ATTORNEYS FOR PETITIONERS: ATTORNEYS FOR RESPONDENT:
ROBERT W. HAMMERLE
JOSEPH M. CLEARY
ATTORNEY GENERAL OF INDIANA
HAMMERLE FOSTER ALLEN
DAVID A. ARTHUR
DEPUTY ATTORNEY GENERAL
INDIANA TAX COURT
DANTE ADAMS, )
v. )Cause No. 49T10-9904-TA-00024
DEPARTMENT OF STATE REVENUE, )
ON APPEAL FROM A FINAL DETERMINATION OF
THE DEPARTMENT OF STATE REVENUE
June 5, 2000
The petitioner, Dante Adams (Adams), challenges the Department of State Revenues (Department) finding
that Adams owes controlled substance excise tax (CSET) in the amount of $159,096.00.
Adams raises several issues for this Courts review; however, because one
of the issues is dispositive, the Court addresses only that issue: whether
the exclusionary rule of evidence applies to this proceeding, thereby making the CSET
FACTS and PROCEDURAL HISTORY
The facts of this case are undisputed. On March 23, 1998, the
Department issued a Jeopardy Tax Assessment,
which includes interest and a penalty, against
Adams totaling nearly $160,000. An agent for the Department who, in
this instance, acted as a criminal investigator with the Department prepared and issued
the assessment notice. (Joint Ex. A.) The assessment was based upon cocaine possessed
by Adams discovered in a safe deposit box on or about August 8,
1997. (Petr Br. at 2.) Prior to this assessment, on August
13, 1997, Adams was charged in Marion County Superior Court, Criminal Division, with
Dealing in Cocaine, a class A felony,
as well as for Possession of
Cocaine, which is a class C felony.
In that criminal case, Adams arguing that the search was unconstitutional, filed a
motion to suppress evidence. On March 16, 1998, the Honorable Judge Magnus-Stinson
ruled that the State had violated Adams rights under both the state and
federal constitutions when it seized the cocaine. (Joint Ex. 6.) Judge
Magnus-Stinson also found that the affiant for the search warrant misrepresented facts and
did not act in good faith. (Id.) As such, the trial
court found that the search and seizure of the cocaine discovered in Adams
safe-deposit box was unconstitutional. On March 24, 1998, one day after
the Jeopardy Tax Assessment was prepared, the State moved to dismiss the criminal
charges against Adams as a result of the ruling to suppress the evidence.
That same day, the lower court granted the motion. On March
26, 1998, the Marion County Prosecutor sent written notification to the Department that
all attempts to criminally prosecute Adams with respect to the cocaine in question
would no longer take place due to the unconstitutionality of the search and
seizure of the cocaine. This occurred three days after the jeopardy tax
assessment was prepared against Adams.
See footnote The assessment was served upon
Adams by mail on March 31, 1998.
On April 9, 1998, Adams timely filed a protest letter with the Department
contesting the CSET. On April 13, 1998, agents from the Department and
the Marion County Sheriffs civil office executed a tax warrant on Adams apartment.
Adams personal belongings were seized and subsequently sold.
A hearing was held on July 14, 1998. On October 9, 1998,
the Department issued its letter of findings, which denied Adams protest. Unsatisfied
with the Departments findings, Adams filed this original tax appeal. On October
25, 1999, this Court held a trial in this matter. Additional
facts will be supplied as necessary.
ANALYSIS AND OPINION
Standard of Review
This court reviews final determinations of the Department de novo and
is bound neither by the evidence nor the issues raised at the administrative
level. See Ind. Code Ann. § 6-8.1-5-1(h) (West 2000); see also Hurst
v. Dept of State Revenue, 721 N.E.2d 370, 372 (Ind. Tax Ct. 1999);
Tri-States Double Cola Bottling Co. v. Dept of State Revenue, 706 N.E.2d 282,
283 (Ind. Tax Ct. 1999).
Application of the Exclusionary Rule to CSET Cases
Adams argues that because the CSET is quasi-criminal in nature, those that
are subjected to it must receive the full panoply of state and federal
constitutional rights afforded those facing criminal prosecution. (Petr Br. at 4.)
Conversely, the Department argues that the Fourth Amendment does not apply and should
not be extended to CSET cases.
Hurst v. Department of State Revenue, 721 N.E.2d 370, 373 (Ind,
Tax Ct. 1999), this Court articulated that the CSET is imposed by statute
on the illegal possession of specific categorized controlled substances. Ind. Code Ann.
