GENERAL ASSEMBLY OF NORTH CAROLINA

SESSION 1997

S	1 

SENATE BILL 39

Short Title:  Modify Setoff Debt Collection.	(Public)

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Sponsors: Senators Shaw of Cumberland, Cochrane, Cooper, Kerr, Soles; and Weinstein.

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Referred to:  Judiciary.

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February 3, 1997

A BILL TO BE ENTITLED
AN ACT TO REVISE THE SETOFF DEBT COLLECTION ACT.
The General Assembly of North Carolina enacts:
Section 1.  Chapter 105A of the General Statutes reads as rewritten:
"Chapter 105A.
"Setoff Debt Collection Act.
"§ 105A-1.  Purposes.
The purpose of this Chapter is to establish as policy that all claimant agencies and the Department of Revenue shall cooperate in identifying debtors who owe money to the State through its various agencies or to a local government and who qualify for refunds from the Department of Revenue. It is also the intent of this Chapter that procedures be established for setting off against any refund the sum of any debt owed to the State or to a local government. Furthermore, it is the legislative intent that this Chapter be liberally construed so as to effectuate these purposes as far as legally and practically possible.
"§ 105A-2.  Definitions.
The following definitions apply in this Chapter:
(1)	Claimant agency. – A State agency or a local agency acting through a clearinghouse or organization pursuant to G.S. 105A-3(b1).
(2)	Debt. – A liquidated sum due and owing a claimant agency that has accrued through contract, subrogation, tort, operation of law, or any other legal theory regardless of whether there is an outstanding judgment for the sum.  The term includes sums collectible pursuant to Title IV, Part D of the Social Security Act.
(3)	Debtor. – An individual owing money to or having a delinquent account with any claimant agency which obligation has not been adjudicated satisfied by court order, set aside by court order, or discharged in bankruptcy.
(4)	Department. – The Department of Revenue.
(5)	Reserved.
(6)	Local agency. – A county or municipality to the extent it is not a State agency as defined in this section.
(7)	Net proceeds collected. – Gross proceeds collected through setoff against a debtor's refund minus any collection assistance fee charged by the Department.
(8)	Refund. – An individual's North Carolina income tax refund.
(9)	State agency. – Any of the following:
a. The North Carolina Department of Human Resources when in the performance of its duties under the Medical Assistance Program enabled by Chapter 108A, Article 2, Part 6, and any county operating the same Program at the local level, when and only to the extent such a county is in the performance of Medical Assistance Program collection functions.
b. The North Carolina Department of Human Resources when in the performance of its duties under the Child Support Enforcement Program as enabled by Chapter 110, Article 9 and Title IV, Part D of the Social Security Act to obtain indemnification for past paid public assistance or to collect child support arrearages owed to an individual receiving program services and any county operating the program at the local level, when and only to the extent that the county is engaged in the performance of those same duties.
c. The North Carolina Department of Human Resources when in the performance of its collection duties for intentional program violations and violations due to inadvertent household error under the Food Stamp Program enabled by Chapter 108A, Article 2, Part 5, and any county operating the same Program at the local level, when and only to the extent such a county is in the performance of Food Stamp Program collection functions.
d.	The North Carolina Department of Human Resources when, in the performance of its duties under the Aid to Families with Dependent Children Program or the Aid to Families with Dependent Children – Emergency Assistance Program provided in Part 2 of Article 2 of Chapter 108A or the Work First Cash Assistance Program established pursuant to the federal waivers received by the Department on February 5, 1996, or under the State-County Special Assistance for Adults Program provided in Part 3 of Article 2 of Chapter 108A, it seeks to collect public assistance payments obtained through an intentional false statement, intentional misrepresentation, intentional failure to disclose a material fact, or inadvertent household error.
e.	The Office of the North Carolina Attorney General on behalf of any State agency when the debt has been reduced to a judgment.
f. Any other unit of the executive, legislative, or judicial branch of State government, such as a department, a commission, a board, a council, or The University of North Carolina.
	 " 																							 " 	 " 	 " 	 " 	 " "§ 105A-3.  Remedy additional; mandatory State usage; optional local usage; obtaining identifying information; registration.
