Appeal by defendant from order filed 19 February 1999 by Judge
Marcus L. Johnson in Mecklenburg County Superior Court. Heard in
the Court of Appeals 18 April 2000.
Bell, Davis & Pitt, P.A., by William Kearns Davis, Walter W.
Pitt, Jr., and D. Anderson Carmen, for plaintiff-appellee.
Attorney General Michael F. Easley, by Assistant Attorneys
General, Christopher E. Allen, Marilyn R. Mudge, and Kay Linn
Miller Hobart, for the defendant-appellant.
GREENE, Judge.
Muriel K. Offerman, in her official capacity as the Secretary
of the Department of Revenue of the State of North Carolina (the
Department of Revenue) appeals an order filed 19 February 1999
granting summary judgment in favor of Chrysler Financial Company,
L.L.C., Successor by Merger to Chrysler Financial Corporation(Chrysler Financial) and denying the Department of Revenue's motion
for summary judgment. The undisputed facts show that in 1984 Chrysler Financial, a
Michigan limited liability company, began engaging in a procedure
for providing automobile dealerships in North Carolina with
wholesale financing (the Wholesale Finance Plan).
(See footnote 1)
The procedure
for receiving financing under the Wholesale Finance Plan begins
when dealerships that want to finance the sale of Chrysler vehicles
through Chrysler Financial apply for a line of credit with Chrysler
Financial. Once a line of credit has been established, the
dealership receives vehicles for retail sale from Chrysler
Corporation, a Delaware corporation that manufactures vehicles in
Michigan. Upon placement of a vehicle for shipment from Chrysler
Corporation to the dealership, the dealership and Chrysler
Corporation execute a credit sale agreement (installment paper).
The credit sale agreement is executed by the dealership in Michigan
through an attorney-in-fact, and the sale of the vehicle occurs in
Michigan. Upon the execution of the credit sale agreement, thedealership obtains rights in the vehicle and Chrysler Corporation
obtains a security interest in the vehicle and the dealership's
inventory. Under the terms of the credit sale agreement, Chrysler
Corporation has "the right of access to and inspection of the
[v]ehicles and the right to examine [the dealership's] books and
records, . . . [and the dealership] . . . certifies to [Chrysler
Corporation] that all [v]ehicles and books and records shall bekept at the principal place of business of [the dealership]."
As part of the Wholesale Finance Plan, Chrysler Financial then
enters into an "Agreement to Purchase Wholesale Credit Obligations"
with Chrysler Corporation. Execution of this agreement takes place
in Michigan and, pursuant to this agreement, Chrysler Corporation
assigns to Chrysler Financial its rights under the credit sale
agreement. Additionally, Chrysler Financial pays Chrysler
Corporation 100% of the amount due for each vehicle under the
credit sale agreement.
A financing statement naming Chrysler Corporation as the
secured party and Chrysler Financial as the assignee is then filed
in North Carolina pursuant to section 25-9-401 of the North
Carolina Uniform Commercial Code. This filing perfects Chrysler
Financial's security interest in the vehicles purchased from
Chrysler Corporation and in the dealership's inventory. Upon the
retail sale of a vehicle by the dealership, the dealership remits
to Chrysler Financial 100% of the amount advanced by Chrysler
Financial to Chrysler Corporation for the wholesale purchase of the
vehicle. If the dealership fails to pay funds due under the credit
sale agreement, Chrysler Financial has the right to enforce the
payment of these funds through collection procedures in North
Carolina.
On 30 July 1993, the Department of Revenue assessed Chrysler
Financial taxes, interest, and penalties for transactions made
under its Wholesale Finance Plan with dealerships located in NorthCarolina, pursuant to N.C. Gen. Stat. § 105-83.
(See footnote 2)
The 30 July 1993
assessments were for the following amounts: $3,156,823.00 for the
period of 1 October 1986 through 30 September 1989, and
$5,327,316.00 for the period of 1 October 1989 through 31 March
1993. Subsequent to the 30 July 1993 assessment, the Department of
Revenue continued to assess Chrysler Financial taxes due based on
the Wholesale Finance Plan, and on 28 July 1994, 6 September 1995,
19 October 1995, 4 January 1996, 15 April 1996, 15 July 1996, 10
October 1996, 17 January 1997, 10 April 1997, and July 2 1997,
Chrysler Financial made payments to the Department of Revenue
totaling $16,329,154.59 based on these assessments. Chrysler
Financial made these payments under protest pursuant to N.C. Gen.
Stat. § 105-267, and Chrysler Financial demanded a refund of each
payment within thirty days of making the payment.
(See footnote 3)
On 12 September 1997, Chrysler Financial brought suit against
the Department of Revenue, alleging a claim for refund of taxes in
the amount of $16,329,154.59 on the ground "[a]ll taxes assessed by
the Department of Revenue pursuant to N.C. Gen. Stat. § 105-83 and
paid by Chrysler Financial which result from Chrysler Financial's
wholesale financing business . . . were levied and assessed for anillegal or unauthorized purpose, or were invalid or excessive."
