Are non-resident military servicemembers stationed in North Carolina exempt from the state's highway use tax when they register a vehicle here?
Plain-English summary
In August 1994, the NC Division of Motor Vehicles issued Official Bulletin No. 136, advising that non-resident servicemembers stationed in North Carolina were exempt from the state's highway use tax on vehicles registered here. The Bulletin attributed that advice to "the Attorney General's Office."
Chief Deputy Attorney General Andrew A. Vanore, Jr. wrote to DMV Assistant Director Carol Howard to disagree. The AG's office had never issued a formal opinion saying non-resident servicemembers were exempt. What had happened was a 1993 advisory letter from a single staff attorney that gave that answer, marked clearly as an advisory letter that "has not been reviewed and approved in accordance with procedures for issuing an Attorney General's opinion." DMV had elevated that letter into a Bulletin and attributed it to "the Attorney General's Office," which Vanore corrected.
On the substance, Vanore concluded the U.S. Supreme Court had "made crystal clear" in Sullivan v. United States, 395 U.S. 169 (1969), that the Soldiers' and Sailors' Civil Relief Act of 1940 exempts only annually recurring property taxes on personal property. A sales or use tax (and the NC highway use tax falls in that category) is a tax on a transaction, not on property. The Supreme Court explained that Congress had considered "the occasional sales and use taxes that servicemen might have to pay an insignificant burden, as compared with annual ad valorem property taxes, and consequently not deserving of the same exemption." 395 U.S. at 179.
Vanore also pointed back to a 1969 formal opinion from the same office (40 N.C.A.G. 887) that had reached the same conclusion. So the correct answer had been in the AG's own opinion books for 25 years before the 1994 Bulletin tried to flip it.
The opinion noted one piece of relief that does apply to non-resident servicemembers: N.C.G.S. § 105-187.7 provides a credit against the NC highway use tax for sales tax, excise tax, or substantially equivalent tax already paid to another state on the same vehicle.
Currency note
This opinion was issued in 1994. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.
The Soldiers' and Sailors' Civil Relief Act of 1940 was repealed and replaced by the Servicemembers Civil Relief Act in 2003, codified at 50 U.S.C. § 3901 et seq. The current Act carries forward the same general distinction between exempt annual property taxes and non-exempt transactional taxes, and Sullivan remains the leading Supreme Court interpretation. But anyone advising a current servicemember about NC highway use tax should pull both the current SCRA and current N.C.G.S. § 105-187 et seq. (the highway use tax article), and confirm both the credit calculation and any military-specific provisions that may have been added since 1994.
Common questions
Q: What is the NC highway use tax?
A: It is a state tax imposed when a vehicle is titled in North Carolina, calculated as a percentage of the retail value of the vehicle. The NC General Assembly enacted it as Article 5A of Chapter 105 of the General Statutes. It is a transactional tax tied to titling, not an annual property tax.
Q: How is it different from an ad valorem property tax?
A: An ad valorem property tax recurs every year (in NC, county vehicle property tax is collected annually as part of vehicle registration). The highway use tax is imposed once per titling event. The Sullivan court treated that timing distinction as decisive: the SSCRA exempts the former, not the latter.
Q: What does the Soldiers' and Sailors' Civil Relief Act actually exempt?
A: As construed in Sullivan, it exempts a non-resident servicemember stationed in a non-home state from that state's annually recurring ad valorem property tax on personal property the servicemember keeps in that state because of military orders. Examples that fall inside the exemption: annual personal property tax on a car the servicemember owns and registers in the state of his or her domicile but actually uses in NC because of military orders. Examples that fall outside the exemption (per Sullivan): one-time transactional sales tax, use tax, or NC's highway use tax.
Q: Is there any tax relief for the non-resident servicemember registering a car in NC?
A: Yes, indirect relief. N.C.G.S. § 105-187.7 provides a credit against NC highway use tax for sales tax, excise tax, or substantially equivalent tax that the servicemember already paid to another state when the vehicle was first acquired. So if the servicemember bought the car in his or her home state and paid that state's sales tax, the NC highway use tax bill gets reduced by the amount already paid.
Q: What about state income tax on military pay?
A: That is a separate question and is governed by the Servicemembers Civil Relief Act (and the 2009 Military Spouses Residency Relief Act). It is not addressed in this 1994 opinion, which is specifically about NC's transactional highway use tax.
Q: What was wrong with DMV Bulletin No. 136?
A: Two things. First, it stated an incorrect tax conclusion. Second, it incorrectly attributed that conclusion to "the Attorney General's Office" when the actual source was a single staff attorney's advisory letter that the letter itself had marked as not being a formal AG opinion. The 1994 opinion corrected both.
