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Note: The following is an excerpt from the introduction to the
article as published in The State and Local Tax Lawyer. Author citations have been
omitted for brevity.
It Has Become Cumbersome – North Carolina’s Uneven Application of Intangibles Tax on Stock Held Unconstitutional: Smith v. State
Christopher Scott Badeaux
INTRODUCTION
In Smith v. State, the Supreme Court of North Carolina struck down a state provision that allowed only those taxpayers who had filed protests within a certain time limit to recover their payment of an unconstitutional tax. The court held that the law was contrary to both U.S. Supreme Court precedent and the North Carolina Constitution. The court rejected the state’s argument that the notification statute, which had divided the taxpayers, was valid and necessary, and recertified those plaintiffs who had not filed protests to the unconstitutional intangibles tax within the statutory notification period.
Part I of this Note covers the factual and legal backgrounds of Smith. Part II deals with the Smith ruling itself, and Justice Frye’s concurrence, which picks up where the court left off. Part III is an analysis of the holding. It shows that the court’s reasoning and reading of precedent was correct; the only flaw of any significance was not adopting the reasoning of the concurrence. Part IV concludes that despite the hardships associated with “forgiving” the intangibles tax, it appears that North Carolina will indeed be able to pay for the “forgiveness” it needs to come into compliance with the Fulton and Smith decisions.
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