{ "id": 11655114, "name": "Polaroid Corporation, Plaintiff v. Muriel K. Offerman, Secretary of Revenue of the State of North Carolina, Defendant", "name_abbreviation": "Polaroid Corp. v. Offerman", "decision_date": "1998-01-20", "docket_number": "No. COA97-476", "first_page": "422", "last_page": "427", "citations": [ { "type": "official", "cite": "128 N.C. App. 422" } ], "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": "395 S.E.2d 685", "category": "reporters:state_regional", "reporter": "S.E.2d", "year": 1990, "opinion_index": 0 }, { "cite": "327 N.C. 431", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 2494531, 2495910, 2493800, 2493228, 2496926 ], "year": 1990, "opinion_index": 0, "case_paths": [ "/nc/327/0431-02", "/nc/327/0431-03", "/nc/327/0431-04", "/nc/327/0431-05", "/nc/327/0431-01" ] }, { "cite": "391 S.E.2d 509", "category": "reporters:state_regional", "reporter": "S.E.2d", "year": 1990, "pin_cites": [ { "page": "512" } ], "opinion_index": 0 }, { "cite": "98 N.C. App. 504", "category": "reporters:state", "reporter": "N.C. App.", "case_ids": [ 8525191 ], "year": 1990, "pin_cites": [ { "page": "508" } ], "opinion_index": 0, "case_paths": [ "/nc-app/98/0504-01" ] }, { "cite": "256 S.E.2d 692", "category": "reporters:state_regional", "reporter": "S.E.2d", "weight": 3, "year": 1979, "pin_cites": [ { "page": "696" }, { "page": "695-96" }, { "page": "696" } ], "opinion_index": 0 }, { "cite": "297 N.C. 636", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 8573538 ], "weight": 3, "year": 1979, "pin_cites": [ { "page": "642" }, { "page": "640" }, { "page": "642" } ], "opinion_index": 0, "case_paths": [ "/nc/297/0636-01" ] }, { "cite": "91 S.E. 593", "category": "reporters:state_regional", "reporter": "S.E.", "year": 1917, "pin_cites": [ { "page": "597" } ], "opinion_index": 0 }, { "cite": "173 N.C. 62", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 11268888 ], "year": 1917, "pin_cites": [ { "page": "69" } ], "opinion_index": 0, "case_paths": [ "/nc/173/0062-01" ] }, { "cite": "485 S.E.2d 847", "category": "reporters:state_regional", "reporter": "S.E.2d", "year": 1997, "pin_cites": [ { "page": "849", "parenthetical": "quoting In re Clayton-Marcus Co. Inc., 286 N.C. at 219-20, 210 S.E.2d at 203" } ], "opinion_index": 0 }, { "cite": "126 N.C. App. 501", "category": "reporters:state", "reporter": "N.C. App.", "case_ids": [ 11711515 ], "year": 1997, "pin_cites": [ { "page": "503-04", "parenthetical": "quoting In re Clayton-Marcus Co. Inc., 286 N.C. at 219-20, 210 S.E.2d at 203" } ], "opinion_index": 0, "case_paths": [ "/nc-app/126/0501-01" ] }, { "cite": "210 S.E.2d 199", "category": "reporters:state_regional", "reporter": "S.E.2d", "weight": 3, "year": 1974, "pin_cites": [ { "page": "202" }, { "page": "219" }, { "page": "202" } ], "opinion_index": 0 }, { "cite": "286 N.C. 215", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 8564966 ], "weight": 2, "year": 1974, "pin_cites": [ { "page": "219" }, { "page": "219-20" } ], "opinion_index": 0, "case_paths": [ "/nc/286/0215-01" ] }, { "cite": "180 S.E.2d 823", "category": "reporters:state_regional", "reporter": "S.E.2d", "year": 1971, "pin_cites": [ { "page": "830" } ], "opinion_index": 0 }, { "cite": "278 N.C. 523", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 8561041 ], "year": 1971, "pin_cites": [ { "page": "534" } ], "opinion_index": 0, "case_paths": [ "/nc/278/0523-01" ] }, { "cite": "210 S.E.2d 289", "category": "reporters:state_regional", "reporter": "S.E.2d", "year": 1974, "pin_cites": [ { "page": "291" } ], "opinion_index": 0 }, { "cite": "24 N.C. App. 204", "category": "reporters:state", "reporter": "N.C. App.", "case_ids": [ 8549724 ], "year": 1974, "pin_cites": [ { "page": "206-07" } ], "opinion_index": 0, "case_paths": [ "/nc-app/24/0204-01" ] }, { "cite": "468 S.E.2d 432", "category": "reporters:state_regional", "reporter": "S.E.2d", "year": 