{ "id": 8525925, "name": "FULTON CORPORATION, Plaintiff v. BETSY Y. JUSTUS, Secretary of Revenue, Defendant", "name_abbreviation": "Fulton Corp. v. Justus", "decision_date": "1993-06-15", "docket_number": "No. 9210SC15", "first_page": "493", "last_page": "505", "citations": [ { "type": "official", "cite": "110 N.C. App. 493" } ], "court": { "name_abbreviation": "N.C. Ct. App.", "id": 14983, "name": "North Carolina Court of Appeals" }, "jurisdiction": { "id": 5, "name_long": "North Carolina", "name": "N.C." }, "cites_to": [ { "cite": "491 U.S. 58", "category": "reporters:federal", "reporter": "U.S.", "case_ids": [ 6210401 ], "weight": 2, "year": 1989, "pin_cites": [ { "page": "71" }, { "page": "58" } ], "opinion_index": 0, "case_paths": [ "/us/491/0058-01" ] }, { "cite": "413 S.E.2d 276", "category": "reporters:state_regional", "reporter": "S.E.2d", "weight": 2, "year": 1992, "pin_cites": [ { "page": "282-83" }, { "page": "283" } ], "opinion_index": 0 }, { "cite": "330 N.C. 761", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 2511641 ], "year": 1992, "pin_cites": [ { "page": "771" } ], "opinion_index": 0, "case_paths": [ "/nc/330/0761-01" ] }, { "cite": "498 U.S. 439", "category": "reporters:federal", "reporter": "U.S.", "case_ids": [ 6229970 ], "weight": 2, "year": 1991, "opinion_index": 0, "case_paths": [ "/us/498/0439-01" ] }, { "cite": "407 S.E.2d 791", "category": "reporters:state_regional", "reporter": "S.E.2d", "year": 1991, "pin_cites": [ { "page": "793" } ], "opinion_index": 0 }, { "cite": "329 N.C. 576", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 2554165 ], "year": 1991, "pin_cites": [ { "page": "581" } ], "opinion_index": 0, "case_paths": [ "/nc/329/0576-01" ] }, { "cite": "N.C. Gen. Stat. \u00a7 105-215", "category": "laws:leg_statute", "reporter": "N.C. Gen. Stat.", "year": 1992, "opinion_index": 0 }, { "cite": "N.C. Gen. Stat. \u00a7\u00a7 105-130.7", "category": "laws:leg_statute", "reporter": "N.C. Gen. Stat.", "pin_cites": [ { "page": "(1)" } ], "opinion_index": 0 }, { "cite": "188 U.S. 730", "category": "reporters:federal", "reporter": "U.S.", "case_ids": [ 11729477 ], "weight": 4, "pin_cites": [ { "page": "732" } ], "opinion_index": 0, "case_paths": [ "/us/188/0730-01" ] }, { "cite": "226 U.S. 390", "category": "reporters:federal", "reporter": "U.S.", "case_ids": [ 8287190 ], "weight": 6, "year": 1912, "pin_cites": [ { "page": "397-98" }, { "page": "272" }, { "page": "397-98" }, { "page": "272", "parenthetical": "citations omitted" } ], "opinion_index": 0, "case_paths": [ "/us/226/0390-01" ] }, { "cite": "90 N.E. 769", "category": "reporters:state_regional", "reporter": "N.E.", "weight": 5, "year": 1910, "pin_cites": [ { "page": "773" }, { "page": "774" }, { "page": "774", "parenthetical": "citations omitted" }, { "page": "774" } ], "opinion_index": 0 }, { "cite": "174 Ind. 143", "category": "reporters:state", "reporter": "Ind.", "case_ids": [ 1652645 ], "weight": 3, "year": 1910, "pin_cites": [ { "page": "153-54" }, { "page": "156" } ], "opinion_index": 0, "case_paths": [ "/ind/174/0143-01" ] }, { "cite": "83 L.Ed.2d 222", "category": "reporters:federal", "reporter": "L. Ed. 2d", "year": 1984, "opinion_index": 0 }, { "cite": "469 U.S. 912", "category": "reporters:federal", "reporter": "U.S.", "case_ids": [ 12025432, 12025404, 12025374, 12025463 ], "year": 1984, "opinion_index": 0, "case_paths": [ "/us/469/0912-03", "/us/469/0912-02", "/us/469/0912-01", "/us/469/0912-04" ] }, { "cite": "467 U.S. 638", "category": "reporters:federal", "reporter": "U.S.", "case_ids": [ 6205320 ], "weight": 6, "year": 1984, "pin_cites": [ { "page": "545-46" }, { "page": "644" }, { "page": "546" } ], "opinion_index": 0, "case_paths": [ "/us/467/0638-01" ] }, { "cite": "497 U.S. 916", "category": "reporters:federal", "reporter": "U.S.", "case_ids": [ 6220772 ], "weight": 2, "year": 1990, "opinion_index": 0, "case_paths": [ "/us/497/0916-01" ] }, { "cite": "486 U.S. 269", "category": "reporters:federal", "reporter": "U.S.", "case_ids": [ 6215556 ], "weight": 4, "year": 1988, "pin_cites": [ { "page": "276" }, { "page": "310" }, { "page": "278" }, { "page": "311" } ], "opinion_index": 0, "case_paths": [ "/us/486/0269-01" ] }, { "cite": "119 L.Ed.2d 121", "category": "reporters:federal", "reporter": "L. Ed. 2d", "case_ids": [ 11729096 ], "year": 1992, "pin_cites": [ { "page": "132" } ], "opinion_index": 0, "case_paths": [ "/us/504/0334-01" ] }, { "cite": "451 U.S. 725", "category": "reporters:federal", "reporter": "U.S.", "case_ids": [ 6192088 ], "weight": 4, "year": 1981, "pin_cites": [ { "page": "760" }, { "page": "604" }, { "page": "759" }, { "page": "603" } ], "opinion_index": 0, "case_paths": [ "/us/451/0725-01" ] }, { "cite": "466 U.S. 388", "category": "reporters:federal", "reporter": "U.S.", "case_ids": [ 6200366 ], "weight": 5, "year": 1984, "pin_cites": [ { "page": "406", "parenthetical": "quoting Boston Stock Exchange, 429 U.S. at 331, 50 L.Ed.2d at 525" }, { "page": "402", "parenthetical": "quoting Boston Stock Exchange, 429 U.S. at 331, 50 L.Ed.2d at 525" }, { "page": "403" }, { "page": "406" }, { "page": "402" } ], "opinion_index": 0, "case_paths": [ "/us/466/0388-01" ] }, { "cite": "358 U.S. 450", "category": "reporters:federal", "reporter": "U.S.", "case_ids": [ 3659482 ], "weight": 2, "year": 1959, "pin_cites": [ { "page": "458" }, { "page": "427" } ], "opinion_index": 0, "case_paths": [ "/us/358/0450-01" ] }, { "cite": "429 U.S. 318", "category": "reporters:federal", "reporter": "U.S.", "case_ids": [ 6530 ], "weight": 6, "year": 1977, "pin_cites": [ { "page": "329", "parenthetical": "quoting Northwestern States Portland Cement Co. v. Minnesota, 358 U.S. 450, 458, 3 L.Ed.2d 421, 427 (1959)" }, { "page": "524", "parenthetical": "quoting Northwestern States Portland Cement Co. v. Minnesota, 358 U.S. 450, 458, 3 L.Ed.2d 421, 427 (1959)" }, { "page": "527" }, { "page": "331" }, { "page": "525" }, { "page": "406-07" } ], "opinion_index": 0, "case_paths": [ "/us/429/0318-01" ] }, { "cite": "52 L.Ed.2d 371", "category": "reporters:federal", "reporter": "L. Ed. 2d", "year": 1977, "opinion_index": 0 }, { "cite": "430 U.S. 976", "category": "reporters:federal", "reporter": "U.S.", "case_ids": [ 12162824, 12162829 ], "year": 1977, "opinion_index": 0, "case_paths": [ "/us/430/0976-01", "/us/430/0976-02" ] }, { "cite": "430 U.S. 274", "category": "reporters:federal", "reporter": "U.S.", "case_ids": [ 12123142 ], "weight": 2, "year": 1977, "pin_cites": [ { "page": "279" }, { "page": "331" } ], "opinion_index": 0, "case_paths": [ "/us/430/0274-01" ] }, { "cite": "116 U.S. 446", "category": "reporters:federal", "reporter": "U.S.", "case_ids": [ 3516218 ], "weight": 2, "year": 1886, "opinion_index": 0, "case_paths": [ "/us/116/0446-01" ] }, { "cite": "208 U.S. 113", "category": "reporters:federal", "reporter": "U.S.", "case_ids": [ 3642259 ], "weight": 2, "year": 1908, "opinion_index": 0, "case_paths": [ "/us/208/0113-01" ] }, { "cite": "10 L.Ed.2d 1082", "category": "reporters:federal", "reporter": "L. Ed. 2d", "year": 1963, "opinion_index": 0 }, { "cite": "374 U.S. 858", "category": "reporters:federal", "reporter": "U.S.", "case_ids": [ 8617, 8393, 8453, 8574 ], "year": 1963, "opinion_index": 0, "case_paths": [ "/us/374/0858-02", "/us/374/0858-04", "/us/374/0858-01", "/us/374/0858-03" ] }, { "cite": "373 U.S. 64", "category": "reporters:federal", "reporter": "U.S.", "case_ids": [ 11716660 ], "weight": 2, "year": 1963, "opinion_index": 0, "case_paths": [ "/us/373/0064-01" ] }, { "cite": "488 U.S. 252", "category": "reporters:federal", "reporter": "U.S.", "case_ids": [ 1494127 ], "weight": 2, "year": 1989, "pin_cites": [ { "page": "261" }, { "page": "617" } ], "opinion_index": 0, "case_paths": [ "/us/488/0252-01" ] }, { "cite": "301 N.C. 94", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 8562510, 8562484, 8562391, 8562457, 8562431 ], "year": 1980, "pin_cites": [ { "parenthetical": "citations omitted" } ], "opinion_index": 0, "case_paths": [ "/nc/301/0094-05", "/nc/301/0094-04", "/nc/301/0094-01", "/nc/301/0094-03", "/nc/301/0094-02" ] }, { "cite": "265 S.E.2d 890", "category": "reporters:state_regional", "reporter": "S.E.2d", "year": 1980, "pin_cites": [ { "page": "899", "parenthetical": "citations omitted" } ], "opinion_index": 0 }, { "cite": "46 N.C. App. 350", "category": "reporters:state", "reporter": "N.C. App.", "case_ids": [ 8551011 ], "year": 1980, "pin_cites": [ { "page": "361", "parenthetical": "citations omitted" } ], "opinion_index": 0, "case_paths": [ "/nc-app/46/0350-01" ] }, { "cite": "42 U.S.C.S. \u00a7 1988", "category": "laws:leg_statute", "reporter": "U.S.C.", "weight": 2, "opinion_index": 0 }, { "cite": "42 U.S.C.S. \u00a7 1983", "category": "laws:leg_statute", "reporter": "U.S.C.", "weight": 4, "opinion_index": 0 }, { "cite": "N.C. Gen. Stat. \u00a7 105-213.1", "category": "laws:leg_statute", "reporter": "N.C. Gen. Stat.", "year": 1992, "opinion_index": 0 }, { "cite": "N.C. Gen. Stat. \u00a7 105-198", "category": "laws:leg_statute", "reporter": "N.C. Gen. Stat.", "opinion_index": 0 }, { "cite": "N.C. Gen. Stat. \u00a7 105-130.4", "category": "laws:leg_statute", "reporter": "N.C. Gen. Stat.", "weight": 5, "pin_cites": [ { "page": "(i)" }, { "page": "(c)" }, { "page": "(i)" }, { "page": "(i)" } ], "opinion_index": 0 }, { "cite": "N.C. Gen. Stat. \u00a7 105430.4", "category": "laws:leg_statute", "reporter": "N.C. Gen. Stat.", "year": 1992, "pin_cites": [ { "page": "(b)" } ], "opinion_index": 0 }, { "cite": "N.C. Gen. Stat. \u00a7 105-130.3", "category": "laws:leg_statute", "reporter": "N.C. Gen. Stat.", "year": 1992, "opinion_index": 0 }, { "cite": "N.C. Gen. Stat. \u00a7\u00a7 105-130", "category": "laws:leg_statute", "reporter": "N.C. Gen. Stat.", "opinion_index": 0 }, { "cite": "N.C. Gen. Stat. \u00a7 105-203", "category": "laws:leg_statute", "reporter": "N.C. Gen. Stat.", "weight": 5, "opinion_index": 0 } ], "analysis": { "cardinality": 1140, "char_count": 31077, "ocr_confidence": 0.777, "pagerank": { "raw": 4.2901752152230965e-07, "percentile": 0.9163713791807939 }, "sha256": "dee36491661673237e6cca40735c0bc32513c703baadb62ac1d413a0c5dda8e4", "simhash": "1:89e17138bbc86a4b", "word_count": 4959 }, "last_updated": "2023-07-14T20:46:54.224272+00:00", "provenance": { "date_added": "2019-08-29", "source": "Harvard", "batch": "2018" }, "casebody": { "judges": [ "Judges GREENE and WYNN concur." ], "parties": [ "FULTON CORPORATION, Plaintiff v. BETSY Y. JUSTUS, Secretary of Revenue, Defendant" ], "opinions": [ { "text": "COZORT, Judge.