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LENOX, INCORPORATED v. E. NORRIS TOLSON, SECRETARY OF THE NORTH
CAROLINA DEPARTMENT OF REVENUE
No. 17A01
(Filed 20 July 2001)
Taxation--liquidation of out-of-state subsidiary--nonbusiness income
The Court of Appeals correctly remanded a tax refund action for summary judgment in
favor of plaintiff where plaintiff was a New Jersey corporation which decided to dispose of a
subsidiary, ArtCarved, by selling all of its assets; the sale of ArtCarved completed plaintiff’s
involvement in the jewelry business and plaintiff has not reentered that business;  plaintiff did
not retain any of the liquidation proceeds for use in its ongoing operations but distributed all of
those proceeds to its sole shareholder within 24 hours of receipt; and defendant classified the
gain resulting from the sale as business income and assessed corporate income tax.  The net
income of a multistate corporation is divided into two classes, business income, which is taxable,
and nonbusiness income, which is allocated solely to the state most closely associated with the
income-generating asset.   “Business income” is determined by the transactional and the
functional tests, which are separate and independent tests.  Under the functional test, business
income includes income from property if the acquisition, management, and disposition of the
property constitute integral parts of the corporation’s regular course of business.  When a
transaction involves a complete or partial liquidation and cessation of a company’s particular
line of business and the proceeds are distributed to shareholders rather than reinvested in the
company, any gain or loss generated from that transaction is nonbusiness income under the
functional test; specific language in Polaroid Corp. v. Offerman, 349 N.C. 290, is disavowed.  In
this case, nonbusiness income would be allocated solely to New Jersey, the parties agree that the
income from the sale does not satisfy the transactional test,  the disposition of ArtCarved did not
generate business income based on the functional test because liquidation of this asset was not a
regular part of Lenox’s trade or business, and Lenox is due a refund.
Justice PARKER dissenting.
Justice MARTIN joins in this dissenting opinion.
Appeal pursuant to N.C.G.S.  §  7A-30(2) from the decision of
a divided panel of the Court of Appeals,  140 N.C. App.  662,  538
S.E.2d  203  (2000), reversing an order for summary judgment for
defendant 1entered  14 June  1999 by Hight, J., in Superior Court,
Granville County, and remanding for entry of summary judgment for
plaintiff.    Heard in the Supreme Court  14 May  2001.
Wilson & Iseman, L.L.P., by G. Gray Wilson; James M. Iseman,
Jr.; and Kevin B. Cartledge, for plaintiff-appellee.
1
Pursuant to N.C. R. App. P.  38, E. Norris Tolson has been
substituted as Secretary of Revenue, replacing Muriel Offerman.




Roy A. Cooper, Attorney General, by Kay Linn Miller Hobart,
Assistant Attorney General, for defendant-appellant.
WAINWRIGHT, Justice.
Lenox, a New Jersey-based corporation, operates as a
conglomerate corporation with multistate operating divisions,
including North Carolina.    Since  1983, Lenox has been a wholly
owned subsidiary of the Brown-Forman Corporation.    At all
relevant times, Lenox has been engaged in the business of
manufacturing and selling numerous consumer products, including
fine china, fine crystal, dinnerware, silverware, collectibles,
candles, luggage and fine jewelry.    In  1970, Lenox established
its ArtCarved subsidiary division to manufacture and sell fine
jewelry.    ArtCarved was a functionally and financially distinct
entity from Lenox.    ArtCarved, which had its principal place of
business in New York, maintained its own centralized management
and financial systems apart from those of Lenox and had its own
president, chief financial officer, controller and accounting and
human resources staff.    In addition, ArtCarved had its own
operating and reserve accounts and administered its own payables,
receivables and payroll.
By  1988, the ArtCarved subsidiary of Lenox had not been
profitable.    Pursuant to a corporate restructuring plan, Lenox
decided to dispose of ArtCarved and all associated assets.    Lenox
liquidated ArtCarved by selling all of its assets.    The sale of
ArtCarved for  $118,341,000 completed the cessation of Lenox’s
involvement in the sale and manufacture of fine jewelry.    Lenox
did not retain any of the ArtCarved liquidation proceeds for use




