   OFFICE   OF THE   ATTORNEY   GENERAL   ST*TE   OF Trx*s

   JOHN CORNYN




                                                  August 10, 1999



The Honorable Carole Keeton Rylander                         Opinion No. JC-0086
Comptroller of Public Accounts
L.B.J. State Office Building                                 Re: Constitutionality of chapter 159 of the Tax
111 E. 17th Street                                           Code and related questions (RQ-1133)
Austin, Texas 78774

Dear Comptroller Rylander:

         Yom predecessor asked this office a series of questions concerning the application of the
Controlled Substances Tax, chapter 159 of the Tax Code, which imposes taxes on controlled
substances, in light of the United States Supreme Court decision Department of Revenue v. Kurth
Ranch, 511 U.S. 767 (1994), as well as of the Texas Court of Criminal Appeals decisions Stennett
v. State, 941 S.W.2d 914 (Tex. Crim. App. 1996) (en bane), and Exparte Ward, 964 S.W.2d 617
(Tex. Crim. App.) (en bane), cert. denied,1 19 S. Ct. 66 (1998). In particular, he was concerned with
the extent to which the application of the tax might implicate the Double Jeopardy Clause of the
Fifth Amendment to the United States Constitution, as well as with questions concerning refunds
of payments made pursuant to chapter 159. While we cannot advise you with respect to particular
refund matters, which depend on fact-finding in which this office cannot engage in the opinion
process, we can review the general legal issues raised by your predecessor’s request.

        As a preliminary matter, our reading of the case law indicates the following: Kurth Ranch
stands for the proposition that statutes which impose taxes on illicit narcotics may involve double
punishment impermissible under the Double Jeopardy Clause unless such taxes are imposed in the
same proceeding as the underlying possession or trafficking case; pursuant to Stennett, the tax
imposed by chapter 159 of the Tax Code is a punitive tax the imposition of which in a separate
proceeding implicates the Double Jeopardy clause; however, under Ward, if partial payment of the
tax precedes criminal prosecution for the underlying charge, jeopardy does not attach until there has
been “full payment of the tax or a pay arrangement with the comptroller’s office for the remaining
amount due,” 964 S.W.2d at 632, and accordingly until then “there is no ‘punishment’ for purposes
of the Double Jeopardy Clause’s prohibition against multiple punishments.” Id.’

        Chapter 159 of the Tax Code, the Controlled Substances Tax, provides for a tax on
“possession, purchase, acquisition, importation, manufacture, or production by a dealer” of a
controlled substance. TEX. TAX CODEANN. 5 159.101(a) (Vernon 1992). If a dealer pays the tax



         ‘Wenotethatthe UnitedStatesCourtof Appealsfor theFifthCircuitis consideringthe issueof whenjeopardy
attachesin a case styled Truman v.Johnson, No. 98-11199,whichis now sub judice.
The Honorable Carole Keeton Rylander - Page 2            (JC-0086)




on a controlled substance, he must “affix in the manner required by the comptroller to the taxable
substance the appropriate tax payment certificate”; possessing such substances without possessing
adequate stamps for them “is prima facie evidence that and is notice that the tax has not been paid
as required.” Id. 5 159.102(a), (b). It is a criminal offense to possess controlled substances on which
tax is unpaid; the offense is a third degree felony, and in addition to the fine for such a felony-
which pursuant to section 12.34(b) of the Penal Code is “not to exceed $lO,OOO’-the penalty
includes “an amount equal to the amount oftax due andunpaid” on the drugs. Id. 5 159.201(a), (b);
TEX. PEN. CODEANN. 5 12.34(b) (Vernon 1994). In order to avoid possible self-incrimination
problems with the statute, section 159.005(a) provides that information provided the Comptroller
in the course of paying the tax is confidential. However, section 159.004 provides that paying the
tax on the drugs is no defense from prosecution “under the penal laws of this state relating to” them.
TEX. TAX CODEANN. $5 159.004, .005(a) (Vernon 1992).

