GENERAL ASSEMBLY OF NORTH CAROLINA
SESSION 2001
S	7
SENATE BILL 353
 Finance Committee Substitute Adopted 3/15/01 
 Finance Committee Substitute #2 Adopted 4/25/01
Fourth Edition Engrossed 4/30/01
 House Committee Substitute Favorable 5/17/01
House Committee Substitute #2 Favorable 6/18/01 
Seventh Edition Engrossed 6/21/01 

Short Title:	DOR Debt Collection Changes-AB.	()	
Sponsors:	     	
Referred to:	     	
March 6, 2001

A BILL TO BE ENTITLED
AN ACT TO PROVIDE A PERMANENT MECHANISM FOR THE COLLECTION OF TAX DEBTS.   

The General Assembly of North Carolina enacts:
SECTION 1.  The General Assembly finds that the Department of Revenue has documented that the State's cost of collecting overdue tax debts exceeds twenty percent (20%) of the amount of the overdue tax debts. The General Assembly finds that the cost of collecting overdue tax debts is currently borne by taxpayers who pay their taxes on time. It is the intent of the General Assembly by this act to shift this cost to the delinquent taxpayers who owe overdue tax debts.
SECTION 2.  Article 9 of Chapter 105 of the General Statutes is amended by adding a new section to read:
"§ 105‑243.1. Collection of tax debts.
(a)	Definitions. – The following definitions apply in this section:
(1)	Overdue tax debt. – Any part of a tax debt that remains unpaid 90 days or more after the notice of final assessment was mailed to the taxpayer and for which the Department has exhausted all other collection remedies available under this Chapter. The term does not include a tax debt, however, if either of the following conditions is met:
a.	The taxpayer entered into an installment agreement for the tax debt under G.S. 105-237 within 90 days after the notice of final assessment was mailed and has not failed to make any payments due under the installment agreement.
b.	A notice of garnishment of the tax debt was served under G.S. 105-242(b) within 90 days after the notice of final assessment was mailed and the tax debt is being paid pursuant to a resulting agreement or judgment for garnishment.
(2)	Tax debt. – The total amount of tax, penalty, and interest due for which a notice of final assessment has been mailed to a taxpayer after the taxpayer no longer has the right to contest the debt.
(b)	Outsourcing. – The Secretary may contract for the collection of tax debts. Contracts shall be awarded by the competitive bid process on a regional basis only to contractors who practice a code of ethics as approved by the Secretary of Revenue. At least 30 days before the Department submits a tax debt to a contractor for collection, the Department must notify the taxpayer by mail that the debt may be submitted for collection if payment is not received within 30 days after the notice was mailed.
(c)	Secrecy. – Notwithstanding the provisions of G.S. 105‑259, a contractor to whom the Department has submitted tax debts for collection shall not disclose tax information to any person for any purpose. Violation of this subsection is a Class I felony.
(d)	Fee. – A collection assistance fee is imposed on an overdue tax debt that remains unpaid 30 days or more after the fee notice required by this subsection is mailed to the taxpayer. In order to impose a collection assistance fee on a tax debt, the Department must notify the taxpayer that the fee will be imposed if the tax debt is not paid in full within 30 days after the date the fee notice was mailed to the taxpayer. The Department may not mail the fee notice earlier than 60 days after the notice of final assessment for the tax debt was mailed to the taxpayer. The fee is collectible as part of the debt. The Secretary may waive the fee pursuant to G.S. 105‑237 to the same extent as if it were a penalty.
The amount of the collection assistance fee is twenty percent (20%) of the amount of the overdue tax debt. If the Department collects only part of the overdue tax debt, the amount collected is allocated proportionally between the collection assistance fee and the tax debt.
(e)	Use. – The fee is a receipt of the Department and must be applied to the costs of collecting overdue tax debts. The proceeds of the fee must be credited to a special account within the Department and may be expended only as provided in this subsection. The Department may apply the proceeds of the fee to pay contractors for collecting tax debts under subsection (b) of this section and to pay the fee the United States Department of the Treasury charges for setoff to recover tax owed to North Carolina. The remaining proceeds of the fee may be spent only pursuant to appropriation by the General Assembly. The fee proceeds do not revert but remain in the special account until spent for the costs of collecting overdue tax debts.
(f)	Reports. – The Department must report to the Joint Legislative Commission on Governmental Operations and to the Revenue Laws Study Committee on its efforts to collect tax debts. Reports must be submitted quarterly beginning November 1, 2001, through November 1, 2002, and semiannually thereafter. The report must include a breakdown of the amount and age of tax debts collected by collection agencies on contract, the amount and age of tax debts collected by the Department through warning letters, and the amount and age of tax debts otherwise collected by Department personnel."
SECTION 3.  G.S. 105A‑13 reads as rewritten:
"§ 105A‑13.  Collection assistance fees.
