Proposed Assessments v. JEFFERSON-PILOT INS.

• Decision Date: 16 December 2003
• Docket Number: No. COA02-1591.,COA02-1591.
• Citation: 589 S.E.2d 179,161 NC App. 558
• Court: North Carolina Court of Appeals
• Parties: In the Matter of The PROPOSED ASSESSMENTS OF ADDITIONAL SALES AND USE TAX FOR the PERIOD OF JANUARY 1, 1994 THROUGH NOVEMBER 30, 1996 BY the SECRETARY OF REVENUE, Petitioner, v. JEFFERSON-PILOT LIFE INSURANCE CO., Respondent.

589 S.E.2d 179

161 NC App. 558

In the Matter of The PROPOSED ASSESSMENTS OF ADDITIONAL SALES AND USE TAX FOR the PERIOD OF JANUARY 1, , 1996 BY the SECRETARY OF REVENUE, Petitioner, v. JEFFERSON-PILOT LIFE INSURANCE CO., Respondent.

No. COA02-1591.

Court of Appeals of North Carolina.

December 16, 2003.

Attorney General Roy Cooper, by Assistant Attorney General Kay Linn Miller Hobart, for the State.

C.B. McLean, Jr., Raleigh, for respondent-appellant.

LEVINSON, Judge.

Respondent appeals from a judgment reversing Administrative Decision No. 361 of the Tax Review Board and ruling that respondent is liable for the disputed local use tax. We affirm.

The relevant facts are not disputed, and may be briefly summarized as follows: Jefferson-Pilot Life Insurance Company is engaged in business as an insurance company and paid gross premiums tax pursuant to Article 8B of Chapter 105 of the North Carolina General Statutes between 1 January 1994 and 30 November 1996 ("the relevant period"). When Jefferson-Pilot made purchases within this State, the company paid state and local sales tax on those purchases pursuant to Articles 5, 39, 40, and 42 of Chapter 105 of the North Carolina General Statutes.

During the relevant period, Jefferson-Pilot purchased tangible personal property outside of this State for storage, use, or consumption in this State. The company did not pay state or local use tax with respect to these purchases. The Department of Revenue issued a proposed notice of tax assessment against Jefferson-Pilot for state and local use taxes for the period of 1 January 1994 through 30 November 1996. Jefferson-Pilot paid the State use tax, but contested liability for local use tax on the ground that N.C.G.S. § 105-228.10, as it existed at the time of the proposed assessment, prohibited the assessment of local use taxes against insurance companies. The Assistant Secretary sustained the proposed assessment. On appeal, the Tax Review Board reversed, ruling against the proposed assessment. The State petitioned for review in superior court; the trial court reversed the Tax Review Board and ruled that Jefferson-Pilot is liable for the proposed use tax.

Jefferson-Pilot now appeals, contending that the trial court misconstrued the following statutory provision:

No county, city, or town shall be allowed to impose any additional tax, license, or fee, other than ad valorem taxes, upon any insurance company or association paying the [gross premiums tax on insurers].

N.C.G.S. § 105-228.10 (1997) (amended 1998). Jefferson-Pilot insists that the plain language of this statute prohibited local use taxes from being assessed against insurance companies. Thus, the central issue in this case is the meaning of the pre-1998 version of G.S. § 105-228.10.

Questions of statutory interpretation are questions of law, which are reviewed de novo by an appellate court. Dare County Bd. of Educ. v. Sakaria, 127 N.C.App. 585, 588, 492 S.E.2d 369, 371 (1997). In conducting this review, we are guided by the following principles of statutory construction. The paramount objective of statutory interpretation is to give effect to the intent of the legislature. Polaroid Corp. v. Offerman, 349 N.C. 290, 297, 507 S.E.2d 284, 290 (1998). The primary indicator of legislative intent is statutory language; the judiciary must give "clear and unambiguous" language its "plain and definite meaning." Begley v. Employment Sec. Comm'n, 50 N.C.App. 432, 436, 274 S.E.2d 370, 373 (1981). However, strict literalism will not be applied to the point of producing "absurd results." Taylor v. Crisp, 286 N.C. 488, 496, 212 S.E.2d 381, 386 (1975).

When the plain language of a statute proves unrevealing, a court may look to other indicia of legislative will, including: "the purposes appearing from the statute taken as a whole, the phraseology, the words ordinary or technical, the law as it prevailed before the statute, the mischief to be remedied, the remedy, the end to be accomplished, statutes in pari materia, the preamble, the title, and other like means[.]" State v. Green, 348 N.C. 588, 596, 502 S.E.2d 819, 824 (1998) (citation omitted). The intent of the General Assembly may also be gleaned from legislative history. Lenox, Inc. v. Tolson, 353 N.C. 659, 664, 548 S.E.2d 513, 517 (2001). Likewise, "[l]ater statutory amendments provide useful evidence of the legislative intent guiding the prior version of the statute." Wells v. Consol. Judicial Ret. Sys., 354 N.C. 313, 318, 553 S.E.2d 877, 880 (2001).

