Court Opinion

ID: 9626442
Source: CourtListenerOpinion
Date Created: 2023-08-22 08:12:09.794495+00
Date Added: 2024-06-11T15:01:27.197252
License: Public Domain

Justice Orr
dissenting.
The majority applies a plain-meaning analysis to the statute in question and concludes that the taxable percentage deduction contained in N.C.G.S. § 105-203 should be severed and the remainder of the statute upheld as applied. The opinion states that “[t]he General Assembly has said by the severability clause that the unconstitutional *425part of the statute should be severed.” However, this Court has rejected such a plain-meaning analysis in determining whether an unconstitutional provision may be severed and the remainder of the statute upheld. In State ex rel. Andrews v. Chateau X, Inc., 296 N.C. 251, 250 S.E.2d 603 (1979), judgment vacated on other grounds, 445 U.S. 947, 63 L. Ed. 2d 782 (1980), this Court prescribed the utilization of a two-part test for deciding the issue of severability:
To determine whether the portions are in fact divisible, the courts first see if the portions remaining are capable of being enforced on their own. They also look to legislative intent, particularly to determine whether that body would have enacted the valid provisions if the invalid ones were omitted.
Id. at 259, 250 S.E.2d at 608. Because I believe that the majority’s holding in this case is contrary to the intent of the North Carolina legislature, I respectfully dissent.
In State v. Waddell, 282 N.C. 431, 194 S.E.2d 19 (1973), this Court also addressed the issue of severability and enunciated the following principle:
“If the objectionable parts of a statute are severable from the rest in such a way that the legislature would be presumed to have enacted the valid portion without the invalid, the failure of the latter will not necessarily render the entire statute invalid, but the statute may be enforced as to those portions of it which are constitutional. If, however, the constitutional and the unconstitutional portions are so dependent on each other as to warrant the belief that the legislature intended them to take effect in their entirety, it follows that if the whole cannot be carried into effect, it will be presumed that the legislature would not have passed the residue independently, and accordingly, the entire statute is invalid.”
Id. at 442, 194 S.E.2d at 27 (quoting 16 Am. Jur. 2d Constitutional Law § 186 (1964)). In support of our position in the present case, the Court in Waddell went on to note that “ ‘[w]hen exceptions, exemptions, or provisos in a statute are found to be invalid, the entire act may be void on the theory that by striking out the invalid exception the act has been widened in its scope and therefore cannot properly represent the legislative intent.’ ” Id. at 443, 194 S.E.2d at 27 (quoting J.G. Sutherland, Statutes and Statutory Construction § 2412 (Frank E. Horack, Jr., ed., 3d ed. 1943)).
*426In this case, as the remaining intangibles tax on stock is clearly capable of standing on its own, it is'an examination of the legislative intent which compels the conclusion that the taxable percentage deduction is not severable. Although the presence of a severability clause provides some guidance as to legislative intent, State ex rel. Andrews v. Chateau X, Inc., 296 N.C. at 260, 250 S.E.2d at 609, it is not conclusive. In Sheffield v. Consolidated Foods Corp., 302 N.C. 403, 276 S.E.2d 422 (1981), this Court discussed the presence of a severability clause and commented that
[plaintiffs’ reliance on the severability clause is misplaced. While the severability clause obviously protects other provisions of the Act from invalidity due to a finding that one or more provisions are invalid, a severability [clause] is relevant to a decision only when the validity of a particular provision of the Act is at issue. Here, the inapplicable provisions of G.S. 78B-3 remain relevant to our consideration in determining legislative intent with respect to the application of the Act as a whole to open market purchases. Clearly in interpreting the legislative intent, we cannot ignore all the provisions of the Act simply because it contains a severability clause common to most statutes enacted by our Legislature.
Id. at 421, 276 S.E.2d at 434.
