Copyright 1998 - N.C. Administrative Office of the Courts

Polaroid Corporation, Plaintiff v. Muriel K. Offerman, Secretary of Revenue of the State of North Carolina, Defendant

No. COA97-476

(Filed 20 January 1998)

1.    Taxation § 114 (NCI4th)-- business income -- meaning of "and includes"

    The phrase "and includes" in N.C.G.S. § 105-130.4 does not create a separate definition of business income but merely provides examples of what fits within the definition of business income.

2.    Taxation § 114 (NCI4th)-- patent infringement award -- income taxation -- nonbusiness income

    Damages awarded to plaintiff Polaroid in its patent infringement suit against a competitor is nonbusiness income rather than business income under N.C.G.S. § 105-130.4 for income tax purposes where plaintiff is not in the business of licensing its patents; the main purpose of the lawsuit was not to acquire working capital or to increase cash flow but was to prevent the competitor from using its patents and to recover lost profits; and the money received is thus not a part of plaintiff's regular trade or business operations.

    Appeal by plaintiff from order entered 28 February 1997 by Judge Narley L. Cashwell in Wake County Superior Court. Heard in the Court of Appeals 4 December 1997.

    Womble Carlyle Sandridge & Rice, PLLC, by Jasper L. Cummings, Jr., for plaintiff appellant.

    Attorney General Michael F. Easley, by Assistant Attorney General Kay Linn Miller Hobart, for defendant appellee.

    SMITH, Judge.

    Plaintiff Polaroid Corporation ("Polaroid"), domiciled in Massachusetts, filed this action seeking a partial tax refund pursuant to N.C. Gen. Stat. § 105-267 (1989) of income tax paid to the State of North Carolina for the 1991 tax year. Polaroid requests a refund of additional assessed taxes and interest totaling $499,177.00 based on a $924,526,554.00 recovery from a patent infringement suit Polaroid instigated in 1976 against Eastman Kodak Company ("Kodak"). See Polaroid Corp. v. Eastman Kodak Co., U.S.P.Q.2d 1711 (1991).