When the NC Department of Revenue mistakenly listed the Libertarian Party as a qualified party on 1998 tax forms (when it didn't have the 1% voter registration the statute requires), should the funds taxpayers checked for the Libertarian Party go to the Libertarian Party anyway, and how should the 'Unspecified' designations be split?
Plain-English summary
NC's tax forms include a check-box that lets a taxpayer direct a small amount of their state taxes to a qualified political party. To be a "qualified party" under N.C.G.S. § 105-159.1, the party has to have at least 1% of the registered voters in the state. The Republican and Democratic parties always meet that threshold; smaller parties like the Libertarian Party may or may not, depending on their voter registration that year.
For the 1998 tax year, the Department of Revenue mistakenly listed the Libertarian Party on the tax forms as a qualified party. The Libertarian Party had qualified to put its candidates on the ballot (a separate requirement), but did not have 1% of registered voters. So under the strict letter of § 105-159.1, it was not entitled to receive designated funds.
Some taxpayers checked the Libertarian Party box. Other taxpayers checked the "Unspecified" box. The State Board of Elections (which administers the Political Parties Fund) asked the AG: (1) Can the Department of Revenue release the Libertarian Party's designated funds to the Libertarian Party, even though the Party did not meet the statutory qualification? (2) How should the "Unspecified" funds be divided?
Chief Deputy AG Edwin Speas and Special Deputy AGs George Boylan and Susan Nichols answered:
(1) Yes, give the Libertarian Party the funds taxpayers designated for it.
The reasoning relies on the protection that taxpayers get from official agency interpretations. Generally, the sovereign acting in its traditional governmental role cannot be bound or estopped by mistakes of its agents. But N.C. Gen. Stat. § 105-264 expressly waives this principle in part for the Department of Revenue: it imposes a "positive duty" on the Secretary of Revenue to interpret the laws she administers, and her interpretation is a "protection" to all affected taxpayers, who are entitled to "rely" upon her advice. Oscar Miller Contractor v. Tax Review Board (1983) applies this to bind the state to the consequences.
Here, the Secretary's tax form represented to taxpayers that the Libertarian Party was a qualified party for purposes of the designation. Taxpayers acted on that representation: many checked the Libertarian Party box specifically because the form said the option was available. The state collected the designations with the same understanding. In these unusual circumstances, releasing the designated funds to the Libertarian Party is the right way to honor taxpayer reliance and is not an impermissible gift of state property.
(2) The "Unspecified" funds go pro-rata only to qualified parties.
This question turns on the strict text of § 105-159.1(a), which says that "Unspecified" designations are "to be distributed among the political parties on a pro rata basis according to their respective party voter registrations as determined by the most recent certification of the State Board of Elections."
The reliance argument doesn't help the Libertarian Party here, because the "Unspecified" taxpayers did not specifically choose the Libertarian Party. They directed their designation to a generic "political parties" pool. The statute then routes those funds only to actually qualified parties, by reference to certified voter registrations. The Libertarian Party did not have the 1% needed to be on the certification. So for 1998, the "Unspecified" pool goes entirely to the Republican and Democratic Parties, pro-rated by their respective voter registrations.
The opinion is a neat example of how the AG can split a single mistake into two different remedies based on the underlying legal theory: estoppel-by-reliance for the specific-designation taxpayers, strict-text application for the unspecified pool.
Currency note
This opinion was issued in 1999. 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. NC's political party tax designation system has changed multiple times since 1999, including periods when the designation was suspended or substantially restructured. The 1% qualification rule, the strict text of § 105-159.1, and the reliance protection under § 105-264 may have all been amended. Anyone administering or designating funds today should consult current statutes and current State Board of Elections guidance.
Background and statutory framework
The political party tax check-off was created to provide a small but consistent funding stream for active political parties from voluntary taxpayer designations. The check-off does not increase a taxpayer's tax liability; it just lets the taxpayer direct a portion of their tax payment to a political party. Most states have similar provisions, though the details vary.
The 1% qualification threshold serves a gatekeeping function: it limits the parties that can receive funds to those with enough voter support to demonstrate ongoing presence in the state. Without the threshold, any party with even minimal registration could receive a share of the designation fund, creating administrative complexity for the State Board of Elections and possibly diluting the funds available to the major parties.
The reliance doctrine under § 105-264 is part of a broader tax-administration scheme that protects taxpayers from the consequences of agency error. The Department of Revenue collects taxes based on its interpretation of the tax laws. If taxpayers comply in good faith with the Department's stated position, they should not later be hit with retroactive tax liability when the Department changes its mind. This is the same principle that underlies federal protections for taxpayers who rely on IRS interpretations.