\nPlaintiff filed suit challenging the constitutionality of North Carolina\u2019s intangibles tax levied on ownership of corporate stock. Plaintiff contends the provision violates the Commerce Clause of the United States Constitution by increasing the tax liability for shares of stock of corporations which have business activities, property locations, and tax liabilities outside of North Carolina; and by lessening the tax liability for shares in corporations whose business and property are largely or completely in North Carolina. The superior court granted summary judgment for the defendant Secretary of Revenue. We find the taxing scheme violates the Commerce Clause, and we reverse. We further find that the provisions of the taxing scheme are severable, and we strike the portion of N.C. Gen. Stat. \u00a7 105-203 which gives a reduction in intangibles tax liability under the taxable percentage provision.\nWe begin with an overview of North Carolina\u2019s intangibles tax on corporate stock and other related tax statutes. (Several sections in Chapter 105 were amended in the 1991 and 1992 sessions of the General Assembly. None of the amendments affect the resolution of the issues presented in this case. For convenience to the reader, all references are to the most recent version of the statutes.) Pursuant to N.C. Gen. Stat. \u00a7\u00a7 105-130 through 105-130.41 (1992), North Carolina imposes an income tax on corporations doing business in North Carolina. If a corporation does business only in North Carolina, then one hundred percent of the corporation\u2019s business income is taxed in North Carolina. N.C. Gen. Stat. \u00a7 105-130.3 (1992). If a corporation does business in North Carolina and other states, then only that percentage of business income apportioned to North Carolina is taxable here. N.C. Gen. Stat. \u00a7 105430.4(b) (1992). A corporation\u2019s business income is apportioned on the basis of three factors: (1) the corporation\u2019s total sales in North Carolina divided by the corporation\u2019s total sales everywhere during the income year; (2) the value of the corporation\u2019s property owned, rented or used in North Carolina during the income year divided by the value of all the corporation\u2019s property owned, rented or used during the income year; and (3) the total amount paid by the corporation in North Carolina during the income year as compensation divided by the total amount paid by the corporation everywhere during the income year. N.C. Gen. Stat. \u00a7 105-130.4(i) through (1)(3). The first factor, sales, is double-weighted in the apportionment formula. Id. A multistate corporation\u2019s nonbusiness income, such as rents, royalties, interest, and gains and losses, is subject to North Carolina income tax if the income has some connection to the state; for example, North Carolina is the corporation\u2019s principal place of business or the situs of the non-business activities or investments. N.C. Gen. Stat. \u00a7 105-130.4(c)-(h) (1992).\nPursuant to N.C. Gen. Stat. \u00a7 105-198 through \u00a7 105-217 (1992), North Carolina imposes an intangibles tax on accounts receivable; bonds, notes, and other evidences of debt; beneficial or equitable interests in foreign trusts; and shares of stock. N.C. Gen. Stat. \u00a7 105-203 (1992) provides in pertinent part:\nAll shares of stock . . . owned by residents of this State . . . shall be subject to an annual tax, which is hereby levied, of twenty-five cents (25C) on every one hundred dollars ($100.00) of the total fair market value of the stock on December 31 of each year less the proportion of the value that is equal to:\n(1) [T]he proportion of the dividends upon the stock deductible by the taxpayer in computing its income tax liability under G.S. 105-130.7 without regard to the fifteen thousand dollar ($15,000) limitation under G.S. 105-130.7 ....\nThe provision beginning with \u201cless the proportion of the value\u201d is commonly referred to as the taxable percentage provision, which is the subject of plaintiff\u2019s challenge.\nUnder the tax scheme, if a corporation does no business in North Carolina and has no taxable income here, then the taxable percentage of a shareholder\u2019s stock is one hundred percent. If a multistate corporation does business in North Carolina and earns business and/or nonbusiness income subject to North Carolina in-' come tax, then the taxable percentage of a shareholder\u2019s stock is the inverse of the issuing corporation\u2019s net taxable income in North Carolina. The tax is collected by the state, made part of the General Fund, and is available for appropriation to the taxpayer\u2019s resident county. N.C. Gen. Stat. \u00a7 105-213.1 (1992).\nPlaintiff is a North Carolina corporation which, as of 31 December 1990, held stock in six corporations. Of the six corporations, only Food Lion, a multistate corporation, conducted business in North Carolina. Since forty-six percent of Food Lion\u2019s net income was subject to North Carolina corporate income tax for the 1990 taxable period, the taxable percentage of plaintiff\u2019s stock in Food Lion was fifty-four percent. The taxable percentage of plaintiff\u2019s stock in the remaining five corporations was one hundred percent. On 8 January 1991, plaintiff filed an intangible personal property tax return and remitted $10,884.00. On 1 May 1991, plaintiff filed suit in Wake County Superior Court seeking a refund of the $10,884.00 paid in intangibles tax, a declaratory judgment that N.C. Gen. Stat. \u00a7 105-203 is unconstitutional, and attorneys\u2019 fees. Both parties moved for summary judgment. Judge Dexter Brooks granted summary judgment for the Secretary of Revenue.