{
  "id": 8521198,
  "name": "GUILFORD MILLS, INC., a Delaware Corporation v. HELEN A. POWERS, Secretary of Revenue of the State of North Carolina",
  "name_abbreviation": "Guilford Mills, Inc. v. Powers",
  "decision_date": "1989-09-05",
  "docket_number": "No. 8818SC1305",
  "first_page": "417",
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  "provenance": {
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    "judges": [
      "Judges COZORT and GREENE concur."
    ],
    "parties": [
      "GUILFORD MILLS, INC., a Delaware Corporation v. HELEN A. POWERS, Secretary of Revenue of the State of North Carolina"
    ],
    "opinions": [
      {
        "text": "JOHNSON, Judge.\nPlaintiff is engaged in the business of manufacturing and selling textiles. Plaintiff establishes trade accounts with its customers and enters into written agreements with commercial factors which provide that the factors will purchase plaintiff\u2019s trade accounts. A factor assumes the risk that it will not be able to collect an account after it has purchased that account. When a factor purchases an account, it becomes indebted to plaintiff according to the terms agreed upon by the parties.\nPlaintiff classified the payment which it was owed by factors for the sale of its trade accounts as \u201cbonds, notes and other evidences of debt\u201d on its intangible personal property tax returns for the years 1981 through 1984. Plaintiff made this classification pursuant to G.S. sec. 105-202, the statute which governs the taxation of bonds, notes, and other evidences of debt. On 31 May 1985, the North Carolina Department of Revenue issued a field auditor\u2019s report which stated that the payment which was owed to plaintiff for the sale of its trade accounts should have been reported as \u201caccounts receivable,\u201d which are governed by G.S. sec. 105-201. This report also stated that plaintiff owed $212,451.23 in back taxes, interest and penalties due to its erroneous classification of the payments it was owed for the sale of its trade accounts and due to other improprieties in plaintiff\u2019s tax returns. The Department of Revenue issued notices of tax assessment against plaintiff on 11 June 1985; the partial copy of these notices contained in the record on appeal indicates that the amount assessed against plaintiff was substantially similar to the amount stated in the field auditor\u2019s report.\nThe classification of the payments owed to plaintiff for the sale of its trade accounts affected the amount of tax owed by plaintiff because it affected the type of deductions plaintiff could claim. If the payments owed to plaintiff were classified as accounts receivable then G.S. sec. 105-201 allowed plaintiff to deduct its accounts payable, but if the payments were classified as notes, bonds or other evidences of debt then G.S. sec. 105-202 allowed plaintiff to deduct its \u201clike evidences of debt\u201d instead of its accounts payable.\nPlaintiff filed this action on 30 March 1988 to recover the intangible taxes and interest it had paid. Plaintiff claimed that the Department of Revenue had agreed to refund the penalty payments plaintiff had made, and plaintiff claimed that the total amount then in controversy was $199,374.01. Plaintiff\u2019s motion for summary judgment was filed 16 August 1988. Defendant\u2019s motion for summary judgment was filed 23 August 1988. On 17 October 1988, the trial court denied plaintiff\u2019s motion for summary judgment and allowed defendant\u2019s motion for summary judgment.\nPlaintiff contends on appeal that the trial court erroneously interpreted G.S. secs. 105-201 and 105-202 in order to determine that the payments owed to plaintiff for the sale of its trade accounts should have been classified on plaintiff\u2019s tax returns as accounts receivable. We disagree.\nTax assessments are presumed to be correct. Riggs v. Coble, Sec. of Revenue, 37 N.C. App. 266, 245 S.E.2d 831 (1978). Plaintiff therefore bears the burden of proving that the Department of Revenue employed an erroneous interpretation of the relevant taxation statutes in order to make an incorrect tax assessment. We find that plaintiff has not' met this burden of proof.\nPlaintiff has failed to prove that the trial court erroneously interpreted G.S. sec. 105-201 when it determined that the Department of Revenue correctly classified the payments owed to plaintiff for the sale of its trade accounts as accounts receivable. G.S. sec. 105-201 does not define the term \u201caccounts receivable.