Union Carbide Corp. v. Offerman , 351 N.C. 310 ( 2000 )

Justice Lake

dissenting in part.

Although I concur with the majority’s opinion that reverted pension funds resulting from gains on investment are nonbusiness income, I do not agree that this conclusion should be broadly extended to all pension fund reversion dollars.

In applying the “transactional test” or the “functional test” in determining whether income is business or nonbusiness income, it is important to establish the origin of the income. In its opinion, the majority states that Union Carbide’s plan was over funded “largely due to superior investment decisions.” It is my opinion that to the extent the flow-back of the funds resulted from an occurrence other than gains on investment, such as corporate restructuring, pension plan restructuring or funding in excess of the plan’s requirements, those dollars should be “flowed back” to the state from which they had previously been deducted as business expense, thereby decreasing taxable income in that state. A flow-back in this manner would not only allow for the consistent treatment of dollars as “business expense” when deducted and “business income” when flowed back, but would ensure that corporations cannot manipulate their earnings by redirecting reversion funds to a state with a lower state tax rate.

In the instant case, it does not appear that all of Union Carbide’s reversion funds resulted from gains on investment. Therefore, it is my opinion that the case should be remanded for a determination, to the extent possible, of what portion of the reversion resulted from gains on investment and what portion resulted from a flow-back of previously deducted business expense. The portion previously deducted as business expense in North Carolina should be flowed back to this state as taxable income.

Justice Freeman joins in this dissenting opinion.