North Carolina § 105-237 - 1. Compromise of liability.

§ 105-237. 1. Compromise of liability.

Authority. - The Secretary may compromise a taxpayer's liability for a tax that is collectible under G.S. 105-241.22 when the Secretary determines that the compromise is in the best interest of the State and makes one or more of the following findings: There is a reasonable doubt as to the amount of the liability of the taxpayer under the law and the facts. The taxpayer is insolvent and the Secretary probably could not otherwise collect an amount equal to or in excess of the amount offered in compromise. A taxpayer is considered insolvent only in one of the following circumstances: It is plain and indisputable that the taxpayer is clearly insolvent and will remain so in the reasonable future. The taxpayer has been determined to be insolvent in a judicial proceeding. Collection of a greater amount than that offered in compromise is improbable, and the funds or a substantial portion of the funds offered in the settlement come from sources from which the Secretary could not otherwise collect. A federal tax assessment arising out of the same facts has been compromised with the federal government on the same or a similar basis as that proposed to the State and the Secretary could probably not collect an amount equal to or in excess of that offered in compromise. Collection of a greater amount than that offered in compromise would produce an unjust result under the circumstances. The taxpayer is a retailer or a person under Article 5 of this Chapter; the assessment is for sales or use tax the retailer failed to collect or the person failed to pay on an item taxable under G.S. 105-164.4(a)(10) through (a)(15), and the retailer or person made a good-faith effort to comply with the sales and use tax laws. This subdivision applies to assessments for any tax due for a reporting period ending prior to July 1, 2020. The assessment is for sales tax the taxpayer failed to collect or use tax the taxpayer failed to pay as a result of the change in the definition of retailer or the sales tax base expansion to (i) service contracts, (ii) repair, maintenance, and installation services, or (iii) sales transactions for a person in retail trade. The Secretary must determine that the taxpayer made a good-faith effort to comply with the sales and use tax laws. This subdivision applies to assessments for any reporting period beginning March 1, 2016, and ending December 31, 2022. The assessment is for sales tax the taxpayer failed to collect or use tax the taxpayer failed to pay on repair, maintenance, and installation services provided by a real property manager under a property management contract. The Secretary must determine that the taxpayer made a good-faith effort to comply with the sales and use tax laws. Absent fraud or other egregious activities, a taxpayer that substantiated the time spent managing real property for a billing or invoice period as provided under G.S. 105-164.4K(c) will be determined to have made a good-faith effort to comply with the sales and use tax laws. The taxpayer is an auctioneer licensed under Chapter 85B of the General Statutes, and the assessment is for sales tax that the taxpayer failed to collect for the sale of livestock at auction. The Secretary must determine that the taxpayer has made a good-faith effort to comply with the tax laws, including being registered as a retailer on or before July 1, 2020. This subdivision applies to assessments for any tax due for a reporting period ending prior to July 1, 2020. This subdivision does not apply if the person received specific written advice from the Secretary for the transactions at issue for the laws in effect for the applicable period or for tax collected and not remitted to the Department. Written Statement. - When the Secretary compromises a tax liability under this section and the amount of the liability is at least one thousand dollars ($1,000), the Secretary must make a written statement that sets out the amount of the liability, the amount accepted under the compromise, a summary of the facts concerning the liability, and the findings on which the compromise is based. The Secretary must sign the statement and keep a record of the statement. If the compromise settles a dispute that is in litigation, the Secretary must obtain the approval of the Attorney General before accepting the compromise, and the Attorney General must sign the statement describing the compromise. History (1957, c. 1340, s. 10; 1959, c. 1259, s. 8; 1973, c. 476, s. 193; 1985, c. 114, s. 11; 1991 (Reg. Sess., 1992), c. 1007, s. 11; 2008-107, s. 28.16(f); 2013-316, s. 9(b); 2015-241, s. 32.18(f); 2016-94, s. 38.5(b); 2018-5, s. 38.10(c); 2019-169, s. 3.9(f); 2019-246, s. 7(a); 2020-6, s. 1(c).) Editor's Note. - Session Laws 2008-107, s. 28.16(a), provides: "The General Assembly makes the following findings: "(1) The following areas of the sales and use tax laws are the areas for which the Department of Revenue receives the most questions from taxpayers: "a. The rate of tax that applies to food and prepared food. "b. The distinction between a retailer and a performance contractor. "c. The distinction between a service that is necessary to complete the sale of tangible personal property, and therefore taxable, and a service that is incidental to the sale of tangible personal property, and therefore not taxable. "d. The determination of whether a person is a manufacturer. "(2) These areas of the sales and use tax laws have been the subject of legislative changes in recent years. "(3) Small businesses have fewer resources to devote to resolving the complexities of the sales and use tax laws than large businesses have and, therefore, may be at a disadvantage with respect to compliance issues in complex areas and changing