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NO. COA11-868
NORTH CAROLINA COURT OF APPEALS
Filed:                                                                 21 August  2012
DELHAIZE AMERICA, INC.,
Plaintiff,
v.                                                                     Wake County
No.  07 CVS  20801
KENNETH R. LAY, Secretary of
Revenue of the State of North
Carolina,
Defendant.
1.                                                                     Taxation                                  —   combined   corporate   earnings          —   changes   in
guidelines  — no due process violation
The   trial   court   did   not   err   by   concluding   that
defendant  Secretary  of  Revenue  did  not  violate  plaintiff's
procedural  due  process  rights  by  forcing  a  combination  of
plaintiff  and  FL  Food  Lion,  Inc.,  pursuant  to  N.C.G.S.         §
105-130.6,  for  tax  purposes.    Plaintiff,  formerly  known  as
Food   Lion,   Inc.,   a   North   Carolina   corporation,   had
restructured   and   formed   a   wholly-owned   subsidiary,   FLI
Holding  Corp.,  which  housed  a  Florida  corporation  known  as
FL  Food  Lion,  Inc.                                                  As  a  part  of  the  restructuring,
plaintiff   formulated   a   strategy   to   reduce   its   North
Carolina  tax  obligation  by  a  circular  movement  of  assets  to
Florida  and  the  return  of  cash  to  North  Carolina  through
fees.     Defendant  concluded  that  plaintiff's  income  should
be  combined  with  the  income  of  FL  Food  Lion,  Inc.  to
reflect  plaintiff's  true  net  earnings  in  North  Carolina  and
plaintiff   contended   that   its   due   process   rights   were
violated  by  defendant's  failure  to  provide  fair  notice  of
changes  in  the  guidelines  regarding  the  combination  of
corporations  for  taxation.    That  argument  is  not  supported
by   the   record;   furthermore,   the   facts   of   the   case
distinguish  it  from  Federal  Communications  Commission  v.
Fox Television Stations, Inc.  183 L.Ed.  2d  234  (2012).
2.                                                                     Appeal  and  Error                        —  decision  of  one  panel  of  Court  of
                                                                       Appeals  — binding on subsequent panels




Wal-Mart  Stores  East  v.  Hinton,  197  N.C.  App.  30,  has
not   been   overturned   and   remains   binding   on   subsequent
panels   of   the   Court   of   Appeals,   despite   plaintiff's
argument that it misread N.C.G.S.  §  105-130.6
3.                                                                       Constitutional  Law                                     —  North  Carolina   —  retroactive  taxes   —
no violation
The   issue   of   whether   the   Department   of   Revenue
violated  the  North  Carolina  constitutional  prohibition  on
retroactive  taxation  in  deciding  to  combine  the  income  of
two  corporations  for  tax  purposes  was  controlled  by  Wal-
mart   Stores   East   v.   Hinton,                                      197   N.C.   App.                                       30,   which
concluded that there was no violation.
4.                                                                       Taxation                                                —  corporations      —  restructuring        —  true  earnings   —
economic substance analysis
The  Business  Court  did  not  apply  an  economic  substance
analysis   in   its   determination   that   the   income   of   two
corporations  should  be  combined  to  determine  true  earnings
for  tax  purposes.    A  statement  by  the  Business  Court  that  a
corporate  restructuring  lacked  economic  substance  to  the
contrary   was   not   referred   to   in   the   Business   Court's
conclusion;  moreover,  any  error  by  the  Business  Court  in
making   the   statement   had   no   bearing   on   whether   the
Department  of  Revenue  erred  by  combining  the  corporate
incomes  because  the  Department  of  Revenue  did  not  apply  an
economic substance analysis.
5.                                                                       Taxation  — penalty  — notice of change in definition
The  trial  court  erred  by  not  granting  defendant's
motion   for   summary   judgment   on   the   issue   of   whether
plaintiff  was  entitled  to  a  refund  of  a  tax  penalty.
Contrary  to  the  statements  of  the  trial  court,  the  record
contained  documents  that  put  plaintiff  on  notice  of  the
definition   of   true   earnings.                                       Moreover,   there   was   no
genuine  issue  of  material  as  to  whether  the  penalty  was
due.




NO. COA11-868
NORTH CAROLINA COURT OF APPEALS
Filed:                                                                     21 August  2012
DELHAIZE AMERICA, INC.,
Plaintiff,
v.                                                                         Wake County
No.  07 CVS  20801
KENNETH R. LAY, Secretary of
Revenue of the State of North
Carolina,
Defendant.
Appeal  by  plaintiff  and  defendant  from  order  entered                17
February                                                                   2011   by   Special   Superior   Court   Judge   for   Complex
Business  Cases,  Ben  F.  Tennille,  in  Wake  County  Superior  Court.
Heard in the Court of Appeals  7 February  2012.
Hunton  &  Williams  LLP,  by  Richard  L.  Wyatt,  Jr.,  and  Joseph
P.  Esposito,  Brooks,  Pierce,  McLendon,  Humphrey  &  Leonard,
LLP,  by  Reid  L.  Phillips,  and  Smith  Moore  Leatherwood  LLP,
by  James  G.  Exum,  Jr.,  Allison  O.  Van  Laningham,  and  L.
Cooper Harrell, for plaintiff.
Roy  Cooper,  Attorney  General,  by  Kay  Linn  Miller  Hobart,
Special Deputy Attorney General, for defendant.
Andy    Ellen,    for    North    Carolina    Retail    Merchants
Association,   and   Troutman   Sanders   LLP,   by   William   G.
Scoggin,  for  North  Carolina  Chamber  of  Commerce,  amici
curiae.
Alston  &  Bird  LLP,  by  Jasper  L.  Cummings,  Jr.,  for  Amicus
Council on State Taxation, amici curiae.
THIGPEN, Judge.




