IN THE SUPREME COURT OF NORTH CAROLINA

Nos. 392A16 and 393PA16

Filed 18 August 2017

THE FIDELITY BANK,

Petitioner

v.

NORTH CAROLINA DEPARTMENT OF REVENUE,

Respondent

On discretionary review pursuant to N.C.G.S. § 7A-31, prior to a determination 

by the Court of Appeals, of an opinion and order dated 3 May 2013 entered by Judge 

John R. Jolly, Jr., Chief Special Superior Court Judge for Complex Business Cases, 

in the Superior Court, Wake County, and appeal pursuant to N.C.G.S. § 7A-27(a) 

from a final judgment and order entered on 23 June 2016 entered by Judge Louis A.

Bledsoe, III, Special Superior Court Judge for Complex Business Cases, in the 

Superior Court, Wake County. Heard in the Supreme Court on 13 June 2017.

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.

ERVIN, Justice.

The principal issue before this Court in these consolidated appeals is whether 

the North Carolina Business Court correctly interpreted N.C.G.S. § 105-130.5(b)(1) 

so as to preclude The Fidelity Bank from deducting “Market Discount Income”
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relating to discounted United States obligations for North Carolina corporate income 

taxation purposes. In view of the fact that the relevant portions of N.C.G.S. § 105-

130.5(b)(1) clearly and unambiguously preclude the proposed deduction, we affirm 

the Business Court’s substantive decision with respect to this issue while reversing

the Business Court’s decision to dismiss the second of the two judicial review petitions 

that Fidelity Bank filed in these cases and remanding that matter to the Business 

Court for further remand to the North Carolina Department of Revenue with 

instructions to vacate that portion of the Department’s Second Amended Final 

Agency Decision relating to the deductibility issue for lack of subject matter 

jurisdiction.

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
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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,
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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 

the making of further findings of fact relating to the interest abatement issue.

3

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 

 

1 The parties agreed that there were no disputed issues of material fact, so that this 

case could be appropriately resolved at the summary judgment stage of this contested case 

proceeding.

2 According to the statutory provisions governing administrative proceedings in effect 

at the time, the Administrative Law Judge submitted a recommended decision to the 

Department, which made the final decision. See N.C.G.S. § 150B-34 (2009), amended by Act 

of June 18, 2011, ch. 398, sec. 18, 2011 N.C. Sess. Laws 1678, 1686.

3 No proceedings on remand appear to have been conducted before the Administrative 

Law Judge as a result of the Department’s initial final agency decision.
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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.

 

4 Although Fidelity Bank sought appellate review of the Business Court’s initial 

decision, the Court of Appeals dismissed Fidelity Bank’s appeal as having been taken from 

an unappealable interlocutory order.
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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 N.C.G.S. § 1A-1, Rule 12(b)(6), and 

entering final judgment with respect to the deductibility issue in accordance with the 

decision made in response to Fidelity Bank’s first judicial review petition. On 23 June 

2016, the Business Court entered a final judgment and order granting the 

Department’s motions to dismiss the second judicial review petition and entering

final judgment with respect to the deductibility issue consistent with the court’s 

determination in the proceeding stemming from the first judicial review petition. 

Fidelity Bank v. N.C. Dep’t of Revenue, Nos. 10 CVS 3405, 15 CVS 11311, 2016 WL 

3917735 (N.C. Super. Ct. Wake County (Bus. Ct.) June 20, 2016).

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 
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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 oral argument in both cases 

on 13 June 2017, and now consolidates these cases for purposes of decision.

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 

N.C.G.S. § 1A-1, Rule 12(b)(6). In making this determination, the Business Court 

noted that, “although [the Business Court] did not remand the Deductibility Issue to 

the Department, the Department elected to include findings and conclusions on that 

issue in its Second Amended Final Agency decision.” Fidelity Bank, 2016 WL 

3917735, at *4. As the Business Court also noted, 

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, 
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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 reiterate 

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 
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review challenging that portion of the Department’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 fact 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 existence of multiple orders addressing the same issue on the same facts do not 

support a decision to refrain from vacating a void administrative decision either. In 

view of the fact that “an appeal from a void order cannot be frivolous,” this Court
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reversed an “order . . . dismissing the appeal.” In re Foreclosure of Sharpe, 230 N.C. 

