Opinion ID: 1353617
Heading Depth: 1
Heading Rank: 8

Heading: Payments Collected by the Employment Security Commission for Overdue Employer Contributions, Late Reports, and Returned Checks

Text: Plaintiffs also contend that the Court of Appeals erred in reversing the trial court's judgment that monies collected by the Employment Security Commission (ESC) under Chapter 96 of the General Statutes (Employment Security Act) were subject to Article IX, Section 7. At the outset, we note that plaintiffs alleged in their complaint and the trial court ruled that the public schools were entitled to the proceeds of penalties collected by the ESC pursuant to section 96-10 for overdue employer contributions, for late filing of required reports, and for a check returned for insufficient funds. These penalties are prescribed in sections 96-10(a), (g), and (h). In their new brief to this Court, plaintiffs now include the penalty collected by the ESC pursuant to section 96-9(a)(7) for an employer's failure to file wage reports as required by statute. Since the trial court had no opportunity to consider the applicability of Article IX, Section 7 to section 96-9(a)(7), consideration of this provision is not properly before the Court, and our holding is limited to those statutory provisions on which the trial court and the Court of Appeals ruled. The Court of Appeals accepted defendants' contention that N.C.G.S. § 96-10 defines employers' contribution to the Unemployment Insurance Fund as a `tax,' and construed the penalties paid pursuant to section 96-10 as part of the taxes or additional taxes. N.C. Sch. Bds. Ass'n, 160 N.C.App. at 272-73, 585 S.E.2d at 431. The Court of Appeals concluded that these additional taxes were remedial rather than punitive in nature, citing the United States Supreme Court's holding in Mitchell, 303 U.S. at 401, 58 S.Ct. at 634,82 L.Ed. at 923. 160 N.C.App. at 273, 585 S.E.2d at 431. All parties agree that these payments to the ESC should be treated in the same manner as payments to the Department of Revenue for failure to comply with the tax provisions in Chapter 105. The parties disagree, however, as to how these payments and those under Chapter 105 should be treated for purposes of Article IX, Section 7. Plaintiffs contend that the payments are penalties imposed for violation of the statutory requirements and are, therefore, payable to the public schools. We agree. Neither defendants nor the Court of Appeals cites to specific language in the statute defining the employer contributions as taxes. The definitions section of Chapter 96 characterizes the payments made to the Unemployment Insurance Fund as contributions. N.C.G.S. § 96-8(3) (2003). Admittedly, certain statutes use the term tax interchangeably with the word contribution, for example, N.C.G.S. § 96-10(a), but these isolated references do not compel the conclusion that the payments made as penalties are likewise to be classified as taxes. The General Assembly has designated each of these payments as a penalty: (i) [a]n additional penalty in the amount of ten percent (10%) of the taxes due shall be added, Id. § 96-10(a); (ii) [a]n employer who fails to file a report within the required time shall be assessed a late filing penalty of five percent ..., Id. § 96-10(g); and (iii) [w]hen any uncertified check is tendered in payment of any contributions to the Commission and such check shall have been returned unpaid ... a penalty shall be payable to the Commission ..., Id. § 96-10(h). The statute requires that interest be assessed on all contributions that are paid late, and the interest, which compensates for lost revenues, is tallied separately from the additional penalty that is assessed. Id. § 96-10(a). Further, of note, interest and penalties collected on late contributions are placed in the Special Employment Security Administration Fund, not the Unemployment Insurance Fund. Id. The Special Employment Security Administration Fund may be used for, among other things, extensions, repairs, enlargements and improvements to buildings, and the enhancement of the work environment in buildings used for Commission business. Id. § 96-5(c) (2003). Nothing in the statute suggests that the penalty is in any way remedial or intended to preserve the integrity of the Unemployment Insurance Fund. Rather, the penalty is assessed, in addition to interest, to penalize an employer for noncompliance with a statutory mandate. As with any other punishment, the threat of a hefty penalty may deter noncompliance, but this deterrence factor does not transform the penalty into a remedial tax. We hold that the penalties collected under N.C.G.S. § 96-10 are subject to Article IX, Section 7 and are payable for the benefit of the public schools. Accordingly, we reverse the decision of the Court of Appeals on this issue.