Plaintiff has one assignment of error reading as follows: "For that the court erred in the signing and entry of judgment dismissing plaintiff's suit for refund, the facts, as appear on the face of the record, being insufficient to support the judgment." This assignment of error presents for review the question as to whether the agreed statement of facts support the judgment, and whether error of law appears on the face of the judgment. Strong's North Carolina Index, Vol. 1, Appeal and Error, § 21.
This statement appears in the agreed statement of facts: "If the Commissioner's
Plaintiff makes these contentions: "Gain realized by plaintiff in the liquidation of a wholly-owned subsidiary should not reduce the carry-over loss deduction authorized under G.S. § 105-147(9) (d)." Upon the liquidation of its subsidiaries, it merely transferred its subsidiaries' assets to its own books. G.S. § 105-144(c) provides that any "gain" attendant upon such transfer will not be recognized for tax purposes. The nonrecognition of gain on the liquidation of a subsidiary might well be a temporary condition, i. e., subsequent sale of the property by the parent corporation can result in the taxation of this gain.
G.S. § 105-144(c) reads:
It seems clear that the nonrecognition principle embodied in G.S. § 105-144(c) was to permit a corporation to simplify its corporate structure, and to relieve a parent corporation from tax liability liquidation gains realized in a particular year as a result of corporate liquidation. However, the instant case on the precise basic question above stated does not involve taxation of liquidation gains or the public policy embodied in G.S. § 105-144(c). The instant case is concerned with the application of the net economic losses provisions of G.S. § 105-147(9) (d), and the only pertinent public policy considerations are those which underlie this particular section of the statute.
The net economic losses deduction claimed by plaintiff is described and defined in G.S. § 105-147(9) (d). The pertinent
The General Assembly was under no constitutional or other legal compulsion to permit a net economic loss or losses deduction for a corporation from taxable income in a subsequent year or years. It enacted the carry-over provisions of G.S. § 105-147(9) (d) "purely as a matter of grace, gratuitously conferring a benefit but limiting such benefit to the net economic loss of the taxpayer after deducting therefrom the allocable portion of such taxpayer's nontaxable income." Dayton Rubber Co. v. Shaw, Comr. of Revenue, 244 N.C. 170, 92 S.E.2d 799.
It appears from the agreed statement of facts that during plaintiff's fiscal and tax year ending 30 June 1960, it liquidated two wholly-owned subsidiaries and realized a gain of $4,120,418.65. This gain was not included in plaintiff's state taxable income for the year 1960, because the gain qualified for nonrecognition under the provisions of G.S. § 105-144(c). Even though this liquidated gain of $4,120,418.65 did not constitute taxable income to plaintiff, it seems manifest that it did in fact constitute a gain and increased plaintiff's assets for the year by $4,120,418.65 over the value of plaintiff's two wholly-owned subsidiaries as carried in plaintiff's assets before the liquidation.
For its three fiscal and tax years ending 30 June 1958, 1959, and 1960, plaintiff had net operating losses apportionable to North Carolina under G.S. § 105-134 in the total amount of $231,546.63. G.S. § 105-147(9)
G.S. § 105-132(1) reads: "The word `taxpayer' includes any individual, corporation, or fiduciary subject to the tax imposed by this article."
G.S. § 105-140 reads: "The words `net income' mean the gross income of a taxpayer, less the deductions allowed by this article."
G.S. § 105-141(a) reads in relevant part: "The words `gross income' mean the income of a taxpayer derived from salaries, wages, or compensation for personal service, of whatever kind and in whatever form paid, or from professions, vocations, trades, business, commerce or sales, or dealings in property, whether real or personal, located in this or any other state or any other place, growing out of the ownership or use of or interest in such property, also from interest, rent, dividends, securities, or the transactions of any business carried on for gain or profit, or gains or profits, and income derived from any source whatever and in whatever form paid." (Emphasis ours.)
In our opinion, and we so hold, plaintiff's gain in the amount of $4,120,418.65 realized from the sale of its two wholly-owned subsidiaries by reason of our statutory definition of "gross income" constitutes "income from all sources in the year including any income not taxable under this article," as stated in G.S. § 105-147(9) (d) (2). Consequently, plaintiff is not entitled to any net economic losses deduction as sought in its complaint, and is not entitled to recover anything sought in this suit, because as stated in the agreed statement of facts "this gain [$4,120,418.65] alone would more than offset the $231,546.63 in operating losses without regard to the treatment given the $97,730.00 in dividends."
The Federal cases and statutes relied on by plaintiff are clearly distinguishable. We are here concerned with our own statutes.
Having reached this conclusion, the question presented for decision in plaintiff's brief reading: "When dividends received by a parent corporation from a subsidiary are deductible under G.S. § 105-147(7) (because all of the subsidiary's income was subject to taxation by North Carolina) does the parent thereby receive nontaxable income which must be offset against its operating losses in computing the G.S. § 105-147(9) (d) net operating loss deduction?", has become moot.
The agreed statement of facts supports Judge Riddle's judgment, and no error of law appears on the face of the record. The Judgment below is