Pharmacy Corporation of America v. Department of Revenue

456 P.3d 408

PHARMACY CORPORATION OF AMERICA, a California corporation, Appellant,

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

No. 52685-9-II

Court of Appeals of Washington, Division 2.

Filed January 22, 2020

David Andrew Petteys, Stoll Petteys PLLC, 1455 NW Leary Way, Ste. 400, Seattle, WA, 98107-5138, for Appellant.

Andrew J. Krawczyk, Atty Generals Office/Revenue Division, Po Box 40123, Olympia, WA, 98504-0123, for Respondent.

PUBLISHED OPINION

Lee, J.

¶ 1 Pharmacy Corporation of America (PharMerica) appeals the superior court’s order granting the Department of Revenue’s motion for summary judgment and dismissing PharMerica’s tax refund action. PharMerica argues that the preferential tax rate for reselling prescription drugs in RCW 82.04.272 applies when PharMerica provides prescription drugs to institutional healthcare providers and the drugs are paid for by the residents or third party payors. Because the plain language of RCW 82.04.272 supports the Department’s interpretation that the preferential tax rate does not apply, we affirm the superior court’s order.

FACTS

¶ 2 PharMerica is an institutional pharmacy that contracts with institutional healthcare providers, such as nursing homes, assisted living facilities, inpatient rehabilitation centers, and other long-term care facilities (Customers). PharMerica provides prescription and non-prescription drugs, pharmaceutical supplies, and pharmaceutical consulting services (prescription drugs).¹ PharMerica is incorporated in Delaware and has its principle place of business in Kentucky. PharMerica has approximately 96 institutional pharmacies in 45 states, including two pharmacy and warehouse facilities in Washington.

¶ 3 Under the terms of the contracts PharMerica has with its Customers, the Customers are responsible for providing PharMerica with complete resident billing and payment information for all prescription drug sales. However, the Customers are only responsible for directly paying PharMerica for prescription drugs that are used in the Customers’ own house stock of pharmaceuticals.

¶ 4 The contracts also allow PharMerica to provide prescription drugs to the Customers’ residents. PharMerica’s prescription drugs provided to the Customers’ residents are directly billed to and paid for by third party payors (e.g., Medicare, Medicaid, or an insurance company) or by the residents themselves. PharMerica’s Customer will pay for prescription drugs that PharMerica provides to the Customer’s residents only if the Customer had failed to provide accurate or timely billing information to PharMerica, the Customer is being compensated at a per diem rate for the care of the resident, or the Customer agrees to assume responsibility for the payment.

¶ 5 Specifically, PharMerica’s contracts with its Customers includes the following terms:

4. Pricing and Payment Terms

(a) Charges to Facility

....

(2) Customer shall be financially responsible for Services and Products [PharMerica] provides for a resident only if Customer, or its agent, gives written permission to [PharMerica] to accept the charges if [PharMerica] is not eligible for reimbursement for its Services and Products from the resident to a third party payor.

....

(b) Third Party Payors. For Services and Products that [PharMerica] provides to a resident who has authorized [PharMerica] to be his pharmacy Provider and who has valid coverage for pharmacy benefits through a third party payor that is accepted by [PharMerica], [PharMerica] will directly bill the third party payor. Nothing in this Agreement requires [PharMerica] to participate in any particular third party payor’s program.

(c) Private Pay Residents. For Services and Products that [PharMerica] provides to a resident who has authorized [PharMerica] to be his pharmacy Provider and who is not eligible for coverage under a third party program accepted by [PharMerica] ("Private Pay Residents"), [PharMerica] will directly bill the Private Pay Resident or his legally responsible representative. If the Private Pay Resident fails to pay any amount due to [PharMerica] within [PharMerica’s] standard payment terms for Private Pay Residents, [PharMerica] may suspend providing Services and Products to the resident unless the Customer agrees to be responsible for Services and Products for the Private Pay Resident. In such a case, [PharMerica] will directly bill Customer (and Customer shall pay for) all Services and Products provided to the Private Pay Resident in accordance with subsection (a) above.

Clerk’s Papers (CP) at 250. PharMerica charges a different rate for prescription drug sales directly to the Customer than for sales to the Customer’s residents.

¶ 6 Regardless of the type of sale, PharMerica provides the prescription drugs directly to the Customer. The Customer is then responsible for receiving, storing, securing, and administering the prescription drugs that are ordered from PharMerica. PharMerica also contracts to be the exclusive supplier for each Customer and the preferred provider for all residents.