412, 418, 53 S.E.2d 302, 306 (1949). For similar reasons, we have no hesitancy in 

determining that a litigant is entitled to assert, in a proceeding seeking judicial 

review of an administrative decision, that the decision in question is void. In the 

event that this assertion is well founded, the reviewing court should vacate the 

challenged order rather than dismiss the request for judicial review for failure to 

state a claim. As a result, since the Department lacked the authority to address the 

deductibility decision on remand, the Business Court’s order relating to the 

deductibility decision in the proceeding stemming from the second judicial review 

proceeding should be reversed and this case should be remanded to the Business 

Court for further remand to the Department with instructions to vacate that portion 

of the second amended final agency decision addressing the deductibility issue.

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 Department’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 

N.C.G.S. § 105-130.5(b)(1). In seeking relief from the Business Court’s decision, 
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Fidelity Bank asserts that the plain and unambiguous language contained in

N.C.G.S. § 105-130.5(b)(1) and 26 U.S.C. § 1276(a)(4) renders Market Discount 

Income deductible interest upon United States obligations for North Carolina

corporate income taxation purposes. According to Fidelity Bank, the General

Assembly intended to adopt the definition of “interest” contained in 26 U.S.C. §

1276(a)(4) given that the taxpayer’s federal taxable income is the “baseline starting 

point” for determining a taxpayer’s state net taxable income, see N.C.G.S. § 105-130.2

(2015), and that Market Discount Income is treated as interest for purposes of 

determining federal taxable income. More specifically, given that 26 U.S.C. §

1276(a)(4) states that Market Discount Income “shall be treated as interest for

purposes of [the Code],” 26 U.S.C. § 1276(a)(4) (2012), and given that the General 

Assembly has adopted the Code for the purpose of determining a taxpayer’s state 

income tax liability, see N.C.G.S. § 105-130.2(15), Fidelity Bank contends that the

General Assembly intended that Market Discount Income should be treated as

deductible interest upon United States obligations for state corporate income taxation 

purposes. As a result, given that the Business Court ignored the plain language of 

the relevant provisions of state law in upholding the Department’s decision with 

respect to the deductibility issue, Fidelity Bank contends that the Business Court’s

decision with respect to that issue should be reversed.

The Department, on the other hand, contends that the Business Court properly 

determined that Market Discount Income does not constitute deductible “interest” for
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North Carolina income taxation purposes. According to the Department, the term 

“interest” as used in N.C.G.S. § 105-130.5 should be understood, in accordance with 

its plain meaning, as “periodic payments received by the holder of a bond,” citing 

Polaroid Corp. v. Offerman, 349 N.C. 290, 297, 507 S.E.2d 284, 290 (1998), cert. 

denied, 526 U.S. 1090 (1999), abrogated on other grounds by Lenox, Inc. v. Tolson, 

353 N.C. 659, 663, 548 S.E.2d 513, 517 (2001). Even though N.C.G.S. § 105-130.2(15) 

provides that a taxpayer’s income for state taxation purposes is determined on the 

basis of the taxpayer’s federal taxable income, the statutory provisions governing 

North Carolina income taxation do not adopt the definitions contained in the Internal 

Revenue Code on a wholesale basis. Instead, the Department asserts that the 

General Assembly has adopted Internal Revenue Code provisions for use in 

determining a taxpayer’s obligation to pay North Carolina income taxes on a selective 

basis, so that, for example, N.C.G.S. § 105-130.5(b) incorporates Internal Revenue 

Code provisions in only twelve of its twenty-one subsections. “[W]hen no such 

reference appears—as here—words used in the Revenue Act do not take on any 

specialized meaning they might have under the Code.” The Department claims that,

had the General Assembly intended to incorporate the Internal Revenue Code’s 

definitions into N.C.G.S. § 105-130.5(b)(1), it would have done so expressly. In 

addition, the Department contends that 26 U.S.C. § 1276 of the Code has no 

application outside the context of federal tax law given its statement that Market 

Discount Income “shall be treated as interest for purposes of [the Code],” quoting 26 
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U.S.C. § 1276(a)(4). As a result, the Department contends that the Business Court’s 

decision with respect to the deductibility issue should be affirmed.

