Could North Carolina lawmakers pay intangibles-tax refunds to taxpayers who did not file a timely protest?

Plain-English summary

Senator John Kerr asked whether the General Assembly could provide credits or refunds to people who paid intangibles taxes but "did not file timely protest as required by N.C.G.S. §105-267." His question assumed that legislation would also stop collection of certain intangibles-tax liabilities arising from the Fulton case. The opinion answers the payment question. Source

The AG concluded that paying taxpayers who had not timely protested would be unconstitutional: "Because the state has no legal obligation to these taxpayers, any payments would be an exclusive emolument prohibited by Article I, Section 32 of the North Carolina Constitution." Source

The opinion quotes the constitutional rule: "No person or set of persons is entitled to exclusive or separate emoluments or privileges from the community but in consideration of public services." It also quotes the Town of Emerald Isle test for exemptions that promote the general welfare and have a reasonable basis in the public interest. Applying its cited cases, the AG concluded that lawmakers could not provide benefits to people "to whom the state has no legal obligation and who have performed no public services, other than having paid the tax." Source

Currency note

This is an April 1997 opinion about the question Senator Kerr presented. Check current law and any later decisions before using its conclusion for a present-day proposal.

Background and statutory framework

The AG cited Brown v. Comrs. of Richmond County, 223 N.C. 744 (1943). As the opinion recounts, the legislature tried to require payment of a former judge's remaining salary after abolishing his court. The court held that payment would be a prohibited gratuity. The opinion quotes Brown: a municipality cannot pay a claim based only on a "moral or equitable obligation" where it has no legal obligation. Source

For the proposed intangibles-tax payments, the AG's stated reason is similarly limited: the State had no legal obligation to people who had not filed the timely protest required by N.C.G.S. §105-267. The opinion does not determine the rights of taxpayers who did timely protest. Source

Common questions

Did the AG approve refunds for taxpayers who protested on time?

The opinion does not decide that question. It addresses payments to people who "did not file a timely protest" and concludes that the State has no legal obligation to that group. Source

Would a sense of fairness permit payments to people who did not protest?

The AG said no. Quoting Brown, the opinion says that without a legal obligation or public-service purpose, lawmakers cannot appropriate money to a select few even if they believe there is a "moral or equitable obligation." Source

Did the AG address notice of the protest requirement or a retroactive waiver?

The opinion does not analyze either issue. Its stated conclusion is about proposed payments to taxpayers who did not timely protest under N.C.G.S. §105-267. Source

Source

• Landing page: https://ncdoj.gov/opinions/providing-credits-or-refunds-to-individuals-who-paid-intangibles-taxes/

Citations

• N.C. Const. art. I, § 32 (and art. I, § 7 predecessor)
• N.C. Gen. Stat. § 105-267
• Simonton v. Lanier, 71 N.C. 498 (1874)
• Plott v. Ferguson, 202 N.C. 446 (1932)
• Town of Emerald Isle v. State, 320 N.C. 640 (1987)
• Leete v. County of Warren, 341 N.C. 116 (1995)
• Hinton v. State Treasurer, 193 N.C. 496 (1927)
• Brumley v. Baxter, 225 N.C. 691 (1945)
• Bridges v. City of Charlotte, 221 N.C. 472 (1942)
• Brown v. Comrs. of Richmond County, 223 N.C. 744 (1943)

Original opinion text

April 9, 1997

The Honorable John Kerr
North Carolina State Senate
Room 526, Legislative Office Building
Raleigh, North Carolina 27601-2808

Re: Advisory Opinion; Authority of the General Assembly to provide Credits or Refunds to Individuals who paid Intangibles Taxes but did not Comply with N.C.G.S. §105-267; The Exclusive Emoluments Provison of the North Carolina Constitution, Article I, Section 32

Dear Senator Kerr:

You ask whether the exclusive emoluments provision of the North Carolina Constitution prohibits the General Assembly from providing refunds or credits to individuals who paid intangibles taxes but who did not file timely protest as required by N.C.G.S. §105-267. Your question assumes that the General Assembly will enact and the Governor will allow to become law legislation prohibiting the Secretary of Revenue from collecting intangibles tax liability arising from the recent decision of our State Supreme Court in the Fulton case.