(a)	State Setoff. – To recover the costs incurred by the Department in collecting debts under this Chapter, a collection assistance fee of no more than fifteen dollars ($15.00) is imposed on each debt collected through setoff. The Department must collect this fee as part of the debt and retain it. The Department must set the amount of the collection assistance fee based on its actual cost of collection under this Chapter for the immediately preceding year. 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. Instead, the Department shall retain from collections under Division II of Article 4 of Chapter 105 of the General Statutes the cost of collecting child support debts under this Chapter.
	"
SECTION 4.  G.S. 105‑269 reads as rewritten:
"§ 105‑269.  Extraterritorial authority to enforce payment.
(a)	The  Secretary, with the assistance of the Attorney General, is  authorized to bring suits in the courts of other states to collect taxes legally due this State. The officials of other states  that extend a like comity to this State are empowered to sue for the collection of  taxes in the courts of this State. A certificate by the Secretary of State, under the Great Seal of the State, that  these officers have authority to collect the tax  is conclusive evidence of  this authority. Whenever  the Secretary considers it expedient to employ local counsel to assist in bringing suit in an out‑of‑state court, the Secretary, with the concurrence of the Attorney General, may employ  local counsel on the basis of a negotiated retainer or in accordance with prevailing commercial law league rates.
	"
SECTION 5.  G.S. 105‑259(b) is amended by adding a new subdivision to read:
"(b)	Disclosure Prohibited. – An officer, an employee, or an agent of the State who has access to tax information in the course of service to or employment by the State may not disclose the information to any other person unless the disclosure is made for one of the following purposes:
 . . .
(26)	To contract for the collection of tax debts pursuant to G.S. 105‑243.1."
SECTION 6.  Section 5(a) of S.L. 1999‑341, as amended by Section 16 of S.L. 2000‑120, reads as rewritten:
"Section 5.(a)	The Secretary of Revenue shall contract during the 1999‑2001 fiscal biennium for the collection of delinquent tax debts owed by nonresidents and foreign entities. To implement this section, the Secretary may draw funds for the 1999‑2000 fiscal year from net collections that would otherwise be credited to the General Fund under G.S. 105‑269.14, enacted by Section 2 of this act. For the 2000‑2001  and 2001‑2002 fiscal years, the Secretary may retain the costs of implementing this section from the amounts collected pursuant to the contracts authorized by this section. The Secretary of Revenue shall report annually to the Revenue Laws Study Committee on its collections pursuant to this contract during the biennium."
SECTION 6.1.(a)  Effective with respect to taxable years beginning after December 31, 2001, G.S. 105-241.2 is amended by adding a new subsection to read:
"(b3)	Payment of Taxpayer's Costs. – The Tax Review Board shall award costs, including reasonable attorneys' fees, to a taxpayer if the Board finds that the taxpayer is the prevailing party and that the Secretary was not substantially justified in the position asserted against the taxpayer. A taxpayer is considered to be the prevailing party if the taxpayer substantially prevailed with respect to the amount in controversy or with respect to the most significant issue or set of issues presented."
SECTION 6.1.(b)  Effective with respect to taxable years beginning after December 31, 2001, G.S. 105-267 reads as rewritten:
"§ 105-267.  Taxes to be paid; suits for recovery of taxes.
No court of this State shall entertain a suit of any kind brought for the purpose of preventing the collection of any tax imposed in this Subchapter. Whenever a person has a valid defense to the enforcement of the collection of a tax, the person shall pay the tax to the proper officer, and that payment shall be without prejudice to any defense of rights the person may have regarding the tax. At any time within the applicable protest period, the taxpayer may demand a refund of the tax paid in writing from the Secretary and if the tax is not refunded within 90 days thereafter, may sue the Secretary in the courts of the State for the amount demanded. The protest period for a tax levied in Article 2A, 2C, or 2D of this Chapter is 30 days after payment. The protest period for all other taxes is three years after payment.
The suit may be brought in the Superior Court of Wake County, or in the county in which the taxpayer resides at any time within three years after the expiration of the 
90-day period allowed for making the refund. If upon the trial it is determined that all or part of the tax was levied or assessed for an illegal or unauthorized purpose, or was for any reason invalid or excessive, judgment shall be rendered therefor, with interest, and the judgment shall be collected as in other cases. The court shall award costs, including reasonable attorneys' fees, to a taxpayer if the court finds that the taxpayer is the prevailing party and that the Secretary was not substantially justified in the position asserted against the taxpayer.  A taxpayer is considered to be the prevailing party if the taxpayer substantially prevailed with respect to the amount in controversy or with respect to the most significant issue or set of issues presented. The amount of taxes for which judgment is rendered in such an action shall be refunded by the State. G.S. 105-241.2 provides an alternate procedure for a taxpayer to contest a tax and is not in conflict with or superseded by this section."
SECTION 7.  Section 6 of this act is effective when it becomes law. The remainder of this act becomes effective July 1, 2001, and applies to tax debts that remain unpaid on or after that date.