\nOn appeal, plaintiff argues that the trial court erred in granting summary judgment because the intangibles tax (1) violates the Commerce Clause of the United States Constitution, and (2) violates the Due Process and Equal Protection Clauses of the United States and North Carolina Constitutions. Plaintiff further argues that the trial court erred in denying relief pursuant to 42 U.S.C.S. \u00a7 1983 and attorneys\u2019 fees pursuant to 42 U.S.C.S. \u00a7 1988.\nWe first consider whether plaintiff-taxpayer has standing to challenge the constitutionality of the statute. In North Carolina, a taxpayer has standing to challenge a tax if \u201c \u2018the tax levied upon him is for an unconstitutional . . . purpose, . . . the carrying out of all the challenged provisions \u201cwill cause him to sustain personally, a direct and irreparable injury,\u201d or [if] he is a member of the class prejudiced by the operation of the statute ....\u2019\u201d Orange County v. N.C. Dept. of Transportation, 46 N.C. App. 350, 361, 265 S.E.2d 890, 899, disc. review denied, 301 N.C. 94 (1980) (citations omitted). The United States Supreme Court has recognized, at least implicitly, that a local taxpayer has standing to challenge a tax on the grounds that the tax violates the Commerce Clause. See Goldberg v. Sweet, 488 U.S. 252, 261, 102 L.Ed.2d 607, 617 (1989); Halliburton Oil Well Cementing Co. v. Reily, 373 U.S. 64, 10 L.Ed.2d 202, reh\u2019g denied, 374 U.S. 858, 10 L.Ed.2d 1082 (1963); I.M. Darnell & Son Co. v. Memphis, 208 U.S. 113, 52 L.Ed. 413 (1908); Walling v. Michigan, 116 U.S. 446, 29 L.Ed. 691 (1886). We thus find plaintiff has standing to challenge the taxing provisions.\nNext, we consider plaintiff\u2019s argument that North Carolina\u2019s intangibles tax violates the Commerce Clause of the United States Constitution. U.S. Const, art. I, \u00a7 8, cl. 3 confers upon Congress the power \u201c[t]o regulate commerce with foreign nations, and among the several states, and with the Indian tribes.\u201d Plaintiff argues: (1) that the discrimination appears on the face of the statute; (2) that the tax indirectly discriminates against out-of-state business; and (3) that the compensating tax defense is not available to save the tax. Plaintiff summarizes the discrimination as follows: The more a corporation\u2019s business and property are located in North Carolina, the higher is the percentage of its income subject to taxation in this state, and the higher is the percentage of its stock not subject to the intangibles tax. The more a corporation\u2019s business and property are located out-of-state, the higher is the percentage of its stock subject to the intangibles tax. Therefore, the tax scheme favors corporations that operate totally or more in North Carolina and disfavors corporations that operate totally or more in other states. Plaintiff cites two possible impacts on interstate commerce. First, plaintiff alleges the tax encourages investors to buy stock in local corporations, thereby possibly affecting the ability of out-of-state corporations to raise capital in North Carolina, thus lessening the trading of stocks in interstate commerce. Second, plaintiff alleges local corporations may be encouraged not to enter interstate commerce in order to avoid the intangibles taxation for their shareholders.\nTo survive constitutional challenge under the Commerce Clause, a tax must (1) apply to an activity with a substantial nexus with the taxing state, (2) be fairly apportioned, (3) be fairly related to the services provided by the state, and (4) not discriminate against interstate commerce. Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279, 51 L.Ed.2d 326, 331, reh\u2019g denied, 430 U.S. 976, 52 L.Ed.2d 371 (1977). At issue here is the fourth requirement. It is fundamental that \u201c[n]o State may, consistent with the Commerce Clause, \u2018impose a tax which discriminates against interstate commerce ... by providing a direct commercial advantage to local business.\u2019 \u201d Boston Stock Exchange v. State Tax Comm\u2019n, 429 U.S. 318, 329, 50 L.Ed.2d 514, 524 (1977) (quoting Northwestern States Portland Cement Co. v. Minnesota, 358 U.S. 450, 458, 3 L.Ed.2d 421, 427 (1959)). \u201cA State may no more use discriminatory taxes to assure that nonresidents direct their commerce to businesses within the State than to assure that residents trade only in intrastate commerce.\u201d Id. at 334-35, 50 L.Ed.2d at 527. \u201cWhether the discriminatory tax diverts new business into the State or merely prevents current business from being diverted elsewhere, it is still a discriminatory tax that \u2018forecloses tax-neutral decisions and . . . creates ... an advantage\u2019 for firms operating in [the State] by placing \u2018a discriminatory burden on commerce to its sister States.\u2019 \u201d Westinghouse Electric Corp. v. Tully, 466 U.S. 388, 406, 80 L.Ed.2d 388, 402 (1984) (quoting Boston Stock Exchange, 429 U.S. at 331, 50 L.Ed.2d at 525).