N.C. Chamber Amicus Brief by Smith Anderson’s Bill Nelson Presented to N.C. Supreme Court in Sales Tax Controversy

The Carolina Journal featured Smith Anderson tax attorney Bill Nelson in the story “NC Chamber backs taxpayer in legal dispute with Revenue Department,” which reports on a dispute now before the North Carolina Supreme Court regarding a taxpayer’s claim for a sales tax exemption on purchases of manufacturing equipment. Law360 also reported on the lawsuit. 

The company, FSC II, an asphalt manufacturer, claimed a “mill machinery” sales tax exemption for equipment it bought to make hot mix asphalt. The Department of Revenue (DOR) denied the exemption, and FSC II filed a contested case with the NC Office of Administrative Hearings, which ruled in the taxpayer’s favor. DOR appealed this decision to the North Carolina Business Court, which also ruled in favor of FCS II. DOR has now appealed to the N.C. Supreme Court, which is now considering the case.

At issue is a DOR position that to get the tax credit, companies like FSC II must satisfy a requirement that’s not found in the sales tax statute: their primary purpose must be selling its manufactured products to third parties. FSC II used most of its hot mix asphalt in its own construction projects.

In a friend-of-the-court legal brief filed by the North Carolina Chamber’s Legal Institute, Bill asks justices to prevent DOR from enforcing its “primary purpose” rule, because DOR did not publish the rule or otherwise follow the procedures set forth in the state’s Administrative Procedure Act.

"Permitting a state agency to enforce such a secret rule would threaten North Carolina’s business climate, undermine the political accountability of state agencies and erode the public’s confidence that their government will treat them fairly," Bill wrote. "…Players need to know the rules of the game before they roll the dice. When government agencies can exact penalties for the transgression of secret rules, even the most daring entrepreneurs will be reluctant to commit their capital into the future."

John Locke Foundation Senior Policy Analyst Mitch Kokai weighed in on the case here for The Carolina Journal.

Bill focuses his practices on issues such as transactional tax planning, tax controversies and litigation dealing with state and federal tax authorities as administrative agencies and representing taxpayers before the North Carolina General Assembly. He has written and spoken on a variety of federal and state tax topics and has been active in a number of state tax and business law legislative reform efforts.

The full article, which further explores the case and Bill’s arguments, can be viewed here.

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