Right to Carry Forward Excess Export Credits: Interpretation of “Credit Allowed” in N.C.G.S. § 105-130.45

Introduction

This appeal arises from a dispute between Philip Morris USA, Inc. (“Philip Morris”) and the North Carolina Department of Revenue (“the Department”) over cigarette‐export tax credits. Under N.C.G.S. § 105-130.45 (the “Export Credit Statute”), manufacturers of cigarettes shipped abroad earn a tax credit based on export volume. Philip Morris generated credits in excess of the annual six-million-dollar cap in earlier years and carried the unused portion forward into subsequent years. The Department disallowed those carryforwards, contending that the statutory cap applies to credits “generated” as well as credits “claimed.” The trial court agreed and granted summary judgment to the Department. Philip Morris appealed to the Supreme Court of North Carolina, presenting a pure question of statutory interpretation: what does “credit allowed” mean in subsections (b) and (c) of N.C.G.S. § 105-130.45?

Summary of the Judgment

By a unanimous opinion, the Supreme Court held that the phrase “credit allowed” bears two distinct meanings within the Export Credit Statute. In subsection (b), “credit allowed” refers to the amount of credit a taxpayer generates in a given year under the formula set out by the statute; in subsection (c), “credit allowed” refers to the amount of credit a taxpayer may claim against its tax liability in that year. Because the General Assembly capped only the amount a taxpayer may claim in any one year—leaving the generated amount unconstrained—the Court concluded that any Export Credits generated above the annual cap may be carried forward for up to ten succeeding years. The summary judgment in favor of the Department was reversed and the case remanded for further proceedings consistent with this interpretation.

Analysis

Precedents Cited

Winkler v. N.C. State Bd. of Plumbing, 374 N.C. 726 (2020) – De novo review of statutory interpretation.
In re Hayes, 261 N.C. 616 (1964) – Definition of “de novo.”
Wachovia Bank & Trust Co. v. Waddell, 237 N.C. 342 (1953) – Technical meaning of terms.
Virginian Hotel Corp. v. Helvering, 319 U.S. 523 (1943) – “Allowed” connotes “claimed.”
Aronov v. Sec’y of Revenue, 323 N.C. 132 (1988) – Tax exemptions and statutory construction.
State v. Fritsche, 385 N.C. 446 (2023) – Approach to ambiguous statutes.
Town of Midland v. Harrell, 385 N.C. 365 (2023) – Canons of construction as guides, not absolutes.
Wilkie v. City of Boiling Spring Lakes, 370 N.C. 540 (2018) – Doctrine of the last antecedent.
Reading Law (Scalia & Garner, 2012) – Technical vs. ordinary meaning.

Legal Reasoning

The Court began by determining that the phrase “credit allowed” is used in divergent senses: in subsection (c)’s Cap provision it carries its technical meaning from tax accounting—“the maximum credit a taxpayer may claim”—while in subsection (b)’s descriptive provision it must be construed according to its plain meaning in context—“the credit a taxpayer generates under the statutory formula.” Because the same words can bear different meanings in different statutory contexts, the presence of two uses did not automatically render the statute ambiguous. Rather, the Court applied the “whole text” canon to reconcile them, finding:

Subsection (b) prescribes the method for generating an Export Credit (based on export volume compared with a base year volume).
Subsection (c), entitled “Cap,” unambiguously limits only the claim of that credit to the lesser of $6 million or 50 percent of tax liability.

Thus, the Court held that the statutory cap applies to what can be claimed each year but does not diminish the credit that may be generated and carried forward. In support, the Court:

Examined accounting definitions of “carryforward” and “credit allowed.”
Applied longstanding federal precedent that “allowed” means “claimed.”
Rejected the Department’s reliance on the doctrine of the last antecedent, noting context and subsection titles controlled.
Compared a contemporaneous statute, N.C.G.S. § 105-130.46, which expressly limits “credit earned,” underscoring that the legislature knew how to cap generation when it intended to do so.
Enforced N.C.G.S. § 105-264(a)’s command that taxpayer guidance from the Department be clear and reliable; the Department’s bulletins never notified taxpayers of a generation cap.

Potential Impact

This decision

Confirms a taxpayer’s right to carry forward Export Credits generated above the annual cap for up to ten years.
Promotes clarity and predictability in North Carolina tax law by distinguishing between credit generation and credit claim.
Reminds administrative agencies to provide transparent, timely interpretation of statutes affecting taxpayers, under N.C.G.S. § 105-264(a).
Offers a framework for interpreting dual‐use statutory phrases in other tax provisions and beyond.

Complex Concepts Simplified

Carryforward: Unused tax credits that a taxpayer can apply against tax liabilities in future years (here, for up to ten years).
Credit Allowed (Subsection (b)): The amount of credit a manufacturer generates each year based on export volume.
Credit Allowed (Subsection (c)): The amount of credit a taxpayer may claim in a given year—capped at $6 million or half of the tax liability.
Statutory Ambiguity: When the same term appears to have different meanings in the same law; resolved here by context, structure, and legislative intent.
Canons of Construction: Guiding principles for interpreting statutes—e.g., reading the text as a whole, avoiding absurd results, harmonizing related laws.

Conclusion

The Supreme Court’s decision in Philip Morris USA, Inc. v. N.C. Dep’t of Revenue clarifies that under N.C.G.S. § 105-130.45:

The annual statutory cap governs only the amount of Export Credit a taxpayer may claim each year.
Any Export Credits generated in excess of that cap remain valid and may be carried forward up to ten years.
Administrative guidance must accurately reflect legislative changes, enabling taxpayers to plan their affairs with confidence.

This ruling strengthens predictability in the application of tax statutes and underscores the importance of precise statutory drafting—especially when identical terms perform distinct functions within the same enactment.