The taxpayer, Graybar Electric Company, Inc., received over $400 million of dividends in 2007 and 2008, claiming a DRD in that amount for federal income tax purposes. Graybar’s North Carolina returns for 2007 and 2008 reflected federal taxable income after application of the DRD. Graybar had substantial NELs available to be carried forward from years dating back to 2001. Graybar used those NELs to reduce its North Carolina taxable income remaining after state modifications in 2007 and subsequent taxable years.
For the years at issue in the case, North Carolina’s NEL regime differed from the federal NOL regime. Specifically, under North Carolina’s NEL regime, an NEL carryforward was required to be offset by any “income not taxable” before it could be deducted from taxable income.3