         Chapter 159 is not a revenue-enhancing statute. As part of the testimony in the legislative
history cited in Stennett makes clear, “[The tax] was not conceived of initially as a revenue bill. It
has not worked out to be a revenue bill. It’s basically a prosecutorial tool. The prosecutors get to
use the state tax basically as yet another hammer when working with people that are arrested for
various drug offenses.” Bennett, 941 S.W.2d at 917 (citing testimony ofMark Weiss, Comptroller’s
Office).

        Taxes such as that in chapter 159 are, “[a] recent development in the escalating ‘war on
drugs.“’ Claudia G. Catalano, Amiotation, Validity, Construction, and Application of State Laws
Imposing Tax or License Fee on Possession, Sale, or the Like, of Illegal Narcotics, 12 A.L.R. 5th
89 (1993). Until 1994, such laws had withstood a variety of constitutional challenges, including
claims that they violated the Double Jeopardy Clause.

         In 1994, however, the United States Supreme Court held in Kurth Ranch that Montana’s drug
tax “is not the kind of remedial sanction that may follow the first punishment of a criminal offense.
Instead, it is a second punishment. . and therefore must be imposed during the first prosecution or
not at all.” Kurth, 5 11 U.S. at 784. The bases on which the Court made this holding were, inter alia,
the high rate of the tax, its deterrent purpose, the fact that it was conditioned on the commission of
a crime and was imposed only on persons “arrested for the precise conduct that gives rise to the tax
obligation,” and the fact that the goods taxed were contraband that was presumably destroyed before
the tax was assessed. Id. at 780-83.

        Justice Scalia, in his Kurth Ranch dissent, identified the problem that the holding raises,
and the problem with which the Court of Criminal Appeals has been wrestling: “In the present
case . we confront the relatively easy task ofdisallowing a civil sanction because criminal punish-
ment has already been imposed. But many cases           will demand much more of us: disallowing
criminal punishment because a civil sanction has already been imposed.                [I]f there is a
constitutional prohibition on multiple punishments, the order of punishment cannot possibly make
any difference.” Id. at 804 (emphasis added).
The Honorable Carole Keeton Rylander - Page 3           (X-0086)




         After Kurth Ranch, chapter 159 came under renewed scrutiny. In Stennett, the Court of
Criminal Appeals held that chapter 159 “was plainly and undoubtedly intended to be a punishment
by the legislature that enacted it.” Stennett, 941 S.W.2d at 916. Accordingly, the court concluded
“that the Texas tax on controlled substances and marihuana is a punishment subject to the
prohibition of the United States Constitution against imposing it in a separate proceeding from that
in which other criminal punishments for the same offense are imposed.” Id. at 917.

        In Exparte Ward, the Court of Criminal Appeals cabined Stenneft. Ward defines the point
at which jeopardy attaches for Double Jeopardy Clause purposes under Stennett and overrules
Stenneft “to the extent that it may be interpreted as holding the ‘assessment’ ofthe tax on controlled
substance[s] and/or ‘partial payment’ of the tax due constitute ‘punishment’ for purposes ofKurth
Ranch’s prohibition against ‘successive punishments.“’ Ward, 964 S.W.2d at 632. The Wardcourt
rejected several other points at which jeopardy might attach, including the point at which the tax was
automatically imposed by statute; the receipt of a tax determination; and the imposition or
enforcement of a tax lien. Partial payment such as Ward’s payment of $250 on a $120,000 tax lien
was also rejected. The court held that “absent full payment of the tax or a pay arrangement with the
comptroller’s office for the remaining amount due, there is no ‘punishment’ for purposes of the
Double Jeopardy Clause’s prohibition against multiple punishments.” Id. The Ward court, however,
did not overrule the finding of Stennett that the Texas drug tax was, like the Montana drug tax in
Kurth Ranch, a punitive enactment.