According to N.C.G.S. § 105-130.2(15), a taxpayer’s “State net income” is “[t]he 

taxpayer’s federal taxable income as determined under the Code,[5] adjusted as 

provided in G.S. 105-130.5.” N.C.G.S. § 105-130.2(15). N.C.G.S. § 105-130.5(b) allows 

a taxpayer to take certain “deductions from federal taxable income” “in determining 

State net income.” Id. § 105-130.5(b) (2015). Among the deductions allowed in 

N.C.G.S. § 105-130.5(b) is one for “[i]nterest upon the obligations of the United States 

or its possessions, to the extent included in federal taxable income,” provided that 

“interest upon the obligations of the United States shall not be an allowable deduction 

unless interest upon obligations of the State of North Carolina or any of its political 

subdivisions is exempt from income taxes imposed by the United States.”6 Id. § 105-

130.5(b)(1). As a result, as both parties appear to agree, the proper resolution of the 

 

5 According to N.C.G.S. § 105-130.2(2), which incorporates a definitions set out in 

N.C.G.S. § 105-228.90, “Code” is defined as “[t]he Internal Revenue Code as enacted as of 

January 1, 2017, including any provisions enacted as of that date that become effective either 

before or after that date,” N.C.G.S. § 105-228.90(b)(1b).

6 In addition to its decision that the Department had correctly determined that Market 

Discount Income on the discounted bonds that matured in 2001 was not ‘interest,” the 

Business Court also concluded that the deduction that Fidelity Bank had attempted to take

was barred by the reciprocity provision contained in N.C.G.S. § 105-130.5(b)(1). In view of 

our decision that Market Discount Income is not “interest” for purposes of N.C.G.S. § 105-

130.5(b)(1), we need not address the issue of whether the deduction in question was barred 

by the reciprocity provision contained in N.C.G.S. § 105-130.5(b)(1) and express no opinion 

as to the correctness of the interpretation of that statutory provision adopted by the 

Department and the Business Court.
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substantive issue that is before us in this case hinges upon the meaning of the term 

“interest” as used in N.C.G.S. § 105-130.5(b)(1).

“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 statute 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 
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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 ClaytonMarcus Co., 286 N.C. 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 appearing,” 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 act and 

what the act seeks to accomplish.” Coastal Ready-Mix Concrete, 299 N.C. at 629, 265 

S.E.2d at 385 (citations omitted). As a general proposition, when the General 
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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 N.C.G.S. § 105-130.5(b)(1). The Business Court, however, 

defined the term in question in the context of bonds as “periodic payments received 

by the holder of a bond.”7 Fidelity Bank v. N.C. Dep’t of Revenue, No. 10 CVS 3405, 

2013 WL 1896987, at *5 (N.C. Super. Ct. Wake County (Bus. Ct.) May 3, 2013). In 

view of the fact that the term “interest” has a “definite and well-known sense in the 

law,” C.T.H. Corp., 212 N.C. at 810, 195 S.E. at 40, and that this “plain meaning” 

definition is consistent with the manner in which “interest” is used in other statutory 

provisions and judicial decisions, see e.g., N.C.G.S. § 143-134.1(a) (2015) (stating that

 

7 Fidelity Bank does not appear to dispute that this is a proper “plain meaning” 

definition of “interest,” assuming that the use of such a definition is appropriate.
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“the prime contractor shall be paid interest . . . at the rate of one percent (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 N.C.G.S. § 105-

130.5(b)(1) is unambiguous and should be understood in accordance with its plain 

meaning as involving “periodic payments received by the holder of a bond,” Fidelity 

Bank, 2013 WL 1896987, at *5, and that, had the General Assembly intended for the 

term “interest” as used in N.C.G.S. § 105-130.5(b)(1) to be defined in accordance with 

26 U.S.C. § 1276(a)(4), it would have incorporated that definition into N.C.G.S. § 105-

130.5(b)(1) “by clear and specific reference,” see Lutz Indus., 242 N.C. at 340, 88 

