Raleigh

It's an odd love-hate relationship, this thing between North Carolina legislators and the state Department of Revenue.

Bring in the money that legislators love to spend, and it's all kisses and hugs. Generate complaints about delayed refunds or unfair tax bills, and the arrows fly.

The love-hate stuff has never been more apparent than during the past year.

Back in January, legislators cheered when the department and its secretary, Ken Lay, announced that it had collected better than $420 million in back taxes from multi-state corporations that had been shifting income to other states. The amount was $277 million more than had been budgeted, the result of companies settling up after Walmart lost a lawsuit over disputed taxes.

Legislators were so happy with the result that they asked for more. The budget bills -coming out of the House and Senate spent $110 million based on the stepped-up collections.

The Senate budget bill contained another provision, though, that wasn't quite so friendly to the department.

The provision, put into the bill by Democratic Sen. Dan Clodfelter of Charlotte, would limit when the department can hammer taxpayers with 10- and 25-percent penalties for failure to pay their fair share of taxes.

Clodfelter, co-chair of the powerful Senate Finance Committee, also filed a -separate bill to do the same thing.

He's upset that Lay (no relation to the Enron guy) and his tax collectors are able to impose penalties, thanks to that Walmart decision, after forcing something known as a consolidated return. The consolidated return allows tax collectors to look at a company's entire revenue stream, and then apportion North Carolina's share of tax liability.

Clodfelter argues that it is unfair to impose penalties because multi-state corporations aren't required to file the consolidated returns until they are notified of a problem. They don't know their true tax liability until the consolidated returns are filed.

He compares the department's practice to a police officer handing out speeding tickets on a road with no posted speed limit.

Lay says the penalties are an incentive for companies not to hide income. And he makes another point that should concern legislators: "If this gets passed, that $110 million goes away,"

The money is no reason for tax collectors to treat anyone unfairly, even giant, multi-state corporations that aren't always viewed so favorably by the public.

But corporations that shift income, typically to states that have no state income tax, have brought these circumstances on themselves. For years, internal documents have circulated around the Legislative Building showing how accounting firms pitch blatant tax dodges promising companies the ability to avoid millions in tax liability.

And they are dodges, not legitimate deductions or charges. Walmart set up a real estate trust in another state, then used income earned here to pay rent to itself. Mall retailer The Limited paid its out-of-state holding company fees to use its own name.

If you're sympathetic to that kind of thing, perhaps you'd like a Bernie Madoff poster to hang on the wall.

Scott Mooneyham writes for Capitol Press Association in Raleigh. Contact him at smooneyh@ncinsider.com.