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Delhaize  America,  Inc.,                                                     (“Plaintiff”)  filed  a  tax  refund
action  seeking  approximately                                                $10  million  in  corporate  income
taxes  and  penalties  from  the  State  of  North  Carolina.    The  trial
court   entered   an   order   on   summary   judgment   upholding   the
decision    of    the    North    Carolina    Department    of    Revenue
(“Defendant”)  to  combine  Plaintiff  and  Plaintiff‖s  Florida-based
subsidiary   for   purposes   of   taxation,   but   invalidating   the
penalty  imposed  by  Defendant.     Plaintiff  argues  primarily  on
appeal  that  the  Department  of  Revenue  did  not  provide  fair
notice   of   an   alleged   change   in   the   definition   of              “true
earnings[,]”  such  that  the  corporate  combination  and  the  penalty
imposed   violated   Plaintiff‖s   procedural   due   process   rights.
Defendant  argues  on  appeal  that  fair  notice  of  the  definition  of
“true  earnings”  was  sufficient  to  satisfy  procedural  due  process
for  both  the  combination  and  the  penalty.    We  affirm  the  trial
court‖s order, in part, and reverse, in part.
The  facts  of  this  case  are  largely  undisputed.    Plaintiff,
formerly  known  as  Food  Lion,  Inc.                                        (“Food  Lion”),  a  corporation
having  its  principal  place  of  business  in  Salisbury,  North
Carolina,  restructured  itself  to  accommodate  growth,  beginning
in                                                                            1996  and  continuing  through         2004.   During  this  time,  Food
Lion  formed  a  wholly-owned  subsidiary,  FLI  Holding  Corp.,  which




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acquired   Kash   n‖   Karry   Food   Stores,   Inc.,   a   corporation
operating  retail  grocery  stores  primarily  in  Florida.    Food  Lion
also  formed  FL  Food  Lion,  Inc.,  a  Florida  corporation  housed
under FLI Holding Corp.
As  part  of  restructuring,  Plaintiff                                       -  with  the  aid  of  its
external  auditor,  Coopers  &  Lybrand                                       -  formulated  a  strategy  to
reduce  its  North  Carolina  tax  obligation,  called  the                   “Vision
Project.”                                                                     Coopers  &  Lybrand  proposed  creating  interrelated
companies  to  shift  income  from  high  tax  jurisdictions  to  low  or
no  tax  jurisdictions.    Specifically,  the  Vision  Project  strategy
relied  upon  three  elements:                                                (1)  Plaintiff  would  transfer  assets
to  a  related  company  not  principally  located  in  North  Carolina;
(2)   Plaintiff  would  pay  fees  and  royalties  to  the  related
company   for   use   of   the   assets,   which   would   create   a   tax
deduction  in  North  Carolina;  and                                          (3)  the  company  would  return
cash  to  Plaintiff  in  the  form  of  tax  free  dividends.                 By
implementing  this  strategy,  Coopers  &  Lybrand  estimated  that
Plaintiff‖s  North  Carolina  annual  income  tax  liability  would  be
reduced  by  $9,579,848.00.    Coopers  &  Lybrand  also  estimated  that
Plaintiff  could  save  between                                               $60  million  and                                       $75  million  in
North Carolina tax obligations over a five year period.




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In  December                                                                  1997,  Plaintiff‖s  board  of  directors  approved
the   Vision   Project,   which   was   presented   to   the   board   of
directors  as  the  “State  Tax  Planning  Project.”    After  the  Vision
Project‖s   approval   and   in   accordance   therewith,   Plaintiff
transferred  assets  to  FL  Food  Lion,  Inc.,  which  was  located  in
Florida.    The  transferred  assets  included,  but  were  not  limited
to,  the  following:                                                          (1)  ownership  and  operation  of  Food  Lion
stores  located  in  Florida;                                                 (2)   all  Food  Lion  employees  in
Florida;                                                                      (3)   certain   employees   located   in   Salisbury,   North
Carolina;                                                                     (4)  services  relating  to  Food  Lion‖s  national  brand;
and  (5)  its  rights  and  interest  in  its  private  label  trademarks
and  the  Food  Lion  name  and  logo.     Plaintiff  conferred  with
Coopers  &  Lybrand  to  determine  the  appropriate  amount  that  FL
Food  Lion,  Inc.,  should  charge  its  corporate  grandparent  for
services,  and  Coopers  &  Lybrand  compiled  a  range  of  fees  that  it
believed  complied  with  an  arm‖s  length  standard.    FL  Food  Lion,
Inc.,  then  charged  Plaintiff  fees  for  services,  in  accordance
with  the  Vision  Project.    The  cash  flow  between  the  entities  was
circular,  and  all  of  the  royalties  and  fees  Plaintiff  paid  to  FL
Food  Lion,  Inc.,  came  back  to  Plaintiff  in  the  form  of  tax  free
dividends.    The  payments  for  services  Plaintiff  made  to  FL  Food
Lion,  Inc.,  and  the  dividend  payments  FL  Food  Lion,  Inc.,  made




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to  Plaintiff,  had  no  impact  on  Plaintiff‖s  actual  cash  flow.
An  objective  of  the  Vision  Project,  according  to  a  letter  from
Plaintiff‖s  chief  financial  officer  to  the  board  of  directors,
was  “the reduction of Food Lion‖s state income tax liability.”
Plaintiff   and   FL   Food   Lion,   Inc.,   did   not   file   a
consolidated  tax  return.1                                                                                                                             Plaintiff  filed  a  North  Carolina
                                                                           corporation  tax  return  for  the  tax  year  ending  31  December  2000,
reporting                                                                  $2,565,741,505.00                                                            in    total    net    State    income.
Plaintiff   reported   that                                                                                                                             $25,485,927.00   was   business   income
subject  to  apportionment.     FL  Food  Lion,  Inc.,  also  filed  a
North   Carolina   corporation   tax   return   for   the   same   year,
reporting                                                                  $271,390,464.00   in   total   net   State   income   and
$271,390,464.00  as  business  income  subject  to  apportionment.
Taxable  income  for  North  Carolina  corporate  income  tax  purposes
is  determined  by  multiplying  the  income  subject  to  apportionment
by  the  apportionment  factor.     The  apportionment  factor  applied
to  business  income  subject  to  apportionment  for  Plaintiff  was
41.6511%;  however,  the  apportionment  factor  applied  to  business
income  subject  to  apportionment  for  Florida-based  FL  Food  Lion,
1The  Revenue  Act  forbade  related  corporations  from  filing  a
consolidated   return   with   the   Secretary   of   Revenue,   unless
specifically  directed  to  do  so  in  writing  by  the  Secretary.
N.C.  Gen.  Stat.                                                          §                                                                            105-130.14                                 (2009).   N.C.  Gen.  Stat.   §   105-
130.14 was amended by  2010 N.C. Sess. Laws ch.  31,  §  31.10.(e).




