FOLLOW US

Philip Morris USA Inc. is set to receive a tax refund of $11.2 million, plus interest, following a North Carolina Business Court ruling that aligned with the state Supreme Court’s interpretation of cigarette export tax credits.

In a Monday order, Judge Julianna Theall Earp reversed her previous decision, along with that of an administrative law judge, granting Philip Morris summary judgment in its prolonged legal battle over North Carolina’s $6 million cap on cigarette export tax credits. The ruling was based on a Dec. 13 North Carolina Supreme Court decision, which clarified that the cap limits only the amount of credits claimed per year, not the total credits generated.

Philip Morris Prevails After Long Legal Battle

The ruling enables Philip Morris to reclaim taxes and penalties it previously paid after it was denied export tax credits from 2005 to 2007 on its 2013 and 2014 corporate tax returns.

"Philip Morris is entitled to the export tax credits carried forward pursuant to [state law] and taken against its North Carolina corporate income tax on the tax returns at issue," Judge Earp wrote in her decision.

She subsequently ordered the North Carolina Department of Revenue to refund Philip Morris $11.2 million, along with accrued interest.

Key Legal Interpretation: ‘Credit Allowed’

At the center of the case was the interpretation of "credit allowed" in a revised statute governing export tax credits.

Both the trial court and the administrative law judge initially ruled that North Carolina’s General Assembly had intended to limit annual credit generation to $6 million per year. However, the North Carolina Supreme Court disagreed and sided with Philip Morris.

In her majority opinion, Justice Tamara Barrington wrote that "credit allowed" refers only to the maximum amount a taxpayer may claim each year, not the total amount of credits generated. Therefore, Philip Morris was entitled to carry forward its excess tax credits for up to 10 years.

Legal Teams and Next Steps

Neither Philip Morris’ attorneys nor the North Carolina Department of Justice immediately responded to requests for comment.

Philip Morris USA Inc. is represented by:

Alex C. Dale and Christopher S. Edwards of Ward & Smith PA

Kay Hobart Miller and Dylan Z. Ray of Parker Poe Adams & Bernstein LLP

The North Carolina Department of Revenue is represented by:

Ronald D. Williams II and Tania X. Laporte Reveron of the North Carolina Department of Justice

With the North Carolina Supreme Court’s ruling now enforced, Philip Morris is set to recover its multi-million-dollar tax refund, bringing an end to its prolonged dispute with state tax authorities.