North Carolina Department of Revenue v. Philip Morris U.S., Inc.

The franchise statute, N.C.G.S. S 105–122, allowed corporations to reduce their capital base by deducting debts owed by affiliated corporations, but only if the debtor corporation was also subject to North Carolina’s franchise tax. A 2016 audit by the North Carolina Department of Revenue determined that the defendant’s improperly calculated its franchise tax liability and thus owed the state $344,994 in unpaid taxes, penalties, and interest. The defendant’s petitioned the state’s Office of Administrative Hearings (OAH) for a contested case hearing, arguing that the statute in question violated the dormant Commerce Clause. The court determined that N.C.G.S. S 105–241.17 does not explicitly grant the OAH jurisdiction over as-applied constitutional challenges to tax statutes. In doing so, the court rejected defendant’s argument that the OAH’s jurisdiction over as-applied challenges could be inferred from the statutory language, noting that the statute’s ambiguity should be resolved in a way that avoids separation-of-powers issues.