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Inc.,   was   significantly   lower                                          -                                                         15.0839%.       After   this
calculation,   Plaintiff‖s   business   income   allocated   to   North
Carolina  was                                                                $10,615,169.00.     The  business  income  of  FL  Food
Lion,  Inc.,  allocated  to  North  Carolina  was                            $40,936,266.00.
Plaintiff  also  claimed  a  tax  credit  for  creating  new  jobs  in
North Carolina.
The  North  Carolina  Department  of  Revenue  (“the  Department”)
conducted  an  audit  of  Plaintiff  for  the  tax  years                    1998  through
2000.                                                                        On                                                        28  September   2004,  following  Plaintiff‖s  audit,  the
Department  concluded  that  Plaintiff‖s  income  should  be  combined
with  the  income  of  FL  Food  Lion,  Inc.,  to  reflect  Plaintiff‖s
true  net  earnings  in  North  Carolina,  and  the  Department  issued  a
Notice  of  Corporate  Income  Tax  Assessment  of  additional  tax,
with interest, against Plaintiff.2    The Department also imposed a
penalty upon Plaintiff pursuant to N.C. Gen. Stat.  §  105-236(5).
On                                                                           20                                                        March           2006,                                        Plaintiff    paid    the    Department
$4,387,164.00  in  additional  income  taxes  for  the  2000  tax  year,
$1,289,068.00   in   interest,   and                                         $1,188,088.00   in   penalties.
However,  Plaintiff  formally  demanded  a  refund  of  the  additional
income   tax,   interest,   and   penalties   in   writing   within   the
2Plaintiff   was   assessed   approximately                                  $20.6   million   in
additional  tax,  interest,  and  penalties  for  the  tax  years            1998
through  2000,  which  included  approximately  $6.8  million  for  the
tax year  2000.




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applicable  protest  period.    The  Secretary  of  Revenue,  however,
did not allow the refund.
                                                                             On                              28  December                                                                                            2007,  Plaintiff  filed  a  complaint  against
                                                                                                                                          the  Secretary  of  Revenue  alleging  violations  of  N.C.  Gen.  Stat.
§                                                                            105-130.6,  N.C.  Gen.  Stat.                                                                                                           §                                                105-130.16(b),  the  commerce
clause,   and   due   process.                                                                                                                                                                                                                                        Plaintiff   also   alleged   that   by
determining    the    assessment    against    Plaintiff,    Defendant
exercised  an  unconstitutional  delegation  of  legislative  power,
imposed  an  unconstitutional  retrospective  taxation,  violated  the
constitutional  rule  requiring  uniformity,  deprived  Plaintiff  of
its  constitutional  rights  pursuant  to                                    42  U.S.C.                      §                            1983,  and
violated   the   North   Carolina   Administrative   Procedures   Act.
Plaintiff  prayed  for  a  refund  of  the  amount  of  additional  income
tax,  interest,  and  penalties  paid  by  Plaintiff  as  a  result  of
the audit and assessment of the Department.
Both  parties  filed  motions  for  summary  judgment  on  20  April
2010.    In  an  order  entered                                              17  February                    2011,  the  Court  granted
partial  summary  judgment  for  both  parties.     Specifically,  the
Court  granted  Defendant‖s  motion  on  the  issue  of  combination  of
Plaintiff  and  FL  Food  Lion,  Inc.,  and  the  resulting  additional
taxes  and  interest.     However,  the  Court  granted  Plaintiff‖s
motion  for  a  refund  of  the  penalties,  concluding  that  the




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Department‖s  assessment  of  the  penalty  against  Plaintiff  was
“unfair  and                                                                  .  a  violation  of  the  Fourteenth  Amendment‖s
procedural   due   process   protections.”                                    The   Court   further
concluded  that  requiring  Plaintiff  to  “pay  this  punitive  penalty
.  .  .  [was]  a  violation  of  the  power  of  taxation  under  Article
V,  Section                                                                   2(1)   of  the  North  Carolina  Constitution.”     The
Business  Court  also  concluded  the  Secretary  of  Revenue  abused
his  discretion  in  ordering  the  twenty-five  percent  penalty.    We
affirm in part and reverse in part.
From this order, both Plaintiff and Defendant appeal.
I.    Standard of Review
Summary  judgment  is  properly  granted                                      “if  the  pleadings,
depositions,  answers  to  interrogatories,  and  admissions  on  file,
together  with  the  affidavits,  if  any,  show  that  there  is  no
genuine  issue  as  to  any  material  fact  and  that  any  party  is
entitled  to  a  judgment  as  a  matter  of  law.”    N.C.  Gen.  Stat.  §
1A-1,  Rule                                                                   56(c)                                               (2009).   “A  defendant  may  show  entitlement  to
summary  judgment  by:                                                                                                                      (1)  proving  that  an  essential  element  of
the  plaintiff‖s  case  is  nonexistent,  or                                  (2)  showing  through
discovery  that  the  plaintiff  cannot  produce  evidence  to  support
an  essential  element  of  his  or  her  claim,  or                          (3)  showing  that
the  plaintiff  cannot  surmount  an  affirmative  defense  which  would




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bar  the  claim.”    Carcano  v.  JBSS,  LLC,  200  N.C.  App.  162,  166,
684 S.E.2d  41,  46  (2009)  (quotation omitted).
“An  appeal  from  an  order  granting  summary  judgment  solely
raises  issues  of  whether  on  the  face  of  the  record  there  is  any
genuine  issue  of  material  fact,  and  whether  the  prevailing  party
                                                                                                                                     is  entitled  to  judgment  as  a  matter  of  law.”    Id.  at                                                    166,          684
                                                                              S.E.2d  at       46.                                   (citation  omitted).                                                              “We  review  a  trial  court‖s
                                                                                                                                     order  granting  or  denying  summary  judgment  de  novo.”    Craig  v.
                                                                                               New  Hanover  Cty.  Bd.  of  Educ.,   363  N.C.                                                                  334,   337,                             678  S.E.2d
351,                                                                          354              (2009)                                (citations  omitted).                                                             “Under  a  de  novo  review,
                                                                                                                                     the  court  considers  the  matter  anew  and  freely  substitutes  its
                                                                                                                                     own  judgment  for  that  of  the  lower  tribunal.”     Id.                                                       (quotation
                                                                              omitted).                                              Our  review,  however,                                                            “is  necessarily  limited  to
                                                                                                                                     whether  the  trial  court‖s  conclusions  as  to  the[]  questions  of
                                                                                                                                     law  were  correct  ones.”    Ellis  v.  Williams,                                319  N.C.                        413,          415,
                                                                                               355 S.E.2d  479,  481  (1987).
This  Court  in  Wal-mart  Stores  East  v.  Hinton,  197  N.C.  App.
30,  50,  676  S.E.2d  634,  649  (2009),  held  that  N.C.  Gen.  Stat.  §
105-130.6   granted   the   Secretary   of   Revenue                          “discretionary
authority  to  force  combination  of  entities  on  a  finding  that  a
report  does  not  disclose  true  earnings  in  North  Carolina.”
Discretionary  decisions  of  administrative  agencies  will  not  be