in its ongoing business operation and, instead distributed all
proceeds by wire transfer within twenty-four hours of their
receipt to Lenox’s sole shareholder, Brown-Foreman Corporation.
Lenox has not reentered the jewelry business.
For tax purposes, the sale produced a  $46,700,194 gain on
which Lenox paid taxes in New Jersey.    Lenox classified the gain
as  “nonbusiness income” on its North Carolina tax return for the
fiscal year ending  1988, pursuant to N.C.G.S.  §  105-130.4(a)(1)
and  (a)(5) of the North Carolina Corporate Income Tax Act, and
therefore did not pay taxes on this gain.    The North Carolina
Department of Revenue  (DOR), however, reclassified the gain as
business income and assessed corporate income tax in the amount
of  $469,540, which Lenox paid under protest.    Lenox then filed
this tax refund action to recover on its claim of erroneous
taxation.
In order to achieve uniform taxation among states, North
Carolina modeled its Corporate Income Tax Act, N.C.G.S. ch.  105,
art.  4, pt.  1  (1999), after the income classification scheme in
the Uniform Division of Income for Tax Purposes Act  (UDITPA).
Polaroid Corp. v. Offerman,  349 N.C.  290,  294,  507 S.E.2d  284,
288  (1998), cert. denied,  526 U.S.  1098,  143 L. Ed.  2d  671
(1999).    Under this uniform statute, the net income of a
multistate corporation, such as Lenox, is divided into two
classes for taxation purposes:                                         (1)  “business income,” which is
apportioned among all states in which the corporation transacts
business, N.C.G.S.  §  105-130.4(i); and  (2)  “nonbusiness income,”
which is allocated solely to the state most closely associated




with the income-generating asset, N.C.G.S.  §  105-130.4(h), which
in the present case would be New Jersey.    See Polaroid,  349 N.C.
at  294,  507 S.E.2d at  288.    The Act defines  “business income” as
follows:
(1)                                                                      “Business income” means income arising from
transactions and activity in the regular course of
the corporation’s trade or business and includes
income from tangible and intangible property if
the acquisition, management, and/or disposition of
the property constitute integral parts of the
corporation’s regular trade or business
operations.
(5)                                                                      “Nonbusiness income” means all income other than
business income.
N.C.G.S.  §  105-130.4(a)(1),  (5).
Recently, in a case of first impression, this Court
attempted to clarify the scope of the statutory definition of
business income.    Polaroid,  349 N.C.  290,  507 S.E.2d  284.    In
Polaroid, this Court held that the plain language of the statute
contains two separate and independent tests for determining
taxable business income, namely the  “transactional” test and the
“functional” test.    Id. at  301,  507 S.E.2d at  293.    The
“transactional” test, which is the first part of the statutory
definition, focuses on  “income arising from transactions and
activity in the regular course of the corporation’s trade or
business.”    N.C.G.S.  §  105-130.4(a)(1); accord Polaroid,  349 N.C.
at  295,  507 S.E.2d at  289.    The  “functional” test, which is the
second part of the statutory definition, alternatively focuses on
“income from tangible and intangible property if the acquisition,
management, and/or disposition of the property constitute




integral parts of the corporation’s regular trade or business
operations.”    N.C.G.S.  §  105-130.4(a)(1); accord Polaroid,  349
N.C. at  296,  507 S.E.2d at  289.    If either test is satisfied, the
income in question constitutes taxable business income.    See
Polaroid,  349 N.C. at  300,  507 S.E.2d at  292.
The transactional test looks to the particular transaction
generating the income to determine whether that transaction was
done in the ordinary and regular course of business.    Id. at  295,
507 S.E.2d at  289.    The frequency and regularity of similar
transactions, the former practices of the business, and the
taxpayer’s subsequent use of the income are all central to this
inquiry.    Id.    In the present case, both parties agree that the
income from the sale of ArtCarved does not satisfy the
transactional test.
The functional test, on the other hand, focuses on income
generated by the corporation’s acquisition, management and/or
disposition of property that is essential to the corporation’s
business operations.    Id. at  301,  507 S.E.2d at  292-93.    In this
regard, defendant contends that ArtCarved was an integral part of
Lenox’s regular manufacturing business and that its sales
proceeds therefore satisfy the functional test.    As such,
defendant argues the income from the sale of ArtCarved is
“business income” for which Lenox must be taxed in North
Carolina.    Plaintiff Lenox, however, responds that the sale and
liquidation of ArtCarved marked the end of Lenox’s involvement in
the manufacture and sale of fine jewelry and that the sales
proceeds are more properly classified as  “nonbusiness income.”




