THE FIDELITY BANK, Pеtitioner v. NORTH CAROLINA DEPARTMENT OF REVENUE, Respondent
Nos. 392A16 and 393PA16
IN THE SUPREME COURT OF NORTH CAROLINA
Filed 18 August 2017
ERVIN, Justice.
On discretionary review pursuant to
Ward and Smith, P.A., by Alexander C. Dale, Donalt J. Eglinton, and Amy P. Wang, for petitioner-appellant.
Joshua H. Stein, Attorney General, by Matthew W. Sawchak, Solicitor General, and Perry J. Pelaez, Assistant Attorney General, for respondent-appellee North Carolina Department of Revenue.
The principal issue before this Court in these consolidated appeals is whether the North Carolina Business Court correctly interpreted
Fidelity Bank, a C corporation, is a wholly owned subsidiary of Fidelity Bancshares, Inc. Fidelity Bank acquired United States government bonds at a discount to face value and held those discounted bonds until maturity, thereby earning income, generally referred to as Market Discount Income, consisting of the difference between the amount that Fidelity Bank initially paid for the bonds and the amount that it received relating to those discounted bonds at maturity. As a result of the fact that five of these discounted bonds matured during the 2001 tax year, Fidelity earned $724,098.00 in Market Discount Income related to the securities in question during that period. On its 2001 North Carolina corporate income tax return, Fidelity treated this Market Discount Income as taxable income and then deducted this Market Discount Income as interest earned on United States government obligations for the purposes of determining its net taxable income.
On 8 July 2002, the Department issued a Notice of Corporate Income Tax Assessment to Fidelity Bank assessing additional North Carolina income taxes of $49,963.00 and associated interest in the amount of $1132.63 against Fidelity Bank based upon a determination that Fidelity Bank was not entitled to deduct this Market Discount Income for the 2001 tax year. On 31 July 2002, Fidelity Bank sent a protest letter to the Department objecting to the Notice of Assessment. On 17 May 2006, the Department sent a letter to Fidelity Bank imposing additional income taxes and associated interest based upon the rejection of Fidelity Bank‘s assertion that it was entitled to deduct the Market Discount Income that Fidelity Bank had earned on the bonds. On 12 September 2008, following further negotiations between the parties, the Department issued a Notice of Final Determination reiterating its decision to reject Fidelity Bank‘s attempt to deduct the Market Discount Income for state corporate income taxation purposes and seeking the payment of additional taxes plus associated interest.
On 11 November 2008, Fidelity Bank filed a Petition for a Contested Case Hearing challenging the Department‘s decision with respect to the deductibility of the Market Discount Income that Fidelity Bank had earned on the discounted bonds and requesting relief from the Department‘s claim for interest on the additional income tax amount that had been assessed against Fidelity Bank. On 30 June 2009, the Administrative Law Judge entered an order granting partial summary judgment in favor of the Department on the grounds that the Market Discount Income relating to the discounted bonds was not deductible for North Carolina corporate income tax purposes.1 On 16 November 2009, the Administrative Law Judge granted partial summary judgment in Fidelity Bank‘s favor with respect to the Department‘s attempt to collect interest on the amount of unpaid taxes that the Department claimed that Fidelity Bank owed. On 25 November 2009, the Administrative Law Judge‘s decision was submitted to the Department for the purpose of allowing the Department to make a final decision.2 On 22 January 2010, the Department issued a Final Agency Decision in which it adopted the Administrative Law Judge‘s decision with respect to the deductibility issue and remanded the case to the Administrative Law Judge for
On 24 February 2010, Fidelity Bank filed a petition for judicial review in the Superior Court, Wake County, for the purpose of challenging the Department‘s initial final agency decision. The case stemming from the filing of Fidelity Bank‘s first
judicial review petition was designated a mandatory complex business case and submitted to the Business Court for decision. On 3 May 2013, the Business Court entered an order in which it affirmed the Department‘s final decision with respect to the deductibility issue and remanded the case to the Department for the making of additional findings of fact with respect to the interest abatement issue.4
On 10 December 2013, the Department issued an Amended Final Agency Decision in which it adopted the Administrative Law Judge‘s decision with respect to the deductibility decision as its own and remanded Fidelity Bank‘s request for abatement of the interest assessment to the Administrative Law Judge for further proceedings. On 23 April 2015, the Administrative Law Judge entered an Amended Decision concluding that Fidelity Bank should be required to pay interest on the amount of any unpaid 2001 taxes. On 24 July 2015, the Department entered a Second Amended Final Agency Decision determining that Fidelity Bank was not entitled to deduct the Market Discount Income for purposes of its 2001 corporate income tax return and requiring Fidelity Bank to pay additional taxes and related interest in light of the Department‘s rejection of Fidelity Bank‘s assertion that the Market Discount Income that it earned during the 2001 tax year was deductible for North Carolina corporate income taxation purposes.