\u201d When a statutory term is not defined in a statute, \u201cthe words must be given their ordinary meaning unless the statute contains a clear indication to the contrary, or the words have acquired a technical significance.\u201d Midrex Corp. v. Lynch, Sec. of Revenue, 50 N.C. App. 611, 614, 274 S.E.2d 853, 855 (1981). This Court has stated that an account receivable \u201cis ordinarily understood to be an amount owed from one person to another usually arising from the sale of goods or rendering of services and not supported by negotiable paper.\u201d Moore and Van Allen v. Lynch, 61 N.C. App. 601, 602, 301 S.E.2d 426, 427, disc. rev. denied, 308 N.C. 677, 304 S.E.2d 756 (1983). The payments owed to plaintiff were owed from one corporate person to another, and there is no evidence in the record on appeal that these payments were supported by negotiable paper. Therefore, these payments can be considered to be accounts receivable according to the Moore and Van Allen definition of the term. The payments owed to plaintiff did not arise from the sale of goods or rendering of services, but Moore and Van Allen does not state that accounts receivable must arise from the sale of goods or rendering of services, it merely states that accounts receivable usually arise in this way.\nAnother widely accepted definition states that \u201c[a]n \u2018account receivable\u2019 in the ordinary and commercial sense is an amount owing by one person to another on an open account.\u201d 1 Am. Jur. 2d Accounts and Accounting sec. 2 (1962). An open account is \u201can account the balance on which has not been ascertained . . .\u201d Id. sec. 4. The payments owed to plaintiff clearly qualified as accounts receivable according to the definition stated above, since these payments were amounts owed by one corporate person to another on accounts which had balances which had not been ascertained. (The balances on these accounts had not been ascertained because new trade accounts could be added to these accounts at any time during the life of the contracts between plaintiff and its factors.) Another definition states that accounts receivable are \u201ccontract obligations owing to a person on open account.\u201d 1 C.J.S. Account (1985), and the payments owed to plaintiff also clearly qualified as accounts receivable according to this definition. We find that the definitions stated above indicate that plaintiff has not met its burden of proving that the trial court erred in finding that the payments in question could be classified as accounts receivable.\nWe also note that plaintiff\u2019s contention that an account receivable can only arise from the sale of goods or rendering of services is incorrect. The last paragraph of G.S. sec. 105-201 deals with \u201cthe purchase or sale of stocks, bonds or other securities from which such [securities] brokers derive accounts receivable.\u201d This statutory language clearly indicates that accounts receivable may arise from the sale of intangible property.\nPlaintiff also contends that the trial court erroneously interpreted G.S. sec. 105-202 when it determined that plaintiff\u2019s right to payment from its factors did not have to be classified as \u201cother evidences of debt.\u201d In order to evaluate plaintiff\u2019s claim we must analyze the meaning of the term \u201cother evidences of debt.\u201d G.S. sec. 105-202 does not define this term. Black\u2019s Law Dictionary, however, defines \u201cevidence of debt\u201d as \u201cwritten instruments or securities for the payment of money, importing on their face the existence of a debt.\u201d Black\u2019s Law Dictionary 499 (5th ed. 1979).\nCopies of two factoring agreements are contained in the record on appeal. The factoring agreement between plaintiff and First National Factors of Boston (\u201cFirst National\u201d) stated that plaintiff would sell to the factor its \u201caccounts receivable . . . arising during the term of this agreement,\u201d but this agreement did not provide for the sale of any already existing accounts. The sale of plaintiff\u2019s trade accounts to First National at some time after the execution of the factoring agreement was therefore a condition precedent to the existence of any financial obligation on the part of First National, so First National was not indebted to plaintiff when the factoring agreement was executed. The agreement between plaintiff and First National therefore did not import on its face the existence of a debt. Plaintiff\u2019s factoring agreement with Chemical Bank\u2019s Dommerich Division stated that Chemical Bank was buying \u201call of said receivables acceptable to and approved by you [Chemical Bank].