Grp. Health Coop. v. Department of Revenue

8 Wash.App.2d 210

438 P.3d 158

GROUP HEALTH COOPERATIVE, a Washington nonprofit corporation; and Group Health Options, Inc., a Washington corporation, Appellants,

v.State of Washington, DEPARTMENT OF REVENUE, Respondent.

No. 79091-9-I

Court of Appeals of Washington, Division 1.

FILED: April 1, 2019

Gregg D. Barton, Robert Lee Mahon III, Luke Morgan Rona, Perkins Coie LLP, 1201 3rd Ave. Ste. 4900, Seattle, WA, 98101-3095, for Appellants.

David M. Hankins, Attorney Generals Office/Revenue Division, 7141 Cleanwater Drive Sw, Olympia, WA, 98504-0123, Heidi A. Irvin, Attorney Generals Office/Revenue & Finance D, Joshua Weissman, WA Attorney Generals Office, Po Box 40123, Olympia, WA, 98504-0123, for Respondent.

PUBLISHED OPINION

Smith, J.¶1 Group Health Cooperative (GHC) and Group Health Options Inc. (GHO) appeal the summary dismissal of their complaint for a refund of business and occupation (B & O) taxes paid on certain premiums they received from or on behalf of their members for providing Medicare Advantage (MA) plans.¹ The premiums at issue are described in 42 U.S.C. § 1395w-24(g) and consist of "payments to Medicare+Choice organizations under [ 42 U.S.C.] section 1395w-23 [and] premiums paid to such organizations under [part C of Title 42, chapter 7, subchapter XVIII of the United States Code]" (collectively MA premiums). We hold that although MA premiums are subject to B & O tax under state law, federal law preempts the imposition of B & O taxes on MA premiums. Therefore, we reverse and remand to the trial court to determine the refund amount.

FACTS

¶2 GHC and its wholly owned subsidiary, GHO (collectively Group Health), provide health care coverage to members in Washington and Idaho. Group Health’s health care plans include MA health benefit plans, which Group Health has contracted with the Centers for Medicare & Medicaid Services (CMS) to provide. CMS is a division of the Department of Health and Human Services, a federal agency. In exchange for providing MA plans to eligible members, Group Health receives MA premiums from CMS and from Group Health members.

¶3 In 2012, GHO requested a determination from the Washington State Department of Revenue (Department) as to whether Washington State B & O tax applies to MA premiums. The Department responded that B & O tax does apply, and Group Health paid B & O tax based on MA premiums recorded as income from 2010 through February 2016.

¶4 In May 2016, Group Health filed this lawsuit for a refund of those B & O tax payments. It then moved for summary judgment, arguing that (1) MA premiums are exempt from B & O tax under RCW 82.04.322 and (2) federal law preempts the Department’s imposition of B & O tax on MA premiums. The trial court disagreed with both arguments and denied Group Health’s motion. Because no genuine issues of material fact remained in dispute, the court entered summary judgment in favor of the Department. Group Health appeals.

ANALYSIS

Applicability of B & O Taxes to MA Premiums

¶5 Group Health argues that the trial court erred by concluding that MA premiums are not exempt from B & O taxes under RCW 82.04.322. We disagree.

¶6 The meaning of a statute is a question of law that this court reviews de novo. Durant v. State Farm Mut. Auto. Ins. Co., 191 Wash.2d 1, 8, 419 P.3d 400 (2018). Our "fundamental objective in determining what a statute means is to ascertain and carry out the legislature’s intent." Durant, 191 Wash.2d at 8, 419 P.3d 400. "If the statute’s meaning is plain on its face, then courts must give effect to its plain meaning as an expression of what the legislature intended." Durant, 191 Wash.2d at 8, 419 P.3d 400. To discern a statute’s plain meaning, we consider the text of the provision in question, taking into account the statutory scheme as a whole. Dep’t of Ecology v. Campbell & Gwinn, L.L.C., 146 Wash.2d 1, 11, 43 P.3d 4 (2002). "We may use a dictionary to discern the plain meaning of an undefined statutory term." Nissen v. Pierce County, 183 Wash.2d 863, 881, 357 P.3d 45 (2015). If, after conducting this inquiry, the statute is "susceptible to more than one reasonable meaning, the statute is ambiguous and it is appropriate to resort to aids to construction, including legislative history." Campbell & Gwinn, 146 Wash.2d at 12, 43 P.3d 4. Because courts presume that taxes are valid, a taxpayer that claims immunity from a tax bears the burden of establishing an exemption. Avnet, Inc. v. Dep’t of Revenue, 187 Wash.2d 44, 49-50, 384 P.3d 571 (2016).