S.E.2d at 339. Since the validity of Fidelity Bank’s challenge to the Business Court’s 

decision hinges upon the extent to which the Business Court correctly interpreted the 

meaning of the term “interest” as that term is used in N.C.G.S. § 105-130.5(b)(1) and 

since the Business Court did not err by defining the term “interest” for purposes of 

N.C.G.S. § 105-130.5(b)(1) as “periodic payments received by the holder of a bond,” 

we hold that the Business Court correctly concluded that the Market Discount Income 

that Fidelity Bank received on the discounted bonds that matured during 2001 was 

not deductible for North Carolina corporate income tax purposes.

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 N.C.G.S. §
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105-130.5(b)(1) be understood to include Market Discount Income given that Market 

Discount Income is treated as “interest” for purposes of federal corporate income 

taxation, we do not find this argument persuasive. To be sure, 26 U.S.C. § 1276(a)(1) 

states that, “[e]xcept as otherwise provided in this section, gain on the disposition of 

any market discount bond shall be treated as ordinary income to the extent it does 

not exceed the accrued market discount on such bond” and 26 U.S.C. § 1276(a)(4) 

provides that “any amount treated as ordinary income under [26 U.S.C. § 1276(a)(1)] 

shall be treated as interest for purposes of this title.” 26 U.S.C. § 1276(a)(1), (a)(4) 

(2012). For that reason, Market Discount Income is certainly treated as interest 

income for the purpose of determining the taxpayer’s federal taxable income. See 26 

U.S.C. § 860C(b)(1)(B) (2012). However, the fact that Market Discount Income is 

treated as interest for purposes of determining federal taxable income does not, 

Fidelity Bank’s argument to the contrary notwithstanding, mean that Market 

Discount Income should be treated as “interest” for all purposes under the North 

Carolina Revenue Act.

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 N.C.G.S. § 105-130.5(b)(1). Instead, any 

decision to require that Market Discount Income be treated as interest for the 
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purpose of both calculating federal taxable income and the deduction from federal 

taxable income authorized by N.C.G.S. § 105-130.5(b)(1) requires specific support in 

the relevant statutory language. We are unable to read the relevant provisions of the 

North Carolina Revenue Act to require the consistency of treatment for which Fidelity 

Bank contends.

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 N.C.G.S. § 105-130.5(b)(1). In the event that the 

provisions of the Internal Revenue Code were binding throughout the North Carolina 

Revenue Act, these references to the Code in other portions of N.C.G.S. § 105-130.5(b)

would be superfluous. State v. Buckner, 351 N.C. 401, 408, 527 S.E.2d 307, 311 (2000) 

(stating that, “[i]f possible, a statute must be interpreted so as to give meaning to all 

of its provisions”); Porsh Builders, Inc. v. City of Winston-Salem, 302 N.C. 550, 556, 

276 S.E.2d 443, 447 (1981) (stating that “a statute must be considered as a whole and 

construed, if possible, so that none of its provisions shall be rendered useless or 
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Opinion of the Court

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redundant”). As a result, the essential argument advanced in order to justify the 

construction of N.C.G.S. § 105-130.5(b)(1) advocated for by Fidelity Bank lacks 

support in the overall structure and literal language of the North Carolina Revenue 

Act.

Although Fidelity Bank has directed our attention to the provision in N.C.G.S. 

§ 105-130.5(b)(1) making “[i]nterest upon the obligations of the United States or its

possessions” deductible “to the extent included in federal taxable income,” we are 

unable to read this language as requiring that Market Discount Income be treated as 

“interest” for purposes of the deduction authorized by N.C.G.S. § 105-130.5(b)(1). 

Instead of shedding light on the definition of “interest,” the language in question, 

when read literally, simply indicates that anything that qualifies as “interest” for 

purposes of N.C.G.S. § 105-130.5(b)(1) is only deductible to the extent that it is 

“included in federal taxable income.” Thus, we are unable to construe N.C.G.S. § 105-

130,5(b)(1) in the manner contended for by Fidelity Bank.

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 
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Opinion of the Court

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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.