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The North Carolina Office of Administrative Hearings (OAH) recently concluded that the franchise tax deduction for receivables made to affiliated corporations violated the dormant Commerce Clause of the US Constitution because the deduction only was allowed regarding affiliates doing business in North Carolina. This constituted a burden on interstate commerce that was not applicable to intrastate commerce and, therefore, the deduction denial was unconstitutional as applied to this taxpayer.

Action item: Companies with significant amount of intercompany receivables that were not deducted from their capital stock base when calculating the North Carolina franchise tax in prior tax years should consider filing a protective refund claim if the holding in the OAH case is applicable.