        We note as a point of interest that Stennett and Ward do not articulate what offense or
offenses jeopardy has attached for when full payment of the tax has been made. Nothing in Kurth
Ranch affects the validity of Blockburger v. United States, 284 U. S. 299 (1932), under which, as
Judge Meyers pointed out in his concurrence in Exparte Chappell, offenses are “different” and do
not implicate the Double Jeopardy Clause when “each statutory offense requires proof of at least one
fact which the other does not.” Exparte Chappell, 959 S.W.2d 627,630 (Tex. Crim App. 1998).

        Judge Meyer’s Chappell concurrence is suggestive in this regard. Chappell argued that
assessment of the drug tax barred his prosecution for aggravated delivery of cocaine. The Court of
Criminal Appeals rejected this argument as it had in Ward, which was decided on the same day.
While Judge Meyers did not agree with the court’s rationale, he nonetheless concurred in the result
based on his view that the tax offense and the delivery offense had separate elements: “Delivery
requires proof that the cocaine was ‘transfer[red], actually or constructively, to another.’ The tax
offense does not require proof of any transfer. The tax offense requires proof that no tax has been
paid on the cocaine. Delivery does not require proof of tax not paid.” Id.

        Based on the logic of Judge Meyers’ concurrence, and on Blockburger itself, we think
jeopardy does not attach even on full payment of the tax for offenses such as, e.g., delivery or
conspiracy possessing an additional element not included in the tax statute.

       Having outlined the state of the law in this area, we turn to the specific questions asked by
your predecessor. The first question presented is, “Under Stennett, is a tax assessment barred
because a criminal conviction and/or trial occurred first?’ Letter from Honorable John Sharp,
The Honorable Carole Keeton Rylander - Page 4            (JC-0086)




Comptroller of Public Accounts, to Honorable Dan Morales, Attorney General 1 (Apr. 28,1998) (on
file with the Opinion Committee ) [hereinafter Sharp Letter 4/28/98]. We answer this question in the
affirmative. Both Kurth Ranch and Sfenneft stand for the proposition that a tax such as that in
chapter 159 cannot be imposed after the criminal prosecution. As Kurth Ranch puts it, such a tax
is “a second punishment     . [that] must be imposed during the first prosecution or not at all. ”
Kurth, 511 U.S. at 784 (emphasis added).

         Your predecessor’s second question is, in light of Ward, “[Mlay the Comptroller collect
money from a person who has been assessed for taxes under Chapter 159, Tax Code, without that
collection becoming a ‘punishment’ for double jeopardy purposes, as long as the total collections
do not equal the full amount of the tax, penalty, and interest due?’ Sharp Letter 4/28/98, supra, at
1. We assume, on the basis of our answer to the first question, that this question presumes a situation
in which the collection of taxes occurs before the criminal prosecution. In that case, given the Ward
court’s clear view that partial payment did not constitute punishment, and particularly the holding
that “absent full payment of the tax or a pay arrangement with the comptroller’s offtce for the
remaining amount due, there is no ‘punishment’ for purposes of the Double Jeopardy Clause’s
prohibition against multiple punishments,” 964 S.W.2d at 632, we think that the Ward case may
fairly be read for the proposition that jeopardy will not attach until there has been full payment.
Partial payments in this context do not implicate the Double Jeopardy Clause.

         The third question presented is whether, if criminal prosecution be in a federal court, the
doctrine of dual sovereignty “allow[s] us to proceed with administration of the drug tax without
being barred by prior criminal proceedings as in Stennett, or without running the possibility of
interfering with a subsequent criminal prosecution if a tax assessment is finalized along the lines
outlined in Ward?” Sharp Letter 4128198,supra, at 2.

        The only case directly concerning the applicability of dual sovereignty in this context with
which we are acquainted is Lynn v. West, 134 F.3d 582 (4th Cir.), cert. dehied, 119 S. Ct. 47 (1998),
a case from the United States Court of Appeals for the Fourth Circuit, which, while holding that a
North Carolina drug tax was a criminal penalty whose enforcement “must conform to the
constitutional safeguards that accompany criminal proceedings,” 134 F.3d at 593, nevertheless
asserted that double jeopardy was not at issue in the instant case:

                In this case the Double Jeopardy Clause does not apply because
                it does not bar successive prosecutions by different sovereigns. Only
                the United States prosecuted Lynn for cocaine possession, so the
                Double Jeopardy Clause does not bar North Carolina’s enforcement
                of the Drug Tax even though it is a criminal penalty. Because the
                United States brought the prior criminal prosecution, North Carolina
                remained free to impose its own criminal sanctions.