The complaint alleged the following pertinent grounds for relief:
b. Chrysler Financial is not engaged in
the business of dealing in, buying, or
discounting installment paper, notes, bonds,
contracts, or evidences of debt in connection
with its wholesale financing of automobiles
within the meaning of N.C. Gen. Stat. § 105-
83;
c. Chrysler Financial's provision of
wholesale financing is a direct loan to
automobile dealers that takes the form of
either a cash advance to the dealer or to
Chrysler [Corporation] as the manufacturer of
vehicles sold to dealers, both of which are
done pursuant to existing loan and security
agreements, and such activity is not within
the scope of N.C. Gen. Stat. § 105-83;
. . . .
e. N.C. Gen. Stat. § 105-83 requires a
taxpayer to obtain a license and pay a tax for
the privilege of engaging in the business
described therein in the State of North
Carolina. By its terms, the statute requires
that both the assignment of a receivable take
place in North Carolina and that a lien be
reserved or taken upon property located in
North Carolina. In Chrysler Financial's
wholesale financing business, neither the
assignment of a receivable from Chrysler
[Corporation] to Chrysler Financial nor the
reservation or taking of a lien on any
property occurs in North Carolina[.]
On 15 January 1999, Chrysler Financial filed a motion for
summary judgment, and on 25 January 1999, the Department of Revenue
filed a motion for summary judgment. In an order filed 19 February
1999, the trial court denied the Department of Revenue's motion for
summary judgment and granted summary judgment in favor of Chrysler
Financial in the amount of $14,784,559.29, plus 8% interest per
annum.
__________________________
The issues are whether: (I) Chrysler Financial is "engaged in
the business of dealing in . . . installment paper" within the
meaning of N.C. Gen. Stat. § 105-83 and, if so; (II) Chrysler
Financial engaged in this business in the State of North Carolina
within the meaning of N.C. Gen. Stat. § 105-83.
N.C. Gen. Stat. § 105-83 provides:
(a) Every person engaged in the business of
dealing in, buying, or discounting installment
paper . . . where at the time of or in
connection with the execution of said
instruments, a lien is reserved or taken upon
personal property located in this State to
secure the payment of such obligations, shall
apply for and obtain from the Secretary a
State license for the privilege of engaging in
such business or for the purchasing of such
obligations in this State, and shall pay for
such license an annual tax of one hundred
dollars ($100.00).
(b) In addition to obtaining a State
license from the Secretary, each person
subject to the tax levied in subsection (a)
. . . shall pay a tax of two hundred and
seventy-five thousandths of one percent
(.275%) of the face value of these
obligations.
N.C.G.S. § 105-83(a), (b) (1997). This statute creates a privilege
tax which is assessed to taxpayers for the privilege of carrying on
a particular business in North Carolina. N.C.G.S. § 105-33 (1999).
I
[1]Chrysler Financial argues it is not "engaged in the
business of dealing in . . . installment paper" because it
purchases credit sale agreements from Chrysler Corporation in order
to provide dealerships with financing under the Wholesale FinancePlan and not for the purpose of making a profit. We disagree.
Section 105-83 does not define the phrase "dealing in . . .
installment paper," and we must, therefore, ascertain the meaning
of this phrase by looking to the plain meaning of the terms.
State
v. Raines, 319 N.C. 258, 262, 354 S.E.2d 486, 489 (1987). The
plain meaning of "deal in" is "to engage in buying and selling some
commodity."
New Webster's Dictionary and Thesaurus of the English
Language 247 (1992). "Dealing in . . . installment paper,"
therefore, means the buying and selling of installment paper, and
a taxpayer may "deal in" installment paper regardless of whether
such dealing is intended for or results in the taxpayer receiving
a profit.
In this case, Chrysler Financial entered into the "Agreement
to Purchase Wholesale Credit Obligations" from Chrysler
Corporation. Upon execution of this Agreement, Chrysler
Corporation assigned to Chrysler Financial its security interest in
the installment paper representing the sale of the vehicles to the
dealerships and Chrysler Financial paid Chrysler Corporation the
amount due under the installment paper. Chrysler Financial is
therefore "engaged in the business of dealing in . . . installment
paper" under the plain meaning of section 105-83, and it is
immaterial whether Chrysler Financial's engagement in this business
was intended for or resulted in it making a profit.
II
[2]Chrysler Financial also argues that even if it does
"engage in the business of dealing in . . . installment paper," itis not subject to a tax assessment under section 105-83 because
section 105-83 taxes only the actual sale of the installment paper
and this sale takes place entirely within Michigan. In contrast,
the Department of Revenue argues section 105-83 applies not to the
actual sale of the installment paper but to the entire range of
activities involved in the business of engaging in such sales, and
a tax may be assessed if "any part of the activity related to the
prosecution of that business occurs in North Carolina."
