as that, I think that would be a high rate.
I haven't looked around to see whether there are other taxes that one might compare that with, but I think that's... that is much higher.
Unknown Speaker: But you did say in your test in your brief that you would look to see whether it was in... within the general range, so... and here we go from a range of 80 percent to 800 percent.
Mr. Feldman: Right.
If that's the problem... as I said, I would look at that as kind of artifact of the fact that the commercial... that there's a commercial product that they're taxing, and this other extremely low quality, barely... low value product gets swept within it.
If that's the problem with this tax, if the Court looked at it differently, that might suggest that the State couldn't tax the low quality marijuana product quite the same way.
But I think the crucial point in the case is that the buds were the commercial product that the State was trying to tax.
Unknown Speaker: Thank you, Mr. Feldman.
Mr. Goetz, we'll hear from you.
Argument of James H. Goetz
Mr. Goetz: Mr. Chief Justice and may it please the Court:
First, I would like to answer Justice Blackmun's question.
The answer is that the income of Richard and Judith Kurth was taxed as... income taxed.
The income received by the Halleys and the younger Kurths from the operation, that is their income as employees, was taxed and paid by them.
Moving to the tax as it operates in this... in the State of Montana... well, before I do that, one question posed by Justice Scalia, I think, merits an answer from our perspective, and that is can a tax be called a tax and serve a dual function?
And if so, what is the consequence?
Well, I think both Halper and Austin were quite clear on that point.
My position is you can call something it a tax, it can raise revenue and therefore it can be a tax, and it can also punish, and it can be punishment for the purpose of the Double Jeopardy Clause.
And Austin said precisely on that dual-purpose point, fundamentally, even assuming that the statutes in question there served some remedial purpose, the Government's argument must fail.
A civil sanction... and they're quoting now from Halper... a civil sanction that cannot be fairly said solely to serve a remedial purpose, but rather can only be explained as also serving either retribution or deterrent purposes, is punishment.
Unknown Speaker: Because if we don't take that position, then we've put ourselves right back in the old problem of having to... having to define the principal character of the tax again.
I mean we've got the... we would have the same problem we had with the regulatory revenue taxes.
Different labels, but we'd have the same problem.
Mr. Goetz: Well, exactly.
And the issue really here, Halper and Austin set aside, is can you have a tax which is, under the guise of a tax, at least in part punishment.
Because the Double Jeopardy Clause prohibits multiple punishment, and so if we return to the fundamental question then we have to ask whether a tax has an aspect of punishment, and if it does then double jeopardy is implicated.
Now, turning to the question posed by Justice Stevens, the answer is that... and Mr. Van Tricht I think made this point... that although this is called a tax on possession, this is contraband and it would be seized at the time the Government realizes that the person possesses or stores.
Turning to Justice Ginsburg's question on the quantities of the shake, what happened here is they weighed approximately 100 pounds of shake, which is low grade stems and seeds, bags of marijuana product, 100 pounds or 1,600 ounces.
There were a total of 1,811 ounces in this case, so most of the product was the low-grade shake, approximately 90 percent.
And that is worth... and the record shows $200.
Now, the argument here is, well, at retail it might be worth more, and there was evidence in the record of if you used something called the mari-gin you can process it to get some of the higher-quality marijuana out.
But, of course, that would reduce the weight.
And so the plain and simple fact is that that was worth $200 and it was taxed at $1,600--
Unknown Speaker: $200 a pound--
Mr. Goetz: --A pound.
Unknown Speaker: --An ounce, what?
Mr. Goetz: $200 a pound and taxed at $1,600 a pound, eight times its market value, 90 percent of the product at issue here.
Looking at the other aspects of the tax... and it might help, I've--
Unknown Speaker: Well, how important is that percentage, Mr. Goetz?
Do we apply the same sort of analysis if someone comes in and challenges a cigarette tax, to say that the basic product is only worth 25 cents and yet the Government has put a tax of $1.50 on it?
Mr. Goetz: --Well, the problem with the cigarette-tax analogy that they try to make is they're mixing up retail--
Unknown Speaker: Well, I'm trying to make it.
Mr. Goetz: --Okay.
You... in my view you can't compare retail sales value with the wholesale value of the product that we have here or which we have in tobacco raw product.
Unknown Speaker: So... but if the figure got high enough then?
If, you know, instead of putting $1.50 tax on stuff that's worth 25 cents at retail, they put $3 on, then it would bring it into question?
