March 15, 1996
Nancy R. Pomeranz, Director Personal Taxes Division
N.C. Department of Revenue Post Office Box 871 Raleigh, North Carolina 27602-0871
Re: Advisory Opinion; Characterization of addbacks upon estimated income tax underpayments as interest or penalty; G.S. §§105-163.15(a) and 237.1
Dear Ms. Pomeranz:
G.S. §105-237(a) permits the Secretary of Revenue ("Secretary") to waive all penalties, except those imposed for unpaid checks. The Secretary, however, is not authorized to abate interest. You inquire whether the amounts required by G.S. §105-163.15(a) to be added to underpayments of estimated tax ("addbacks") constitute penalties or interest.
The quarterly reporting of estimated income taxes was first enacted in 1959, and the precursor to the present addback provision originally required that for underpayments there shall be added to the tax imposed under Article 4 for the taxable year an amount determined at the rate of six per cent (6%) per annum upon the amount of the underpayment. . .
1959 N.C. Sess. Laws ch. 1259 § 1. The catchline in the original Act referred to the addback amount as a "penalty." Id.
Subsequent legislative history is unclear whether addbacks constitute penalties or interest. For instance, in 1977 the General Assembly promulgated "An Act To Revise The Interest Rate On Tax Assessments" which specifically amended G.S. §105-163.15(a), as well as other provisions within The Revenue Act. 1977 N.C. Sess. Laws ch. 1114. The 1977 amendment deleted the phrase "determined at the rate of six per cent (6%)," describing computation of the addback amount as had appeared in the initial statute, and substituted determined at the rate established pursuant to G.S. 105-241.1(i) upon the amount of the underpayment. . .
G.S. §241.1(i) is the Secretary’s general grant of authority to impose mandatory interest upon all tax deficiencies. Nothing else appearing, the 1977 revisions suggest that G.S. §105-163.15(a) underpayments are increased by a sum best characterized as interest.
But in 1985 the legislature substantially rewrote G.S. §163.15 in a bill entitled "An Act To Conform Payments Of North Carolina Estimated Tax Penalties For Individuals To Federal Estimated Tax Payment Penalties." 1985 N.C. Sess. Laws ch. 443. Despite the bill’s title, the word penalty does not appear in the text of the act, and it did not amend the actual addback calculations changed in 1977.
We draw no inferences from the inconsistent characterizations ascribed the addback throughout its legislative history. Neither a bill’s catchline nor its title is dispositive of legislative intent where the meaning of the text is clear. In re Forsyth County, 285 N.C. 64, 71, 203 S.E.2d 51, 55 (1974). Instead, based upon an examination of G.S. §105-163.15’s substantive features, we are satisfied that its addback provision constitutes unwaiverable interest. The effect of the calculation is to directly compensate the state for the loss of the use of the funds which would have accompanied a timely payment of an individual’s estimated taxes, an interest-like function. Moreover, conceptually, the addback is equivalent to the interest automatically assessed late payment of all other types of taxes collected by the department. Finally, the careful incorporation of G.S. §105-241.1(i) for calculation of the addback plainly suggests that the determination produces interest, not a hybrid penalty waivable in the Secretary’s discretion.
We hope the foregoing is helpful.
Reginald L. Watkins Senior Deputy Attorney General
George W. Boylan
Special Deputy Attorney General