{ "id": 8566825, "name": "MUTUAL SAVINGS AND LOAN ASSOCIATION v. EDWIN S. LANIER, Commissioner of Insurance of the State of North Carolina", "name_abbreviation": "Mutual Savings & Loan Ass'n v. Lanier", "decision_date": "1971-07-30", "docket_number": "No. 72", "first_page": "299", "last_page": "306", "citations": [ { "type": "official", "cite": "279 N.C. 299" } ], "court": { "name_abbreviation": "N.C.", "id": 9292, "name": "Supreme Court of North Carolina" }, "jurisdiction": { "id": 5, "name_long": "North Carolina", "name": "N.C." }, "cites_to": [ { "cite": "26 U.S.C.A. \u00a7 593", "category": "laws:leg_statute", "reporter": "U.S.C.", "opinion_index": -1 }, { "cite": "131 S.E. 2d 335", "category": "reporters:state_regional", "reporter": "S.E.2d", "year": 1963, "pin_cites": [ { "page": "337" } ], "opinion_index": 0 }, { "cite": "259 N.C. 672", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 8561989 ], "year": 1963, "pin_cites": [ { "page": "675" } ], "opinion_index": 0, "case_paths": [ "/nc/259/0672-01" ] }, { "cite": "49 S.E. 2d 754", "category": "reporters:state_regional", "reporter": "S.E.2d", "year": 1948, "opinion_index": 0 }, { "cite": "229 N.C. 313", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 12165796 ], "year": 1948, "opinion_index": 0, "case_paths": [ "/nc/229/0313-01" ] }, { "cite": "129 S.E. 2d 465", "category": "reporters:state_regional", "reporter": "S.E.2d", "year": 1963, "opinion_index": 0 }, { "cite": "258 N.C. 749", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 8562682 ], "year": 1963, "opinion_index": 0, "case_paths": [ "/nc/258/0749-01" ] }, { "cite": "26 U.S.C.A. \u00a7 166", "category": "laws:leg_statute", "reporter": "U.S.C.", "weight": 5, "pin_cites": [ { "page": "(c)" } ], "opinion_index": 0 }, { "cite": "26 U.S.C.A. \u00a7 63", "category": "laws:leg_statute", "reporter": "U.S.C.", "opinion_index": 0 }, { "cite": "26 U.S.C.A. \u00a7 11", "category": "laws:leg_statute", "reporter": "U.S.C.", "opinion_index": 0 }, { "cite": "26 U.S.C.A. \u00a7 593", "category": "laws:leg_statute", "reporter": "U.S.C.", "weight": 6, "opinion_index": 0 } ], "analysis": { "cardinality": 644, "char_count": 16487, "ocr_confidence": 0.571, "pagerank": { "raw": 4.03580807328026e-08, "percentile": 0.20639909894360636 }, "sha256": "817c5221c88c967678eb438e1626aab1a7e88456d0e6dbe3d90bd9d4a5ff3771", "simhash": "1:d3a8be0d7ee46138", "word_count": 2667 }, "last_updated": "2023-07-14T15:36:58.436463+00:00", "provenance": { "date_added": "2019-08-29", "source": "Harvard", "batch": "2018" }, "casebody": { "judges": [], "parties": [ "MUTUAL SAVINGS AND LOAN ASSOCIATION v. EDWIN S. LANIER, Commissioner of Insurance of the State of North Carolina" ], "opinions": [ { "text": "BOBBITT, Chief Justice.\nChapter 1110, Session Laws of 1967, referred to hereafter as the 1967 Act, is effective and applicable to all taxable years beginning on or after January 1, 1967. Its provisions, discussed below, determine plaintiff\u2019s tax liability for 1967 and 1968.\nPrior to the 1967 Act, building and loan and savings and loan associations organized under the laws of this State were taxed as provided in G.S. Ch. 105, Subch. I, Art. 8D, Vol. 2D, 1965 Replacement.\nG.S. 105-228.23 imposed upon every building and loan association for the privilege of conducting business in this State a tax of six cents on each one hundred dollars of the liability of such association on its shares outstanding on December 31 of the preceding year. In addition, G.S. 105-228.24 provided that every building and loan association pay annually \u201can excise tax equivalent to six per cent (6%) of the net taxable income, as herein defined, of such corporation during the income year.\u201d (Our italics:) Under G.S. 105-138 (a) (2), building (savings) and loan associations \u201csubject to taxation for capital stock tax and/or excise tax purposes under article 8D\u201d were exempt from the income tax imposed by G.S. Ch. 105 Subch. I, Art. 4.\nThe 1967 Act is entitled \u201cAn Act to Make Technical Ee-visions to Chapters 105, 119, 18 and 53A of the General Statutes Pertaining to the Eevenue Laws of North Carolina.