Mr. Goetz: It might well.
I think it depends on an analysis at the trial level of elasticity of demand.
In other words, if you have a tax that is so great that there is essentially no market for the product, then it seems to me that's an indicator that that's not a true tax.
It may indeed be a penalty.
It may not be dispositive, but it is one of the indicators.
Unknown Speaker: So it's enough if the tax has a very substantial deterrent effect to at least turn that factor against its validity as a tax?
Mr. Goetz: As one of the indicators, yes.
And it depends on the facts, how dispositive that excessiveness or proportionality might be.
Now, when you--
Unknown Speaker: Mr. Goetz, do... would you have any problem if this tax had been imposed in the same proceeding as a criminal trial for the unlawful possession of marijuana?
Mr. Goetz: --Halper, I think, states explicitly that if you impose the tax at the same proceeding, or a civil sanction in Halper's case, then double jeopardy isn't implicated.
I... your question is would I have a problem.
Then we trigger the Eighth Amendment excessive fines issue, and it depends on what this Court means by excessive fines.
But as far as double jeopardy, the answer is no.
Now, looking at the mechanics of this tax... and I've appended the regulations to my brief at the end after page 46.
And I think the regulations make it quite clear, the nature of this so-called tax.
First, if we look at regulation 42.34.101 under definitions, the State defines market value.
And market value is the value of the substance at the time of confiscation or report, and the use of the word confiscation I think relates to Justice Stevens' question.
The answer is, of course, this is contraband, and if it's innocently reported, then it will be confiscated or seized.
But more importantly... and the theme here is that this truly is not a tax; it's really tied to the criminal process.
And if you look down at the next regulation, it talks about the tax return.
And the last clause is
"this return shall be filed within 72 hours of their arrest. "
If you look down at number two, then there is a tax assessment within 30 days.
Within 30 days of what?
Within 30 days of the 72 hours after arrest.
If you look down at number three, quote: At the time of arrest, law-enforcement personnel shall complete the dangerous drug informational reports, information reports.
If you look over on the next page it talks about
"the law-enforcement officer shall certify and submit the form to the Department within 72 hours of the arrest. "
If you look down at number five, it talks about the form and it talks about information on it, arrest and booking number.
And if you look at the next regulation down under subpart (c) it talks, quote: The associated criminal nature of assessments under this act is considered to be cause for emergency issue of a warrant of restraint.
Those are the--
Unknown Speaker: So, in fact, no one could be prosecuted for not paying the tax as long as the return was filed within 72 hours of arrest for the possession.
Mr. Goetz: --Exactly.
Justice Scalia asked the question, well, isn't there an inordinate incidence of evasion of this tax?
And I think the answer is quite the contrary, because how do you evade the tax?
When is the tax even due?
The tax is not due until 30 days after the assessment, or the assessment is due 72 hours after arrest.
I think this tax probably has the lowest evasion rate of any tax in the State of Montana.
Unknown Speaker: It does refer to report, and I take it the word report, in your view, is the report that's filed by the law-enforcement officials in lieu of the defendant having done it?
Mr. Goetz: Yes.
And that reminds me of one other point.
If you go back to the first page of those regulations, the second regulation, 42.34.102, it talks about a return, but then everything else in the regulation talks about a report.
Well, the only evidence we have in this record, and the only forms I've seen in connection with the Montana Dangerous Drug tax, are the reports of the law-enforcement officers.
I don't think the State has a form of a return.
Now, they do for income taxes, they do for property taxes, as you might expect, but there is nothing in this record that would constitute a return.
So, in fact, this tax is quite clearly implemented through the report of the law-enforcement officer, triggered upon arrest.
Now, other indicators--
Unknown Speaker: One can accept all of that and still believe that the major purpose of this piece of legislation is to raise money.
They don't require people to file before their arrest because they're worried about the Fifth Amendment problems of that.
They have it at such a high rate because they know that not many of these marijuana growers are caught, and therefore although they would like to impose a tax on all the marijuana, it's practically impossible and therefore they have a very high tax on the portion that they do catch.
All of that is still consistent with essentially a revenue-raising purpose, isn't it?
Mr. Goetz: --Well, I'd like to parse out the question.
First, the words you used are the major portion of the measure is tax related, and if--
Unknown Speaker: Change it.
Mr. Goetz: --Okay, if it's exclusively then we avoid that dual problem.
Unknown Speaker: All right.
Let's not get into that problem.