¶ 7 For the relevant period from 2008 through 2012, PharMerica paid the retail tax rate (.471 percent) on all its sales. In 2012, PharMerica filed a refund request with the Department.² PharMerica argued that all of its transactions were subject to the preferential tax rate for warehousing and reselling prescription drugs under RCW 82.04.272.

¶ 8 RCW 82.04.272(1) allows a reduced tax rate for persons engaging in the business of warehousing and reselling drugs for human use.³ RCW 82.04.272(2)(b) provides,

"Warehousing and reselling drugs for human use pursuant to a prescription" means the buying of drugs for human use pursuant to a prescription from a manufacturer or another wholesaler, and reselling of the drugs to persons selling at retail or to hospitals, clinics, health care providers, or other providers of health care services, by a wholesaler or retailer who is registered with the federal drug enforcement administration and licensed by the pharmacy quality assurance commission.

The Department’s Excise Tax Advisory 3180.2013 (ETA 3180) explains that RCW 82.04.272 has both a "seller" and a "buyer" requirement that must be met before the preferential tax rate could be applied. According to ETA 3180, the statute requires that the seller "resells the prescription drugs directly" to a buyer who is either a retailer with a pharmacy license or a "hospital, clinic, health care provider, or other provider of health care services." CP at 187–88.

¶ 9 The Department reviewed PharMerica’s refund request and determined that PharMerica was only entitled to a partial refund for prescription drug sales paid for directly by its Customers for their house stock of pharmaceuticals and sales reimbursed by Medicaid. PharMerica appealed the Department’s decision to the Department’s Appeals Division.

¶ 10 The Appeals Division reviewed the Department’s decision and determined that PharMerica was entitled to the preferential tax rate for all prescription drug sales in which payments were made directly by the Customers (all per diem sales, house sales, and sales for which the Customers assumed responsibility). The Appeals Division also determined that PharMerica was not entitled to the preferential tax rate for any prescription drug sales in which third party payors or private pay residents remitted payment for the prescription drugs. The Department’s Hearings Division later denied PharMerica’s petition for reconsideration of its decision.

¶ 11 The Department issued an additional refund to PharMerica based on the Appeals Division’s determination. After the audit process, PharMerica received a reclassification and tax refund on all prescription drug sales except for those that were directly billed to, and paid for by, a third party payor or self-pay resident.

¶ 12 PharMerica filed an appeal to superior court, challenging the Department’s decision to refuse any further tax refunds. PharMerica asserted that it was entitled to a refund on taxes paid on transactions in which third party payors or self-pay residents remitted payment because PharMerica should have been eligible for the preferential tax rate for warehousing and reselling prescription drugs under RCW 82.04.272.

¶ 13 The Department filed a motion for summary judgment to dismiss PharMerica’s tax appeal. Neither party disputed any of the above facts. The superior court granted the Department’s motion for summary judgment and dismissed PharMerica’s appeal.

¶ 14 PharMerica appeals the superior court’s dismissal of its tax appeal.

ANALYSIS

¶ 15 PharMerica argues that the superior court erred by granting the Department’s motion for summary judgment because (1) in all transactions the Customer was the buyer under the common understanding of the term, and (2) the Department’s interpretation of the statute is inconsistent with legislative intent. The Department argues that under the plain language of the statute, PharMerica is only entitled to the preferential tax rate on prescription drug sales that meet all the requirements of reselling prescription drugs. Therefore, according to the Department, resort to legislative history and other canons of statutory construction are unnecessary. We agree with the Department.

Accordingly, we affirm the superior court’s order granting the Department’s motion for summary judgment dismissal of PharMerica’s tax appeal.

A. LEGAL PRINCIPLES

¶ 16 We review the superior court’s order granting summary judgment de novo. Auto. United Trades Org. v. State , 183 Wash.2d 842, 853, 357 P.3d 615 (2015). Summary judgment is appropriate when the pleadings, affidavits, depositions, and admissions on file show the absence of any genuine issue of material fact, and that the moving party is entitled to judgment as a matter of law. CR 56(c). We may affirm the superior court’s order granting summary judgment "on any basis supported by the record." Coppernoll v. Reed , 155 Wash.2d 290, 296, 119 P.3d 318 (2005).

¶ 17 Statutory...