\u201d Prior thereto, G.S. Ch. 105, Subch. I, Art. 4, entitled \u201cSchedule D. Income Tax,\u201d included all statutory provisions relating to North Carolina income taxes. The 1967 Act divided Art. 4, \u201cSchedule D. Income Tax,\u201d into \u201cDivision I. Corporation Income Tax,\u201d \u201cDivision II. Individual Income Tax,\u201d and \u201cDivision III. Income Tax \u2014 Estates, Trusts, and Beneficiaries.\u201d G.S. 105-130 provides that Division I, the pertinent portion of the 1967 Act, \u201cshall be known and may be cited as the Corporation Income Tax Act.\u201d Division I consists of G.S. 105-130 through G.S. 105-130.21. G.S. 105-130.11 (2) provides that \u201cbuilding and loan associations and savings and loan associations subject to capital stock tax and/or excise tax under article 8D\u201d are exempt from the income tax imposed by the (1967) Corporation Income Tax Act.\nAlthough such associations are not subject to income tax eo nomine, the amount of the annual excise tax imposed by G.S. 105-228.24 before and after the 1967 Act was \u201cequivalent to six per cent (6%) of the net taxable income, as herein defined, of such corporation during the income year.\u201d (Our italics.) Too, before and after the 1967 Act, G.S. 105-228.24 provided: \u201cFor purposes of this article \u2018net taxable income\u2019 shall mean net income as the same is defined for purposes of the income tax levied against corporations as provided in article 4 of sub-chapter I of chapter 105 of the General Statutes less all dividends paid or accrued by an association during the income year on all of its outstanding shares of capital stock.\u201d\n(Note: Effective July 1, 1969, Session Laws of 1969, Chapter 1075, Section 7, amended G.S. 105-228.23 by substituting \u201cseven and one-half cents (TVzfi)\u201d for \u201csix cents (6^)\u201d and amended G.S. 105-228.24 by substituting \u201cseven and one-half per cent (7%%)\u201d for \u201csix per cent (6%).\u201d)\nPrior to the 1967 Act, \u201cSchedule D. Income Tax,\u201d G.S. Ch. 105, Subch. I, Art. 4, prescribed the procedure for determining the \u201cnet taxable income\u201d of a corporation. The 1967 Act (G.S. 105-130.3) provided: \u201cEvery corporation doing business in this State shall pay annually an income tax equivalent to six per cent (6%) of its net income or the portion thereof allocated and apportioned to this State. The net income or net loss of such corporation shall be the same as \u2018taxable income\u2019 as defined in the Internal Revenue Code in effect on the effective date of this division, subject to the adjustments provided in G.S. 105-130.5.\u201d By virtue of G.S. 105-130.3, the excise tax prescribed by G.S. 105-228.24 is imposed on the amount of \u201ctaxable income\u201d as determined in the Internal Revenue Code subject to such adjustments', if any, as may be required by G.S. 105-130.5.\nIn computing the net income of a taxpayer prior to the 1967 Act, G.S. 105-147(10) authorized the following deductions: \u201c(10) Debts ascertained to be worthless and actually charged off within the income year, if connected with business and, if the amount has previously been included in gross income in a return under this article; or, in the discretion of the Commissioner, a reasonable addition to a reserve for bad debts.\u201d (Our italics.) (Note: Although authorized to do so, the Commissioner had never exercised his discretion to permit a reserve for bad debts as a deduction in lieu of debts ascertained to be worthless and actually charged off within the income year.) Under the 1967 Act, G.S. 105-147 (10) provides in identical terms for a deduction for worthless debts in the computation of the net income of an individual under \u201cDivision II. Individual Income Tax\u201d of G.S. Ch. 105, Subch. I, Art. 4. However, the 1967 Act did not include that provision or any provision for a deduction for worthless debts in computing the net income of a corporation under \u201cDivision I. Corporation Income Tax.