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disturbed  by  this  Court  absent  an  abuse  of  discretion.    Williams
v.  Burlington  Indus.,                                                      318  N.C.   441,         446,   349  S.E.2d   842,   845
(1986).
II.    Plaintiff‖s Appeal
A.    Procedural Due Process
In  Plaintiff‖s  first  argument  on  appeal,  it  contends  the
Department   of   Revenue   violated   Plaintiff‖s   protections   of
procedural  due  process  by  failing  to  provide  fair  notice  of
changes  in  its  guidelines  regarding  combination  of  corporations
for taxation pursuant to N.C. Gen. Stat.  §  105-130.63; concealing
the  new  approach  from  taxpayers  and  auditors;  and  applying  the
new  approach  retroactively.    Plaintiff  contends  the  trial  court
erred  in  failing  to  grant  Plaintiff  summary  judgment  on  this
issue.    We disagree.
The  Due  Process  Clause  of  the  Fifth  Amendment  to  the  United
States  Constitution  guarantees  that  “[n]o  person  shall  be  .  .  .
deprived  of  life,  liberty,  or  property  without  due  process  of
law.”    A  similar  requirement,  that  no  “State  [shall]  deprive  any
person  of  life,  liberty,  or  property  without  due  process  of  law”
3Subsequent  to  the  Wal-Mart  decision,  the  North  Carolina
General  Assembly  repealed  N.C.  Gen.  Stat.  §  105-130.6,  effective
for  taxable  years  beginning  on  or  after  January                       1,          2012,  and
amended  the  applicable  revenue  statutes  to  address  the  issue
presented  in  this  appeal.     See  N.C.  Gen.  Stat.                      §§          105-130.6,
105-236(a)(5)(f)  (2011);  2010 N.C. Sess. Laws  31.10(b),  (d).




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is  also  comprised  in  the  Fourteenth  Amendment  to  the  federal
constitution.    The  Law  of  the  Land  Clause  of  the  North  Carolina
Constitution,  N.C.  Const.  art.  I,  §  19,  “is  synonymous  with  ―due
process  of  law‖  as  used  in  the  Fourteenth  Amendment  to  the
Federal  Constitution.”     Rhyne  v.  K-Mart  Corp.,                        358  N.C.                                                      160,
180,  594 S.E.2d  1,  15  (2004)  (quotation omitted).
“Procedural  due  process  restricts  governmental  actions  and
decisions   which   deprive   individuals   of   liberty   or   property
interests  within  the  meaning  of  the  Due  Process  Clause  of  the
Fifth   or   Fourteenth   Amendment.”                                        Peace   v.   Employment   Sec.
Comm’n,  349  N.C.  315,  321,  507  S.E.2d  272,  277  (1998)  (quotation
omitted).                                                                    “The  fundamental  premise  of  procedural  due  process
protection  is  notice  and  the  opportunity  to  be  heard.”    Peace,
349  N.C.  at                                                                322,                                                           507  S.E.2d  at   278       (citation  omitted).     More
precisely,  “[a]t  a  minimum,  due  process  requires  adequate  notice
of  the  charges  and  a  fair  opportunity  to  meet  them,  and  the
particulars  of  notice  and  hearing  must  be  tailored  to  the
capacities  and  circumstances  of  those  who  are  to  be  heard.”    In
re  Lamm,                                                                    116  N.C.  App.                                                382,              385-86,   448  S.E.2d                           125,   128-29
(1994)                                                                       (citations   omitted).                                                                     A   deprivation   of   a   property
interest                                                                     “fails  to  comply  with  due  process  if  the  statute  or
regulation  under  which  it  is  obtained  fails  to  provide  a  person




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of  ordinary  intelligence  fair  notice  of  what  is  prohibited,  or
is  so  standardless  that  it  authorizes  or  encourages  seriously
discriminatory  enforcement.”    FCC  v.  Fox  TV  Stations,  Inc.,            __
U.S.                                                                           __,                                 __,    183  L.  Ed.   2d             234,   246,   132  S.  Ct.   2307,   2317
(2012)  (quotation omitted).
“We  examine  procedural  due  process  questions  in  two  steps:
first,  we  must  determine  whether  there  exists  a  liberty  or
property  interest  which  has  been  interfered  with  by  the  State[;]
.  .  .  second,  we  must  determine  whether  the  procedures  attendant
upon  that  deprivation  were  constitutionally  sufficient.”    In  re
W.B.M.,                                                                        202   N.C.  App.                    606,   615,           690   S.E.2d   41,    49     (2010)
(citations  omitted).    As  a  threshold  matter,  a  State‖s  “exaction
of  a  tax  constitutes  a  deprivation  of  property”  subject  to  the
safeguards  of  the  Due  Process  Clause.”    McKesson  Corp.  v.  Div.
of  Alcoholic  Beverages  &  Tobacco,                                          496  U.S.                           18,    36,            110  S.  Ct.
2238,  2250,  110 L. Ed.  2d  17,  35-36  (1990)  (citations omitted).
“In  all  tax  cases,  the  construction  placed  upon  the  statute
by  the  Commissioner  of  Revenue,  although  not  binding,  will  be
given  due  consideration  by  a  reviewing  court.”     Cape  Hatteras
Elec.  Mbrshp.  Corp.  v.  Lay,  __  N.C.  App.  __,  __,  708  S.E.2d  399,
404  (2011)  (quotation  omitted).                                             “Ordinarily,  the  interpretation
given  to  the  provisions  of  our  tax  statutes  by  the  Commissioner




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of  Revenue  will  be  held  to  be  prima  facie  correct  and  such
interpretation  will  be  given  due  and  careful  consideration  by
this  Court,  though  such  interpretation  is  not  controlling.”    In
re  Vanderbilt  University,  252  N.C.  743,  747,  114  S.E.2d  655,  658
(1960).
At  issue  in  this  appeal  are  Defendant‖s  guidelines,  or
alleged  lack  thereof,  regarding  combination  of  corporations  for
taxation   pursuant   to   N.C.   Gen.   Stat.                               §           105-130.6,   which
provides, in pertinent part, the following:
The   net   income   of   a   corporation   doing
business  in  this  State  that  is  a  parent,
subsidiary,    or    affiliate    of    another
corporation                                                                  shall       be           determined   by
eliminating  all  payments  to  or  charges  by
the    parent,    subsidiary,    or    affiliated
corporation  in  excess  of  fair  compensation
in  all  intercompany  transactions  of  any  kind
whatsoever.  If  the  Secretary  finds  as  a  fact
that  a  report  by  a  corporation  does  not
disclose    the    true    earnings    of    the
corporation  on  its  business  carried  on  in
this  State,  the  Secretary  may  require  the
corporation  to  file  a  consolidated  return  of
the    entire    operations    of    the    parent
corporation   and   of   its   subsidiaries   and
affiliates,  including  its  own  operations  and
income.  The  Secretary  shall  determine  the
true  amount  of  net  income  earned  by  such
corporation   in   this   State.                                             (emphasis
added).
N.C. Gen. Stat.  §  105-130.6  (emphasis added).




