July 13, 1993
HAND DELIVERY ATTORNEY-CLIENT PRIVILEGED COMMUNICATION Senator Dennis J. Winner Legislative Office Building Room 523 Raleigh, North Carolina 27603
Re: Advisory Opinion; Senate Bill 1245
Dear Senator Winner:
The Attorney General has asked that I reply to your letter of July 7, 1993, requesting an opinion concerning Senate Bill 1245 and the consequences of a possible appeal from the June 15 decision of the North Carolina Court of Appeals in Fulton v. Justus.
If there is further appellate review in Fulton, it could encompass all of the issues raised by the case, including the constitutionality of the taxable percentage provision of G.S. § 105-203, the severability of the taxable percentage provision, and the prospective or retroactive application of a decision on those questions. Because of the broad range of potential results, there is a realistic possibility that G.S. § 105-203 would be stricken in its entirety and that the ruling would apply to the 1993 taxable year or to earlier years. It is also possible that only the taxable percentage provision would be invalidated, but that the ruling would be effective for tax year 1993 rather than 1994, as the current opinion provides.
In the event of an appellate decision holding G.S. § 105-203 unconstitutional in its entirety and applying to 1993 or prior taxable years, taxpayers who will have paid tax under the present statute for the affected years will request refunds. I believe the State’s obligation to make refunds under such circumstances would be limited by G.S. § 105-267, which requires a demand for the refund of an illegal or invalid tax to be made within thirty days after payment. You should also be aware that the constitutionality of G.S. § 105-267 is at issue in Swanson v. State, now pending before the North Carolina Supreme Court.
The most recent proposed committee substitute for Senate Bill 1245 would replace the present taxable percentage provision with an exclusion fraction based on the proportion of the issuing corporation’s total property subject to ad valorem and intangible personal property tax in North Carolina. I see no meaningful distinction between the two formulas, and I believe that a Commerce Clause challenge to the proposed exclusion fraction would be successful under the Court of Appeals’ analysis in Fulton.
Marilyn R. Mudge, Assistant Attorney General