\u201d Since the 1967 Act (G.S. 105-130.3) provided that \u201c(t)he net income or net loss of such corporation shall be the same as \u2018taxable income\u2019 as defined in the Internal Revenue Code in effect on the effective date of this division, subject to the adjustments provided in G.S. 105-130.5,\u201d we look to the provisions of the Internal Revenue Code in effect on January 1, 1967.\nIt is here noted that building and loan associations are not exempt from the corporate income tax imposed by the Internal Revenue Code. 26 U.S.C.A. \u00a7 11.\nUnder the Internal Revenue Code, \u201ctaxable income\u201d means gross income minus specified allowable deductions. 26 U.S.C.A. \u00a7 63. Itemized deductions allowable to taxpayers, corporate or individual, for \u201cBad debts\u201d are set forth in detail. 26 U.S.C.A. \u00a7 166, subsections (a) through (h). Subsections (a), (c) and (h) (3) are quoted below.\n\u201c(a) General rule.\u2014\n(1) Wholly worthless debts. \u2014 There shall be allowed as a deduction any debt which becomes worthless within the taxable year.\n(2) Partially worthless debts. \u2014 When satisfied that a debt is recoverable only in part, the Secretary or his delegate may allow such debt, in an amount not in excess of the part charged off within the taxable year, as a deduction.\u201d\n\u201c(c) Reserve for bad debts. \u2014 In lieu of any deduction under subsection (a), there shall be allowed (in the discretion of the Secretary or his delegate) a deduction for a reasonable addition to a reserve for bad debts.\u201d\n\u201c(h) Cross references.\u2014\n(1) . \u2022 . .\n(2) ....\n(3) For special rule for bad debt reserves of certain mutual savings banks, domestic building and loan associations, and cooperative banks, see section 593.\u201d\n26 U.S.C.A. \u00a7 593, entitled \u201cReserves for losses on loans,\u201d applies specifically to domestic building and loan associations and to certain mutual savings banks and cooperative banks. Subsection (b) thereof provides in detail the formula for \u201cAddition to reserves for bad debts\u201d of a domestic building and loan association. The setting forth of this formula in full would add nothing to the clarity of this opinion. Subsection (b) is composed of sub-subsections (1), (2), (3), (4), and (5). Subsection (b) (1) begins as follows: \u201cIn general. \u2014 For purposes of section 166(c) the reasonable addition for the taxable year to the reserve for bad debts of any taxpayer described in subsection (a) shall be an amount equal to the sum of\u2014 . . . . \u201d\nFor federal income tax purposes, defendant concedes plaintiff was entitled to deduct the reserve for losses on loans specified in 26 U.S.C.A. \u00a7 593, referred to in the briefs as sixty per cent of plaintiff\u2019s \u201cnet income.\u201d However, defendant contends this deduction does not apply in determining the base for the excise tax imposed on plaintiff by G.S. 105-228.24.\nDefendant calls attention to the report to the Governor and the 1967 General Assembly of the Tax Study Commission created by Resolution 79 of the General Assembly of 1965 for the study of North Carolina\u2019s revenue structure.\nIn his brief, defendant quotes the following from Page 82 of the Commission\u2019s report: \u201cThe Commissioner of Revenue by invitation submitted a number of proposals for amendments to the Revenue Laws to the Commission for its consideration. These proposals were designated as \u2018technical\u2019 amendments as They Were Not Proposed to Provide Additional Revenue or to Provide Tax Relief to Any Group or groups.\u201d (Defendant\u2019s capitalization.) In our view, the immediately following sentence in the same paragraph should be given at least equal emphasis. It reads: \u201cThere might be some resulting effect upon revenue from various changes, but, on the whole, these amendments are to make the Revenue Laws conform more closely to the Federal law, to clarify provisions which are ambiguous or where problems have arisen in administering the law, to eliminate inequities, to simplify the law, to provide law in places where it is now lacking, to eliminate conflicts in the law, and to provide a more equitable allocation and apportionment formula.