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Plaintiff  argues  on  appeal  that  the  Department  of  Revenue‖s
policy  regarding  the  calculation  of                                      “true  earnings”  pursuant  to
N.C.  Gen.  Stat.  §  105-130.6  changed  after  decades  of  “ordering  a
combination  only  in  the  exceptional  circumstance  when  inter-
affiliate  transactions  failed  to  reflect  fair  compensation,  and
only  if  adjustments  could  not  be  made  to  the  transactions  to
                                                                                                                                          yield   the   corporation‖s   true   earnings.”                               Plaintiff   further
states                                                                       that                                                         “―fair                                            compensation‖    in         inter-affiliate
transactions”  had  been  adequately  evinced,  prior  to  the  standard
shift,    if    corporations    complied    with                             “―arm[‖]s    length‖
standards.”    According  to  Plaintiff,  the  Department  of  Revenue
“abandoned”  this  longstanding  policy  and  adopted  an                    “ad  hoc
approach,  under  which  [the  Department  of  Revenue]  did  not  apply
any  universal  guidelines  for  determining  whether  to  combine
corporations  and  their  affiliates.”     Under  the  new  approach,
                                                                             Plaintiff    argues,    the    Department    of    Revenue                                                                      “ordered
approximately                                                                100  combinations  from                                      2000  to  May                                     2010”  without
notifying  taxpayers  that  it                                               “had  abandoned  the  statutory  fair
compensation  standard  for  an  ad  hoc  approach  to  combination”  or
issuing   guidelines   to   taxpayers   outlining   the   new   policy.
Rather,   Plaintiff   states   the   Secretary   of   Revenue   publicly
refused requests for combination guidelines.




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The   crux   of   Plaintiff‖s   argument   on   appeal   is   that
Defendant‖s  combination  of  Plaintiff  and  FL  Food  Lion,  Inc.,
pursuant   to   N.C.   Gen.   Stat.                                             §                 105-130.6                                -   in   light   of
Defendant‖s  alleged  failure  to  notify  corporate  taxpayers  or
provide  guidelines  for  the  change  in  the  calculation  of                 “true
earnings”  - violated procedural due process.
The   United   States   Supreme   Court   recently   addressed   a
similar    procedural    due    process    question    in                       Federal
Communications  Commission  v.  Fox  Television  Stations,  Inc.,               __
U.S.                                                                            __,               183  L.  Ed.                             2d                    234,                                                                   132  S.  Ct.                           2307                                                    (2012).   In  Fox
                                                                                                                                                                 Television   Stations,   the   Court   examined   the   Commission‖s
                                                                                                  indecency  policy  interpreting  Title                                                                                                                                       18  U.S.C.                                              §         1464,  which
                                                                                provides   that                                                                                                                                                                                “[w]hoever   utters   any   obscene,   indecent,   or
profane  language  by  means  of  radio  communication  shall  be  fined
.  .  .  or  imprisoned  not  more  than  two  years,  or  both.”    Id.,  __
U.S.  at                                                                        __,               183  L.  Ed.                             2d  at                240,                                                                   132  S.  Ct.  at                       2312.                                                   The
Commission‖s  indecency  policy,  like  many  administrative  policies
interpreting   statutes,   evolved   over   time.                               In                1987,   the
Commission  determined  its  application  of  the  standard  enunciated
by  the  Court  in  FCC  v.  Pacifica  Foundation,  438  U.S.  726,  57  L.
Ed.                                                                             2d                1073,                                    98  S.  Ct.           3026                                                                   (1978),  was  too  narrow,  and  the
Commission  stated  that  in  later  cases  its  definition  of  indecent




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language   would                                                              “appropriately   includ[e]   a   broader   range   of
material  than  the  seven  specific  words  at  issue  in                    [the  Carlin
monologue].”    Fox  Television  Stations,  __  U.S.  at  __,  183  L.  Ed.
2d at  241,  132 S. Ct. at  2313.    In  2001, the Commission issued a
policy  statement  restating  what  constituted  indecent  material  as
measured  by  contemporary  community  standards  for  the  broadcast
medium  and  describing  three  factors  that  had  proved  significant
to  the  determination  of  what  is  considered  patently  offensive.
In  orders  issued  between                                                   1987  and                                               2001,  and  in  the   2001  policy
statement,   the   Commission   noted   that   repetition   of   and
persistent  focus  of  indecent  material  exacerbated  the  potential
offensiveness  of  a  broadcast,  whereas  fleeting  and  isolated
material may not be indecent.
The  following  incidents  of  alleged  indecency  were  either  at
issue  on  appeal,  or  were  pertinent  to  the  Court‖s  analysis,  in
Fox  Television  Stations:     In                                             2002,  a  broadcast  by  Fox  aired
                                                                              containing  a  fleeting  expletive                                                                              -  the  F-word.    Id.,                              __  U.S.  at
__,                                                                           183  L.  Ed.                                            2d  at                242,           132  S.  Ct.  at                             2314.     Similarly,  in
2003,   another  broadcast  by  Fox  aired  containing  a  fleeting
expletive  -  the  F-word.    Id.    On  25  February  2003,  a  broadcast
by  ABC  aired  containing  seven  seconds  of  fleeting  nudity.    Id.
Subsequent  to  all  of  the  foregoing  incidents,  a  broadcast  of  the




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Golden  Globe  Awards  by  NBC  aired  containing  a  fleeting  expletive
-  the  F-word                                                                  -  for  which  the  Commission  issued  a  decision
sanctioning  NBC.                                                               In  that  decision                                            (the                                                “NBC  Golden  Globes
Order”),  the  Commission  reversed  prior  rulings  regarding  the
fleeting  and  isolated  nature  of  potentially  indecent  material
and  found  that  the  use  of  the  F-word  was  actionably  indecent,
explaining:                                                                     “[T]he  mere  fact  that  specific  words  or  phrases  are
not  sustained  or  repeated  does  not  mandate  a  finding  that
material  that  is  otherwise  patently  offensive  to  the  broadcast
medium  is  not  indecent.”    Id.,  __  U.S.  at  __,  183  L.  Ed.  2d.  at
243,                                                                            132  S.  Ct.  at                                              2314.    The  Commission  then  applied  the  new
policy  enunciated  in  the  NBC  Golden  Globes  Order,  regarding
fleeting  expletives  and  fleeting  nudity,  to  the                           2002  and                                                     2003
broadcasts  of  Fox  and  ABC,  finding  the  material  to  be  in
violation  of  that  standard.    Id.,  __  U.S.  at  __,  183  L.  Ed.  2d.
at  238,  132 S. Ct. at  2311.
On  appeal,  Fox  and  ABC  claimed  they  did  not  have  sufficient
fair  notice  from  the  Commission  of  what  was  proscribed  by  Title
18  U.S.C.  §  1464,  such  that  their  procedural  due  process  rights
were  violated  by  the  Commission‖s  application  of  the  new  policy
enunciated  in  the  NBC  Golden  Globes  Order  to  the  broadcast
incidents  on  Fox  and  ABC  prior  to  the  NBC  Golden  Globes  Order.