§ 6-7-3-5 (West 2000) reads:
The controlled substance excise tax is imposed on controlled substances that are:
in Indiana in violation of IC 35-48-4 or 21 U.S.C. 841 through 21
U.S.C. 852. The tax does not apply to a controlled substance that
is distributed, manufactured, or dispensed by a person registered under IC 35-48-3.
Thus, as is made clear by the controlling statute, to be liable
See footnote a
taxpayer is required to manufacture, possess, or deliver a controlled substance.See footnote In
the case at bar, the Department argues that Adams was in possession of
1988.7 grams of cocaine. (Joint Ex. 7.)
The Indiana Court of Appeals dealt with the same individual, same search and
same cocaine in
Adams v. State, 726 N.E.2d 390 (Ind. Ct. App. 2000),
petition for rehg denied June 1, 2000. In that case, Adams, as
a criminal defendant, was charged with possession of and dealing in cocaine.
The cocaine with which Adams was charged with possession and dealing was discovered
in Adams house via a tax warrant that was issued as a result
of the CSET assessment that was based on the cocaine discovered in Adams
safe deposit box, which was suppressed on March 16, 1998.
After being criminally charged for possession and dealing of cocaine, Adams filed a
Motion to Suppress arguing that the cocaine found in his house on April
13, 1998, was fruit of the poisonous tree. The trial court denied
that Motion and Adams filed an interlocutory appeal, which was granted. The
Court of Appeals reversed the decision of the lower court and held that
Fourth Amendment protections, specifically, the exclusionary rule apply to the CSET when a
tax warrant has been based on judicially determined illegally seized evidence. Id.
at 395 (emphasis added); see also Germaine v. State, 718 N.E.2d 1125, 1130
(Ind. Ct.. App. 1999) (stating that the Fourth Amendment is to safeguard the
privacy and security of individuals against governmental officials and that a warrant is
required during civil as well as criminal investigations). The Court of Appeals
also disqualified the seizure of the cocaine found in his house based on
the fruit of the poisonous tree doctrine.
See footnote This Court agrees
with the Court of Appeals decision that extends the exclusionary ruleSee footnote to Indianas
CSET when it is clearly based on judicially determined illegally seized evidence.
The seizure of the cocaine for which the Department based its CSET was
suppressed and is not subject to the CSET
. But for the illegal
conduct, the cocaine would not have been discovered and not subject to the
CSET. See Adams, 726 N.E.2d at 393. Because the parties presented
similar arguments in the case before the Court of Appeals, this Court believes
it to be unnecessary to rehash the same arguments. The Court adopts
and incorporates the analysis of the Court of Appeals in Adams v. State.
Based on the foregoing, this Court REVERSES the Departments assessment determination in the
letter of findings that Adams owes CSET in the amount stated above.
As such, the Court ORDERS the Department to immediately refund to Adams such
amounts, plus interest received, as have been applied to the CSET assessment.
See Ind. Code Ann. § 6-7-3-13 (West 2000).
See Ind. Code Ann. § 35-48-4-1(b) (West 1998).
See Ind. Code Ann. § 35-48-4-1(b)(1) (West 1998 & Supp. 1999).
The Jeopardy Tax Assessment included a 100% penalty.
According to the Department, approximately $28,300.01 was collected from Adams, which was
applied against the tax liability. (Respt Br. at 3 & Joint Ex.
Footnote: Again, as was stated in
Hurst, ownership of a controlled substance is
not a triggering event for purposes of assessing CSET. See Hurst, 721
N.E.2d at 373 n.11; see also Bailey v. Department of State Revenue, 660
N.E.2d 320, 324 (Ind. 1995). Instead, the triggering events are the manufacturing,
possession, or delivery of a controlled substance. See Bailey, 660 N.E.2d at
See Ind. Code § 35-48-1-9 (1998) for definitions and guidance to the
various classifications of controlled substances.
The fruit of the poisonous tree doctrine refers to evidence that is
spawned by or directly derived from an illegal search . . . .
It is generally inadmissible because of its original taint, though knowledge of facts
gained independently of the original and tainted search is admissible.
Law Dictionary 462 (abr. 6th ed. 1991).
The exclusionary rule commands that where evidence has been obtained in violation
of the search and seizure protections guaranteed by the Fourth Amendment, the illegally
obtained evidence cannot be used at the trial of the defendant.
Blacks Law Dictionary 391 (abr. 6th ed. 1991).