North Carolina tax office collects $277M more than expected in corporate tax negotiations

NC collects bigger-than-expected revenue bonus

RALEIGH, N.C. — North Carolina’s tax office has taken in much more money through a special collection effort than promised last summer, the state’s top tax collector said, and surely will ease a revenue shortfall for the next six months.

Revenue Secretary Kenneth Lay on Tuesday said his department collected $427.2 million in back taxes from 236 corporate entities by Dec. 15 following negotiations with companies that had disputes over their tax bills.

That’s $277 million more than the extra $150 million the department had promised lawmakers they could bring in through a corporate tax compliance initiative so the state’s $19 billion budget could be balanced.

The extra one-time money will come in handy through the end of June as Gov. Beverly Perdue manages a shortfall that could exceed $400 million before the fiscal year ends.

“The General Assembly should be pleased with the results we’ve achieved,” Lay said in an interview. “The people of North Carolina should be pleased.”

Lay said the department contacted 389 corporate taxpayers that had unresolved tax issues with the state and got about 300 to agree to sit down and attempt to work out differences, but fewer reached agreements whereby they would have to pay taxes and interest. In exchange, the state canceled any late penalties.

The taxpayers had been at odds with the Revenue Department over the state franchise tax and the use of complex corporate structures to lower their North Carolina tax payments.

A state appeals court ruling in the agency’s favor last spring — allowing it to combine the finances of multiple subsidiaries when determining what portion of the taxpayers’ income originated from North Carolina activities — also provided some leverage.

Lay said attorneys for the state and the taxpayers tried to agree on the method by which the taxes should be calculated in the past and into the future before plugging in numbers to come up with tax bills and take them off the books. Several taxpayers actually got refunds.

“We’ve cleaned all of that up, which has got to be beneficial to the corporate taxpayer,” said Lay, who will report Wednesday to a tax law committee that meets while the Legislature’s not in session. “It just solves a host of issues.”

Rep. Paul Luebke, senior co-chairman of the House Finance Committee, said he was briefed on the corporate initiative by Lay, calling it welcome news given the state’s overall fiscal trends.

Without the project, the state had taken in 1.5 percent less than projected, or $110 million, over the first five months of the fiscal year, through Nov. 30.

“It’s a matter of fairness that big corporations pay their taxes, along with the average family,” said Luebke, D-Durham. “I’m very happy that the department has brought in tax dollars that were due.”

Perdue’s office didn’t immediately have a comment Tuesday about the tax windfall or how it planned to use the money. Perdue has held back up to 5 percent of funds designated to state departments in the budget to ensure there’s enough money to pay bills if revenues go farther south.

Budget-writers also asked the Revenue Department to collect an additional $60 million through better enforcement of tax laws on individual filers. Lay said collectors will be targeting citizens who have failed to filed returns even though they owe money.

“It basically comes down to being fair and equitable to everybody in the state,” he said.