BOYCE & ISLEY,
PLLC
ATTORNEYS
AT LAW -
July 4,
2002
TO:
Former
Clients,
Taxpayers of North
Carolina
Having
many former clients in the Intangibles Tax cases (1995 to
2002) and government retiree tax
cases (1989 to 2001),
I feel obliged to inform as many as possible of another
illegal tax law recently enacted. On September 26, 2001, the
top tax bracket taxpayers were burdened with an illegal income
tax increase of about 6.45%:
|
INCOME TAX
BRACKETS
1991-200 |
2001 RETROSPECTIVE
CHANGE
JAN
1st
thru SEP 26th |
Percent
Increase |
|
6% |
No change |
None |
|
7% |
No change |
None |
|
7.75% |
Increase of one-half
percent to 8.25% |
6.45% |
|
TAX
RETURN OF |
TAXABLE
INCOME |
TAX |
ILLEGAL
2001 PAYMENT
|
|
Joint
Taxpayers |
$
200,000.00 |
$
16,500.00 |
$1,064.25 |
|
Head of
Household |
$
150,000.00 |
$12,375.00 |
$
798.18 |
|
Single
Taxpayer |
$
120,000.00 |
$
9,900.00 |
$
638.55 |
|
Married filing
separate |
$
100,000.00 |
$
8,250.00 |
$
532.12 |
Whether you are affected depends on
your ¿marginal income tax bracket¿ as follows:
No
reserve exists for refunding these illegal taxes as in the
past. Only
taxpayers adhering strictly to legal technicalities
and, perhaps those who sue, will ever get a refund. For over
134 years our State Constitution makes
retrospective taxes illegal. Art. I, Sec. 16,
N.C. Constitution makes illegal retrospective criminal laws
and one
type of civil law. "No law retrospectively taxing any sales,
purchases or other acts previously done
shall be enacted."
We are the only state with a specific prohibition against
taxing people "after-the-fact."
The U.S. Constitution
allows back-taxing in most instances. The Supreme Court of
North Carolina, first in 1877 and again
in 1939, has said
state laws that back-tax people are
illegal.
It
was my privilege for the past sever' years to represent you
and 240,000 other Intangibles taxpayers as
Judge Howard
Manning entered orders for refund of 100% of your illegal tax
plus 6% interest. You
may recall the old law
required state taxpayers to "pay under protest and demand a
refund within 30 days." We got taxpayers' time
limit
extended to 12 months but the strict legal requirement to
protest still exists. If
your tax preparer, CPA or attorney
has not told you, I feel you are entitled to know that the
following or similar notice should
be put either on
your return or in a letter to the Department of Revenue:
"Retrospective taxes
are paid under
protest; refund is
demanded."
Contrary
to recent efforts of some officials to place part blame on
taxpayers' judgments for
the government's current budget fiasco, previous General
Assembly's wisely did not spend your
illegally collected tax money. While lawsuits were pending and
the Courts reviewed your cases,
the legislature began withholding more than sufficient amounts
of illegal taxes
collected each
year to cover the possible refunds. During the period 1989 to
2001, Legislators wisely set aside
"Rainy Day Funds" and year-end surpluses in amounts sufficient
to cover judgments that ultimately
came in these successful lawsuits to recover unconstitutional
taxation:
Bailey/Emory/Patton:
Cases
in behalf of retired teachers, state, local, federal, and
military employees:
$799
million settlement paid from accumulated tax revenues during
years 1994 through 1998
that was $255
million less than the illegal taxes.
collected.
Smith
Class A: Cases
in behalf of Intangibles Taxpayers who knew to protest within
30 days:
$150 million from $544 million in
illegal taxes that had been put in the "Rainy Day Fund."
Smith/Shaver
Class: Cases
in behalf of Intangibles Taxpayers who did not know written
protest was
required.
$440
million settlement
that was $15 million less
than
the illegal taxes collected..
Sources:
Comprehensive
Annual Financial Reports of the Office of State Treasurer,
1992-2000;
and
Summaries
of
Financial
Condition of the Office of State Controller, 1992-2000;
Legislative Fiscal
Reports, 1994-2001.
POSSIBLE 2002 RETRO-TAX
LAWSUIT
Several people have asked Boyce &
Isley to consider filing a
lawsuit
to determine the constitutionality
of the September 26, 2001 law that retrospectively increased
taxes imposed on
certain
"high income" taxpayers and retrospectively increased
income tax
of certain "low income"
taxpayers. The state government's budget bill enacted
September 26, 2001 created a new tax retroactive to January
1, 2001, on the income of certain taxpayers in the top
bracket. The new
law also retroactively abolished the deduction for child
health care insurance, thus increasing the income tax of
low
bracket taxpayers. This was
wrong.
The
North Carolina Constitution prohibits imposing taxes on
citizens "after-the-fact." The
North Carolina Supreme Court has twice ruled that state tax
laws may be enacted that apply only
prospectively. Our research discloses that legal grounds exist
to ask the Courts to declare
the September 2001 laws
unconstitutional, obtain a judgment ordering refunds and
prohibit any future violation of the Constitution. It may take
considerable effort and several years to
complete, but if
there is sufficient citizen interest in a lawsuit, Boyce
& Isley is
willing to represent plaintiff taxpayers
who wish to
proceed.