Specifically, the Department of Revenue contends Chrysler Financial
engages in the following activities in North Carolina related to
the prosecution of the wholesale installment paper business:
Chrysler Financial's security interest in the vehicles and
inventories of the dealerships is perfected in North Carolina;
Chrysler Financial may pursue collection of funds due under the
credit sale agreement in North Carolina; the credit sale agreement
provides Chrysler Financial with the right to inspect collateral
and records located in North Carolina; dealerships in North
Carolina use North Carolina funds to pay amounts due under the
credit sale agreement; and Chrysler Financial engages in the
dealing of installment paper based on retail business in North
Carolina and is licensed pursuant to section 105-83 for that
purpose.
Section 105-83 states "[e]very person engaged in the business
of dealing in . . . installment paper . . . shall apply for and
obtain from the Secretary of State a State license for the
privilege of engaging in such business . . .
in this State." N.C.G.S. § 105-83(a). Under the plain language of the statu
te, a
tax is to be assessed for engaging in the business of dealing in
installment paper in North Carolina. As noted above, "dealing in
. . . installment paper" means the buying and selling of
installment paper.
In an administrative rule interpreting section 105-83, the
Department of Revenue has stated:
G.S. 105-83 does not impose a tax on the
business of dealing in, buying and/or
discounting installment paper which is engaged
in exclusively in a foreign state. When any
of the activity
incident to such business
occurs in North Carolina, G.S. 105-83 applies.
Such activities include the promotion and
solicitation of such business by employees or
agents within this State, whether or not the
transfer of such paper is consummated in this
State.
N.C. Admin. Code tit. 17, r. 4B.2905 (June 1998) (emphasis added).
"[A]n administrative agency's interpretation of its own regulation
is to be given due deference by the courts unless it is plainly
erroneous or inconsistent with the regulation."
Pamlico Marine
Co., Inc. v. N.C. Depart. of Natural Resources, 80 N.C. App. 201,
206, 341 S.E.2d 108, 112 (1986). We agree Rule 4B.2905 is
consistent with the meaning of section 105-83, and we therefore
consider the application of this Rule to the facts of this case.
It is clear under Rule 4B.2905 that a taxpayer must conduct
some
activity in North Carolina to be assessed a tax under section 105-
83. Additionally, the activity required to assess a tax under
section 105-83 is not limited to the actual transfer of the
installment paper, but may be activity "incident to such business." Nevertheless, because Rule 4B.2905 limits the application of
section 105-83 to activities incident to the business of "dealing
in . . . installment paper," the activities must be incident to the
buying and selling of installment paper. An activity is "incident
to" the buying and selling of installment paper if it "arise[s] in
the course of" the buying and selling.
New Webster's Dictionary
and Thesaurus of the English Language 489 (1992). These incidental
activities may include, but are not limited to, "the promotion and
solicitation of such business." N.C. Admin. Code tit. 17, r.
4B.2905.
In this case, Chrysler Financial entered into an agreement
with Chrysler Corporation to purchase installment paper, and this
agreement was executed in Michigan. The buying and selling of this
installment paper takes place entirely within Michigan; therefore,
Chrysler Financial may not be assessed a tax under section 105-83
based directly on its purchase of installment paper. We must,
therefore, determine whether Chrysler Financial conducted any
activities in North Carolina incident to the buying and selling of
the installment paper. Pursuant to the agreement to purchase the
installment paper, Chrysler Corporation assigned to Chrysler
Financial its security interest in vehicles owned by dealerships in
North Carolina and those dealerships' inventories. This security
interest was perfected by the filing of a financing statement in
North Carolina, and these documents named Chrysler Financial as anassignee. The perfection of a security interest in North Carolina,
however, does not arise in the course of the buying or selling of
the credit sale agreement. Rather, this perfection of a security
interest is an act separate and apart from the purchase of
installment paper. Additionally, Chrysler Financial's right to
inspect collateral under the credit sale agreement does not arise
in the course of buying or selling the credit sale agreement, but
is a contractual right Chrysler Financial obtains in Michigan when
Chrysler Corporation assigns to Chrysler Financial the credit sale
agreement. Similarly, enforcement of this contractual right in
North Carolina by collection methods permitted in this State does
not arise in the course of buying or selling the credit sale
agreement. Further, the fact that dealerships in North Carolina
use their funds to pay amounts due under the credit sale agreements
has no relation to the buying or selling of the installment paper
by Chrysler Financial, and Chrysler Financial's retail installment
paper business in North Carolina has no relation to its wholesale
installment paper business. Finally, the record contains no
evidence Chrysler Financial engages in the promotion or
solicitation of the buying or selling of installment paper in North
Carolina. Chrysler Financial, therefore, was not subject to tax
assessment under section 105-83 based on its purchase of
installment paper from Chrysler Corporation.
Because we hold Chrysler Financial was not subject to tax
assessment under section 105-83 for its wholesale installment paper
business, we need not address the Department of Revenue'sadditional assignments of error. Accordingly, the trial court's
order denying the Department of Revenue's motion for summary
judgment and granting summary judgment in favor of Chrysler
Financial is affirmed.
Affirmed.
Judges MCGEE and EDMUNDS concur.
Footnote: 1