(a)	Remedy Additional. – The collection remedy under this Chapter is in addition to and not in substitution for any other remedy available by law.
(b)	Mandatory State Usage. – All State agencies shall submit, for collection under the procedure established by this Chapter, all debts they are owed, except debts that they are advised by the Attorney General not to submit because the validity of the debt is legitimately in dispute, because an alternative means of collection is pending and believed to be adequate, or because such a collection attempt would result in a loss of federal funds.  Except in the case of a State agency described in G.S. 105A-2(9)a. through d., the State Controller may waive this requirement in situations when an agency's submission of the debts would not be practical or would not be effective.
(b1)	Optional Local Usage. –  After complying with the notice and hearing requirements of G.S. 105A-5, a local agency may submit for collection under the procedure established in this Chapter all debts it is owed, other than debts the validity of which is in dispute.  Local agencies shall submit debts for collection pursuant to this Chapter only through one of the following:
(1)	A clearinghouse established pursuant to an interlocal agreement adopted under Article 20 of Chapter 160A of the General Statutes, pursuant to which the clearinghouse will submit debts on behalf of any requesting local agency.
(2)	The North Carolina League of Municipalities.
(3)	The North Carolina Association of County Commissioners.
(c)	Identifying Information. – All claimant agencies shall whenever possible obtain the full name, social security number, address, and any other identifying information required by the Department from any person for whom the agencies provide any service or transact any business and who the claimant agencies can foresee may become a debtor under this Chapter.
(d)	Registration; Reports. – A State agency must register with the Department and with the State Controller.  Every State agency must report annually to the State Controller the amount of debts owed to the agency for which the agency did not submit a claim for setoff and the reason for not submitting the claim.
A clearinghouse or organization that submits debts on behalf of a local agency must register by filing written notice with the Department of its intention to effect collection through setoff.  If a clearinghouse registers to submit debts pursuant to this subsection, no other clearinghouse may register to submit debts pursuant to this subsection.
"§ 105A-4.  Minimum sum collectible.
The Department shall not collect a debt pursuant to this Chapter unless both the debt and the refund, if any, are at least fifty dollars ($50.00).
"§ 105A-5.  Local agency notice, hearing, and determination.
(a)	Prerequisite. –  A local agency may not submit a debt to the Department pursuant to G.S. 105A-6 until it has given the notice required by this section and the claim has been finally determined as provided in this section.
(b)	Notice. – A local agency shall send written notice to the debtor that the agency intends to submit the debt for collection by setoff.  The notice shall clearly set forth the basis for the agency's claim to the debt, the intention to apply the debtor's tax refund against the debt, the debtor's opportunity to give written notice of intent to contest the validity of the claim within 30 days after the date the notice was mailed, the mailing address to which the application for a hearing must be sent, and the fact that failure to apply for a hearing in writing within the 30-day period is a waiver of the opportunity to contest the claim, causing potential setoff by default.  The written application by the debtor for a hearing becomes effective upon mailing the application postage prepaid and properly addressed.
(c)	Hearing. – A hearing on a contested claim of a local agency shall be held first before the governing body of the local agency or the governing body's designee.  No issues may be considered at the hearing that have been previously litigated.  If the debtor disagrees with the determination of the governing body or its designee, the debtor may file a petition for a contested case under Article 3 of Chapter 150B of the General Statutes.  The petition must be filed within 30 days after the debtor receives a copy of the determination of the governing body or its designee.  Notwithstanding the provisions of G.S. 150B-2, a local agency is an agency for purposes of contested cases and appeals under this Chapter.
(d)	Determination. – It shall be determined at the hearing whether the claimed sum asserted as due and owing is correct, and if not, an adjustment to the claim shall be made.  The debtor may appeal the determination as provided in G.S. 105A-9.
"§ 105A-6.  Procedure for setoff.