Id. (citations omitted).
The Honorable Carole Keeton Rylander - Page 5              (Jc-0086)




        In our view, however the Fifth Circuit might decide the ultimate issue in Lynn, the dicta
quoted above answer the former Comptroller’s third question in the affirmative. Our conclusion in
this regard is bolstered by a footnote in Kurth Ranch itself, in which the Court noted with apparent
approval “our cases holding that the Constitution does not prohibit successive prosecutions by
different sovereigns based on the same conduct.” 5 11 U.S. at 782 n.22. Since the United States and
the State of Texas are distinct sovereigns, the application in separate proceedings of a federal
criminal statute and a Texas tax statute, or indeed a Texas criminal statute, will not violate the
Double Jeopardy Clause of the Fifth Amendment.

        The former Comptroller’s fourth question is whether the Comptroller’s Offtce could “refuse
a tender of payment to avoid a potential violation of the Double Jeopardy Clause?” Sharp Letter
4/28/98, supra, at 2. The Comptroller may not refuse such a tender. The Comptroller of Public
Accounts has a ministerial duty to collect taxes pursuant to section 111.OOl of the Tax Code, which
provides: “The comptroller shall collect the taxes imposed by this title except as otherwise provided
by this title.” TEX. TAX CODEANN.5 111.001 (Vernon 1992). While courts may in some instances
construe the word “shall” as merely directory, particularly if the relevant provision does not “go to
the essence ofthe act to be performed,” Lewis v. Jacksonville Bldg. & Loan Ass ‘n, 540 S.W.2d 307,
310 (Tex. 1976), most uses of “shall” are mandatory. See TEX. GOV’T CODE ANN. 5 311.016(2)
(Vernon Supp. 1998) (“shall” imposes duty unless context “necessarily requires a different
construction”). “Shall” in section 111.001, which prescribes not the form but the nature of the
Comptroller’s duty, is clearly mandatory.

        Beyond the ministerial duty of the Comptroller to collect taxes, we note as well that failure
to pay the tax is itself a criminal offense. See TEX. TAX CODEANN. 4 159.201 (Vernon 1992). We
do not believe that a public official may, by a refusal of duty, require a citizen to persist in a criminal
course of conduct. Accordingly, the Comptroller cannot refuse a tender of payment of the tax due
and owing under chapter 159.

        In his fifth question, your predecessor asked whether the withdrawal of a civil referral under
the act and the return of funds tendered under it can “cure any potential violation of the Double
Jeopardy Clause?” Sharp Letter 4/28/98, supra, at 2. We assume again, for the purposes of this
question, that the underlying criminal proceeding has yet to occur. (If the criminal proceeding had
occurred first, before any funds have been tendered, then pursuant to our answer to the first question,
funds tendered subsequently must be returned.) Following Ward, the answer to this question
depends on whether full payment, or only partial payment, has been made. If full payment has been
made, jeopardy has attached. Ward, 964 S.W.2d at 632-33. However, until full payment has been
made, it has not attached. Accordingly, whether or not a civil referral were withdrawn and funds
tendered prior to the criminal prosecution were refunded, there would be no violation of the Double
Jeopardy Clause. The partial payment of a tax due and owing does not, under Ward, constitute
 impermissible double punishment.