\u201d (Our italics.)\nIn his brief, defendant also quotes the following from Pages 82-83 of the Commission\u2019s report: \u201cTwo of the most important \u2018technical\u2019 amendments are A Separation of the Corporation Income Tax Law from the individual income tax law and the proposed new allocation law. Under the present law, the corporation income tax and the individual income tax are combined in one article and the proposed rewrite shortens and simplifies the income tax law dealing with corporations through the elimination of those provisions pertaining only to individuals. The rewrite also provides for a closer conformity between North Carolina law and Federal law as The Total net Income op the Corporation Will Be Computed With Reference to the Federal Code.\u201d (Defendant\u2019s capitalization.) (Our italics.)\nClearly, the Commission considered conformity between North Carolina law and federal law a major objective in the effort to achieve the desired clarity and simplification.\nDefendant contends the only deductions allowable to plaintiff for worthless debts are those formerly allowed under G.S. 105-147 (10) to all taxpayers prior to the 1967 Act. However, as indicated above, the portion of the 1967 Act applicable to corporation income taxes does not contain this or any provision of similar import. Thus, whatever rights plaintiff may have with reference to bad debts in determining plaintiff\u2019s \u201ctaxable income\u201d under the Internal Revenue Code as a base for the excise tax imposed by G.S. 105-228.24 are presently defined in the Internal Revenue Code rather than in any provision of a North Carolina statute. The question is whether 26 U.S.C.A. \u00a7 166 or 26 U.S.C.A. \u00a7 593 applies in determining plaintiff\u2019s excise taxes for 1967 and 1968 under G.S. 105-228.24.\nThe provisions of 26 U.S.C.A. \u00a7 166 are in accord with those of G.S. 105-147 (10) prior to the 1967 Act with this exception: G.S. 105-147(10) authorized a reasonable addition to a reserve for bad debts \u201cin the discretion of the Commissioner.\u201d 26 U.S.C.A. \u00a7 166(c) authorizes a reasonable addition to a reserve for bad debts \u201cin the discretion of the Secretary or his delegate.\u201d Reliance upon the exercise of this discretionary power by a federal rather than a State official indicates the legislative intent to achieve simplicity and conformity when computing \u201ctaxable income\u201d for State and federal tax purposes.\nFor present purposes, the inescapable fact is that 26 U.S.C.A. \u00a7 166 expressly provides in Subsection (h) (3) that a different (special) rule applies to domestic building and loan associations, namely, the rule prescribed in 26 U.S.C.A. \u00a7 593. These federal statutes were in effect when the 1967 Act was adopted and presumably the General Assembly was advertent to their provisions. Admittedly, 26 U.S.C.A. \u00a7 593 applies when computing the \u201ctaxable income\u201d of a domestic building and loan association for federal tax purposes. To apply a different rule in computing \u201ctaxable income\u201d of such association for State excise tax purposes based on \u201ctaxable income\u201d would negate rather than promote the conformity recommended in the Commission\u2019s report.\nG.S. 105-228.24 provided that every building and loan association shall pay annually \u201can excise tax equivalent to six per cent (6%) of the net taxable income, as herein defined, of such corporation during the income year.\u201d (Our italics.)