(a)	Notice to Department. – A claimant agency seeking to attempt collection of a debt through setoff shall notify the Department in writing and supply information necessary to identify the debtor whose refund is sought to be set off.  The claimant agency may include with the notification the date, if any, that the debt is expected to expire.  The agency shall notify the Department in writing when a debt has been paid or is no longer owed the agency.
(b)	Setoff by Department. – The Department, upon receipt of notification, shall determine each year whether the debtor to the claimant agency is entitled to a refund of at least fifty dollars ($50.00) from the Department.  Upon determination by the Department that a debtor specified by a claimant agency qualifies for such a refund, the Department shall 
	set off the debt against the refund to which the debtor would otherwise be entitled and shall refund any remaining balance to the debtor as if setoff had not occurred.  The Department shall mail the debtor written notice that setoff has occurred.  Upon effecting setoffs, the Department shall periodically credit claimant agencies with the net proceeds collected on their behalf.
(c)	Refund if Setoff Exceeds Debt. –  If the net proceeds credited to a claimant agency exceed the amount of the debtor's debt, the agency shall refund the balance to the debtor.  The refund shall bear interest as provided in G.S. 105A-8(b).
(d)	State Agency Notice to Debtor. – A State agency shall credit to a nonreverting trust account all refund setoffs credited to it.  Within 10 days after receipt of a refund setoff from the Department, the State agency shall send written notification to the debtor that the refund has been received.  The notice shall clearly set forth the basis for the claim to the refund, the intention to apply the refund against the debt to the claimant agency, the debtor's opportunity to give written notice of intent to contest the validity of the claim within 30 days after the date the notice was mailed, the mailing address to which the application for a hearing must be sent, and the fact that failure to apply for a hearing in writing within the 30-day period is a waiver of the opportunity to contest the claim, causing final setoff by default.  The written application by the debtor for a hearing becomes effective upon mailing the application postage prepaid and properly addressed.
If a State agency fails to provide timely notice in accordance with the requirements of this subsection, the State agency shall refund to the debtor the entire amount set off plus the collection assistance fee retained by the Department.  That portion of the refund reflecting the collection assistance fee must be paid from the State agency's funds.  The refund shall bear interest as provided in G.S. 105A-8(b).
105Aphearing
			"§ 105A-8.  State agency hearing and determination.
(a)	Hearing. – A hearing on a contested claim of a State agency, other than a claim of a constituent institution of The University of North Carolina, or a claim of the Employment Security Commission of North Carolina, shall be conducted in accordance with Article 3 of Chapter 150B of the General Statutes.  A hearing on a contested claim of a constituent institution of The University of North Carolina shall be conducted in accordance with administrative procedures approved by the Attorney General.  A hearing on a contested claim of the Employment Security Commission of North Carolina shall be conducted in accordance with regulations adopted by the Employment Security Commission of North Carolina.  No issues may be considered at the hearing that have been previously litigated.
(b)	Determination; Refund. –It shall be determined at the hearing whether the claimed sum asserted as due and owing is correct, and if not, an adjustment to the claim shall be made.  If it is determined that the amount set off is excessive, the State agency shall refund the excess amount to the taxpayer.  If it is determined that the State agency is not entitled to any part of the amount set off, the State agency shall refund the entire amount set off plus the collection assistance fee retained by the Department.  That portion of the refund reflecting the collection assistance fee must be paid from the State agency's funds.  If a refund is made to the taxpayer, the State agency shall pay interest to the taxpayer calculated as provided in G.S. 105-241.1(i) from the date one day after the date through which the Department pays interest on the refund or the date that interest begins to accrue, as provided in G.S. 105-266(b), whichever is later.
		"§ 105A-9.  Appeals from hearings.
Appeals from action taken at hearings allowed under this Chapter shall be in accordance with the provisions of Chapter 150B of the General Statutes, the Administrative Procedure Act, except that the place of initial judicial review shall be the superior court for the county in which the debtor resides.  Appeals from actions allowed under this Chapter conducted by the Employment Security Commission of North Carolina shall be in accordance with the provisions of Chapter 96 of the General Statutes.