On 19 August 2015, Fidelity filed a petition seeking judicial review of the Department‘s second amended final agency decision in the Superior Court, Wake County. In its petition, Fidelity Bank requested that the Department‘s decision with respect to the deductibility issue in the second amended final agency decision be overturned without advancing any challenge to the Department‘s decision with respect to the interest abatement issue. On 20 August 2015, the proceeding resulting from the filing of Fidelity Bank‘s second judicial review petition was designated a mandatory complex business case and referred to the Business Court for decision. On 15 January 2016, the Department filed motions seeking the entry of orders dismissing Fidelity Bank‘s second judicial review petition for failure to state a claim upon which relief could be granted pursuant to
On 14 July 2016, Fidelity Bank noted an appeal to the Court of Appeals from the Business Court‘s decision with respect to the deductibility issue in the proceeding stemming from the first judicial review proceeding and an appeal to this Court from the Business Court‘s decision to dismiss the second judicial review petition for failure to state a claim upon which relief could be granted. On 20 October 2016, Fidelity Bank filed a petition with this Court seeking discretionary review of the deductibility decision prior to a determination by the Court of Appeals in the case stemming from the first judicial review proceeding. This Court allowed Fidelity Bank‘s discretionary review petition on 8 December 2016, heard consolidated
As an initial matter, we must address the correctness of the Business Court‘s decision to dismiss Fidelity Bank‘s second judicial review petition pursuant to
North Carolina law is clear, however, that when an appellate court (i.e., [the Business Court‘s] capacity here) remands a case to the trial court (i.e., the Department‘s capacity here), any judgments of the trial court “which were inconsistent and at variance with, contrary to, and modified, corrected, altered or reversed prior mandates of the [appellate court]” are “unauthorized and void.”
Id. (second alteration in original) (quoting Lea Co. v. N.C. Bd. of Transp., 323 N.C. 697, 699, 374 S.E.2d 866, 868 (1989) (emphasis omitted) (quoting Collins v. Simms, 257 N.C. 1, 8, 125 S.E.2d 298, 303 (1962))). For that reason, the Business Court concluded that “the Department did not have authority to make any findings of fact or conclusions of law concerning the Deductibility Issue in its Second Amended Final Agency Decision,” rendering “the findings and conclusions in the Second Amended Final Agency Decision concerning the Deductibility Issue void and without legal effect,” so as to preclude the Department‘s decision with respect to the deductibility issue as set out in the second amended final agency decision from being “the proper subject of judicial review.” Id. at *5. As a result, the Business Court granted the Department‘s dismissal motion. Id. at *5, 6.
On appeal, Fidelity Bank contends that the Business Court erred by dismissing the second judicial review petition on the grounds that, given the Business Court‘s determination that the Department‘s decision with respect to the deductibility issue on remand had been made “without authority and [was] void,” the Business Court should have invalidated, rather than ignored, the Department‘s decision to reitеrate its earlier decision concerning the deductibility issue in the second amended final agency decision. On the other hand, the Department asserts that, “[b]ecause the [second judicial review proceeding] raised the same deductibility issue that the [Business Court‘s order in the first judicial review proceeding] had already decided, [the Business Court] was right to hold that Fidelity‘s petition in the [second judicial review proceeding] failed to state a claim.” We agree with Fidelity Bank that the Business Court erred by dismissing that portion of its second petition for judicial review challenging that portion of the Dеpartment‘s second amended final agency decision addressing the deductibility issue for failing to state a claim upon which relief can be granted.
