An Important Procedural Point For Contested Tax Cases In The North Carolina Business Court

Read this if you litigate with the North Carolina Department of Revenue over tax matters, or know someone who does. The subject is a Business Court decision which makes clear an important prerequisite for obtaining review of a tax case in the Court.

The Business Court has jurisdiction over parties seeking judicial review of a contested tax case decided in the Office of Administrative Hearings by an Administrative Law Judge. It has had such jurisdiction since 2008 amendments to the General Statutes, including Section 7A-45.4(a)(7) and Section 105-24.16, which says that:

A taxpayer aggrieved by the final decision in a contested case commenced at the Office of Administrative Hearings may seek judicial review of the decision in accordance with Article 4 of Chapter 150B of the General Statutes. Notwithstanding G.S. 150B-45, a petition for judicial review must be filed in the Superior Court of Wake County and in accordance with the procedures for a mandatory business case set forth in G.S. 7A-45.4(b) through (f). A taxpayer who files a petition for judicial review must pay the amount of tax, penalties, and interest the final decision states is due.

The statute says that the taxpayer must pay the tax with penalties and interest, but it doesn't say when the payment is to be made and says nothing about payment being a prerequisite to judicial review .

In Franklin County Board of Education v. North Carolina Department of Revenue, 2009 NCBC 28 (N.C. Super. Ct., December 23, 2009), the first case in the Business Court seeking judicial review pursuant to the statute, Franklin County hadn't paid the tax and interest before filing its Petition. The Department of Revenue pointed this out to the County, and the County promptly paid in full. Nevertheless, DOR moved to dismiss because the payment had not been made before the filing in the Business Court.

Judge Tennille denied the Motion based on his power under G.S. §150B-45 to allow an untimely Petition "for good cause shown." He said that the statute "is not a model of clarity," and that it "should have made it clear that the tax, penalties, and interest had to be paid before or contemporaneously with the filing of the Petition." He also pointed out that DOR had not said in the Notice of Appeal Rights provided to the County that it was required to pay the tax before seeking judicial review. 

That pass given to Franklin County won't extend to future cases, and that's the important part. The Court said "[n]ow that the Statute has been clarified by the Court, attorneys are on notice of the requirement." DOR will presumably provide notice of this requirement to taxpayers, because the Court said that DOR "would be well advised to make the payment requirement clear in its notice of appeal procedures."

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