\nDiscrimination may appear on the face of the statute or in its practical operation. \u201cWhen a tax, on its face, is designed to have discriminatory economic effects, the Court \u2018need not know how unequal the Tax is before concluding that it unconstitutionally discriminates.\u2019 \u201d Id. at 406-07, 80 L.Ed.2d at 403 (quoting Maryland v. Louisiana, 451 U.S. 725, 760, 68 L.Ed.2d 576, 604 (1981)). \u201cOnce a state tax is found to discriminate against out-of-state commerce, it is typically struck down without further inquiry.\u201d Chemical Waste Management v. Hunt, 504 U.S. \u2014, 119 L.Ed.2d 121, 132 (1992). \u201c[W]here discrimination is patent, . . . neither a widespread advantage to in-state interests nor a widespread disadvantage to out-of-state competitors need be shown.\u201d New Energy Co. v. Limbach, 486 U.S. 269, 276, 100 L.Ed.2d 302, 310 (1988).\n\u201c[A] State may validate a statute that discriminates against interstate commerce by showing that it advances a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives.\u201d Id. at 278, 100 L.Ed.2d at 311. A state may also validate a facially discriminatory tax by showing that the tax is a compensatory tax. A tax may be considered a compensating tax when \u201c[the] State is attempting to impose a tax on a substantially equivalent event to assure uniform treatment of goods and materials to be consumed in the State.\u201d Maryland v. Louisiana, 451 U.S. at 759, 68 L.Ed.2d at 603; see also Ashland Oil, Inc. v. Caryl, 497 U.S. 916, 111 L.Ed.2d 734 (1990).\nApplying these principles to North Carolina\u2019s intangibles taxing scheme, we find that the tax facially discriminates against interstate commerce. Shareholders of out-of-state corporations are required to pay intangibles taxes on a higher percentage of shares than shareholders of corporations operating solely in North Carolina. We further find that the facially discriminatory tax indirectly encourages the development of local business by placing a greater burden on economic activities occurring outside North Carolina than is placed on similar activities within North Carolina. The tax forecloses tax-neutral decisions and creates an advantage for firms operating in North Carolina. See Westinghouse, 466 U.S. at 406, 80 L.Ed.2d at 402.\nWe next consider whether the discriminatory effect of the tax is counterbalanced by a compensating tax. We must determine if the State is attempting to impose a tax on a substantially equivalent event to assure uniform treatment of goods and materials to be consumed in the State. In Armco, Inc. v. Hardesty, 467 U.S. 638, 81 L.Ed.2d 540, reh\u2019g denied, 469 U.S. 912, 83 L.Ed.2d 222 (1984), the United States Supreme Court addressed the constitutionality of West Virginia\u2019s business and operation tax. There, plaintiff, an Ohio corporation engaged in the business of manufacturing and selling steel products in West Virginia, challenged on Commerce Clause grounds the constitutionality of West Virginia\u2019s tax requiring persons engaged in the business of selling tangible property at wholesale to pay taxes on gross receipts. Local manufacturers were exempt from the gross receipts tax; however, they were required to pay a higher manufacturing tax. The United States Supreme Court found the tax unconstitutional, rejecting West Virginia\u2019s argument that the higher manufacturing tax was a compensating tax for the gross receipt tax. The Court held:\n[Manufacturing and wholesaling are not \u201csubstantially equivalent events\u201d such that the heavy tax on in-state manufacturers can be said to compensate for the admittedly lighter burden placed on wholesalers from out of State. Manufacturing frequently entails selling in the State, but we cannot say which portion of the manufacturing tax is attributable to manufacturing, and which portion to sales. The fact that the manufacturing tax is not reduced when a West Virginia manufacturer sells its goods out of State, and that it is reduced when part of the manufacturing takes place out of State, makes clear that the manufacturing tax is just that, and not in part a proxy for the gross receipts tax imposed on Armco and other sellers from other States.\nId. at 643, 81 L.Ed.2d at 545-46. The Court further reasoned that there was discrimination against interstate commerce when the two taxes were considered together: \u201cIf Ohio or any of the other 48 States imposes a like tax on its manufacturers \u2014 which they have every right to do \u2014 then Armco and others from out of State will pay both a manufacturing tax and a wholesale tax while sellers resident in West Virginia will pay only the manufacturing tax.\u201d Id. at 644, 81 L.Ed.2d at 546. Finally, the Court rejected West Virginia\u2019s argument that Armco had to prove actual discriminatory impact by naming a state that imposes a manufacturing tax resulting in a tax burden higher than that imposed on Armco\u2019s competitors in West Virginia. Rather, the test is whether the facially discriminatory tax is internally consistent such that \u201c \u2018if applied by every jurisdiction\u2019 there would be no impermissible interference with free trade.\u201d Id.