areas. "(4) Assessments against a small business for inadvertent noncompliance in these complex areas may threaten the viability of the small business. "(5) The sales and use tax laws are not intended to place the viability of small businesses in jeopardy. "(6) A study of these complex areas is needed to determine how to make the laws in these areas clearer and to reduce the compliance burden." Session Laws 2008-107, s. 28.16(h) and (i), provide: "(h) The Revenue Laws Study Committee shall study the issues listed in this Section and report on the study, including any recommendations or legislative proposals, to the 2009 General Assembly. "(1) The taxation of services necessary to complete the sale of tangible personal property and standards for distinguishing between a service that is taxable as one that is necessary to complete the sale and a service that is incidental to the sale of tangible personal property. "(2) The applicability of the sales and use tax to performance contracts and standards for distinguishing between performance contractors and retailers. "(3) The distinction between food and prepared food under the sales and use tax laws and whether to eliminate this distinction by applying a uniform, revenue-neutral rate to all food. "(i) The Department of Revenue shall make a report to the Revenue Laws Study Committee on customer service improvement initiatives conducted by the Department. The report is due prior to the convening of the 2009 General Assembly and shall address, at a minimum, the following issues: "(1) A review of the Department's efforts to ensure that inquiries on complicated tax matters are handled or reviewed by appropriate personnel within the Department. "(2) A review of the Department's efforts to provide accurate and timely information regarding changes in tax law resulting from legislative changes, court decisions, or revised interpretations. "(3) A review of the Department's outreach efforts designed to assist taxpayers, particularly small business taxpayers, in complying with the State's tax laws. "(4) A review of the Department's efforts to ensure that taxpayers are informed of their right to request written advice from the Department upon which they may reasonably rely. "(5) A review of the Department's plan to record telephone calls at the Department's Taxpayer Assistance Center." Session Laws 2008-107, s. 1.2, provides: "This act shall be known as 'The Current Operations and Capital Improvements Appropriations Act of 2008'." Session Laws 2008-107, s. 30.3, provides: "Except for statutory changes or other provisions that clearly indicate an intention to have effects beyond the 2008-2009 fiscal year, the textual provisions of this act apply only to funds appropriated for, and activities occurring during, the 2008-2009 fiscal year." Session Laws 2008-107, s. 30.5 is a severability clause. Session Laws 2015-241, s. 32.18(h), made the amendment to subdivision (a)(6) of this section by Session Laws 2015-241, s. 32.18(f), applicable to sales occurring on or after March 1, 2016 and to gross receipts derived from repair, maintenance, and installation services provided on or after March 1, 2016. Session Laws 2015-241, s. 1.1, provides: "This act shall be known as 'The Current Operations and Capital Improvements Appropriations Act of 2015.'" Session Laws 2015-241, s. 33.6, is a severability clause. Session Laws 2016-94, s. 38.5(a), provides: "A retailer is not liable for an undercollection of sales or use tax as a result of the changes made under Section 32.18 of S.L. 2015-241 and under Part V of S.L. 2015-259 if the retailer made a good-faith effort to comply with the law and collect the proper amount of tax. This applies only to the period beginning March 1, 2016, and ending December 31, 2016." Session Laws 2016-94, s. 38.5( l ), provides: "The Department of Revenue must issue written guidance on the implementation of the sales tax changes imposed by this act by November 15, 2016." Session Laws 2016-94, s. 1.2, provides: "This act shall be known as the 'Current Operations and Capital Improvements Appropriations Act of 2016.'" Session Laws 2016-94, s. 39.4, provides: "Except for statutory changes or other provisions that clearly indicate an intention to have effects beyond the 2016-2017 fiscal year, the textual provisions of this act apply only to funds appropriated for, and activities occurring during, the 2016-2017 fiscal year." Session Laws 2016-94, s. 39.7, is a severability clause. Session Laws 2018-5, s. 1.1, provides: "This act shall be known as the 'Current Operations Appropriations Act of 2018.'" Session Laws 2018-5, s. 39.7, is a severability clause. Session Laws 2019-169, s. 3.9(g), as amended by Session Laws 2019-246, s. 7(a), made subdivision (a)(8), as added by Session Laws 2019-169, s. 3.9(f), effective July 26, 2019, and further provided: "The provisions of G.S. 105-164.15 A apply to the implementation of this change as if it is a decrease in the tax rate.” Effect of Amendments. - Session Laws 2008-107, s. 28.16(f), effective July 16, 2008, rewrote the section. Session Laws 2013-316, s. 9(b), effective July 23, 2013, added subdivision (a)(6). Session Laws 2015-241, s. 32.18(f), effective March 1, 2016, substituted "through (a)(15)" for "and (a)(11)" in the first sentence of subdivision (a)(6). For applicability, see editor's note. Session Laws 2016-94, s. 38.5(b), effective July 14, 2016, added subdivision (a)(7). Session Laws 2018-5, s. 38.10(c), effective June 12, 2018, substituted "applies to assessments for any tax due for a reporting period ending prior to" for "expires for assessments issued after" in subdivision (a)(6). Session Laws 2019-169, s. 3.9(f), added subdivision (a)(8). For effective date and applicability, see editor's note. Session Laws 2020-6, s. 1(c), effective June 5, 2020, added subdivision (a)(9).