1996, "pin_cites": [ { "page": "433" } ], "opinion_index": 0 }, { "cite": "121 N.C. App. 593", "category": "reporters:state", "reporter": "N.C. App.", "case_ids": [ 11919033 ], "year": 1996, "pin_cites": [ { "page": "595" } ], "opinion_index": 0, "case_paths": [ "/nc-app/121/0593-01" ] }, { "cite": "N.C. Gen. Stat. \u00a7 105-241.4", "category": "laws:leg_statute", "reporter": "N.C. Gen. Stat.", "year": 1989, "opinion_index": 0 }, { "cite": "N.C. Gen. Stat. \u00a7 105-130.4", "category": "laws:leg_statute", "reporter": "N.C. Gen. Stat.", "weight": 11, "year": 1989, "pin_cites": [ { "page": "(a)(l)" }, { "page": "(a)(l)" }, { "page": "(a)(l)" }, { "page": "(a)(5)" } ], "opinion_index": 0 }, { "cite": "N.C. Gen. Stat. \u00a7 105-267", "category": "laws:leg_statute", "reporter": "N.C. Gen. Stat.", "year": 1989, "opinion_index": 0 } ], "analysis": { "cardinality": 626, "char_count": 13216, "ocr_confidence": 0.786, "pagerank": { "raw": 3.22487686328757e-07, "percentile": 0.8673380185485717 }, "sha256": "91f019f4024d8a94c162365155cef37b703ce4748950acf78cd1c870ba33b30a", "simhash": "1:c99f5150823aa8f0", "word_count": 2120 }, "last_updated": "2023-07-14T19:05:25.972365+00:00", "provenance": { "date_added": "2019-08-29", "source": "Harvard", "batch": "2018" }, "casebody": { "judges": [ "Judges MARTIN, John C., and JOHN concur." ], "parties": [ "Polaroid Corporation, Plaintiff v. Muriel K. Offerman, Secretary of Revenue of the State of North Carolina, Defendant" ], "opinions": [ { "text": "SMITH, Judge.\nPlaintiff Polaroid Corporation (\u201cPolaroid\u201d), domiciled in Massachusetts, filed this action seeking a partial tax refund pursuant to N.C. Gen. Stat. \u00a7 105-267 (1989) of income tax paid to the State of North Carolina for the 1991 tax year. Polaroid requests a refund of additional assessed taxes and interest totaling $499,177.00 based on a $924,526,554.00 recovery from a patent infringement suit Polaroid instigated in 1976 against Eastman Kodak Company (\u201cKodak\u201d). See Polaroid Corp. v. Eastman Kodak Co., U.S.P.Q.2d 1711 (1991).\nFor North Carolina corporate income tax purposes, Polaroid classified the total award from that lawsuit as \u201cnon-business income\u201d pursuant to N.C. Gen. Stat. \u00a7 105-130.4(a)(l) (1989) on its 1991 return. The North Carolina Department of Revenue (\u201cDOR\u201d) disagreed with Polaroid\u2019s treatment of the taxes as non-business income, reclassified the damage award as business income, and assessed additional tax and interest in the amount of $499,177.00. Polaroid protested the proposed assessment and an administrative hearing was conducted before the Secretary of Revenue, who sustained the assessment. Thereafter, Polaroid paid the tax under protest and filed this action for refund pursuant to N.C. Gen. Stat. \u00a7 105-241.4 (1989).\nBoth parties filed motions for summary judgment. On 28 February 1997, the trial court granted defendant\u2019s motion for summary judgment and denied plaintiff\u2019s motion for summary judgment. Plaintiff Polaroid appeals.\nAppellate review of the grant of summary judgment is limited to two questions: (1) whether there is a genuine question of material fact, and (2) whether the moving party is entitled to judgment as a matter of law. Gregorino v. Charlotte-Mecklenburg Hosp. Authority, 121 N.C. App. 593, 595, 468 S.E.2d 432, 433 (1996). A motion for summary judgment should be granted if, and only if, \u201cthe pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that any party is entitled to a judgment as a matter of law.\u201d N.C. Gen. Stat. \u00a7 1A-1, Rule 56(c) (Cum. Supp. 1996). Evidence is viewed in the light most favorable to the non-moving party with all reasonable inferences drawn in favor of the non-movant. Whitley v. Cubberly, 24 N.C. App. 204, 206-07, 210 S.E.2d 289, 291 (1974). When there is no genuine issue of fact, the existence of important or difficult questions of law is no barrier to the granting of summary judgment. Kessing v. National Mortgage Corp., 278 N.C. 523, 534, 180 S.E.2d 823, 830 (1971).