Monday, May 27, 2024

Important N.C. Supreme Court tax ruling favors state revenue department

(This story previously appeared in the N.C. Tribune.)

A split N.C. Supreme Court has sided with the N.C. Department of Revenue in a long-running sales tax lawsuit involving an out-of-state company that employs a sales representative here.

Wisconsin-based printing company Quad Graphics sued the Department of Revenue after it levied sales taxes on orders sold by its North Carolina salesperson to a company based in North Carolina, even though the order was fulfilled and shipped in Wisconsin.

A Supreme Court opinion released last week and authored by Justice Mike Morgan overturns a Business Court ruling that found that Quad doesn’t owe taxes on such sales.

“We uphold North Carolina’s tax against petitioner’s Commerce Clause challenge because petitioner’s activities have a substantial nexus with North Carolina and the imposition of sales tax on petitioner’s sales to North Carolina customers is fairly apportioned, nondiscriminatory, and fairly related to the services provided by the state,” Morgan wrote. “We further hold that North Carolina’s assessment of sales tax on the sales at issue does not offend petitioner’s right to due process under the Due Process Clause of the Constitution of the United States.”

Justice Phil Berger Jr. interpreted the case law differently and filed a dissenting opinion. He cited a U.S. Supreme Court decision in an Arkansas tax law case with similar circumstances.

“As in Dilworth, the sale – “transfer of ownership” – was completed outside of North Carolina such that petitioner was ‘through selling’ before the materials reached the state,” Berger wrote.

The case attracted the attention of the N.C. Chamber, which says the Department of Revenue’s approach to the situation is among “a series of aggressive positions taken by the Department of Revenue that are cause for concern to the North Carolina business community.”

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