As the Business Court concluded, the Department lacked the authority to revisit the deductibility issue on remand from the Business Court‘s decision in the first judicial review proceeding, making its findings and conclusions with respect to that issue void. “A void judgment . . . binds no one.” E. Carolina Lumber Co. v. West, 247 N.C. 699, 701, 102 S.E.2d 248, 249 (1958). The “invalidity” of a void order “may be asserted at any time and in any action where some benefit or right is asserted thereunder,” Daniels v. Montgomery Mut. Ins. Co., 320 N.C. 669, 677, 360 S.E.2d 772, 777 (1987) (quoting E. Carolina Lumber Co., 247 N.C. at 701, 102 S.E.2d at 249), rendering any failure on Fidelity Bank‘s part to raise this issue before the Business Court and the faсt that the order entered by the Business Court in the first judicial review proceeding was binding upon the Business Court in the second judicial review proceeding insufficient to justify dismissal of the second judicial review petition. Moreover, the fact that the Business Court did, in fact, determine that the relevant portion of the Department‘s second final agency decision was “void” and the absence of any specific showing of prejudice in addition to the risk of confusion arising from the
The principal substantive issue before us in this case, which is properly before this Court in connection with Fidelity Bank‘s appeal from the Business Court‘s decision to enter a final judgment upholding the Dеpartment‘s deductibility decision in connection with the first judicial review proceeding, is whether the Business Court erred by affirming that portion of the Department‘s final agency decision in which the Department determined that Fidelity Bank was not entitled to deduct the Market Discount Income that it earned during the 2001 tax year as interest on United States obligations for North Carolina corporate income taxation purposes pursuant to
The Department, on the other hand, contends that the Business Court properly determined that Market Discount Income does not constitute deductible “interest” for North Carolina income taxation purposes. According to the Department, the term “interest” as used in
According to
substantive issue that is before us in this case hinges upon the meaning of the term “interest” as used in
“In resolving issues of statutory construction, we look first to the language of the statute itself.” Walker v. Bd. of Trs. of the N.C. Local Gov‘tal Emps. Ret. Sys., 348 N.C. 63, 65, 499 S.E.2d 429, 430 (1998) (quoting Hieb v. Lowery, 344 N.C. 403, 409, 474 S.E.2d 323, 327 (1996)).
When the language of a statute is clear and without ambiguity, it is the duty of this Court to give effect to the plain meaning of the statute, and judicial construction of legislative intent is not required. See Burgess v. Your House of Raleigh, Inc., 326 N.C. 205, 209, 388 S.E.2d 134, 136 (1990). However, when the language of a statute is ambiguous, this Court will determine the purpose of the statute and the intent of the legislature in its enactment. See Coastal Ready-Mix Concrete Co. v. Bd. of Comm‘rs of Town of Nags Head, 299 N.C. 620, 629, 265 S.E.2d 379, 385 (1980) (“The best indicia of that intent are the language of the statute or ordinance, the spirit of the act and what the act seeks to accomplish.“).
Diaz v. Div. of Soc. Servs., 360 N.C. 384, 387, 628 S.E.2d 1, 3 (2006). Thus, the initial issue that must be addressed in construing the relevant statutory language requires a determination of whether the language in question is ambiguous or unambiguous.
An unambiguous word has a “definite and well known sense in the law.” C.T.H. Corp. v. Maxwell, 212 N.C. 803, 810, 195 S.E. 36, 40 (1938); see also State Highway Comm‘n v. Hemphill, 269 N.C. 535, 539, 153 S.E.2d 22, 26 (1967) (stating that language in a stаtute is unambiguous when it “express[es] a single, definite and sensible meaning“) (quoting State ex rel. Long v. Smitherman, 251 N.C. 682, 684, 111 S.E.2d 834, 836 (1960))). In the event that the General Assembly uses an unambiguous word without providing an explicit statutory definition, that word will be accorded its plain meaning. See Walker, 348 N.C. at 66, 499 S.E.2d at 431 (stating that, although “[t]he word ‘terminate’ is undefined in chapter 128 of the North Carolina General Statutes,” “[a]s this word is unambiguous, . . . we accord it its plain meaning“); see also Poole v. Miller, 342 N.C. 349, 352, 464 S.E.2d 409, 411 (1995) (stating that, although “[t]he word ‘judgment’ is undefined in Rule 68,” “[a]s this word is unambiguous, we shall accord it its plain meaning“); In re Appeal of Clayton-Marcus Co., 286 N.C. 215, 215, 219, 210 S.E.2d 199, 202-03 (1974) (stating that, “[i]n the construction of any statute, including a tax statute, words must be given their common and ordinary meaning, nothing else appeаring,” and “[w]here, however, the statute, itself, contains a definition of a word used therein, that definition controls, however contrary to the ordinary meaning of the word it may be” (citations omitted)). On the other hand, in the event that the relevant statutory provision is ambiguous, its meaning must be determined utilizing the ordinary rules of statutory construction.