Mr. Goetz: Then going to the record in this case, in a document of the Department of Revenue I filed last week and asked judicial... that judicial notice be taken of it.
If revenue raising is the purpose... and, by the way, the Solicitor General argues that the hallmark of a tax is its ability to raise revenue... this tax has raised in 6 years $30,000, according to that document.
Last year it raised $0.
The year before, $10.
The year before they had a deficit of $29,000 and then some positive sides before.
So it... the actual fact is it's not very well calculated and hasn't worked very well to raise revenue.
Unknown Speaker: When you said raised, you mean the gross receipts from it discounted by the cost of enforcing it, or what?
Mr. Goetz: I think those were the gross receipts period.
Unknown Speaker: How could they have minus gross receipts?
Mr. Goetz: Well, I think they had to pay some back.
And I know they collected $30,000 some in this case that they probably had to take out of one account and put in another, but I'm not sure.
The document refers to $29,000 minus, or a negative factor, so they may have had another problem.
Unknown Speaker: Well, I agree with you.
It's a bad tax if the State is paying out money.
Mr. Goetz: It's my definition of a good tax.
Unknown Speaker: They're doing something wrong.
Mr. Goetz: In any event, going to another aspect of your question, that is perhaps the State, if we really want to speculate, was trying to avoid the Fifth Amendment problem.
If you... if a State really wants to design a tax to make it more of a true tax, it perhaps can do so.
Without advocating for Minnesota's or Iowa's tax, I want to talk about several features.
Unknown Speaker: I just have to say, I don't see how, by confining the people who have to pay it, file a return to those who have been arrested, you've avoided any Fifth Amendment problem.
If anything, you've accentuated the Fifth Amendment problem by saying only people under suspicion or for whom there's probable cause they're criminals, they're the only ones that have to make any self-incriminating statements.
That avoids the Fifth Amendment problem?
Mr. Goetz: Well, I don't want to advocate for Justice Scalia, but I think maybe his point was that once the law-enforcement officers filed the report and the taxpayer may or may not sign... and in this case they declined to sign, maybe his point is they would... they could avoid, conceivably, the Fifth Amendment problem.
But a better way to avoid it if you want to draft a tax, as they did in Minnesota, is allow for the purchase anonymously of tax stamps and to penalize tax officials who make the information available to law enforcement on penalty of misdemeanor criminal charges and dismissal, and further to immunize the use of that information in a criminal process.
Now, if you really--
Unknown Speaker: Does Minnesota collect any money off that scheme?
Mr. Goetz: --I don't know what their... what their proceeds are.
Unknown Speaker: Not too many stamps being sold?
Mr. Goetz: I'm not sure, Your Honor.
In any event, if we want to talk about the structural component of a measure such as this that might at least come closer to passing constitutional muster, it would be that kind of provision.
Certainly not the kind as we've seen in Montana, we have here.
And furthermore, you've got the incidence of the tax is the greater of.
I mean the State is arguing that this is a proportional excise tax, but I'm not aware of any other tax in Montana that says you will taxed either at X value, or the greater of that, or a percentage of market value.
So it's not a true excise tax.
It's dependant on apportionment.
Unknown Speaker: Didn't we get an example that there was one Federal tax that has the either/or, so it's not--
Mr. Goetz: --I'm not sure--
Unknown Speaker: --I think the answer was that it's not common, but it's not extraordinary.
Mr. Goetz: --I don't recall saying that, Your Honor, but perhaps we did in the reply brief.
Proceeding to other aspects of this tax that I think indicate that it's directly tied... it's not a true revenue-raising matter, it's directly tied to the criminal process.
We compare it to other taxes.
The double-tax question was raised, but there are no other taxes in Montana that we've been able to locate on growing crops.
And you saw, in response to a question, how difficult it was to assess taxes on growing crop.
Indeed, we went through a protracted trial and the State has now abandoned that issue.
There is no other tax on possession... possession, by the way, is kind of a term of the criminal law usually, but on possession of wheat or grains or vegetables.
There's not even a tax on harvested grains in Montana.
Instead, the farmers are taxed on the income received and they're taxed on their property.
Unknown Speaker: Which they are likely to report, and it seems to me a reasonable judgment by the State that marijuana growers are likely not to be reporting the income they're making from growing marijuana, and therefore that crop, unlike the other crops, we will impose a crop tax on.
Mr. Goetz: Well--
Unknown Speaker: That's a reasonable call.
