Fulton Corp. v. Faulkner

WEBB, Justice.

This case brings to the Court the question of the remedy to be applied after a portion of the intangibles tax statute has been declared unconstitutional. The Court of Appeals held that the part of the statute which was unconstitutional should be severed and that the balance of the statute should be enforced. This would leave the intangibles tax to be enforced without any reduction for income taxes paid to this State. We believe the Court of Appeals was correct in this holding.

In determining whether an unconstitutional part of a statute should be severed and the rest of the statute enforced, we look first at the intention of the General Assembly. If the legislature intended that the constitutional part of the statute be enforced after the other *422part has been declared unconstitutional, and if the separate parts of the statute are not so interrelated and mutually dependent that one part cannot be enforced without reference to another, the offending part must be severed and the rest of the statute enforced. Flippin v. Jarrell, 301 N.C. 108, 117, 270 S.E.2d 482, 488 (1980); Constantian v. Anson County, 244 N.C. 221, 228, 93 S.E.2d 163, 168 (1956).

The General Assembly has stated its intention. N.C.G.S. § 105-215 provided in part:

If any clause, sentence, paragraph, or part of this Article or schedule shall for any reason be adjudged by any court of competent jurisdiction to be invalid, such judgment shall not affect, impair, or invalidate the remainder of this Article or schedule, but shall be confined in its operation to the clause, sentence, paragraph, or part thereof directly involved in the controversy in which such judgment shall have been rendered.

N.C.G.S. § 105-215 (1992) (repealed 1995). We believe this section shows clearly that the General Assembly intended that if any part of the statute providing for an intangibles tax was declared unconstitutional, that part should be severed from the statute, and the balance of the statute should be enforced.

In this case, the offending portion of the intangibles tax statute and the other parts of the statute were not so interrelated or mutually dependent that the imposition of the tax could not be done without reference to the offending part. The valid part is complete in itself and capable of enforcement.

The plaintiff argues that the United States Supreme Court in this case declared the entire intangibles tax unconstitutional. We do not agree with this interpretation. The Supreme Court noted that the Court of Appeals had addressed the issue of severability and decided that the clause required severance of the taxable percentage deduction. Fulton v. Faulkner, - U.S. at - n.12, 133 L. Ed. 2d at 815 n.12. The Court gave no indication that applying the severability clause in that manner would contravene its holding or that a tax on corporate stock is per se unconstitutional. To the contrary, the Court’s language and reasoning revealed the intangibles tax violated the Commerce Clause because of the discriminatory portion — the taxable percentage deduction. It gave no reason to believe that absent the discriminatory deduction, the tax would violate the Commerce Clause.

*423The defendant asserts and the plaintiff agrees that it was the intention of the General Assembly that if the taxable percentage reduction were to be held unconstitutional, it should not be severed from N.C.G.S. § 105-203, and the whole section must fail. They concede that N.C.G.S. § 105-215 provides for the severance of any part of the statute which is declared unconstitutional. They say, relying on State ex rel. Andrews v. Chateau X, Inc., 296 N.C. 251, 259-60, 250 S.E.2d 603, 609 (1979), judgment vacated on other grounds, 445 U.S. 947, 63 L. Ed. 2d 782 (1980), and Sheffield v. Consolidated Foods Corp., 302 N.C. 403, 421-22, 276 S.E.2d 422, 434-35 (1981), that the “presence of a severability clause is not conclusive but provides some guidance to the courts as to legislative intent.” They say we must look at all relevant parts of the statute to discern legislative intent.

The plaintiff and defendant contend that the General Assembly, since the inception of the intangibles tax, has never intended to tax all stocks and that by severing the unconstitutional part of N.C.G.S. § 105-203, the Court of Appeals has broadened the tax contrary to the legislative will. They argue that the taxable percentage deduction has always been an essential element of the tax and an expression of the legislative intent not to tax all shares of corporate stock. They argue that we should hold all of N.C.G.S. § 105-203 unconstitutional.

We do not agree with the parties’ interpretation of Andrews and Sheffield. Andrews involved an action to abate a nuisance. We held that assuming one of the remedies provided in the statute was unconstitutional, it could be severed from the statute and the other remedies enforced. We said that severability depended on the will of the General Assembly. Andrews, 296 N.C. at 259-60, 250 S.E.2d at 608-09. We did not say how that will was to be discovered, but simply referred to the portion of the statute which provided for severability. Sheffield dealt with disclosures required by the North Carolina Tender Offer Disclosure Act, N.C.G.S. ch. 78B (1977). In that case we held that the Act did not apply to purchases of stock in the open market. The plaintiff argued that because of a severability clause in the statute, the disclosure requirement nevertheless applied. It contended that partial application of the statute was mandated by the severability clause. We held that this was not the intention of the General Assembly. We do not believe Sheffield or Andrews is authority for the proposition that a severability clause is not conclusive as to the intention of the General Assembly.

Even assuming arguendo that the parties are correct, looking beyond the severability clause and at the entire act to determine the *424will of the General Assembly does not help the plaintiff. The General Assembly has said by the severability clause that the unconstitutional part of the statute should be severed. The parties have made good arguments as to why it should not be severed, but they do not overcome the plain meaning of the statute. We affirm that part of the opinion of the Court of Appeals which holds that the unconstitutional part of N.C.G.S. § 105-203 be severed. Fulton Corp. v. Justus, 110 N.C. App. at 504, 430 S.E.2d at 501.

We reverse that part of the opinion of the Court of Appeals which holds that the rule of this case should not be applied retroactively. Id. at 504-05, 430 S.E.2d at 501-02. In reaching this result, the Court of Appeals relied on our opinion in Swanson v. North Carolina, 329 N.C. 576, 407 S.E.2d 791, on reh’g, 330 N.C. 390, 410 S.E.2d 490 (1991). On 18 June 1993, three days after the Court of Appeals decided this case, the United States Supreme Court handed down Harper v. Virginia Dep’t of Taxation, 509 U.S. 86, 125 L. Ed. 2d 74 (1993). Ten days later, the Supreme Court issued an order vacating our opinion in Swanson in light of Harper. Swanson v. North Carolina, 509 U.S. 916, 125 L. Ed. 2d 713 (1993). The United States Supreme Court held in Harper that its application of a rule of federal law requires every court to give retroactive effect to that decision. We are thus required by Harper to apply the law retroactively in this case. Whether to enforce the tax as to all shareholders is within the province of the General Assembly.

The General Assembly may forgive this tax if it so chooses. We do not have the authority to do so.

We affirm that part of the decision of the Court of Appeals which holds that the unconstitutional part of N.C.G.S. § 105-203 must be severed and the balance of the section enforced. We reverse that part of the decision which holds that the rule of this case should not be enforced retroactively.

AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.