		105Aa 
"§ 105A-12.  Priorities in claims to setoff.
The Department has priority over all other claimant agencies for collection by setoff whenever it is a competing agency for a refund.  State agencies have priority over local agencies for collection by setoff.  When there are multiple claims by State agencies other than the Department, the priority shall be in the order in time in which each agency registered for setoff pursuant to G.S. 105A-3.  When there are multiple claims by organizations submitting debts on behalf of local agencies, the priority shall be in the order in time in which each organization registered for setoff pursuant to G.S. 105A-3.  When there are multiple claims among local agencies whose debts are submitted by a single organization, the priority shall be in the order in time in which each local agency requested the organization to submit debts on its behalf.
"§ 105A-13.  Collection assistance fees.
		To recover its cost of collection under this Chapter, the Department shall add a collection assistance fee to each debt collected through setoff, collect it as part of the debt, and retain it.  The collection assistance fee shall be determined based on the Department's actual cost of collection under this Chapter for the immediately preceding year and shall not exceed fifteen dollars ($15.00).  If the Department is able to collect only part of a debt through setoff, the collection assistance fee has priority over the remainder of the debt.  The collection assistance fee shall not be added to child support debts or collected as part of child support debts.  The Department shall retain from collections under Division II of Article 4 of Chapter 105 of the General Statutes the cost of collection of child support debts under this Chapter.
"§ 105A-14.  Accounting to the claimant agency; credit to debtor's obligation.
(a)	Simultaneously with the transmittal of the net  proceeds collected to a claimant agency, the Department shall provide the agency with an accounting of the setoffs for which payment is being made. The accounting shall, whenever possible, include the full names of the debtors, the debtors' social security numbers, the gross proceeds collected per setoff, the net proceeds collected per setoff, and the collection assistance fee added to the debt and collected per setoff.
(b)	Upon receipt by a claimant agency of net proceeds collected on the claimant agency's behalf by the Department, a final determination of the claim, and an accounting of the proceeds as specified under this section, the claimant agency shall credit the debtor's obligation with the net proceeds collected.  
"§ 105A-15.  Confidentiality exemption; nondisclosure.
(a)	Notwithstanding G.S. 105-259 or any other provision of law prohibiting disclosure by the Department of the contents of taxpayer records or information and notwithstanding any confidentiality statute of any claimant agency, the exchange of any information among the Department, the claimant agency, the organization submitting debts on behalf of a local agency, and the debtor necessary to implement this Chapter is lawful.
(b)	The information a claimant agency or an organization submitting debts on behalf of a local agency obtains from the Department in accordance with the exemption allowed by subsection (a) may be used by the agency or organization only in the pursuit of its debt collection duties and practices and may not be disclosed except as provided in G.S. 105-259, 153A-148.1, or 160A-208.1.
"§ 105A-16.  Rules.
The Secretary of Revenue may adopt rules to implement this Chapter."
Section 2.  G.S. 105-266(b) reads as rewritten:
"(b)	Interest. – An overpayment of tax bears interest at the rate established in G.S. 105-241.1(i) from the date that interest begins to accrue until a refund is paid. A refund is considered paid on a date determined by the Secretary that is no sooner than five days after a refund check is mailed or, in the case of a refund set off against a debt pursuant to Chapter 105A of the General Statutes, five days after the Secretary's notice of setoff is mailed.
Interest on an overpayment of a tax, other than a tax levied under Article 4 or Article 8B of this Chapter, accrues from a date 90 days after the date the tax was originally paid by the taxpayer until the refund is paid. Interest on an overpayment of a tax levied under Article 4 or Article 8B of this Chapter accrues from a date 45 days after the latest of the following dates until the refund is paid:
(1)	The date the final return was filed.
(2)	The date the final return was due to be filed.
(3)	The date of the overpayment.
The date of an overpayment of a tax levied under Article 4 or Article 8B of this Chapter is determined in accordance with section 6611(d), (f), (g), and (h) of the Code."
Section 3.  The changes to G.S. 105A-3(d), 105A-5, and 105A-16 made by this act are effective when this act becomes law.  The remainder of this act becomes effective January 1, 1998.