“The primary rule of construction of a statute is to ascertain the intent of the legislature and to carry out such intention to the fullest extent.” Burgess, 326 N.C. at 209, 388 S.E.2d at 137 (citation omitted). As we have already noted, “[t]he best indicia of that intent are the language of the statute . the spirit of the aсt and what the act seeks to accomplish.” Coastal Ready-Mix Concrete Co., 299 N.C. at 629, 265 S.E.2d at 385 (citations omitted). As a general proposition, when the General Assembly intends to adopt provisions or definitions from other sources of law into a statute, it does so “by clear and specific reference.” See Lutz Indus. v. Dixie Home Stores, 242 N.C. 332, 340, 88 S.E.2d 333, 339 (1955) (stating that “[t]he 1941 Act ratified and adopted the North Carolina Building Code published in 1936 by clear and specific reference“). “Special canons of statutory construction apply when the term under consideration is one concerning taxation.” In re Estate of Kapoor, 303 N.C. 102, 106, 277 S.E.2d 403, 407 (1981). “[W]hen the statute provides for an exemption from taxation . . . any ambiguities are resolved in favor of taxation.” Id. at 106, 277 S.E.2d aat 407 (citing In re Clayton-Marcus, 286 N.C. 215, 210 S.E.2d 199 (1974)).
As both parties have observed, there is no statutory definition of the word “interest” as used in
“the prime contractor shall be paid interest . . . at the rate of one percеnt (1%) per month“); Knight v. Braswell, 70 N.C. 708, 711-12 (1874) (enforcing a contract requiring that interest owed on a bond be paid annually), we conclude, as did the Business Court, that the undefined term “interest” as used in
Although Fidelity Bank has vigorously asserted that the plain language of the relevant provisions of Chapter 105 of the General Statutes unambiguously indicates that the General Assembly intended that the term “interest” as used in
As a general proposition, there is nothing illogical about including Market Discount Income, along with all other revenue derived from a discounted bond, as interest for the purpose of calculating federal taxable income while refusing to treat Market Discount Income as interest for purposes of the deduction for interest upon United States obligations allowed by
A careful review of the provisions of Chapter 105 of the General Statutes demonstrates, as the Department notes, that the General Assembly has not adopted the definitions set out in the Internal Revenue Code into the North Carolina Revenue Act on any sort of wholesale basis. Instead, the General Assembly has selectively incorporated certain of the definitions contained in the Internal Revenue Code into the North Carolina Revenue Act. Although a number of the deductions from federal taxable income for purposes of calculating North Carolina net taxable income incorporate various provisions of the Internal Revenue Code, no such reference to any provision of the Code appears in
Although Fidelity Bank has directed our attention to the provision in
As a result, for all of these reasons, we conclude that the Business Court‘s decision concerning the deductibility issue in its order resolving the issues raised in the first judicial review petition and rendered final in the orders addressing the second judicial review petition should be affirmed. However, we further conclude that the Business Court‘s decision to dismiss the portions of the second judicial review petition challenging the Department‘s decision concerning the deductibility issue in the second amended final agency decision was erroneous. For that reason, we conclude that the Business Court‘s dismissal decision should be reversed and that the case arising from Fidelity Bank‘s second judicial review proceeding should be remanded to the Business Court for further remand to the Department for the sole purpose of entering an order vacating its remand decision with respect to the deductibility issue.
AFFIRMED IN PART; REVERSED AND REMANDED IN PART.
ERVIN
JUSTICE