State v. Kennedy

Judge Greene

dissenting.

I respectfully dissent from the majority opinion because I do not believe that our legislature intended for retailers holding tax funds to be bound by the type of trust relationship contemplated in our embezzlement statutes.

The trial court in this case instructed the jury that to find Defendant guilty of the charges against him, they first had to find that “[Old Colony Group, Inc.] was a trustee of the State of North Carolina [and of Gaston County].” The trial court then stated to the jury that “the law of North Carolina provides that sales taxes shall be paid by the purchaser to the retailer as trustee for and on account of the [S]tate . ...” I believe, therefore, that the dispositive issue in Defendant’s appeal is whether Chapter 105 (the Tax Code) of the North Carolina General Statutes requires sales tax receipts to be held “in trust” such that misapplication of these tax receipts may subject a defendant to conviction for the embezzlement of state and/or county funds.

Defendant was charged with aiding and abetting Old Colony in the embezzlement of state sales and use tax, pursuant to section 14-91, and in the embezzlement of county sales and use tax, pursuant to section 14-92. To show that a defendant has violated sections 14-91 *405and/or 14-92, the State must show that the defendant has misapplied property held “in trust” for the State, a county, or some other enumerated entity. N.C.G.S. §§ 14-91 and 14-92 (1993). “[T]he requirement that defendant misapply funds which he ‘holds in trust’ expresses the requirement distinctive to embezzlement that the defendant ‘received the property he embezzled in the course of his employment and by virtue of his fiduciary relationship with his principal.’ ” State v. Bonner, 91 N.C. App. 424, 426, 371 S.E.2d 773, 774 (1988) (quoting State v. Kornegay, 313 N.C. 1, 22, 326 S.E.2d 881, 897 (1985)), disc. review denied, 323 N.C. 705, 377 S.E.2d 227 (1989). A fiduciary relationship exists when “there has been a special confidence reposed in one who in equity and good conscience is bound to act in good faith and with due regard to the interests of the one reposing confidence,” or when “there is confidence reposed on one side, and resulting domination and influence on the other.” State v. Seay, 44 N.C. App. 301, 307, 260 S.E.2d 786, 789-90 (1979), disc. review denied and appeal dismissed, 299 N.C. 333, 265 S.E.2d 401, and cert. denied, 449 U.S. 826, 66 L. Ed. 2d 29 (1980).

Defendant herein contends that he did not hold the sales and use tax collected from Carolina Freight “in trust” pursuant to a fiduciary relationship, and that the trial court therefore should have granted his motion to dismiss the charges brought pursuant to sections 14-91 and 14-92. See State v. Roseborough, 344 N.C. 121, 126, 472 S.E.2d 763, 766 (1996) (noting that a motion to dismiss should be granted where the State fails to present substantial evidence of each essential element of the charged offense). The State counters that the Tax Code provides that retailers hold tax receipts “as trustee for and on account of the State,” and, as such, hold the tax funds received “in trust” as a matter of law.

Statutes levying a tax, State v. Campbell, 223 N.C. 828, 830, 28 S.E.2d 499, 501 (1944), imposing a penalty, Jones v. Georgia-Pacific Corp., 15 N.C. App. 515, 518, 190 S.E.2d 422, 424 (1972), or creating a criminal offense, State v. Clemmons, 111 N.C. App. 569, 572, 433 S.E.2d 748, 750, cert. denied, 335 N.C. 240, 439 S.E.2d 153 (1993), must be strictly construed. In strictly construing these statutes, the intent of the legislature is the controlling factor. State v. Hart, 287 N.C. 76, 80, 213 S.E.2d 291, 294 (1975). Legislative intent is “usually ascertained not only from the phraseology of the statute, but also from the nature and purpose of the act and the consequences which would follow its construction one way or the other.” In re Hardy, 294 N.C. 90, 97, 240 S.E.2d 367, 372 (1978) (emphasis omitted). Our courts *406must presume that “the legislature comprehended the import of the words employed to express its intent,” State v. Baker, 229 N.C. 73, 77, 48 S.E.2d 61, 65 (1948); accordingly, technical terms must ordinarily be given their technical meaning, Henry v. Leather Co., 234 N.C. 126, 129, 66 S.E.2d 693, 695 (1951), and where the words of a statute have not acquired a technical meaning, they must be construed in accordance with their common and ordinary meaning, unless a different meaning is indicated by the context, Transportation Service v. County of Robeson, 283 N.C. 494, 500, 196 S.E.2d 770, 774 (1973).

The Tax Code provides that sales tax shall be:

add[ed] to the sales price of . . . tangible personal property . . . [and] shall constitute a part of such purchase price, [and] shall be a debt from the purchaser to the retailer until paid .... Said tax ... shall be paid by the purchaser to the retailer as trustee for and on account of the State and the retailer shall be liable for the collection thereof and for its payment to the Secretary and the retailer’s failure to charge to or collect said tax from the purchaser shall not affect such liability.

N.C.G.S. § 105-164.7 (1997). Strictly construing the Tax Code, I would hold that the language that tax receipts are held by the retailer “as trustee” does not contemplate that tax receipts be held “in trust” as required for conviction under the embezzlement statutes here at issue. Indeed, although the Tax Code contemplates that sales tax be bourne by the purchaser, the retailer is responsible for payment of sales tax whether or not he charges and collects it from the purchaser. The retailer, therefore, cannot be said to hold the purchaser’s funds “in trust” for the State.