Therefore, the sole issue before this Court is whether the
liquidation and cessation of a separate and distinct operating
division of Lenox constitute  “business income” under the
functional test of the statutory definition set forth by the
North Carolina Corporate Income Tax Act, N.C.G.S. ch.  105,
art.  4, pt.  1.    We conclude that the income produced by the sale
of ArtCarved should be classified as nonbusiness income.
In the instant case, ArtCarved manufactured and sold fine
jewelry as a division of Lenox.    The transaction in question
divested the whole subsidiary of ArtCarved from Lenox and was a
complete liquidation as to ArtCarved and a partial liquidation as
to Lenox.    Following its disposition of ArtCarved, Lenox did not
return to this particular line of business.    Additionally, the
proceeds of the sale were distributed to the sole shareholder and
were not reinvested in the Lenox corporation.    The sale of the
assets and property that generated this income was not an
ordinary event but was one of an extraordinary and infrequent
nature.
In Polaroid, this Court stated that the extraordinary nature
or infrequency of the transaction is irrelevant.    Polaroid,  349
N.C. at  296,  507 S.E.2d at  289  (citing Texaco-Cities Serv.
Pipeline Co. v. McGaw,  182 Ill.  2d  262,  269,  695 N.E.2d  481,  485
(1998)).    We further stated that if the asset or property was
integral to the corporation’s regular trade or business,  “income
resulting from the acquisition, management, and/or disposition of
[that asset] constitutes business income regardless of how that
income is received.”    Id. at  306,  507 S.E.2d at  296.    Based on




this specific language from Polaroid, defendant contends that
this Court must determine that the assets associated with
ArtCarved were integral to Lenox’s regular trade or business
operations and must thereby conclude that the income generated
from the sale of those assets must necessarily be classified as
business income without further analysis.    Defendant is correct
that an application of the above language from Polaroid would
result in such a determination, regardless of how that income is
received and regardless of how extraordinary or infrequent the
transaction.
The wording of these two sentences in Polaroid is a cause of
confusion, and we hereby disavow these statements.    The
statements in Polaroid are in direct contravention of the
functional test of our statute which requires that the  “property
constitute  [an] integral part[] of the corporation’s regular
trade or business operations.”    N.C.G.S.  §  105-130.4(a)(1)
(emphasis added).    The source of corporate income cannot be
disregarded, as extraordinary or infrequent transactions may well
fall outside a corporation’s regular trade or business.    Again,
the focus must be on the asset or property that generated the
income and its relationship to the corporation’s regular trade or
business.    To use such overly broad language as we have just
disavowed would render the statutory definition of  “nonbusiness
income” meaningless.
Resolution of the issue in this case therefore depends upon
our statutory interpretation of business income, as defined by
the functional test.    N.C.G.S.  §  105-130.4(a)(1).    The principal




goal of statutory construction is to accomplish the legislative
intent.    Polaroid,  349 N.C. at  297,  507 S.E.2d at  290.    The
intent of the General Assembly may be found first from the plain
language of the statute, then from the legislative history,  “‘the
spirit of the act and what the act seeks to accomplish.’”    Id.
(quoting Coastal Ready-Mix Concrete Co. v. Board of Comm’rs,  299
N.C.  620,  629,  265 S.E.2d  379,  385  (1980)).    If the language of a
statute is clear, the court must implement the statute according
to the plain meaning of its terms so long as it is reasonable to
do so.    Id.    When the statute under consideration is one
concerning taxation, special canons of statutory construction
apply.    In re Denial of Refund of N.C. Inheritance Taxes,  303
N.C.  102,  106,  277 S.E.2d  403,  407  (1981).    If a taxing statute
is susceptible to two constructions, any uncertainty in the
statute or legislative intent should be resolved in favor of the
taxpayer.    Polaroid,  349 N.C. at  297,  507 S.E.2d at  290; Regional
Acceptance Corp. v. Powers,  327 N.C.  274,  277,  394 S.E.2d  147,
149  (1990).
As previously stated, under the  “functional test,” business
income  “includes income from tangible and intangible property if
the acquisition, management, and/or disposition of the property
constitute integral parts of the corporation’s regular trade or
business operations.”    N.C.G.S.  §  105-130.4(a)(1)  (emphasis
added).    In Polaroid, we defined  “integral” as  “essential to
completeness.”    Polaroid,  349 N.C. at  301,  507 S.E.2d at  292.
However, when an asset is sold pursuant to a complete or partial
liquidation, the court must focus on more than the question of




