Delhaize Loses Appeal in Tax Dispute with N.C. Dept. of Revenue

Food Lion’s corporate parent has lost a legal attempt to shave an estimated $4.4 million from its annual tax burden and, to boot, must cough up $1.2 million in penalties for underpayment, the North Carolina Court of Appeals ruled today.

The Triangle Business Journal reports that the ruling caps and eight-year struggle between Delhaize America Inc. and the state Department of Revenue. The department decided in September 2004 that it would tax Salisbury, N.C.-based Delhaize as a single entity together with a Florida subsidiary.

The ruling could have implications for North Carolina’s many companies with out-of-state subsidiaries. Sales and income taxes vary enormously from one state to another, and many companies spend big money on attorneys, accountants and auditors who help them reduce their state and local tax burdens, the Journal says.

Given the stakes, plenty of other parties also made sure to give the court their perspective on the case. The North Carolina Retail Merchants Association, the North Carolina Chamber of Commerce and the Council on State Taxation, a nonprofit association of taxpaying corporations, all weighed in with friend-of-the-court briefs.

Delhaize, which owns Food Lion and several other grocery chains in the eastern United States, began in 1996 to reorganize its business into a series of corporate entities. The Department of Revenue ruled in 2004 that certain elements of the new structure existed only as a means for reducing the companies’ income tax burden in North Carolina.

As a result, Delhaize ended up paying roughly $6.9 million in additional tax, interest and penalties for the 2000 tax year alone. That includes $4.4 million in additional tax, $1.3 million in interest and $1.2 million in penalties. The company sued to recoup that money in 2007, and won a partial victory last year in Wake County Superior Court when a judge ordered the return of $1.2 million in penalties from that year, according to the Journal.

Delhaize and the Department of Revenue both appealed that order. The complex 40-page ruling issued today denied Delhaize’s appeal and also agreed with the agency’s appeal on the $1.2 million in penalties. The penalties were fair because Delhaize was at fault for miscalculating its tax burden, the Court of Appeals ruled.

While the company can appeal the decision to the state Supreme Court, the three appellate judges’ unanimous vote means that the high court could choose not to hear it.

The Journals says that North Carolina Department of Justice spokeswoman Noelle Talley Noelle declined to comment on the ruling, citing a potential appeal.

Delhaize representatives were not immediately available to comment, company spokeswoman Christy Phillips-Brown told the Journal.