In determining that the severability clause could not be applied in Sheffield, the Court applied the following well-established canon of statutory construction:
“In order to discover and give effect to the legislative intent we must consider the act as a whole, having due regard to each of its expressed provisions; for there is no presumption that any provision is useless or redundant. That the act consists of several sections is altogether immaterial on the question of its unity. ‘The construction of a statute can ordinarily be in no wise affected by the fact that it is subdivided into sections or titles. A statute [is] passed as a whole and not in parts or sections and is animated by one general purpose or intent. Consequently the several parts or sections of an act are to be construed in connection with every other part or section and all are to be considered as parts of a connected whole and harmonized, if possible, so as to aid in giving effect to the intention of the lawmakers.’ ”
Id. at 421-22, 276 S.E.2d at 434 (quoting Jones v. Board of Educ., 185 N.C. 303, 307, 117 S.E. 37, 39 (1923) (citation omitted)). The Court *427concluded that “[w]e will not apply the severability clause to vary and to contradict the express terms of a statute, for we cannot believe the Legislature intended such a result.” Id. at 422, 276 S.E.2d at 434.
In the present case, the taxable percentage deduction is contained in the provision of the intangibles tax which applies to stocks. N.C.G.S. § 105-203 provides in pertinent part:
All shares of stock . . . owned by residents of this State or having a business, commercial, or taxable situs in this State on December 31 of each year, with the exception herein provided, shall be subject to an annual tax, which is hereby levied, of twenty-five cents (254) on every one hundred dollars ($100.00) of the total fair market value of the stock on December 31 of each year less the proportion of the value that is equal to:
(1) In the case of a taxpayer that is a corporation, the proportion of the dividends upon the stock deductible by the taxpayer in computing its income tax liability under G.S. 105-130.7____
(2) In the case of a taxpayer that is not a corporation, the proportion of the dividends upon the stock that would be deductible by the taxpayer, if the taxpayer were a corporation, in computing its income tax liability under the provisions of G.S. 105-130.7(1), (2), (3), (3a), and (5) ....
N.C.G.S. § 105-203 (1992) (repealed 1995). In Fulton Corp. v. Justus, 338 N.C. 472, 450 S.E.2d 728 (1994), this Court explained the procedure involved in calculating the intangibles tax on stock as follows:
Thus, the intangibles tax on stock is computed in the following manner: the greater the percentage of the issuing corporation’s total income which is allocated to and taxed in this state the more dividend income from that corporation a corporate shareholder is allowed to deduct and the less intangibles tax the shareholder pays. The amount by which the intangibles tax against the shareholder is reduced, therefore, is directly related to the amount of the issuing corporation’s income which is allocated to and taxed in this state. If 70% of the issuing corporation’s income is allocated to North Carolina, then 70% of the dividends on that corporation’s stock are deductible by the corporate shareholder as income, the stock’s value for intangibles tax purposes *428is reduced by 70%, and the intangibles tax thereby decreased by 70%.
Id. at 475, 450 S.E.2d at 730. For a more detailed discussion of the application of the intangibles tax on stock, see Fulton v. Justus, 338 N.C. 472, 450 S.E.2d 728. Because of the process involved in calculating the intangibles tax on stock, the elimination of the taxable percentage deduction would subject all stock in North Carolina companies to a full tax burden under N.C.G.S. § 105-203.
Further, because plaintiff in this case is a corporate taxpayer, the majority addresses only N.C.G.S. § 105-203(1), the taxable percentage deduction for stock owned by corporations. However, as the Secretary of Revenue’s brief notes, the constitutional infirmity in N.C.G.S. § 105-203(1) is also present in N.C.G.S. § 105-203(2), the taxable percentage deduction for. stock owned by individuals. Thus, if the taxable percentage deduction which applies to corporations must be severed, it follows that the taxable percentage deduction which applies to stock owned by individuals must also be severed. Under the logic of the majority’s decision, excising the discriminatory deduction would eliminate the only unconstitutional feature of N.C.G.S. § 105-203. This would result in the remainder of N.C.G.S. § 105-203 becoming a constitutional tax on all shares of stock owned by corporations and individual taxpayers of North Carolina. Thus, the tax would apply not only to stock in publicly traded companies from around the world, but also to every small, incorporated business in our state. The full tax would also apply to corporate shareholders and individual stockholders. To contend that the legislature would have “passed the residue independently” is to defy the practical and political reality of the impact of such a tax.