whether the asset was integral to the corporation’s business.
See Laurel Pipe Line Co. v. Pennsylvania,  537 Pa.  205,  642 A.2d
472  (1994).                                                            “Moreover, the phrase  ‘regular trade or business
operations’ refers to business operations done in a recurring
manner, or at fixed or uniform intervals.”    Union Carbide Corp.
v. Offerman,  351 N.C.  310,  315-16,  526 S.E.2d  167,  171  (2000);
see also Black’s Law Dictionary  356  (7th ed.  1999)  (regular
“course of business” is defined as  “[t]he normal routine in
managing a trade or business”).    Partial or complete liquidations
are extraordinary events and are not recurring transactions.    See
Kemppel v. Zaino,  91 Ohio St.  3d  420,  423,  746 N.E.2d  1073,
1076-77  (2001)  (The income in question resulted from  “a one-time
event that terminated the business”; therefore, it was not
considered a  “sale in the regular course of a trade or
business.”).
Furthermore, this Court has specifically noted that
liquidation cases are in a separate category because the
transaction at issue is a means of ceasing business operations
rather than in furtherance thereof.    In Polaroid, we stated the
following in a footnote:
We do note, however, that cases involving liquidation
are in a category by themselves.    Indeed, true
liquidation cases are inapplicable to these situations
because the asset and transaction at issue are not in
furtherance of the unitary business, but rather a means
of cessation.
Polaroid,  349 N.C. at  306 n.6,  507 S.E.2d at  296 n.6.
Therefore, when the transaction involves a complete or
partial liquidation and cessation of a company’s particular line
of business, and the proceeds are distributed to shareholders




rather than reinvested in the company, any gain or loss generated
from that transaction is nonbusiness income under the functional
test.    See generally Laurel Pipe Line,  537 Pa. at  214,  642 A.2d
at  477.
An examination of case law from other UDITPA states that
have adopted the functional test is instructive.    In McVean &
Barlow, Inc. v. New Mexico Bureau of Revenue,  88 N.M.  521,  543
P.2d  489  (Ct. App.), cert. denied,  89 N.M.  6,  546 P.2d  71  (1975),
the taxpayer was engaged in the business of laying small diameter
pipelines and laying large diameter pipelines.    Id. at  522,  543
P.2d at  490.    After liquidating its five-year-old large-diameter
business pursuant to a major reorganization, the taxpayer
continued operating its twenty-five-year-old small-diameter
business.    Id.    The McVean court held that the
taxpayer was not in the business of buying and selling
pipeline equipment and, in fact, the transaction in
question was a partial liquidation of taxpayer’s
business and total liquidation of taxpayer’s  [large-
diameter] business.    The sale of equipment did not
constitute an integral part of the regular trade or
business operations of taxpayer.    This sale
contemplated a cessation of taxpayer’s  [large-diameter]
business.
Id. at  524,  543 P.2d at  492  (emphases added).    Accordingly, the
McVean court concluded that liquidation of the large-diameter
operations produced nonbusiness income.    Id.    We note for the
record that fifteen years after the decision in McVean, New
Mexico amended its definition of  “business income” to explicitly
include  “income from the disposition or liquidation of a business
or segment of business.”    See N.M. Stat. Ann.  §  7-4-2  (Michie
Supp.  2000).    New Mexico’s current version of UDITPA specifically




classifies liquidation proceeds as business income, unlike its
predecessor statute and North Carolina’s current definition of
business income.
More recently, the Pennsylvania Supreme Court    classified
the proceeds of a liquidation as nonbusiness income under the
functional test.    Laurel Pipe Line,  537 Pa. at  214,  642 A.2d at
477.    In that case, the taxpayer, a petroleum pipeline
transporter, sold one of its two pipelines while continuing to
operate the other.    Id. at  207,  642 A.2d at  473.    The taxpayer
distributed the entire after-tax net proceeds to its
shareholders, and none of the proceeds were used to generate
income or acquire assets for use in future business operations.
Id.    The Pennsylvania Supreme Court disagreed with the contention
that  “a singular disposition of an unprofitable pipeline is an
integral part of the company’s regular business because, if not
sold, the company’s other business would suffer financially.”
Id. at  211,  642 A.2d at  475.    Instead, the court held that
[t]he  [disposed] pipeline had been idle for over three
years prior to the time that it was sold.    In our view,
the pipeline was not disposed of as an integral part of
[the taxpayer’s] regular trade or business.    Rather,
the effect of the sale was that the company liquidated
a portion of its assets.    This is evidenced by the fact
that the proceeds of the sale were not reinvested back
into the operations of the business, but were
distributed entirely to the stockholders of the
corporation.    Although  [the taxpayer] continued to
operate a second, independent pipeline, the sale of the
[other] pipeline constituted a liquidation of a
separate and distinct aspect of its business.
Id.; see also Blessing/White, Inc. v. Zehnder, No.  99L51087, slip
op. at  6  (Cook County Ill. Cir. Ct., Jan.  24,  2001)  (Lanigan, J.)
(When a business was completely liquidated and the proceeds