\u201d Although the agreement stated that accounts not accepted by Chemical Bank would nonetheless be assigned to it, the agreement stated that Chemical Bank would have \u201cfull recourse\u201d to plaintiff for unaccepted accounts. Chemical Bank may have been technically liable to plaintiff for these unaccepted accounts, but plaintiff was in turn liable to Chemical Bank under \u201cfull recourse\u201d for these accounts, so as a practical matter Chemical Bank was not indebted to plaintiff for any unaccepted accounts. It appears that Chemical Bank did not become indebted to plaintiff when the factoring agreement was executed. Therefore, Chemical Bank only became indebted to plaintiff when it accepted one of plaintiff\u2019s accounts. The factoring agreements contained in the record on appeal did not import on their faces the existence of a debt, so these agreements did not qualify as \u201cevidences of debt\u201d according to the commonly accepted definition stated above. We therefore find that plaintiff-has failed to prove that the trial court erroneously interpreted G.S. sec. 105-202 when it determined that plaintiff\u2019s right to payment from its factors did not have to be classified as \u201cother evidences of debt.\u201d\nAffirmed.\nJudges COZORT and GREENE concur.",
        "type": "majority",
        "author": "JOHNSON, Judge."
      }
    ],
    "attorneys": [
      "Floyd Greeson Allen and Jacobs, by Jack W. Floyd and Robert V. Shaver, for plaintiff-appellant.",
      "Attorney General Lacy H. Thornburg, by Assistant Attorney General Marilyn R. Mudge, for defendant-appellee."
    ],
    "corrections": "",
    "head_matter": "GUILFORD MILLS, INC., a Delaware Corporation v. HELEN A. POWERS, Secretary of Revenue of the State of North Carolina\nNo. 8818SC1305\n(Filed 5 September 1989)\n1. Taxation \u00a7 32\u2014 intangibles tax \u2014 payments to plaintiff for sale of trade accounts \u2014 classification as accounts receivable\nPlaintiff failed to prove that the trial court erroneously interpreted N.C.G.S. \u00a7 105-201 when it determined that the Department of Revenue correctly classified the payments owed to plaintiff for the sale of its trade accounts to factors as accounts receivable since the payments owed to plaintiff were owed from one corporate person to another; there was no evidence in the record on appeal that these payments were supported by negotiable paper; though accounts receivable usually arise from the sale of goods or rendering of services, there is no requirement that they must do so; and the payments owed to plaintiff were amounts owed by one corporate person to another on accounts which had balances which had not been ascertained, that is, they were amounts owed on open accounts.\n2. Taxation \u00a7 32\u2014 intangibles tax \u2014 payments from factors upon sale of trade accounts \u2014 no classification as \u201cother evidences of debt\u201d\nThe trial court did not erroneously interpret N.C.G.S. \u00a7 105-202 when it determined that plaintiff\u2019s right to payment from its factors upon sale of its trade accounts did not have to be classified as \u201cother evidences of debt\u201d rather than as accounts receivable, since the factoring agreements contained in the record did not import on their faces the existence of a debt.\nAPPEAL by plaintiff from Walker, Russell G., Judge. Judgment entered 17 October 1988 in Superior Court, GUILFORD County. Heard in the Court of Appeals 6 June 1989.\nPlaintiff instituted this action on 30 March 1988 to recover intangible taxes and interest paid by plaintiff. The trial court denied plaintiff\u2019s motion for summary judgment and allowed defendant\u2019s motion for summary judgment.\nFloyd Greeson Allen and Jacobs, by Jack W. Floyd and Robert V. Shaver, for plaintiff-appellant.\nAttorney General Lacy H. Thornburg, by Assistant Attorney General Marilyn R. Mudge, for defendant-appellee."
  },
  "file_name": "0417-01",
  "first_page_order": 445,
  "last_page_order": 450
}