\nDefendant contends statutes providing exemption from taxation are to be strictly construed, citing inter alia Sale v. Johnson, Commssioner of Revenue, 258 N.C. 749, 129 S.E. 2d 465 (1963); also, that the burden is on the taxpayer claiming an exemption to show that he falls within the statutory provisions permitting such exemption, citing inter alia Henderson v. Gill, 229 N.C. 313, 49 S.E. 2d 754 (1948). However, these rules of statutory construction must be considered in the light of the well-established rule expressed in Davis v. Granite Corporation, 259 N.C. 672, 675, 131 S.E. 2d 335, 337 (1963), as follows: \u201cWhen the language of a statute is plain and free from ambiguity, expressing a single, definite and sensible meaning, that meaning is conclusively presumed to be the meaning which the Legislature intended, and the statute must be interpreted accordingly.\u201d In our view, the statutory language impels the conclusion that the General Assembly intended that \u201ctaxable income\u201d as a base for the excise tax imposed by G.S. 105-228.24 should be the same as the \u201ctaxable income\u201d of a building and loan association (as distinguished from corporations generally) under Internal Revenue Code, subject to adjustments, if any, under G.S. 105-130.5. (Note: No questions are presented as to adjustments under G.S. 105-130.5.)\nWe hold that the base for the excise tax imposed on plaintiff for 1967 and 1968 by G.S. 105-228.24 is the \u201ctaxable income\u201d of a domestic building and loan association under the Internal Revenue Code; and that, in the determination of such \u201ctaxable income,\u201d the provisions of 26 U.S.C.A. \u00a7 593 applied. Since no questions are presented with reference to the accuracy of plaintiff\u2019s calculations, the judgment of the court below is vacated and the cause is remanded for the entry of a judgment not inconsistent with this opinion.\nError and remanded.", "type": "majority", "author": "BOBBITT, Chief Justice." } ], "attorneys": [ "Manning, Fulton & Skinner, by Howard E. Manning and W. Gerald Thornton, for plaintiff appellant.", "Attorney General Morgan and Assistant Attorney General Banks for defendant appellee." ], "corrections": "", "head_matter": "MUTUAL SAVINGS AND LOAN ASSOCIATION v. EDWIN S. LANIER, Commissioner of Insurance of the State of North Carolina\nNo. 72\n(Filed 30 July 1971)\nTaxation \u00a7 29\u2014 savings and loan association \u2014 excise tax \u2014 deductions \u2014 reserve for losses on loans\nFor the purpose of determining its North Carolina savings and loan excise tax, a savings and loan association may deduct from its gross income a \u201creserve for losses on loans.\u201d G.S. 105-228.24; 26 U.S.C.A. \u00a7 593.\nAppeal by plaintiff from Clark, J., July 1970 Regular Civil Session of Wake Superior Court, transferred for initial appellate review by the Supreme Court under General Order of July 31, 1970, entered pursuant to G.S. 7A-31(b) (4).\nCivil action to recover for overpayments under protest of excise taxes for plaintiff\u2019s income years ending December 31, 1967, and December 31, 1968.\nPlaintiff is a savings and loan association organized under G.S. Ch. 54, Subch. I, Art. 1. Its principal office is in Rocking-ham County, North Carolina. (Note: The terms \u201cbuilding and loan association\u201d and \u201csavings and loan association\u201d are \u201cinterchangeable.\u201d G.S. 54-1.)\nPlaintiff\u2019s excise tax returns for the indicated income years were filed within the prescribed times. G.S. 105-228.24; G.S. 105-228.26. It has complied with all necessary administrative procedures preliminary to the institution of this action.\nExclusive of interest, the amounts involved are $3,168.60 for 1967 and $3,412.80 for 1968.\nUpon stipulated facts, the parties present this question: \u201cFor the purpose of determining its North Carolina savings and loan excise tax, may a savings and loan association deduct from its gross income a \u2018reserve for losses on loans\u2019?\u201d\nThe court below answered, \u201cNo,\u201d and entered judgment that plaintiff take nothing by its action and that the action be dismissed at the cost of the plaintiff.\nPlaintiff excepted and appealed.\nManning, Fulton & Skinner, by Howard E. Manning and W. Gerald Thornton, for plaintiff appellant.\nAttorney General Morgan and Assistant Attorney General Banks for defendant appellee." }, "file_name": "0299-01", "first_page_order": 327, "last_page_order": 334 }