distributed to its shareholder, the income produced was not
business income, in that  “BWI did not use the proceeds of the
liquidation to continue its business because it had no business
to continue.”).
In Laurel Pipe Line, the Pennsylvania Supreme Court
factually distinguished an earlier liquidation case in which the
taxpayer sold its idle and unprofitable Philadelphia plant.                 537
Pa. at  210-12,  642 A.2d at  475-76; see Welded Tube Co. of Am. v.
Pennsylvania,  101 Pa. Commw.  32,  515 A.2d  988  (1986).    In Welded
Tube, the taxpayer used the sales proceeds in ongoing operations
by expanding its Chicago plant and retiring corporate debt.
Welded Tube,  101 Pa. Commw. at  38,  515 A.2d at  991.    There was
“no suggestion on the record that the closing of the facility
contemplated the cessation of operations” and the court held that
this sale generated business income.    Id. at  45-46,  515 A.2d at
994-95.
The Illinois Supreme Court’s decision in Texaco-Cities Serv.
Pipeline Co. v. McGaw,  182 Ill.  2d  262,  695 N.E.2d  481  (1998), to
consider the taxpayer’s liquidated assets business income is
easily distinguishable from the case at hand.    In Texaco-Cities,
the taxpayer, a pipeline petroleum transporter, sold major
segments of its pipeline assets and related realty, but continued
to transport petroleum by pipeline and reinvested the sales
proceeds therein.    Id. at  265,  273,  695 N.E.2d at  483,  487.    The
taxpayer classified the gain as nonbusiness income, contending
that the  “sale was an extraordinary event and more in the nature
of a cessation than a furtherance of business.”    Id. at  266,  695




N.E.2d at  483.    The Illinois Supreme Court disagreed and
classified the gain as business income under the functional test.
Id. at  273,  695 N.E.2d at  486.    The court in that case
distinguished Laurel Pipe Line by stating:
The court in Laurel Pipe Line found that the sale was a
liquidation of a  “separate and distinct aspect” of
Laurel’s business, namely, all of its pipeline
operations in a specific geographical region.    Laurel
Pipe Line,  537 Pa. at  213,  642 A.2d at  476, citing
McVean & Barlow,  88 N.M.  521,  543 P.2d  489.    In
reaching this conclusion, the court considered the
“totality of the circumstances surrounding the sale,”
including the fact that the sales proceeds were
distributed to the shareholders rather than being used
to acquire business assets or generate income for use
in future business operations.    Laurel Pipe Line,  537
Pa. at  213-14,  642 A.2d at  476-77.    In the case at bar,
by contrast, it was undisputed that following the sale,
[the taxpayer] Texaco-Cities remained primarily in the
business of providing transportation by pipeline, and
that the sales proceeds were invested right back into
that business rather than being disseminated to its
shareholders.    Unlike the cases upon which Texaco-
Cities relies, there was no evidence that this sale was
a cessation of a separate and distinct portion of
Texaco-Cities’ business.    Thus, the gain from the
[Texaco-Cities’] sale was properly classified as
business income.
Texaco-Cities,  182 Ill.  2d at  273-74,  695 N.E.2d at  486-87
(citations omitted).    The same language can be similarly used to
distinguish Texaco-Cities from the instant case.
In the instant case, as in McVean and Laurel Pipe Line, the
transaction is a liquidation in cessation of business,
distinguishing it from the Welded Tube and Texaco-Cities
dispositions, which were in furtherance of the unitary
businesses.    Lenox did not use any of the liquidation proceeds in
its remaining, ongoing business operations.    Instead, Lenox
distributed all of the ArtCarved proceeds to its sole shareholder
less than twenty-four hours after their receipt.    None of Lenox’s