Mr. Goetz: --One could argue that that's reasonable, except there's no provision made, as I see it, for reporting this marijuana tax.
Why would one report it when, A, there's no return form produced by the State; and, B, it's not due until a specified date, that is arrest; and, C, you're self-incriminating yourself, which the State could avoid, but if you report it then it's... then you incriminate yourself.
So while that argument could be made, I think in the whole range of the incident and the structure and application of this tax, it's simply, I don't think, a very persuasive argument, particularly when we return to the fundamental principle we're talking about here; is any aspect of this tax punitive?
Because they've already been punished for the same conduct, and because double jeopardy forbids the punishment twice for the same conduct.
And here I think it's... just as night follows day, this is a criminal matter.
It's located and it's closely associated with the criminal process, and clearly punitive.
And one other point I'd like to make is that while the State argues that this Court has historically given great deference to tax matters, and I think this Court generally has, that is not true where the tax measure may run afoul of a fundamental constitutional right.
That is most of their precedent deals with antiquated Tenth Amendment types of challenges or just general amorphous challenges of taxes as penalties.
Now here we have--
Unknown Speaker: Are you referring to those cases where the challenge was made that this isn't under the Congress' taxing power, and therefore it has to be under some other power, and Congress doesn't have that power?
Mr. Goetz: --Basically.
The United States v. Sanchez and the Doremus case and a number of those cases.
And here... this Court said, in a different context, in 1975 in Austin v. New Hampshire, dealing with a tax of New Hampshire's that fell in a discriminatory way against nonresidents, and it was a Privileges and Immunities Clause case.
And this Court said:
"Our review of tax classifications has generally been concomitantly narrow therefore, to fit the broad discretion vested in the State legislature. "
But then this Court said:
"When a tax measure is challenged as an undue burden on an activity granted special constitutional recognition, however, the appropriate degree of inquiry is that necessary to protect the competing constitutional value from erosion. "
Implying heightened scrutiny, and the Court actually... this Court actually said that, saying:
"Our prior cases therefore reflect an appropriately heightened concern for the integrity of the Privileges and Immunities Clause by erecting a standard of review substantially more rigorous than that applied to State tax distinctions. "
Unknown Speaker: But there you're talking, Mr. Goetz, about tax classifications.
You know, you get various categories taxed at different levels.
And I think that's quite a different type of review than the challenge is this a tax or is it not a tax.
Mr. Goetz: Well, I agree that that's a different kind of review, but I don't think the question is is this a tax or is it not a tax.
Because I concede that this can be a tax.
Indeed, the State says it's a tax and they call it a tax, and they try to raise money.
The question is notwithstanding the fact that it's a tax, may it also serve the dual purpose of punishment.
And the answer, I think, from the structure of this legislation in Montana, is quite clearly it can and it does and it has done so in this case.
And therefore because we're dealing with a fundamental constitutional right, the Double Jeopardy Clause, following the analogy of Austin v. New Hampshire, I submit that there has to be a heightened standard of review, and there has to be a fairly probing analysis, as we see under Halper even, consistent with the principle of humane justice served the Double Jeopardy Clause.
That's my point, not that... generally you don't defer to legislative judgment on taxes.
I think you defer much less.
You have a heightened standard of scrutiny when you have a fundamental constitutional right clashing, and here quite clearly you do.
Unknown Speaker: But most of the cases in which are relaxed scrutiny, Lenhausen, that group of cases, the challenge has been under the Equal Protection Clause.
And surely the Equal Protection Clause deserves as much constitutional recognition as the Double Jeopardy Clause, doesn't it?
Mr. Goetz: It depends on whether you have a fundamental right or a suspect classification.
If you do involve... Yes.
Unknown Speaker: Well, you say... you say the Equal Protection Clause generally isn't of the same statue or stature in the Constitution as the Double Jeopardy Clause.
Mr. Goetz: Well, this Court has held in numerous cases that you apply at least a two-tier standard in Equal Protection Clauses.
Rational basis or minimal scrutiny in most cases, but where there's a fundamental right or a suspect classification involved, then you apply heightened scrutiny.
So I would say double jeopardy is equivalent to the suspect classification/fundamental right analysis of equal protection, but not generally so.
In other words, I'm not sure you can generalize about equal protection because of that two-tier approach that this Court has taken.
But clearly this Court has said, in Benton v. Maryland and since, that double jeopardy is a fundamental constitutional right, and I think Halper reaffirms that proposition.