        In the final question, we are first asked whether the Comptroller must refund taxes collected
relating to a drug tax referral if the relevant prosecutor requests the dismissal of an assessment and
the termination of any further action with respect to a particular taxpayer. Again, we assume that
The Honorable Carole Keeton Rylander - Page 6              (~~-0086)




this is a “reverse Kurth Ranch” or “tax first” situation, rather than the situation dealt with in the first
question. And again, the first relevant inquiry is whether full or partial payment is in question.
Assuming that only partial payment has been made and that consequently jeopardy has not attached,
we do not believe that your office is obliged to refund any payments made. Moreover, there would
not appear to be any reason, as a general matter, for the prosecutor to make the request at issue. Put
simply, if full payment had been made, jeopardy would have attached and could not be “unattached”
by a refund. On the other hand, if only partial payment has been made, then under Ward there has
been no punishment and there is no bar to prosecution.

        Kurth Ranch, Stennett, and Wurd do not imply that taxes paid under chapter 159 are not due
and owing. The cases, read together, imply only that the Double Jeopardy Clause of the Fifth
Amendment is triggered when full payment of those taxes has been made. If the partial payments
were then due, as a matter of fact-a question dependent upon the facts in each particular situation
upon which we cannot opine-then the case law does not require their refund. If your office were
to determine, in agreement with the relevant prosecutor, that the settlement or compromise of such
a penalty were “in the best interest of the state,” TEX. TAX CODEANN. 5 159.206(2) (Vernon Supp.
1999), then it would be empowered to settle it; but the case law, as we have noted, does not compel
it to do so merely because partial payment has been made. Further, it is irrelevant whether, as the
second part of the last question asks, either a prosecutor or this office is seeking forfeiture of such
moneys. The Comptroller is under no obligation to return such funds to the taxpayer whether or not
they are potentially subject to a forfeiture action. (We note, however, that pursuant to section
 159.205, the Comptroller’s rights with respect to the collection of such funds, as well as to the
imposition of a lien on them, are subordinate to the forfeiture rights of a “federal, state, or local law
enforcement authority.” Id. 9 159.205(a).)

         The final part of the sixth question asks whether the Comptroller can “rely on the Statute of
Limitations . . . and refuse to retimd any taxes collected under [chapter 1591 which are outside the
limitations period even if the collection of such funds constituted a potential violation of the Double
Jeopardy Clause of the United States Constitution at the time of collection?’ Sharp Letter 4/28/98,
supra, at 2. Again the question conflates several possibilities which must be dealt with seriatim.

         First, the question is whether criminal prosecution or tax collection has occurred first. If
criminal prosecution had occurred first, jeopardy would have attached and later collection of either
partial or full payment would have violated the Double Jeopardy Clause. However, if the taxpayer
made no claim for refund within the relevant limitations period, a later claim for the money is barred.
It does not matter that the potential basis for a claim is a constitutional violation. Pursuant to section
111 .104(c)(3) of the Tax Code, a refund claim must be “filed before the expiration of the applicable
limitation period” or before six months after a jeopardy or deficiency determination becomes final,
whichever is later. A claim not timely filed is barred. See S. & H. Mktg. Group, Inc. v. Sharp, 951
S.W.2d 265,267 (Tex. App.-Austin 1997, no pet.).

        If on the other hand the tax collection has occurred before the criminal prosecution, the
statute of limitations on tax refund claims has run, yet the possibility of criminal prosecution
remains-a set of events which we imagine would require special circumstances-the question once
The Honorable Carole Keeton Rylander - Page 7           (JC-0086)




again will turn on whether payment was partial or full. If the payment was partial, then again,
following Ward, jeopardy will not have attached. If, however, the payment was full and jeopardy
has attached, we do not think the constitutional protection against double jeopardy can be overcome
merely because the taxpayer has no continuing right to a refund.