“[W]here a literal interpretation of the language of a statute would contravene the manifest purpose of the statute, the reason and purpose of the law will be given effect and the strict letter thereof disregarded.” In re Banks, 295 N.C. 236, 240, 244 S.E.2d 386, 389 (1978); accord Comr. of Insurance v. Automobile Rate Office, 294 N.C. 60, 68, 241 S.E.2d 324, 329 (1978) (“In construing statutes courts normally adopt an interpretation which will avoid absurd or bizarre consequences, the presumption being that the legislature acted in accordance with reason and common sense and did not intend untoward results.”). “Trustees” may not commingle trust funds with their personal or business funds unless the trust instrument allows them to do so. See 76 Am. Jur. 2d Trusts § 381 (1992). I believe that our legislature could not have intended the absurd result that retailers would *407be liable for violating a trust relationship when they commingle the money received for the sale of an item and the sales tax collected on that item in the same cash drawer throughout the course of the business day. Indeed, the Tax Code contemplates that retailers will commingle tax receipts with their other receipts. See N.C.G.S. § 105-164.19 (1997) (allowing for an extension of time to pay taxes owed, which would be unnecessary if tax funds were segregated from other receipts).

Furthermore, the Tax Code must be considered as a whole in determining the legislative intent behind the phrase “as trustee” as it appears in section 105-164.7. See Hardy, 294 N.C. at 95-96, 240 S.E.2d at 371-72 (“Words and phrases of a statute may not be interpreted out of context, but individual expressions ‘must be construed as a part of the composite whole and must be accorded only that meaning which other modifying provisions and the clear intent and purpose of the act will permit.’ ” (quoting Watson Industries v. Shaw, Comr. of Revenue, 235 N.C. 203, 210, 69 S.E.2d 505, 511 (1952))). Section 105-238 of the Tax Code expressly provides that “[e]very tax imposed by [Subchapter I, providing for the levy of taxes], and all increases, interest and penalties thereon, shall become, from the time it is due and payable, a debt from the person, firm, or corporation liable to pay the same to the State of North Carolina.” N.C.G.S. § 105-238 (1997) (emphasis added).

A debt is not a trust. ... At times, whether a debt or a trust has arisen may not be clear. In general, it is understood that when the “trustee” of the funds is entitled to use them as his or her own and commingle them with his or her own money, a debtor-creditor relationship exists, not a trust.

76 Am. Jur. 2d Trusts § 16 (1992). The Tax Code explicitly provides that it creates a debtor-creditor relationship between retailers and the State, and this explicit language, combined with the Tax Code’s implicit acceptance of the fact that retailers commingle tax receipts with other funds, must override any implication that the language “as trustee” creates a trust relationship.1

*408Generally, embezzlement charges do not arise from a debtor-creditor relationship. Gray v. Bennett, 250 N.C. 707, 712, 110 S.E.2d 324, 328 (1959) (“[W]hen dealings between two persons create a relation of debtor and creditor, a failure of one of the parties to pay over money does not constitute the crime of embezzlement.”).

In light of the foregoing, I believe that our legislature did not intend that tax receipts be held “in trust” by the retailer, despite the language in the Tax Code that retailers hold tax receipts “as trustees.” Accordingly, the charges against Defendant pursuant to the embezzlement statutes should have been dismissed by the trial court due to the State’s failure to present substantial evidence that a trust relationship existed between Defendant and the State, and between Defendant and Gaston County. I would therefore reverse Defendant’s conviction pursuant to sections 14-91 and 14-92. In so stating, I note that within the Tax Code, our legislature has provided severe monetary penalties, as well as the possibility of imprisonment, for any attempt to evade or defeat a tax, and for the wilful failure to file a return, supply information, or pay a tax. N.C.G.S. § 105-236 (7-9) (1997). Our legislature has also provided less severe penalties for less egregious Tax Code violations. N.C.G.S. § 105-236. The State, however, chose not to proceed against Defendant pursuant to the Tax Code’s internal penalties.

. I note that our courts have held that a tax “is not a debt in the ordinary sense of the word,” Commissioners v. Hall, 177 N.C. 490, 491, 99 S.E. 372, 372 (1919); accord Comrs. v. Blue, 190 N.C. 638, 641, 130 S.E. 743, 745 (1925) and New Hanover County v. Whiteman, 190 N.C. 332, 334, 129 S.E. 808, 809 (1925), and that taxes “do not constitute a debt within the meaning of the Constitution,” State v. Locklear, 21 N.C. App. 48, 50, 203 S.E.2d 63, 65 (1974). These determinations, however, are not dispositive of this case. In Hall, our Supreme Court noted that a tax was not a debt “rest[ing] upon contract or upon the consent of taxpayers” in determining that taxes me not liable to *408set-off by the taxpayer against monies due the taxpayer from the State. Hall, 177 N.C. at 491, 99 S.E. at 372. In Locklear, this Court determined that the legislature has the authority to impose imprisonment for the wilful failure to pay taxes without violating the constitutional provision prohibiting imprisonment for debts “arising out of or founded upon contract,” because taxes are not debts “arising out of or founded upon contract.” Locklear, 21 N.C. App. at 50, 203 S.E.2d at 64-65. These cases, however, did not consider whether receipt of tax funds creates a trust relationship between a retailer and the State.