\nThe first issue presented for appeal is whether the trial court committed reversible error by denying Polaroid a refund of income tax it paid in 1991 on damages from the Kodak lawsuit, plus interest. Polaroid claims this recovery was not business income as defined by N.C. Gen. Stat. \u00a7 105-130.4(a)(l), or else it was not subject to taxation under the United States Constitution.\nN.C. Gen. Stat. \u00a7 105-130.4(a)(l) defines \u201cbusiness income\u201d as\nincome arising from transactions and activity in the regular course of the corporation\u2019s trade or business and includes income from tangible and intangible property if the acquisition, management, and/or disposition of the property constitute integral parts of the corporation\u2019s regular trade or business operations.\nIn contrast, \u201cnonbusiness income\u201d is defined as \u201call income other than business income.\u201d N.C. Gen. Stat. \u00a7 105-130.4(a)(5).\n\u201c[W]hen there is doubt as to the meaning of a statute levying a tax, it is to be strictly construed against the State and in favor of the taxpayer.\u201d In re Clayton-Marcus Co., Inc., 286 N.C. 215, 219, 210 S.E.2d 199, 202 (1974). This rule is only applicable when there is ambiguity in the statute. Id. at 219, 210 S.E.2d at 202. If the words of a definition in a statute are ambiguous, \u201c \u2018they must be construed pursuant to the general rules of statutory construction....\u2019\u201d USAir, Inc. v. Faulkner, 126 N.C. App. 501, 503-04, 485 S.E.2d 847, 849 (1997) (quoting In re Clayton-Marcus Co. Inc., 286 N.C. at 219-20, 210 S.E.2d at 203). These general rules of statutory construction include giving words their common and ordinary meaning, as well as giving effect to the intent of the Legislature. Id.\nIn the instant case, Polaroid claims, in part, that business income has only one meaning, and that the phrase \u201cand includes\u201d in the definition merely provides examples of what fits within the definition. In contrast, DOR claims that business income has two definitions, one before the words \u201cand includes\u201d in the statute, and the other definition after those words. An interpretation of N.C. Gen. Stat. \u00a7 105-130.4 requires us to give the phrase \u201cand includes\u201d its ordinary meaning.\nThe North Carolina Supreme Court has stated that the term \u201cincludes\u201d does not mean \u201cin addition to.\u201d Miller v. Johnston, 173 N.C. 62, 69, 91 S.E. 593, 597 (1917). Furthermore, Webster\u2019s Dictionary defines \u201cinclude\u201d as a \u201ccompromise as a discrete or subordinate part or item of a larger aggregate, group, or principle . . . .\u201d Webster\u2019s Third New International Dictionary (1971). Therefore, the words \u201cand includes\u201d in N.C. Gen. Stat. \u00a7 105-130.4 do not create a separate definition of business income.\nDefendant DOR argues that N.C. Gen. Stat. \u00a7 105-130.4 is based on the Model Tax Act and that this Act adopts a functional approach in the definition of business income. However, our statute differs from the Model Act. In the Model Act, business income can arise from two types of activities of a business, \u201ceither of which classifies an item of income as business income.\u201d\nFirst, business income can be derived from transactions and activities that constitute the conduct of the taxpayer\u2019s trade or business. Second, business income can be derived from a transaction involving property that does not by itself constitute the conduct of the taxpayer\u2019s trade or business, if the taxpayer holds or held its interest in the property in furtherance of the trade or business beyond the mere financial betterment of the taxpayer in general.