         To summarize, then, the tax established by chapter 159 of the Tax Code is, pursuant to the
decision of the Texas Court of Criminal Appeals in Stennett, a criminal punishment that cannot be
imposed “in a separate proceeding from that in which other criminal punishments for the same
offense are imposed.” Stennett, 941 S.W.2d at 917. The CourtofCriminal Appeals has further held
in Exparte Ward, that for the purposes of the Double Jeopardy Clause of the Fifth Amendment,
jeopardy attaches only upon “full payment of the tax or a pay arrangement with the comptroller’s
office for the remaining amount due.” Ward, 964 S.W.2d at 632. Pursuant to Stennett and its
progeny, once jeopardy has attached in a criminal proceeding, the Comptroller may not thereafter
 attempt to collect chapter 159 taxes. Since, under Ward, jeopardy will not attach on partial payment
 of the tax, there is no point short of full payment at which collection of taxes due and owing under
 chapter 159 constitutes punishment for double jeopardy purposes so as to preclude subsequent
 criminal prosecution. Criminal prosecution by one sovereign, the United States, and tax collection
 by another, the State of Texas, does not implicate the Double Jeopardy Clause. The Comptroller
 may not refuse tender of payment of taxes due and owing under chapter 159. So long as there has
 not been full payment of the tax, which event triggers the attachment of jeopardy, the Double
 Jeopardy Clause is not implicated whether or not the Comptroller withdraws the civil referral and
 refunds the taxes collected. Generally, partial payments need not be refunded unless criminal
 prosecution has occurred before such payments were made. If the statute of limitations runs before
 the taxpayer files a claim for any impermissible payments, the taxpayer’s claim is barred. However,
 ifjeopardy has attached by reason of full payment, and the statute thereafter runs, the fact that the
 taxpayer may not get back his money has no effect on the state’s subsequent inability to prosecute
 the underlying criminal case.
The Honorable Carole Keeton Rylander - Page 8          (JC-0086)




                                      SUMMARY

                     The tax established by chapter 159 of the Tax Code is,
             pursuant to the decision of the Texas Court of Criminal Appeals in
             Stennett v. State, 941 S.W.2d 914 (Tex. Crim. App. 1996) (en bane),
             a criminal punishment that cannot be imposed “in a separate
             proceeding from that in which other criminal punishments for the
             same offense are imposed.” Id. at 917. The Court of Criminal
             Appeals has further held in Exparte Ward, 964 S.W.2d 617 (Tex.
             Crim. App.), cert. denied, 119 S. Ct. 66 (1998), that for the purposes
             of the Double Jeopardy Clause of the Fifth Amendment, jeopardy
             attaches only upon “full payment of the tax or a pay arrangement with
             the comptroller’s office for the remaining amount due.” Id. at 632.

                     Pursuant to Stennett and its progeny, once jeopardy has
             attached in a criminal proceeding, the Comptroller may not thereafter
             attempt to collect chapter 159 taxes. Since, under Wurd, jeopardy
             will not attach on partial payment of the tax, there is no point short of
             full payment at which collection of taxes due and owing under
             chapter 159 constitutes punishment for double jeopardy purposes so
             as to preclude subsequent criminal prosecution.

                       Criminal prosecution by one sovereign, the United States, and
             tax collection by another, the State of Texas, does not implicate the
             Double Jeopardy Clause. The Comptroller may not refuse tender of
             payment of taxes due and owing under chapter 159. So long as there
             has not been full payment of the tax, which event triggers the
             attachment ofjeopardy, the Double Jeopardy Clause is not’implicated
             whether or not the Comptroller withdraws the civil referral and
             refunds the taxes collected. Generally, partial payments need not be
             refunded unless criminal prosecution has occurred before such
             payments were made. If the statute of limitations runs before the
             taxpayer files a claim for any impermissible payments, the taxpayer’s
             claim is barred. However, if jeopardy has attached by reason of full
             payment, and the statute thereafter runs, the fact that the taxpayer
             may not get back his money has no effect on the state’s subsequent
              inability to prosecute the underlying criminal case.




                                              Attorney General of Texas
The Honorable Carole Keeton Rylander - Page 9    (JC-0086)




ANDY TAYLOR
First Assistant Attorney General

CLARK KENT ERVIN
Deputy Attorney General - General Counsel

ELIZABETH ROBINSON
Chair, Opinion Committee

James E. Tourtelott
Assistant Attorney General - Opinion Committee