\nThe Secretary of Revenue argues here that taxing shareholders on the proportion of their stock values equivalent to the percentage of the issuing corporation\u2019s income taxed outside the state compensates for the state\u2019s inability to tax the corporation\u2019s out-of-state property and the income it generates. We disagree. We find the Court\u2019s reasoning in Armco applicable to this case. We note first that there is only a vague relationship between property taxes paid by a corporation to governmental entities in North Carolina and the intangibles property tax paid by its shareholders on the corporation stock. As plaintiff points out, under the tax scheme a corporation could pay no property taxes in North Carolina, and the taxable percentage of its stock still be less than one hundred percent because the taxable percentage is computed by multiplying three factors: sales, payroll, and property. Second, the \u201ccompensating tax\u201d is levied upon the shareholder, a taxpayer different from the corporation. If a corporation owns no property in North Carolina, the state has no burden of providing protection to the corporation\u2019s property and should not be allowed to tax the corporation\u2019s stock as proxy for the corporate property. We find no substantially equivalent event justifying the imposition of the intangibles tax at a higher percentage on the stock of out-of-state corporations than in-state corporations. We thus reject the Secretary\u2019s argument on compensating tax.\nThe Secretary further argues that Darnell v. State, 174 Ind. 143, 90 N.E. 769 (1910), aff\u2019d, Darnell v. Indiana, 226 U.S. 390, 57 L.Ed. 267 (1912), is dispositive of plaintiff\u2019s appeal. In Darnell, Indiana sought to collect taxes on stock of a Tennessee corporation owned by an Indiana resident. Under the Indiana statute, the state could levy taxes on all shares in a foreign corporation, except national banks, owned by state residents, and all shares in a domestic corporation owned by state residents when the property of the corporations was not exempt or not taxable to the corporation itself. Id. at 397-98, 57 L.Ed. at 272. The value of the stock exceeding the value of the tangible taxable property was also taxable. Plaintiff argued to the Indiana Supreme Court that the tax discriminated \u201cin favor of domestic stocks as against shares in a foreign corporation, and that a resident owning stock in a domestic corporation escapes taxation thereon, while his next-door neighbor owning shares of stock in a foreign corporation is required to pay taxes on his holdings.\u201d Darnell v. State, 174 Ind. at 153-54, 90 N.E. at 773. The Indiana Supreme Court upheld the tax, finding that the purpose of the tax was \u201cto require all property to contribute pro rata its share of taxes, and so far as practicable to avoid double taxation.\u201d Id. at 156, 90 N.E. at 774. The Indiana Supreme Court stated:\nDomestic corporations are taxed upon all their property: . . . The state, in its discretion, might tax the shares of stock in such corporation to the individual owners thereof residing in this state, but it would in a sense be double taxation, and it has not been the policy of this state to do so. Shares of stock in a foreign corporation doing business in another state owned and held by a resident of this state are taxed because they have not been and cannot be otherwise taxed by this state. If a corporation organized in this state is engaged in business in another state, and all its tangible property is outside this state, then its shares of stock owned by residents within this state are taxable in the same manner as stock in a foreign corporation. The fact that the state in which the corporate property may be situated taxes such tangible property in no wise affects the right of this state to tax its own inhabitants upon all their personal property including shares of stock in such foreign corporation. The man who resides in one state and enjoys the benefit of its schools, churches, society, highways, and other public accommodations, as well as its governmental protection over his person and property, is in no position to complain when required to contribute by taxation ratably upon his property for the maintenance of these institutions and the local government. It is clear to our minds that the tax law of Indiana is not open to the charge of discrimination against stock in foreign corporations, but imposes only just and equal burdens upon all corporate stocks without regard to the place of incorporating or of conducting the corporate business, and does not violate either the third clause of section 8, art. 1, or the fourteenth amendment to the Constitution of the United States, and is accordingly valid.\nId. at 156-57, 90 N.E. at 774 (citations omitted). The United States Supreme Court affirmed with Justice Holmes writing:\nThe case is pretty nearly disposed of by Kidd v. Alabama, 188 U.S. 730, 47 L.ed. 669, 23 Sup. Ct. Rep. 401, where the real matter of complaint, that the property of the corporation presumably is taxed in Tennessee, is answered. But it is said that the former decision does not deal With the objection that the statutes work a discrimination against stock in corporations of other states, contrary to principles often recognized. The most serious aspect of this objection is that the statutes of Indiana do not make allowance if a foreign corporation has property taxed within the state. But, as to this, it is enough to say that, however the statutes may be construed in a case of that sort, the plaintiffs in error do not show that it is theirs, and that, as they do not belong to the class for whose sake the constitutional protection would be given, if it would, they cannot complain on that ground. . . .