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The  Court  stated  that  the  “regulatory  history,  however,  makes  it
apparent  that  the  Commission  policy  in  place  at  the  time  of  the
broadcasts   gave   no   notice   to   Fox   or   ABC   that   a   fleeting
expletive   or   a   brief   shot   of   nudity   could   be   actionably
indecent;  yet  Fox  and  ABC  were  found  to  be  in  violation.”    Id.,
__  U.S.  at  __,  183  L.  Ed.  2d.  at  246,  132  S.  Ct.  at  2318.    With
regard  to  the  Fox  incidents,  the  Government  conceded  that                 “Fox
did  not  have  reasonable  notice  at  the  time  of  the  broadcasts
that   the   Commission   would   consider   non-repeated   expletives
indecent.”    Id.,                                                                __  U.S.  at                                                       __,                                                       183  L.  Ed.   2d.  at   247,   132  S.
Ct.  at                                                                           2318.     With  regard  to  the  ABC  incident,  the  Government
argued  “that  ABC  had  notice  that  the  scene  [of  fleeting  nudity]
would  be  considered  indecent  in  light  of  a                                 1960  decision  where
the  Commission  declared  that  the  ―televising  of  nudes  might  well
raise  a  serious  question  of  programming  contrary  to  18  U.S.C.  §
1464.‖”    Id.,  __  U.S.  at  __,  183  L.  Ed.  2d.  at  248,  132  S.  Ct.
at                                                                                2319.                                                              The  Court  pointed  out,  however,  that  a  different
“Commission  ruling  prior  to  the  airing  of                                   [the  incident  at
issue]  had  deemed                                                               30  seconds  of  nude  buttocks                                    ―very  brief‖  and
not  actionably  indecent  in  the  context  of  the  broadcast.”    Id.,
__ U.S. at  __,  183 L. Ed.  2d. at  248,  132 S. Ct. at  2319-20.




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The  Court  based  its  decision  on  the                                     “record  of  agency
decisions,”  concluding  that  in  “the  absence  of  any  notice  in  the
2001  Guidance  that  seven  seconds  of  nude  buttocks  would  be  found
indecent,  ABC  lacked  constitutionally  sufficient  notice  prior  to
being  sanctioned.”    Id.,  __  U.S.  at  __,  183  L.  Ed.  2d.  at  248,
132  S.  Ct.  at                                                              2320.                                                The  Court  also  concluded  the  Commission
failed  to  give  Fox  fair  notice  that  fleeting  expletives  could  be
found actionably indecent.
It  is  upon  this  most  recent  procedural  due  process  opinion
delivered   from   the   United   States   Supreme   Court,   Television
Stations,  __  U.S.  __,  183  L.  Ed.  2d  234,  132  S.  Ct.  2307,  that
we  analyze  Plaintiff‖s  argument  here                                      -  that  Defendant  did  not
supply  Plaintiff  with  adequate  fair  notice  of  a  change  in  the
                                                                              Department   of   Revenue‖s   interpretation   of                                                                             “true   earnings”
pursuant  to   N.C.  Gen.  Stat.                                                                                                   §                                                           105-130.6.   We  believe   Fox
Television  Stations  is  distinguishable  from  the  present  case  as
explained in further detail below.
Subsequent  to  the  2004  combination  of  Plaintiff  and  FL  Food
Lion,  Inc.,  this  Court  analyzed  the  Department‖s  interpretation
of  the  meaning  of                                                          “true  earnings”  in  the  context  of  N.C.  Gen.
Stat.                                                                         §                                                    105-130.6,  in  the  opinion,  Wal-Mart  Stores  East  v.




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Hinton,                                                                        197  N.C.  App.                             30,               676  S.E.2d                    634                          (2009).    In  Wal-mart,
this Court stated the following:
The  language  of  the  statute  on  its  face  does
not   limit   the   Secretary‖s   authority   to
require  combined  reporting  by  mandating  that
he  first  find  that  the  entity  engaged  in
“non-arm‖s    length    dealings,”    that    is,
conducted    intercompany    transactions    at
amounts   other   than   fair   value.                                         To   the
contrary,  the  language  of  the  statute  is
broad,   allowing   the   Secretary   to   require
combined  reporting  if  he  finds  as  a  fact
that  a  report  by  a  corporation  does  not
disclose    the    true    earnings    of    the
corporation  on  its  business  carried  on  in
this   State.                                                                  On   its   face,   it   does   not
restrict  the  Secretary  to  a  finding  of  a
particular type of transaction or dealing.
Id.  at                                                                        39,                                         676  S.E.2d  at   642                            (citing  N.C.  Gen.  Stat.   §                          105-
130.6).     The  Wal-mart  Court  rejected  the  plaintiff‖s  proposed
definition  of                                                                 “true  earnings”                            -  that           “true  earnings”  should  be
defined  as  “the  taxpayer‖s  income  .  .  .  if  it  had  no  affiliates
and  dealt  with  all  parties  on  an  arm‖s  length  basis[.]”    Id.  at
38,                                                                            676  S.E.2d  at                             642.              This  Court  explained,        “if  the  entire
enterprise is a unitary business,4 true earnings in the State may
4The  term  unitary                                                            “is  simply  descriptive,  and  primarily
means  that  the  concern  to  which  it  is  applied  is  carrying  on  one
kind  of  business  —  a  business,  the  component  parts  of  which  are
too  closely  connected  and  necessary  to  each  other  to  justify
division  or  separate  consideration,  as  independent  units.     By
contrast,  a  dual  or  multiform  business  must  show  units  of  a
substantial  separateness  and  completeness,  such  as  might  be
maintained  as  an  independent  business                                      (however  convenient  and