For reasons which follow, it is our opinion that it would be unconstitutional for the General Assembly to make any payments to those taxpayers who did not file a timely protest to the payment of the tax as is required by N.C.G.S. §105-267. Because the state has no legal obligation to these taxpayers, any payments would be an exclusive emolument prohibited by Article I, Section 32 of the North Carolina Constitution.

Article I, Section 32 of the North Carolina Constitution provides: "No person or set of persons is entitled to exclusive or separate emoluments or privileges from the community but in consideration of public services." The exclusive emoluments provision of our state constitution bars the legislature from extending special privileges to select individuals or groups of individuals without a corresponding return of public service. Simonton v. Lanier, 71 N.C. 498 (1874); Plott v. Ferguson, 202 N.C. 446 (1932). However, not all special or exclusive emoluments are prohibited by Article I, Section 32. The Supreme Court of North Carolina recently held that "a statute which confers an exemption that benefits a particular group of persons is not an exclusive emolument or privilege within the meaning of Article I, Section 32 if: (1) the exemption is intended to promote the general welfare rather than the benefit of the individual, and (2) there is a reasonable basis for the legislature to conclude the granting of the exemption serves the public interest." Town of Emerald Isle v. State, 320 N.C. 640, 654 (1987). See also Leete v. County of Warren, 341 N.C. 116 (1995).

Applying this test, the Supreme Court of North Carolina has held that government-conferred benefits do not violate Article I, Section 32 in a variety of circumstances even though the benefits were extended exclusively to small groups of individuals. See, Hinton v. State Treasurer, 193 N.C. 496 (1927) (home loan programs to World War I veterans did not violate the emoluments provision); Brumley v. Baxter, 225 N.C. 691 (1945) (donation of municipal land for World War II Veterans Center held not to violate the emoluments provision); Bridges v. City of Charlotte, 221 N.C. 472 (1942) (benefits received by retired state employees are deferred payments of salaries for services rendered and do not violate the emoluments provision).

Our Supreme Court has, however, made it crystal clear that absent a legal obligation or a public service purpose, the legislature may not appropriate funds to a select few, even if the legislature believes it has a moral or equitable obligation to do so. In Brown v. Comrs. of Richmond County, 223 N.C. 744 (1943), the plaintiff was elected to a two-year term of office of Judge of the Recorders' Court of Richmond County. The year after his election, the General Assembly passed a local act abolishing the Recorders' Court. Thereafter, the General Assembly passed a law requiring the Richmond County Board of Commissioners to pay the plaintiff the salary that plaintiff would have earned had the General Assembly not abolished his office. The North Carolina Supreme Court, in interpreting Article I, Section 7, the predecessor to Article I, Section 32 of our present Constitution, held that the plaintiff was not entitled to receive the payment because such compensation would amount to a constitutionally prohibited gift or gratuity of public money.

[T]he Legislature has no power to compel or even to authorize a municipal corporation to pay a gratuity to an individual to adjust a claim where the municipality is under no legal obligation to pay. Nor may it lawfully authorize a municipal corporation to pay gifts or gratuities out of public funds. Brown, 223 N.C. at 746. Continuing, the Brown court reasoned that [a] municipality cannot lawfully make an appropriation of public monies except to meet a legal and enforceable claim, and can make no payment upon a claim which exists merely by reason of some moral or equitable obligation which a generous, or even a just, individual, dealing with his own monies, might recognize as worthy of some reward. Id.

It is our opinion, therefore, that the General Assembly may not constitutionally provide any benefits to those individuals to whom the state has no legal obligation and who have performed no public services, other than having paid the tax.

Should you have any further questions, please advise.

Andrew A. Vanore, Jr.
Chief Deputy Attorney General