\nThe only difference of treatment disclosed by the record that concerns the defendants is that the state taxes the property of domestic corporations and the stock of foreign ones in similar cases. That this is consistent with substantial equality notwithstanding the technical differences was decided in Kidd v. Alabama, 188 U.S. 730, 732, 47 L.ed. 669, 672, 23 Sup. Ct. Rep. 401.\nDarnell v. Indiana, 226 U.S. at 397-98, 57 L.Ed. at 272 (citations omitted).\nWe find Darnell distinguishable. Under the 1912 Indiana tax scheme, to the extent that a corporation paid property taxes to Indiana, the corporation\u2019s shareholders were exempt from paying taxes on the identical value of property already taxed to the corporation. As noted by the Indiana Supreme Court, the purpose of the tax was to \u201crequire all property to contribute pro rata its share of taxes, and so far as practicable to avoid' double taxation.\u201d Darnell, 174 Ind. at 156, 90 N.E. at 774. Under the North Carolina scheme, corporate stock is not viewed as embodying the very same real and personal property owned by the corporation. Unlike the Indiana scheme, there is no effort to tax corporate property only once, to the extent its value is represented in the stock value. There is no one-to-one correlation between property tax paid by the corporation and taxes paid by the shareholder on shares owned. There is, however, a correlation between income taxed to the corporation and the property (shares) of the shareholder. In determining the amount of business income to be taxed to the corporation, the amount of corporate property located in North Carolina is only one of three unequally weighted factors: sales, payroll, and property. See N.C. Gen. Stat. \u00a7 105-130.4(i) through (f)(3). Since the sales factor is double weighted, the property factor accounts for only one-fourth of the apportionment formula. See N.C. Gen. Stat. \u00a7 105-130.4(i). We note further that North Carolina has largely abandoned its efforts to avoid double taxation of corporate income. For example, under the scheme for taxing dividends, corporate income in the form of dividends is subject to double taxation. See N.C. Gen. Stat. \u00a7\u00a7 105-130.7(1) and 105-151.19 (1992). We conclude that the difference in the 1912 Indiana tax scheme and the present North Carolina tax scheme is significant, such that Darnell is not dispositive of plaintiff\u2019s appeal.\nHaving found the intangibles taxing scheme to be unconstitutional, we now must determine the proper remedy. Plaintiff argues that the entire tax must be stricken. The Secretary argues that we must enforce the Intangibles Tax Article\u2019s severability clause, thus excising the phrasing which reduces the intangibles tax on corporate stock of totally or partially North Carolina corporations. We find the Secretary\u2019s argument persuasive. N.C. Gen. Stat. \u00a7 105-215 (1992) provides:\nIf any clause, sentence, paragraph, or part of this [Intangible Personal Property Tax] Article or schedule shall for any reason be adjudged by any court of competent jurisdiction to be invalid, such judgment shall not affect, impair, or invalidate the remainder of this Article or schedule, but shall be confined in its operation to the clause, sentence, paragraph, or part thereof directly involved in the controversy in which such judgment shall have been rendered.\nAccordingly, we find that we must excise from N.C. Gen. Stat. \u00a7 105-203 this language:\n[L]ess the proportion of the value that is equal to:\n(1) In the case of a taxpayer that is a corporation, the proportion of the dividends upon the stock deductible by the taxpayer in computing its income tax liability under G.S. 105-130.7 without regard to the fifteen thousand dollar ($15,000) limitation under G.S. 105-130.7 ....\nAs rewritten, the statute levies an intangibles tax upon \u201c[a]ll shares of stock . . . owned by residents of this State . . . .\u201d\nPlaintiff, a resident owner of stock, is subject to the tax and not entitled to a refund. Both the United States Supreme Court and North Carolina Supreme Court have \u201crecognized that in some cases it would be inequitable to apply newly announced rules retroactively if prior to the enunciation of the rules parties had reasonably relied on certain principles in ordering their affairs. In such a case the rule is not applied retroactively.\u201d Swanson v. State of N.C., 329 N.C. 576, 581, 407 S.E.2d 791, 793 (1991). Accordingly, we find retroactive application of the revised statute inequitable and therefore order the revised statute to apply prospectively to the 1994 tax year.\nWe further find that plaintiff is not entitled to relief under 42 U.S.C.S. \u00a7 1983. A party may bring suit against state officials pursuant to 42 U.S.C.S. \u00a7 1983 for violations of the Commerce Clause. Dennis v. Higgins, 498 U.S. 439, 112 L.Ed.2d 969 (1991). \u201c[W]hen an action is brought under section 1983 in state court against the State, its agencies, and/or its officials acting in their official capacities, neither a State nor its officials acting in their official capacity are \u2018persons\u2019 under section 1983 when the remedy sought is monetary damages.