-21-
be   calculated   by   apportioning   the   earnings   of   the   entire
enterprise  on  the  basis  of  sales  and  other  indicia  of  activity
in  the  State.”     Id.  at                                                 40,                                                                      676  S.E.2d  at             643.                        We  further
explained:
If  a  taxpayer  reports  income  based  on  the
discrete  enterprise  method,  then  plaintiff
is   correct,   absent   any   non-arm‖s   length
transactions  the  taxpayer‖s  reported  income
will  reflect  its  true  earnings  in  the  State.
However,   where   a   taxpayer‖s   business   is
concededly  unitary,  and  where,  as  here,  the
taxpayer  attempts  to  reclassify  income  as
nonbusiness                                                                  or                                                                       nonapportionable,           the
reclassification    has    the    potential    to
distort  true  earnings  in  North  Carolina  even
if    all    intercompany    transactions    are
accounted   for   at   arm‖s   length,   or   fair
value, prices.
Id. at  41,  676 S.E.2d at  643.
The  Wal-Mart  Court  then  defined                                                                                                                                               “true  earnings”  in  the
context  of  N.C.  Gen.  Stat.                                               §                                                                        105-130.6.                  “[E]ssential[ly][,]”
the  Wal-mart  Court  stated,  the                                                                                                                    “meaning  of  the  phrase                               ―true
                                                                             earnings‖  refers  to  the  limit  on  state  taxation  found  in  the
United  States  Constitution.”     Id.  at                                                                                                            40,                         676  S.E.2d  at             643
                                                                             (citing  Allied-Signal,  Inc.  v.  Div.  of  Taxation,                                               504  U.S.                   768,
772-73,  119 L. Ed.  2d  533,  542,  112 S. Ct.  2251,  2255  (1992)).
profitable  it  may  be  to  operate  them  conjointly),  and  capable  of
producing  a  profit  in  and  of  themselves.”     Maxwell  v.  Kent-
Coffey  Mfg.  Co.,                                                           204  N.C.                                                                365,                        369-370,                    168  S.E.     397,   399
(1933).




-22-
Defendant  argues  in  its  brief  that  Wal-mart                           “governs  this
appeal”   and   the   Court   in   Wal-mart                                 “granted   the   Secretary
discretionary  authority  to  force  combination  of  entities  on  a
finding  that  a  report  does  not  disclose  true  earnings  in  North
Carolina.”     Id.  at                                                      50,                                 676  S.E.2d  at                              649.    We  agree  with
Defendant‖s  assertion  that  the  Wal-mart  Court  held  that  the
Secretary   of   Revenue   has   discretionary   authority   to   force
combination  of  corporations  pursuant  to  N.C.  Gen.  Stat.              §                                   105-
130.6.     Further,  the  Wal-mart  Court  defined                          “true  earnings”
broadly,   limiting   the   Secretary   of   Revenue‖s   discretion   to
determine  whether  a  corporation  has  disclosed                          “true  earnings”
only  to  the  extent  the  United  States  Supreme  Court  has  limited
state  taxation  of  corporations.    Wal-mart,  197  N.C.  App.  at  40,
676  S.E.2d  at                                                             643                                 (“The  essential  meaning  of  the  phrase   ―true
earnings‖  refers  to  the  limit  on  state  taxation  found  in  the
United  States  Constitution”)                                              (citing  Allied-Signal,             504  U.S.  at
772-73,  119 L. Ed.  2d at  542,  112 S. Ct. at  2255).
Among  the  limitations  the  Constitution  sets
on  the  power  of  a  single  State  to  tax  the
multistate    income    of    a    nondomiciliary
corporation   are   these:   There   must   be   a
minimal   connection   between   the   interstate
activities  and  the  taxing  State,  and  there
must   be   a   rational   relation   between   the
income  attributed  to  the  taxing  State  and
the   intrastate   value   of   the   corporate
business.                                                                   Under  our  precedents,  a  State




-23-
need  not  attempt  to  isolate  the  intrastate
income-producing  activities  from  the  rest  of
the  business;  it  may  tax  an  apportioned  sum
of  the  corporation‖s  multistate  business  if
the  business  is  unitary.     A  State  may  not
tax  a  nondomiciliary  corporation‖s  income,
however,  if  it  is  derived  from  unrelated
business    activity    which    constitutes    a
discrete business enterprise.
Allied-Signal,  504  U.S.  at  772-73,  119  L.  Ed.  2d  at  542,  112  S.
Ct. at  2255  (citations and quotations omitted).
The   question   in   this   case   is   not,   however,   whether
                                                                              Defendant   erred   by   interpreting   the   definition   of                         “true
earnings”  in  the  context  of  N.C.  Gen.  Stat.                                                                                            §   105-130.6  more
                                                                              broadly   than   the   alleged   historical   definition                              -   fair
compensation  gained  through  arm‖s  length  transactions  between
corporations  and  their  affiliates.                                         Walmart  foreclosed  that
question,  affirmed  the  Department  of  Revenue,  and  defined  “true
earnings”   broadly,   limiting   the   Department   of   Revenue‖s
discretionary  authority  to  force  combination  of  entities  upon  a
finding  of  nondisclosure  of                                                “true  earnings”  only  to  the  extent
that  the  United  States  Supreme  Court  has  placed  constitutional
limits  on  state  taxation  of  multi-state  corporate  transactions
with  their  affiliates.     The  question  in  this  case  is  whether
Defendant  violated  Plaintiff‖s  procedural  due  process  rights  by
allegedly  failing  to  give  Plaintiff  notice  that  the  definition




-24-
of  “true  earnings”  is  not  limited  to  a  determination  of  whether
corporations   and   their   affiliates   performed   transactions   at
arm‖s  length.    We  must  examine  previous  decisions  and  guidelines
of  the  Department  of  Revenue  to  determine  whether  Plaintiff  in
this  case  received  adequate  fair  notice  of  the  definition  of
“true earnings” sufficient to satisfy due process.
The   concept   of   corporate   combination   for   purposes   of
taxation  in  North  Carolina  is  not  new.                                  The  Department  of
Revenue  has  published  Technical  Bulletins  since                          1964  providing
guidance  to  corporate  taxpayers  on  the  subject  of  combination  of
corporations  for  the  purpose  of  preventing  a  parent,  subsidiary
or  affiliated  corporation  from  reporting  a  distorted  net  income
by   siphoning   off   its   income   properly   attributable   to   its
operations  in  North  Carolina  to  an  out-of-state,  affiliated
corporation.    The  record  in  this  case  shows  that  Defendant  has
required  combined  reporting  pursuant  to  N.C.  Gen.  Stat.                §                     105-
130.6 as early as  1973.
Contrary   to   Plaintiff‖s   argument   on   appeal,   Defendant
posits,  and  we  agree,  that  corporate  combination                        -  pursuant  to
N.C.  Gen.  Stat.  §  105-130.6  and  in  scenarios  other  than  those  in
which  the  definition  of  true  earnings  was  limited  to  fair
compensation  gained  through  arm‖s  length  transactions  between