When the General Assembly enacted the intangibles tax on stock in 1937, the shares of all corporations that paid taxes in North Carolina were excluded. Act of Jan. 6, 1937, ch. 127, sec. 706, 1937 N.C. Public Laws 170, 331 (an act to raise revenue). It was in 1939 that the General Assembly narrowed the exclusion to the proportion of tax the corporation paid in North Carolina. Act of Mar. 24, 1939, ch. 158, sec. 705, 1939 N.C. Public Laws 176, 359 (an act to raise revenue). In the portion of N.C.G.S. § 105-203 that levies the tax, the 1939 General Assembly stated that “[a]ll shares of stock . . . owned by residents of this State ..., with the exceptions herein provided, shall be subject to an annual tax.” Id. (emphasis added). The remainder of the statute then listed the exceptions, including the taxable percentage *429deduction on all shares of stock owned by corporations and individual taxpayers in North Carolina. Thus, the General Assembly has always manifested its intent that the scope of the intangibles tax on shares of stock be narrowed by these exceptions.
Severing the taxable percentage deduction as the majority opinion has done contravenes the intent of the legislature because it expands the scope of N.C.G.S. § 105-203. By severing the deduction, not only publicly traded shares of stock but also shares of stock in closely held corporations which have never before been subject to the intangibles tax on stock are now subject to such taxation.
Further evidence that the majority’s decision contravenes the intent of the legislature can be found in the repeal of the intangibles tax in its entirety — including N.C.G.S. § 105-203 — which became effective on 1 January 1995. Act of Jan. 25, 1995, ch. 41, sec. 1(b), 1995 N.C. Sess. Laws 59, 60 (an act to repeal the intangibles tax and to reimburse local governments for their resulting revenue loss). In the Legislative Research Commission’s Report to the General Assembly, the Commission expressed three reasons for repealing the intangibles tax:
First, many consider it an unfair tax because, unlike tangible property, intangible property does not require local government services and thus should not be subject to tax. Second, many also believe the tax has a negative effect on economic development, causing corporate executives, retirees, and wealthy individuals to leave the State or to decide against moving into the State. Third, if .the United States Supreme Court overturns the North Carolina Supreme Court’s decision and agrees with the court of appeals that the taxable percentage deduction is invalid, the result would be a tax increase for many taxpayers, particularly individuals who own small, in-State businesses.
Legislative Research Comm’n, Revenue Laws, Report to the 1995 Gen. Assembly of N.C., at 97 (1995) (emphasis added). Because of the repeal of North Carolina’s intangibles tax, N.C.G.S. § 105-203, the legislature also amended N.C.G.S. § 105-275, which classifies property that is excluded from the tax base and includes, inter alia, “[sjhares of stock, including shares and units of ownership of mutual funds, investment trusts, and investment funds.” N.C.G.S. § 105-275(31c) (1995). The explicit exemption of stock from taxation in the General Statutes clearly illustrates the intent of the legislature.
*430Thus, although a severability clause is contained in the statute, that alone does not determine that the constitutional portion should remain. Clearly, the legislature did not intend that the scope of N.C.G.S. § 105-203 be broadened. As this Court has recognized, invalidation of some exceptions or exemptions may require an entire statute to fail if severing the invalid provisions would widen the scope of the statute beyond the legislature’s intended coverage. State v. Waddell, 282 N.C. at 443, 194 S.E.2d at 27. This is exactly what severing the taxable percentage deduction and upholding the residue of the tax would do in the present case. Therefore, I conclude that the majority is in error and would agree with both the Secretary of Revenue and the corporate plaintiff that the entire tax must fail and that plaintiff is therefore entitled to a refund.
Justices FRYE and LAKE join in this dissenting opinion.