Brief of Amicus Curiae North Carolina Farm Bureau v. North Carolina Department of Revenue
Brief of Amicus Curiae, North Carolina Farm Bureau v. North Carolina Department of Revenue, Superior Court, 20 CVS 10244 (2021).
18 Pages Posted: 11 Jun 2021 Last revised: 18 Sep 2021
Date Written: January 1, 2021
In 1999, the North Carolina Legislature (“Legislature”) enacted a renewable energy tax credit that businesses (but not insurance companies) could claim. That tax credit lost its appeal in the aftermath of the 2008 financial crisis: businesses, operating at severe losses, did not pay enough in taxes to make the investment worthwhile. In response, the Legislature extended the tax credits to insurance companies. Farm Bureau embraced the opportunity and began providing capital to renewable energy projects. The Department of Revenue (“DOR”) issued favorable private letter rulings that endorsed the type of partnership structures utilized by Farm Bureau for these investments.
The credit was eliminated in 2016. One year later, under a new leadership, the DOR unexpectedly issued an assessment for over $24 million against Farm Bureau, rescinding three years worth of renewable energy credits.
The DOR’s conduct violates the North Carolina Constitution, which vests in each branch of government a unique power and purpose. The Legislature has the power to enact laws. The executive branch has the power to faithfully execute those laws. The actions of the executive branch must not conflict with the intent of the Legislature.
Farm Bureau’s actions were in harmony with the Legislature’s intent. The Legislature understood that insurance companies, like Farm Bureau, would not be building or operating renewable energy plants themselves (in fact, insurance regulators would likely prevent them from doing so). Instead, these companies would provide the necessary capital to those with the skills required to construct and operate such facilities.
Before 2016, the DOR respected the will of the Legislature: its private letter rulings indicate that investors like Farm Bureau did not need to construct, purchase, or lease renewable energy property, but only needed to supply the necessary capital to those that did, in order to claim the tax credits. And these rulings demonstrate that the DOR was comfortable with the way in which companies like Farm Bureau invested in partnerships in order to benefit from the tax credits.
The opinion below commits two egregious errors. Firstly, it erroneously assumes that Farm Bureau was only entitled to tax credits if it constructed, purchased, or leased renewable energy property. This was not the intent of the Legislature. Secondly, the opinion denies the credits because Farm Bureau invested in a partnership to obtain the credits generated by these properties to offset its gross premium tax liability. But in a deposition, the DOR conceded that such investments were common, and its private letter rulings endorse the use of such structures.
The DOR’s claw back of the credits was improper. Now that the renewable energy projects are complete, the DOR has nothing to lose by raising money by rescinding the tax credits. But the Legislature’s credibility, and the State’s business climate, is at stake.
The DOR’s illegitimate use of executive power conflicts with fundamental principles of fairness. By disregarding legislative intent and retroactively taxing Farm Bureau, the DOR violates norms of fundamental fairness. The application of the law may change with respect to future events, but taxpayers ought to be able to rely on the stability of the past.
Keywords: North Carolina, tax, law, tax law, renewable energy, tax credit, department of revenue, farm bureau, legislature, executive power
JEL Classification: k30, k34, h20, h23, h25
Suggested Citation: Suggested Citation