-25-
corporations  and  their  affiliates  -  is  also  not  a  novel  concept.
The  record  contains  the  following  documents  showing  exactly  such
corporation combinations:
An   Attorney   General‖s   Opinion,   dated                                   27   October                                                              1987,5
addressed  the  following  questions:                                          (1)  whether,  in  the  context
of                                                                             “diversion  of  income  producing  property  to  a  subsidiary
corporation[,]”  N.C.  Gen.  Stat.                                             §                                                                         105-130.6  may  be  applied  to
require  a  consolidation  of  “the  involved  corporations”;  and  (2)
whether   the   consolidation   may   be   limited   to                        “only   those
corporations  which  clearly  affect  the                                      ―true  earnings‖  of  the
taxpayer  filing  in  this  State[.]”6     In  response  to  the  first
question,  the  opinion  concludes,                                            “[u]pon  a  finding  that  the
corporation‖s    report    does    not    reflect    taxable    income
attributable   to   this   State,   the   Secretary   may   require   a
consolidated  return.    In  my  opinion,  the  evidence  of  diversion
of   income   producing   property   to   the   subsidiary   corporation
outlined  in  your  memorandum  would  be  sufficient  to  support  such
a   finding   and   the   consequent   requirement   of   filing   a
5An opinion of the Attorney General construing a tax statute
is                                                                             “advisory[.]”     In  re  Virginia-Carolina  Chemical  Corp.,             248
N.C.  531,  538,  103  S.E.2d  823,  828  (1958);  see  N.C.  Gen.  Stat.  §
114-2  (2011).
6Opinions  of  the  Attorney  General                                                                                                                                                      “should  be  accorded  some
                                                                               weight  on  the  question  presented,  but  they  are  not  binding  on
this  Court.”     Delconte  v.  State,                                         313  N.C.                                                                 384,                              387,  n.3,                    329
S.E.2d  636,  639, n.3  (1985).




-26-
consolidated  return.”    In  response  to  the  second  question,  the
opinion  concludes,                                                           “it  appears  to  me  that  if  inclusion  of  all
related  corporations  would  distort  the  true  amount  of  net  income
taxable  in  this  State  under  the  Corporate  Income  Tax  Act  as
interpreted  by  the  Secretary,  the  Secretary  may  properly  limit
the  consolidated  return  to  only  those  corporations  which  affect
the  true  amount  of  net  income  taxable  by  this  State.     Such  a
restriction   would   be   consistent   with   the   purpose   of   the
statute.”     The  opinion  does  not  mention  fair  compensation  for
arm‖s  length  transactions  but  focuses  instead  upon  “disort[ion]”
of  “true earnings[.]”
A   final   decision   of   the   North   Carolina   Department   of
Revenue,                                                                      1997   N.C.  Tax  LEXIS                              48   (No.                                                    95-144)   (No.   95-144)
(August                                                                       26,                                                       1997),  stated  that  if  the  Secretary  of  Revenue
“finds  as  a  fact  that  the  return  as  filed  by  the  taxpayer  does
not   disclose   the   true   earnings   of   the   corporation   on   its
business  carried  on  in  the  state,  the  Secretary  may  require  the
corporation  to  file  a  combined  return  of  the  taxpayer  and  those
affiliated  corporations  necessary  to  determine  the  true  amount
of  net  income  earned  by  the  unitary  group  in  the  state.”    There
was  no  reference  to  payments  in  excess  of  fair  compensation  or
arm‖s length transactions.




-27-
In  another  final  decision  of  the  North  Carolina  Department
of  Revenue,                                                                2000  N.C.  Tax  LEXIS                                18                    (No.   97-990)   (September   19,
2000),7  the  Department  took  the  position  that                         “related  retail
companies,  .  .  .  transferr[ed]  their  trademarks  to  Taxpayers  for
little  or  no  consideration,  then  licens[ed]  the  trademarks  they
formerly  owned  back  from  the  Taxpayers,  who  then  recorded  the
payment  of  the  required  royalty  fees  in  accounts  receivable  and
never  converted  them  into  cash,  shifted  millions  of  dollars  of
income  to  Delaware  that  would  normally  have  been  taxable  in
North  Carolina.”    The  taxpayer  argued  that  “because  the  royalty
rate  they  charged  to  the  related  retail  companies  was  considered
―arm[‖]s  length‖  under  the  standard  set  forth  in  I.R.C.             §                                                     482
according  to                                                               [their  expert  witness],  then  no  distortion  of
income  occurred  and  the  requirement  of  a  combined  report  would
be  inappropriate.”    The  Assistant  Secretary  of  Revenue  concluded
the   following:                                                            “Although   the   Taxpayers   insist   that   the
trademarks  originally  owned  and  used  by  the  related  retail
companies   were   transferred   to   them   for   legitimate   business
reasons  other  than  tax  avoidance,  the  fact  remains  that  the
7We  recognize  that  this  final  decision  has  no  bearing  on
notice  with  regard  to  Plaintiff‖s                                       1998  and                                             1999  tax  returns;
however,  Plaintiff‖s  tax  returns  for  the  tax  year                    2000  were
signed   by   Plaintiff‖s   Corporate   Tax   Manager,   Mr.   Keith
Cunningham, on  15 October  2001.




-28-
profitability   of   the   related   retail   companies   decreased
precipitously  immediately  subsequent  to  the  trademark  transfers.
.  .  .    In  my  judgment,  the  transactions  entered  into  between  the
Taxpayers  and  their  related  retail  companies  arbitrarily  shifted
income  between  them,  thereby  improperly  reflecting  their  true
net  income  and  providing  a  basis  to  require  the  filing  of  a
combined return pursuant to G.S.  105-130.6 and  105-130.16.”
Plaintiff‖s  procedural  due  process  argument  hinges  upon  the
alleged  failure  of  the  Department  of  Revenue  to  give  Plaintiff
notice  that  the  definition  of                                              “true  earnings,”  for  purposes  of
corporate  combination  with  their  affiliates  for  state  taxation,
had  changed.     Plaintiff‖s  argument,  more  specifically,  is  that
Defendant   deliberately   concealed   its   criteria   for   corporate
combination  and  that  Defendant  operated  in  an  ad  hoc  manner
                                                                               without   ascertainable   standards.                                                                                                               We   do   not   believe   this
                                                                                                                                   argument  is  supported  by  the  evidence  of  record  in  this  case.
                                                                                                                                   We  further  believe  the  facts  of  this  case  distinguish  it  from
                                                                                                                                   the  recent  United  States  Supreme  Court  decision,  Fox  Television
Stations,                                                                                                               __  U.S.   _

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