Refund and release questions are the most popular and most difficult questions I receive from North Carolina tax officials.  Rarely do these questions have easy answers.

For the basics on refunds and releases under GS 105-381, please see this blog post.  Today’s post dives into more complex refund and release dilemmas pulled from recent emails. How would you have resolved them? If you disagree or have other good examples to share, shoot me an email at mclaughlin@sog.unc.edu

Remember that the tax office can recommend how refund and release requests be resolved, but the final authority to make these decisions rests with the board (or the manager/finance officer/attorney, if so delegated by the board for refunds less than $100).

1. Too much land

Tax office learns that a taxpayer has for years been taxed for more acreage than she owns.  Taxpayer claims that she provided documentation of the correct acreage many years ago.

My take: I’ve heard of this type of issue many times and could argue either side.

No refund: This is a valuation issue, not a clerical error or illegal tax.  If the taxpayer disputed the county’s valuation of the property, the taxpayer had an obligation to appeal. The county cannot retroactively approve a change in valuation.  The county may correct the listing and valuation going forward.

Refund: The county was taxing the taxpayer for property (land) that did not exist.  This is an illegal tax. If there is evidence that the county was informed of the correct acreage and did not enter it into the system years ago, then the tax on the excess acreage could also be considered is a clerical error. Either way, a refund (back to 2020 now that we are past September 1, 2024) is justified.

If you forced me to pick a side, I’d vote in favor of a refund based on the illegal tax argument. But regardless of what your county decides, be consistent.

2. Messy handwriting

The taxpayer listed a 2022 permanently tagged trailer in 2023 with a handwritten value of $4,500.  The tax office misinterpreted the scribbled “$” as an “8” and listed the trailer at a value of $84,500.  Taxpayer paid the 2023 tax bill on the $84,500 value without objection but now requests a refund based on the inaccurate listing.

My take: this seems like a pretty good example of a clerical error which can justify a retroactive change to the valuation and a refund.  The tax office (perhaps reasonably) entered incorrect information about the property’s cost. Yes, the taxpayer could have and probably should have noticed the mistake last year.  But I don’t think the tax office wants to defend a tax bill that was based on a value nearly 20 times larger than the correct figure.

3. Mortgage company mistake

Mortgage bank makes a payment to account A last November. The payment was posted as instructed. In March, the bank informs the county that that they provided the wrong account number for its November payment and that the payment should have been posted to account B.  The bank requests a refund of the payment, given that account A has now been paid in full by the taxpayer.

My take:  I do not believe this situation justifies a refund under GS 105-381. Although a clerical error exists, the clerical error was made by the taxpayer’s agent, not the by the tax office.  The statute permits a refund only when the tax is “levied due to clerical error.”  Because only the county can levy taxes, the error must be made by the tax office to justify a refund.

4. Misdirected refund

County owes a refund to taxpayer A due to an overpayment.  The refund is mistakenly paid to taxpayer B.  Can the county use enforced collection remedies to recover this mistaken payment?

My take: No, the county may not use attachment and garnishment to recapture the misdirected refund payment.  The debt owed by taxpayer B is not a tax, meaning Machinery Act tax collection remedies are not applicable here.   I think the county could use debt set-off, as that remedy is not limited to taxes and is available for any debt owed to the county over $50.  The county could also sue the taxpayer to collect the wrongful refund.

Also: the county still owes a refund to taxpayer A, regardless of whether the county can recover the payment mistakenly paid to taxpayer B.

5. The disappearing pool

Taxpayer receives 2024 revaluation notice that states her property has an in-ground pool.  Taxpayer alerts tax office that the alleged pool does not exist.  County reviews aerial photos and determines that the pool was removed from the property roughly 10 years ago. Taxpayer requests a refund on the taxes she paid on the pool for the prior five years.

My take: this is the toughest question of the bunch.

Many counties would take the position that this is a valuation issue that needs to be resolved upon appeal; if the taxpayer misses the appeal window for a given tax year, they cannot later get retroactive relief for that year.  The county can fix the listing and valuation error going forward but cannot provide any relief or refund retroactively.

However, I think it is illegal for the county to tax a distinct improvement to real property such as a pool that no longer exists or never existed.   My advice would be to provide a refund under the “illegal tax” justification of GS 105-381. I don’t think the county wants to be in the position of defending a decision to refuse a refund for a tax on property that was not in existence as of the listing date for a given tax year.

A refund is further justified because if the situation were reversed the county would attempt to recapture the old taxes on the pool and not simply correct the issue going forward. If the pool did exist but was not listed or taxed, the county could use either discovery (if the pool had never been listed) or retroactive tax bills under GS 105-394 (if the pool had been listed but the property card never adjusted to account for and tax the pool) to capture the missed taxes on the pool.  If the county would recapture lost taxes on an existing pool that was not taxed, I think the county should provide a refund on a non-existent pool that was taxed.