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The Application of Federal Tax Law in North Carolina Tax Cases

By William W. Nelson
Published by North Carolina Law Review
12.16.2019

In 2017, the Supreme Court of North Carolina rendered its decision in Fidelity Bank v. North Carolina Department of Revenue. The issue presented in that case was whether the word “interest” as used in the North Carolina Revenue Act (the “Revenue Act”) should be construed in accordance with the meaning given the term in the Internal Revenue Code (the “Code”). The court held that absent a “clear and specific reference” in the Revenue Act to the Code’s definition of “interest,” that definition did not apply, and the term must be construed in accordance with its plain meaning.

While the narrow issue in Fidelity Bank was the interpretation of a single word, the case shines a revealing light on a large and important question: to what extent do federal tax rules control the outcome of North Carolina tax controversies? That question is important because taxpayers and the North Carolina Department of Revenue (the “Department”) share an interest in knowing what law governs a given case. More broadly, the answer to this question has important consequences for the state’s ability to prevent the erosion of its “concurrent and coequal authority” over the taxing power within our federal system.

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The North Carolina Law Review, a student-operated journal, serves judges, attorneys, scholars, and students by publishing outstanding legal scholarship and furthering the intellectual climate of the University of North Carolina School of Law. Through its collaboration with the legal community, the Review provides timely and thought-provoking commentary for people of North Carolina and the nation. 

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