\u201d Corum v. University of North Carolina, 330 N.C. 761, 771, 413 S.E.2d 276, 282-83 (1992). \u201c \u2018[A] state official in his . . . official capacity, when sued for injunctive relief, would be a person under \u00a7 1983 because \u2018official-capacity actions for prospective relief are not treated as actions against the State.\u2019 \u201d Id. at 771, 413 S.E.2d at 283 (quoting Will v. Michigan Dept. of State Police, 491 U.S. 58, 71, 105 L.Ed.2d 45, 58 (1989)) (citations omitted). In its complaint, plaintiff seeks monetary damages and declaratory relief, not injunctive relief. Therefore, plaintiff is not entitled to relief pursuant to 42 U.S.C.S. \u00a7 1983 or 42 U.S.C.S. \u00a7 1988.\nHaving decided the issue on Commerce Clause grounds, we need not address plaintiff\u2019s Due Process and Equal Protection arguments.\nIn sum, we hold that the portion of the State\u2019s intangibles tax scheme which increases the tax liability for owners of stock in corporations whose business and property is not completely in North Carolina violates the Commerce Clause of the United States Constitution. That language is excised from N.C. Gen. Stat. \u00a7 105-203. Plaintiff is entitled to no refund. The trial court\u2019s judgment for the defendant is reversed, and the cause is remanded for entry of a judgment declaring the intangibles tax provision at issue in violation of the Commerce Clause. Plaintiff is entitled to no further relief.\nReversed and remanded.\nJudges GREENE and WYNN concur.", "type": "majority", "author": "COZORT, Judge." } ], "attorneys": [ "Womble Carlyle Sandridge & Rice, by Jasper L. Cummings, Jr., for plaintiff appellant.", "Attorney General Lacy H. Thornburg, by Assistant Attorney General Marilyn R. Mudge, for defendant appellee." ], "corrections": "", "head_matter": "FULTON CORPORATION, Plaintiff v. BETSY Y. JUSTUS, Secretary of Revenue, Defendant\nNo. 9210SC15\n(Filed 15 June 1993)\n1. Constitutional Law \u00a7 51 (NCI4th) \u2014 intangibles tax \u2014standing of taxpayer to challenge constitutionality\nA local taxpayer owning shares of corporate stock had standing to challenge the constitutionality of the North Carolina intangibles tax statute on the ground that the tax violates the Commerce Clause of the U.S. Constitution.\nAm Jur 2d, Constitutional Law \u00a7 202.\n2. Taxation \u00a7 32 (NCI3d)\u2014 intangibles tax on corporate stock-taxable percentage provision \u2014 violation of Commerce Clause\nThe statute levying an intangibles tax on ownership of corporate stock, N.C.G.S. \u00a7 105-203, facially violates the Commerce Clause of the U.S. Constitution because the taxable percentage provision of the statute requires shareholders of out-of-state corporations to pay intangibles taxes on a higher percentage of the value of shares than shareholders of corporations operating solely in North Carolina and indirectly encourages the development of local business by placing a greater burden on economic activities occurring outside North Carolina than is placed on similar activities within this state.\nAm Jur 2d, State and Local Taxation \u00a7\u00a7 244-253.\n3. Taxation \u00a7 32 (NCI3d)\u2014 intangibles tax on corporate stock\u2014 taxable percentage provision \u2014not valid compensating tax\nThe facially discriminatory taxable percentage provision of the statute levying an intangibles tax on ownership of corporate stock is not a valid compensating tax because there is no substantially equivalent event justifying the imposition of the intangibles tax at a higher percentage on the stock of out-of-state corporations than on the stock of in-state corporations.\nAm Jur 2d, State and Local Taxation \u00a7\u00a7 244-253.\n4. Taxation \u00a7 32 (NCI3d)\u2014 intangibles tax on corporate stock \u2014 severability of unconstitutional provision \u2014prospective application of revised statute\nThe unconstitutional taxable percentage provision of N.C.G.S. \u00a7 105-203 is severable from the remainder of the statute. Therefore, the Court of Appeals will excise language in the statute stating \u201cless the proportion of the value that is equal to: (1) In the case of a taxpayer that is a corporation, the proportion of the dividends upon the stock deductible by the taxpayer in computing its income tax liability under G.S. 105-130.7 without regard to the fifteen thousand dollar ($15,000) limitation under G.S. 105-130.7 . . . .\u201d As rewritten, the statute levies an intangibles tax upon \u201c[a]ll shares of stock . . . owned by residents of this state,\u201d and plaintiff corporation, a resident owner of stock, is subject to the tax and not entitled to a refund. However, since retroactive application of the revised statute would be inequitable, the revised statute will apply prospectively to the 1994 tax year.\nAm Jur 2d, State and Local Taxation \u00a7\u00a7 244-253.\nAppeal by plaintiff from judgment entered 8 November 1991 by Judge Dexter Brooks in Wake County Superior Court. Heard in the Court of Appeals 8 December 1992.\nWomble Carlyle Sandridge & Rice, by Jasper L. Cummings, Jr., for plaintiff appellant.\nAttorney General Lacy H. Thornburg, by Assistant Attorney General Marilyn R. Mudge, for defendant appellee." }, "file_name": "0493-01", "first_page_order": 523, "last_page_order": 535 }