\nExhibit D \u2014 Multistate Tax Commission \u2014 November 1994. As we have already mentioned, the language \u201cand includes\u201d in N.C. Gen. Stat. \u00a7 105-130.4 does not mean there are two separate definitions of business income. DOR\u2019s final agency decision in the instant case asserts there are two definitions of business income based on DOR enacting regulations and issuance of a final agency decision. See N.C. Admin. Code tit. 2, r. .0703 (April 1991) and North Carolina Department of Revenue Final Agency Decision No. 90-37. In our interpretation we construe \u201cand includes\u201d to mean \u201cand some examples are.\u201d To change the ordinary meaning of a statute, an act of the General Assembly is required. DOR may not change or amend the plain meaning of a statute by administrative regulation, final agency decision, or both.\nNormally the construction of a statute is a question of law for the courts. Wood v. J. P. Stevens & Co., 297 N.C. 636, 642, 256 S.E.2d 692, 696 (1979). Thus, whether income fits into the statutory definition of business income or non-business income would ordinarily be a question of law. However, we are aware of National Service Industries, Inc. v. Powers, 98 N.C. App. 504, 508, 391 S.E.2d 509, 512, appeal dismissed and disc. review denied, 327 N.C. 431, 395 S.E.2d 685 (1990), holding that whether certain income is business income is a question of fact.\nIn that case, plaintiff taxpayer had purchased electricity generating equipment and leased it back to the seller. There was a disputed issue of fact as to whether the purchase and subsequent lease back produced business income, since the taxpayer was not specifically in the electricity generating business. Based on the disputed facts, the jury in that case determined that the actions of the business were done as an investment to acquire working capital and to increase cash flow, both integral parts of a business. The jury held that an investment was in the regular course of the taxpayer\u2019s business and therefore constituted business income. This Court affirmed. Thus, the classification of whether a company\u2019s action falls \u201cwithin the regular course of business\u201d for that particular company may involve a factual determination. We note that in National Service Industries, DOR took the position that the income generated by the leases was non-business income because plaintiff was not engaged in the business of generating electricity, a position we believe is diametrically opposed to DOR\u2019s argument in the case at bar.\nOnce a factual determination has been made, if one is required, then the issue of whether the income falls within the definitions set out in the statute becomes one of law. See Wood, 297 N.C. at 640, 256 S.E.2d at 695-96. Thus, the National Service Industries case merely stands for the proposition that once an activity of a business has been classified through a factual determination as \u201cin the regular course of its business,\u201d whether that income then fits the statutory definition of business income involves a question of law. Therefore, whether the income falls within the general definition of business income or non-business income set out in N.C. Gen. Stat. \u00a7 105-130.4 can present a mixed question of fact and law.\nIn the instant case, the undisputed facts show that Polaroid is not in the business of licensing patents. Polaroid argues that, because it does not license its patents, the recovery received for patent infringement is not in the regular course of its business, such that the acquisition, management, and/or disposition of the lawsuit damages constitute integral parts of the corporation\u2019s regular trade or business operations. Webster\u2019s Dictionary defines \u201cregular\u201d as \u201csteady or uniform in course, practice, or occurrence\u201d and further includes synonyms of the word such as \u201cnormal,\u201d \u201ctypical,\u201d and \u201cnatural.