remaining businesses involve fine jewelry or similar products.
ArtCarved maintained its own management, personnel structure,
accounting staff and operations, controller, operating and
reserve accounts, payroll, payables and receivables accounts.
The ArtCarved sale was a one-time complete liquidation of a
separate operating division by Lenox, marking Lenox’s complete
departure from the fine jewelry business with immediate
distribution of the sales proceeds to its sole shareholder.
Accordingly, the disposition of ArtCarved did not generate
business income because the liquidation of this asset was not an
integral part of Lenox’s regular trade or business.    Therefore,
based on the functional test, Lenox’s gain from the ArtCarved
liquidation is properly classified as nonbusiness income.    As
nonbusiness income, the gain was not taxable by North Carolina,
and Lenox is due a refund for overpayment of corporate income
tax.    We hereby affirm the Court of Appeals’ reversal of the
trial court’s grant of summary judgment in favor of defendant and
its remand for summary judgment in favor of plaintiff herein.
AFFIRMED.
Justices PARKER and MARTIN dissenting.
Justice PARKER dissenting.
Less than three years ago in Polaroid Corp. v. Offerman,  349
N.C.  290,  507 S.E.2d  284  (1998), this Court in an exhaustive
opinion interpreted Section  105-130.4(a)(1) of the North Carolina
Corporate Income Tax Act which defines business income.    In that




opinion, the Court concluded that under the plain language of the
statute the definition of business income for corporate income
tax purposes included both a transactional test and a functional
test.    Id. at  301,  507 S.E.2d at  293.    In Polaroid the Court
stated that under the functional test, "once a corporation's
assets are found to constitute integral parts of the
corporation's regular trade or business, income resulting from
the acquisition, management, and/or disposition of those assets
constitutes business income regardless of how that income is
received."    Id. at  306,  507 S.E.2d at  296.    The Court further
stated that under the functional test, "the extraordinary nature
or infrequency of the event is irrelevant."    Id. at  296,  507
S.E.2d at  289.
The majority acknowledges that applying the above language,
defendant is correct in its determination that the income
generated from the sale of ArtCarved's assets would necessarily
be classified as business income inasmuch as the assets
associated with ArtCarved were integral to plaintiff's regular
trade or business operations.    The majority then disavows this
language from Polaroid on the basis that the language "is a cause
of confusion" and is "in direct contravention of the functional
test of our statute."    The majority then states that "[t]he
source of corporate income cannot be disregarded, as
extraordinary or infrequent transactions may well fall outside a
corporation's regular trade or business.    Again, the focus must
be on the asset or property that generated the income and its
relationship to the corporation's regular trade or business."




The majority then purports to apply the functional test to
the facts of this case.    The majority emphasizes that  (i) a
liquidation is an extraordinary, not a recurring transaction, and
is thus not a sale in the regular course of trade or business;
and  (ii) the proceeds of the sale were distributed to the sole
stockholder and were not reinvested in plaintiff's business.    The
majority finds support for this analysis in footnote  6 in the
Polaroid opinion, which suggested that liquidations are not
within the purview of the functional test.    Id. at  306, n.6,  507
S.E.2d at  296, n.6.
In my view the majority has misread the functional test as
set forth in the statute and interpreted in Polaroid.    The
functional test focuses on whether the asset is found to be an
integral part of the corporation's regular business, not whether
the transaction is found to be a part of the regular business.
The critical question is whether the property or asset produced
business income while it was owned by the taxpayer.
In Polaroid, this Court noted the administrative rule in
effect since  1976 which provides
“(2) A gain or loss from the sale, exchange or other
disposition of real or personal property constitutes
business income if the property while owned by the
taxpayer was used to produce business income.”
Id. at  302,  507 S.E.2d at  293  (quoting  17 NCAC  5C  .0703(2)(June
1998)).
Further, in my view the footnote to Polaroid is obiter
dictum and is not a basis for disavowing the language in
Polaroid.    Even if the footnote were pertinent, a partial
liquidation of a business division is not a "true liquidation."




Moreover, in this case the sole shareholder to whom the proceeds
were distributed was the parent corporation of plaintiff.    Hence,
the question remains as to whether the proceeds were used in
furtherance of the unitary business.
Finally, the interpretation of our tax laws has widespread
ramifications, and under the principle of stare decisis this
Court should not lightly abandon or modify its interpretation of
a tax statute.    Both the Secretary of Revenue and the taxpayer
are entitled to a measure of stability and constancy in the
interpretation and application of our tax statutes.
Applying the functional test as set forth in Polaroid, I am
of the opinion that ArtCarved as an asset of plaintiff was an
integral part of plaintiff's regular trade or business, namely,
manufacturing and selling various consumer goods, and that the
sale of ArtCarved produced business income pursuant to N.C.G.S.  §
105-130.4(a)(1).
For the foregoing reasons, I respectfully dissent and vote
to reverse the opinion of the Court of Appeals.
Justice Martin joins in this dissenting opinion.

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