¶7 Here, Group Health argues that MA premiums are exempt from B & O taxes under RCW 82.04.322, which provides: "[B & O tax] does not apply to any health maintenance organization, health care service contractor, or certified health plan in respect to premiums or prepayments that are taxable under RCW 48.14.0201." The Department does not dispute that GHC and GHO are, respectively, a health maintenance organization and a health care service contractor under this statute. The only dispute is whether MA premiums are "taxable" under RCW 48.14.0201 and therefore exempt from B & O tax.

¶8 The B & O tax statutes do not define "taxable." Thus, we may look to the dictionary to discern its plain meaning. Nissen, 183 Wash.2d at 881, 357 P.3d 45. The dictionary defines "taxable" as "[s]ubject to taxation." BLACK’S LAW DICTIONARY 1688 (10th ed. 2014). For the following reasons, we conclude that MA premiums are not "subject to taxation" under RCW 48.14.0201 and therefore are not exempt from B & O tax under RCW 82.04.322.

¶9 First, MA premiums are expressly exempt from taxation under RCW 48.14.0201, which is the state premium tax statute. At all times relevant hereto, that statute has required each "taxpayer" to pay a tax equal to two percent of all health care premiums and prepayments received by the taxpayer. RCW 48.14.0201 (2) : see also former RCW 48.14.0201(2) (2009). But that statute also has, at all relevant times, provided the following exemption:

(6) The taxes imposed in this section do not apply to:

(a) Amounts received by any taxpayer from the United States or any instrumentality thereof as prepayments for health care services provided under Title XVIII (medicare) of the federal social security act.

RCW 48.14.0201 (6)(a). Group Health does not dispute that GHO and GHC are "taxpayers" for purposes of the premium tax statute, nor does it dispute that MA premiums are expressly exempted from premium taxes under subsection 6(a) of that statute. Because MA premiums are expressly exempted from premium taxes, MA premiums are not subject to taxation under RCW 48.14.0201.

¶10 Second, federal law expressly prohibits the Department from imposing premium taxes on MA premiums. Specifically, 42 U.S.C. § 1395w-24(g) provides: "No State may impose a premium tax or similar tax with respect to payments to Medicare+Choice organizations under section 1395w-23 of this title or premiums paid to such organizations under this part."² Although the parties disagree about whether this statute prohibits the Department from imposing B & O taxes on MA premiums, they agree that it expressly prohibits the Department from imposing a premium tax on MA premiums. Accordingly, even without the exemption expressly provided under RCW 48.14.0201 (6)(a), MA premiums are not subject to taxation under RCW 48.14.0201 as a result of federal preemption.

¶11 In short, under the plain language of RCW 82.04.322, MA premiums are not "taxable" under RCW 48.14.0201 because they are not subject to taxation under that statute. Therefore, Group Health has not met its burden to establish that MA premiums are exempt from B & O taxes.

¶12 Group Health argues that we should interpret "taxable" to mean "capable of being taxed," rather than "subject to taxation." It argues that this case is factually distinguishable from Crown Zellerbach Corp. v. State, 45 Wash.2d 749, 278 P.2d 305 (1954), a B & O tax case in which our Supreme Court looked to the dictionary to define "taxable" as " ‘subject to taxation’." Crown Zellerbach, 45 Wash.2d at 755, 278 P.2d 305 (quoting BLACK’S LAW DICTIONARY 1706 (3d ed. 1933) ). But our construction of the term "taxable" does not depend on Crown Zellerbach. Indeed, even Crown Zellerbach’s definition of "taxable" was not dependent on the facts of that case—the Supreme Court simply looked to the dictionary, as we do here. Therefore, it is irrelevant here that Crown Zellerbach may be distinguishable on its facts.

¶13 Furthermore, even if we were to interpret "taxable" as "capable of being taxed," Group Health’s argument that MA premiums are "taxable" under RCW 48.14.0201 would still fail. MA premiums are neither "subject to taxation" nor "capable of being taxed" under RCW 48.14.0201 because, as discussed, federal law prohibits the imposition of premium taxes on MA premiums, and MA premiums are, under the premium tax statute itself, expressly exempt from premium tax.

¶14 Group Health next observes that the exemption under RCW 82.04.322 for premiums taxable under the premium tax statute and the premium tax statute’s express exemption for MA premiums were both enacted at the same time, as part of the Health Care Reform Act. See LAWS OF 1993, ch. 492, §§ 301 (codified at RCW 48.14.0201 ), 303 (codified at RCW 82.04.322 ). It then argues that the Department’s position "fails to explain" why the legislature would exempt MA premiums from the premium tax just to make them subject to the B & O tax. This argument is unpersuasive because Group Health bears the burden of establishing that an exemption applies. Avnet, 187 Wash.2d at 49-50, 384 P.3d 571. But Group Health’s argument attempts to shift that burden to the Department to explain why the legislature chose the language it did. Furthermore, and as the Department points out, Group Health’s argument "presumes the answer," i.e., that the legislature intended to exempt MA premiums from all taxes. But Group Health has pointed to no expression of a legislative intent to make MA premiums completely immune from...