The Business Court spanked the Department of
Revenue again last week, just after a ruling two weeks ago when it said in another
case that the DOR's position was "harsh, and potentially fatal. . .
." This time, in Delhaize
America, Inc. v. Lay, 2011 NCBC 2, Judge Tennille ruled that the
attempted imposition of a $1 million tax penalty by the DOR not only violated
the taxpayer's due process rights, but also a provision of the state
Constitution which requires the power of taxation to be exercised in "a
just and equitable manner."
Delhaize, the North Carolina operator of Food Lion
grocery stores, was audited by the DOR after it restructured its operations by
placing its trademarks, trade names, service marks, and other assets in an out
of state subsidiary named Food Lion Florida (FLFL). Delhaize paid
royalties and fees to FLFL, and those were repaid to Delhaize in the form of
non- taxable dividends. This resulted in "income distortions," Op.
¶23, and the payment of less tax by Delhaize.
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