Extending § 105-264 reliance from a substantive tax determination to a check-off-box designation was a bit of a stretch, but the AG considered it justified by the unusual circumstances: the taxpayers' contributions had been induced by the official form, and the funds were small enough not to raise serious public-fisc concerns.
Common questions
Could the Department of Revenue or the State Board of Elections have refunded the designated dollars to the affected taxpayers?
In principle, yes, though the practical mechanics would have been awkward. Each affected taxpayer designated a small amount; refunding it would have required identifying every Libertarian-Party-designating taxpayer, processing a refund, and amending each return. The AG's solution (release the funds to the Libertarian Party) was administratively simpler and gave taxpayers what they actually chose to designate.
What happens if the Libertarian Party later qualifies (achieves 1% voter registration)?
Then in that later tax year, the Libertarian Party would be eligible for designated funds and would be included in the pro-rata distribution of "Unspecified" funds. The 1999 opinion addresses only the 1998 situation.
Does this opinion bind future administrators?
It is persuasive but not binding. A future similar mistake would be evaluated under the same reliance framework, but the specific facts and the strength of the reliance argument could differ.
What about the constitutional anti-gift clause?
Article V, § 2 of the NC Constitution prohibits gifts of state money. The AG concluded that releasing the funds to the Libertarian Party was not an impermissible gift because (a) the funds were not state revenue in the traditional sense (they were designated by taxpayers), and (b) the reliance doctrine under § 105-264 supplied an authorized basis for the disbursement.
Source
Citations
- N.C. Gen. Stat. § 105-159.1 (designation of funds for political parties)
- N.C. Gen. Stat. § 105-264 (Secretary of Revenue interpretive authority)
- N.C. Gen. Stat. § 163-278.41 (State Board of Elections administration)
- Oscar Miller Contractor v. Tax Review Board, 61 N.C. App. 725 (1983)
Original opinion text
June 14, 1999
Gary O. Bartlett
Executive Secretary-Director
State Board of Elections
P.O. Box 2169
Raleigh, NC 27602
Re: Advisory Opinion; Political Party Designated Funds; N.C. Gen. Stat. § 105-159.1
Dear Mr. Bartlett:
You have requested an advisory opinion on two questions arising from the designation of funds for political parties by 1998 taxpayers. While the Department of Revenue collects the designated funds, the State Board of Elections is charged with the duty of administering the Political Parties Fund pursuant to N.C. Gen. Stat. § 163-278.41. Through no fault of the Department of Revenue, the Libertarian Party was erroneously included as a qualified party on the 1998 income tax forms. The Party qualified to place candidates on the ballot, but did not have 1% of the registered voters as required by N.C. Gen. Stat. § 105-159.1.
The two questions you have raised, and our view as to their proper resolution, are as follows:
[Question (1) addresses whether designated funds should be released to the Libertarian Party.]
Although a close question, we do not believe release of the designated funds to the Libertarian Party in these unusual circumstances constitutes an impermissible gift of State property. While normally the sovereign acting in its traditional governmental role cannot be bound or estopped by mistakes of its agents, N.C. Gen. Stat. § 105-264 constitutes a limited waiver of this aspect of sovereign immunity. Section 264 imposes a positive duty upon the Secretary to interpret the laws administered by her. Her interpretation is a "protection" to all affected taxpayers, who are entitled to "rely" upon her advice. Oscar Miller Contractor v. Tax Review Board, 61 N.C. App. 725, 729-30 (1983).
Applying Oscar Miller and Section 264 to these facts, it appears that all requirements set by Section 159.1 have been met or are deemed satisfied. The Secretary amended the tax return to specifically enable taxpayers to voluntarily participate, individuals acted upon the form's representations in order to contribute to the Libertarian Party, and the Secretary collected the funds with this understanding. In our opinion, the Party qualifies to receive these monies.
(2) Given that the Libertarian Party was not in fact a qualified party in 1998, how should funds designated for the "Unspecified" box be distributed?
N.C. Gen. Stat. § 105-159.1(a) requires any funds generated because a taxpayer "elects to designate but does not specify a particular political party … to be distributed among the political parties on a pro rata basis according to their respective party voter registrations as determined by the most recent certification of the State Board of Elections." The Libertarian Party has not qualified as a political party under the statute because it has failed to achieve at least 1% of the total number of registered voters in the State at any point. Thus, the funds generated by voters checking the "Unspecified" box should be allocated between the qualified parties, which for the 1998 tax year are the Republican and Democratic Parties.
Please let us know if we can provide additional assistance in this matter.
Edwin M. Speas, Jr.
Chief Deputy Attorney General
George W. Boylan
Special Deputy Attorney General
Susan K. Nichols
Special Deputy Attorney General