\u201d Webster\u2019s Third New International Dictionary (1971).\nUnlike the National Service Industries case involving an investment, the main purpose of the Kodak lawsuit was not to acquire working capital or to increase cash flow, both activities in the regular course of business. Instead, Polaroid instigated the patent infringement suit to prevent Kodak from using Polaroid\u2019s patents and to recover lost profits. Since licensing patents to other companies is not in the regular course of Polaroid\u2019s business operations, the recovery of damages would not be in the regular course of its business. The protection of Polaroid\u2019s patents may be classified as a business activity, but it is an extraordinary event instead of an integral part of Polaroid\u2019s regular trade or business operations. Because there is no factual dispute concerning the regular course of Polaroid\u2019s business, all that remains is the statutory interpretation of the definition of business income, which is a question of law. See Wood, 297 N.C. at 642, 256 S.E.2d at 696.\nIt follows that, since the money received is not an integral part of Polaroid\u2019s regular trade or business operations, the income derived from the damages recovery cannot properly be classified under N.C. Gen. Stat. \u00a7 105-130.4 as business income. The income derived from the Kodak lawsuit must be classified as non-business income. Thus, Polaroid is entitled to a refund.\nThe trial court erred by granting the summary judgment motion in favor of defendant. Although there is no genuine issue of material fact, the trial court incorrectly interpreted N.C. Gen. Stat. \u00a7 105-130.4. Thus, we reverse and remand this case for entry of an order granting summary judgment for Polaroid. In light of the foregoing reasoning, we need not address plaintiff\u2019s other assignments of error.\nReversed and remanded.\nJudges MARTIN, John C., and JOHN concur.", "type": "majority", "author": "SMITH, Judge." } ], "attorneys": [ "Womble Carlyle Sandridge & Rice, PLLC, by Jasper L. Cummings, Jr., for plaintiff appellant.", "Attorney General Michael F. Easley, by Assistant Attorney General Kay Linn Miller Hobart, for defendant appellee." ], "corrections": "", "head_matter": "Polaroid Corporation, Plaintiff v. Muriel K. Offerman, Secretary of Revenue of the State of North Carolina, Defendant\nNo. COA97-476\n(Filed 20 January 1998)\n1. Taxation \u00a7 114 (NCI4th)\u2014 business income \u2014 meaning of \u201cand includes\u201d\nThe phrase \u201cand includes\u201d in N.C.G.S. \u00a7 105-130.4 does not create a separate definition of business income but merely provides examples of what fits within the definition of business income.\n2. Taxation \u00a7 114 (NCI4th)\u2014 patent infringement award\u2014 income taxation \u2014 nonbusiness income\nDamages awarded to plaintiff Polaroid in its patent infringement suit against a competitor is nonbusiness income rather than business income under N.C.G.S. \u00a7 105-130.4 for income tax purposes where plaintiff is not in the business of licensing its patents; the main purpose of the lawsuit was not to acquire working capital or to increase cash flow but was to prevent the competitor from using its patents and to recover lost profits; and the money received is thus not a part of plaintiffs regular trade or business operations.\nAppeal by plaintiff from order entered 28 February 1997 by Judge Narley L. Cashwell in Wake County Superior Court. Heard in the Court of Appeals 4 December 1997.\nWomble Carlyle Sandridge & Rice, PLLC, by Jasper L. Cummings, Jr., for plaintiff appellant.\nAttorney General Michael F. Easley, by Assistant Attorney General Kay Linn Miller Hobart, for defendant appellee." }, "file_name": "0422-01", "first_page_order": 458, "last_page_order": 463 }