And so, following the Austin Privileges and Immunities Clause analysis, I think quite clearly warranted here is a very careful scrutiny of the State tax.
Not that it's needed, because I think you can see, just trying to probe on various aspects of attempting to enforce and impose this Montana tax, that it doesn't pass even rational basis or minimal scrutiny.
Now, the State argues in that connection cases such as the Sanchez case, and I make the very distinction because Sanchez, dealing with the Federal marijuana tax, Federal marijuana transfer tax, was kind of an amorphous challenge arguing simply that it's a penalty and not a tax, but it didn't involve a double jeopardy issue.
Here, of course, we have the clashing double jeopardy value that the Court has to preserve.
So I think the Sanchez case is justified as a minimal scrutiny kind of a case because it was an amorphous tax case.
And in any event, in that case this Court said that the Federal tax is punitive, or is deterrent in nature which is the equivalent of punitive.
And finally I'll close by simply pointing out apart from the--
Unknown Speaker: The tax was upheld in Sanchez, was it not?
Mr. Goetz: --That's right.
My point is you didn't have the countervailing Double Jeopardy Clause problem because there was no previous conviction in Sanchez.
At least there was none that was raised.
There was not a double jeopardy issue raised.
Moreover the Court... this Court said specifically in Sanchez that the tax is not dependant on criminal prosecution, and here I think we have a great deal of difference.
Now, I've cited in a number of places in my brief the numerous cases, including cases of this Court and cases of lower Federal courts and the State cases, that have basically held what I think is quite obvious, and that is these kinds of taxes on dangerous drugs are... the purpose is, as the Utah Supreme Court said in the Sims case, quote, to punish and deter those in possession of illegal drugs.
And the Seventh Circuit said years ago about the Federal marijuana tax is Tovar v. Jarecki, quote: Does anyone suppose that the Government is trying to raise revenue in either instance?
Is it not perfectly plain that the Government is trying... what the Government is trying to do is take the plaintiff's property and turn him and his family out on the street for not having a license to do something the Government did not want him to do.
And there are numerous cases from other State jurisdictions to the same point.
So I respectfully submit that we have a case here where the individuals have been punished first, then for the same offense the State is trying to invoke a quasi-criminal process to punish them a second time, and the lower courts were quite clearly correct in dismissing because of double jeopardy problems.
Chief Justice Rehnquist: Thank you, Mr. Goetz.
The case is submitted.
Unknown Speaker: The honorable court is now adjourned until Monday next at ten o'clock.
Argument of Speaker
Mr. Speaker: The opinions of the Court in two more cases will be announced by Justice Stevens.
Argument of Justice Stevens
Mr. Stevens: Both of these cases come to us from the United States Court of Appeals for the Ninth Circuit.
The first, Montana against Kurth presents the question whether the imposition of a tax on the possession of illegal drugs assessed after the state has imposed a criminal penalty for precisely the same conduct is a form of double jeopardy.
Respondents, the Kurth family, owned a cattle ranch in Montana.
When they are unable to meet their mortgage payments, they went into the business of growing and selling marijuana.
In due course, state officials became aware of their illegal business, arrested them, seized and destroyed their illegal crafts, and they were convicted and sentenced for their criminal conduct.
In a separate proceeding, Montana also sought to enforce its newly enacted Dangerous Drug Tax Act.
That statute imposes a tax on the possession and storage of dangerous drugs by persons who have already been arrested for that conduct.
The statute expressly provides that the tax has to be collected only after all state and federal fines and forfeitures have been satisfied.
The obligation to pay the tax does not arise unless and until the taxpayer has been arrested for the criminal offense of possessing the drugs.
Moreover, the tax is imposed on property that the tax payer no longer possesses and the rate of the tax in part is based on the market value of properties that cannot be illegally marketed.
In proceedings to collect the tax, the Federal Bankruptcy Court, the District Court, and the Court of Appeals all concluded that it was an unconstitutional attempt to impose a second punishment for the offense for which the Kurth had already been convicted and sentenced.
Because the Montana Supreme Court had reached a different conclusion, we granted certiorari to resolve the conflict.
For reasons stated in an opinion filed with the Clerk, we hold that this drug tax is not the kind of remedial sanction that may follow the first punishment for a criminal offense.
We, therefore, affirm the judgment of the Court of Appeals.
Dissenting opinions have been filed by the Chief Justice, by Justice O'Connor, and by Justice Scalia.
Justice Thomas has joined the opinion written by Justice Scalia.