Statutory provisions must be read in context: "Parts of the same statute dealing with the same subject matter must be considered and interpreted as a whole." State ex rel. Comm'r of Ins. v. N.C. Auto. Rate Admin. Office, 294 N.C. 60, 66, 241 S.E.2d 324, 328 (1978). "Statutes dealing with the same subject matter must be construed in pari materia, as together constituting one law, and harmonized to give effect to each." Williams v. Williams, 299 N.C. 174, 180-81, 261 S.E.2d 849, 854 (1980) (internal citations omitted).

Tax statutes "are to be strictly construed against the State and in favor of the taxpayer." Watson Industries, Inc. v. Shaw, 235 N.C. 203, 211, 69 S.E.2d 505, 511 (1952). In arriving at the true meaning of a taxation statute, the provision in question must be considered in its appropriate context within the Revenue Act. See Wilmington Underwriters' Insurance Co. v. Stedman, 130 N.C. 221, 223, 41 S.E. 279, 280 (1902) ("Taking all the [relevant] sections of the Revenue Act of 1901 together" to arrive at an interpretation of a section of the act). The interpretation of a revenue law adopted by the agency charged with its enforcement is a significant aid to judicial interpretation of the same provision; however, "[u]nder no circumstances will the courts follow an administrative interpretation in direct conflict with the clear intent and purpose of the act under consideration." Watson Industries, Inc., 235 N.C. at 211, 69 S.E.2d at 511.

We turn now to application of these principles to the present case, which requires our examination of the statutory provisions governing the taxes at issue: (1) the local use tax, and (2) the gross premiums tax on insurance companies.

The use tax is an excise tax which is the counterpart of the sales tax. See Johnston v. Gill, 224 N.C. 638, 643-44, 32 S.E.2d 30, 33 (1944) (discussing the State use tax). N.C.G.S. § 105-467 (2003) authorizes local governments in this State to levy a sales tax on certain purchases. N.C.G.S. § 105-468 (2003) authorizes local governments to charge a use tax on "[an] item or article of tangible personal property that is not sold in the taxing county but is used, consumed, or stored for use or consumption in the taxing county." G.S. § 105-468 explicitly provides that "[t]he [use] tax applies to the same items that are subject to [sales] tax under G.S. [§ ]105-467." The use tax is designed to prevent unfair competition, which may result where a purchaser can evade the local sales tax by purchasing in a locality which does not charge sales tax and then make use of the purchased property in a locality which does charge the sales tax. See Johnston, 224 N.C. at 644, 32 S.E.2d at 33. The sales and the use tax, "taken and applied together, provide a uniform tax upon either the sale or use of all tangible personal property irrespective of where it may be purchased. That is, the sales tax and the use tax are complementary and functional parts of one system of taxation." Id.

Where a locality chooses to assess local sales and use taxes, G.S. § 105-467(b) requires their assessment absent an exemption which the General Assembly has made applicable to State sales and use tax: "A taxing county may not allow an exemption, exclusion, or refund that is not allowed under the State sales and use tax." Jefferson-Pilot enjoys no exemption from the State use tax; therefore, absent some other controlling statute, it is liable for local use taxes.

Jefferson-Pilot contends that its exemption derives from the special system of taxation that applies to insurance companies: the gross premiums tax. N.C.G.S. § 105-228.5(b)(1) (2003) provides that "[t]he tax imposed ... on an insurer ... shall be measured by gross premiums from business done in this State during the preceding calendar year." Because they are subject to the gross premiums tax, subsection (a) exempts insurers from other types of taxes: "An insurer... that is subject to the [gross premiums tax] is not subject to franchise or income taxes imposed by Articles 3 and 4, respectively, of this Chapter [105]." It is clear that the gross premiums tax also restricts the imposition of some local taxes; for the purposes of the instant case, it is relevant that the pre-1998 version of G.S. § 105-228.10, titled "No additional local taxes," set forth the following prohibition:

No county, city, or town shall be allowed to impose any additional tax, license, or fee, other than ad valorem taxes, upon any insurance company or association paying the fees and taxes levied in this Article [governing taxes on insurers].

Jefferson-Pilot contends that the quoted version G.S. § 105-228.10, which was effective during the relevant period, unambiguously forbade the assessment of local use tax against insurance companies. After careful examination of the relevant statutes and cases, we do not agree. Though it is possible the pre-1998 version of G.S. § 105-228.10, read in isolation and out of context, seemingly shielded insurance companies from liability for local use taxes, the construction given to this statute by our General Assembly and Supreme Court supports a contrary view. To hold as Jefferson-Pilot urges would require us to ignore clear indicia of legislative intent and to adopt an interpretation of the statute which produces an absurd result.

The identical language at issue in the present case was interpreted by the North Carolina Supreme Court more than a century ago in such a way...