Background and statutory framework
The Soldiers' and Sailors' Civil Relief Act of 1940, 56 Stat. 777 (often referred to as the SSCRA), included a series of protections for servicemembers called into active duty. One of those protections shielded servicemembers from a non-domicile state's effort to tax their personal property based on their physical presence there pursuant to military orders. The protection had a limited scope: only "annually reoccurring taxes on property" qualified.
In Sullivan v. United States, 395 U.S. 169 (1969), the U.S. Supreme Court interpreted that protection and held that Connecticut's sales and use tax did not fall within it. The Court explained: "Congress considered the occasional sales and use taxes that servicemen might have to pay an insignificant burden, as compared with annual ad valorem property taxes, and consequently not deserving of the same exemption." Sullivan has been the leading authority ever since.
In 1969, the same year Sullivan came down, the NC Attorney General's office issued a formal opinion (40 N.C.A.G. 887) applying Sullivan to NC and concluding that non-resident servicemembers were liable for NC use tax. Twenty-five years later, when a member of the AG's staff sent DMV a less-careful advisory letter going the other way, the 1969 formal opinion still controlled. The 1994 opinion brought DMV back in line.
In 2003, Congress comprehensively rewrote the SSCRA as the Servicemembers Civil Relief Act (SCRA), 50 U.S.C. § 3901 et seq. The SCRA carries forward the Sullivan distinction in its current personal-property-tax provisions.
Citations
- N.C.G.S. § 105, Article 5A (NC Highway Use Tax)
- N.C.G.S. § 105-187.7 (credit for tax paid in another state on the same vehicle)
- Soldiers' and Sailors' Civil Relief Act of 1940, 56 Stat. 777
- Sullivan v. United States, 395 U.S. 169 (1969) (sales and use taxes not exempt from non-resident servicemember protection)
- 40 N.C.A.G. 887 (1969) (prior NC formal opinion confirming use tax liability for non-resident servicemembers)
Source
Original opinion text
August 15, 1994
Carol Howard, Assistant Director Vehicle Registration Department of Transportation Division of Motor Vehicles 1100 New Bern Avenue Raleigh, North Carolina 27697-0001
RE: Advisory Opinion; Division of Motor Vehicles' Official Bulletin No. 136; North Carolina Highway Use Tax, Article 5A of Chapter 105; Soldiers' and Sailors' Civil Relief Act of 1940, 56 Stat. 777, as amended
Dear Ms. Howard:
I write to advise that our office disagrees with the Department of Motor Vehicles' Official Bulletin No. 136, dated August 1, 1994, which concludes that non-resident servicemen stationed in North Carolina are exempt from the highway use tax on motor vehicles registered in North Carolina.
It is our opinion that the United States Supreme Court in Sullivan v. U.S., 395 U.S. 169 (1969) made crystal clear that such taxes are not exempt under the Soldiers' and Sailors' Civil Relief Act of 1940, 56 Stat. 777, as amended (hereinafter "the Act"). The Court in Sullivan held that because a sales or use tax was not a tax "in respect of" personal property, but rather a tax on a single transaction, such taxes were not exempted by the Act. Id. at 177. The Court found the congressional intent clear: the protection of the Act extended only to "annually reoccurring taxes on property . . . [as opposed to taxes] imposed only once and then only when there [had] been a retail sales transaction." Id. at 176-177. The Court concluded that "Congress considered the occasional sales and use taxes that servicemen might have to pay an insignificant burden, as compared with annual ad valorem property taxes, and consequently not deserving of the same exemption." Id. at 179.
Although clearly no fault of yours, Official Bulletin No. 136 mischaracterizes the advice you received as "the Attorney General's Office has ruled." The Attorney General's Office has never ruled that members of the military are exempt from payment of the highway use tax on vehicles registered in North Carolina, unless North Carolina is the member's home state. Unfortunately, a member of our staff in an advisory letter to you dated March 23, 1993, did give you that advice. However, in that same advisory letter to you, that attorney made clear that: "This is an advisory letter. It has not been reviewed and approved in accordance with procedures for issuing an Attorney General's opinion."
As a matter of fact, in a 1969 formal opinion issued by the Attorney General concerning whether the Soldiers' and Sailors' Civil Relief Act exempts non-resident servicemen stationed in North Carolina from payment of the North Carolina Use Tax, we concluded that "(s)uch servicemen are liable for payment of the North Carolina Use Tax so levied on the use of such property." See, 40 N.C.A.G. 887 (1969), copy of which is enclosed.
In conclusion, it is clear that the United States Supreme Court in the 1969 Sullivan v. U.S. decision upheld the right of a state to levy a use tax upon non-resident servicemen stationed in North Carolina. Our law also provides a credit to the non-resident servicemen who have "paid a sales tax, an excise tax, or a tax substantially equivalent to the tax imposed by this Article on the vehicle to a taxing jurisdiction outside this (North Carolina) state . . . ." N.C.G.S. §105-187.7.
Should you have any questions, please contact me.
Andrew A. Vanore, Jr. Chief Deputy Attorney General