Group Health Cooperative v. Wa Department Of Revenue ( 2019 )

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
GROUP HEALTH COOPERATIVE, a )
Washington nonprofit corporation; and ) No. 79091-9-I
GROUP HEALTH OPTIONS, INC., a )
Washington corporation, ) DIVISION ONE
Appellants,
v. ) PUBLISHED OPINION
STATE OF WASHINGTON, ) FILED: April 1,2019
DEPARTMENT OF REVENUE, )
Respondent.
SMITH, J. — 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
1 Effective February 15, 2017, GHC’s name was changed to Kaiser
Foundation Health Plan of Washington and GHO’s name was changed to Kaiser
Foundation Health Plan of Washington Options Inc. We refer to these entities by
their former names for consistency with the proceedings below and the parties’
briefs.
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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
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.
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.
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
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judgment in favor of the Department. Group Health appeals.
ANALYSIS
Applicability of B&O Taxes to MA Premiums
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.
The meaning of a statute is a question of law that this court reviews de
novo. Durantv. State Farm Mut. Auto Ins. Co., 191 Wn.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 Wn.2d at 8. “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 Wn.2d
at 8. 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 Wn.2d
at 12. 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).
Here, Group Health argues that MA premiums are exempt from B&O
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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
ROW 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.
The B&O tax statutes do not define “taxable.” Thus, we may look to the
dictionary to discern its plain meaning. Nissen, 183 Wn.2d at 881. 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 ROW 48.14.0201 and therefore are not
exempt from B&O tax under ROW 82.04.322.
First, MA premiums are expressly exempt from taxation under
ROW 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 ROW 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.
ROW 48.14.0201(6)(a). Group Health does not dispute that GHO and GHC are
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“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.
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 1 395w-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 RCW48.14.0201(6)(a), MA premiums are
not subject to taxation under RCW 48.14.0201 as a result of federal preemption.
In short, under the plain language of RCW 82.04.322, MA premiums are
not “taxable” under RCW48.14.0201 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.
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
2 It is undisputed that the term “Medicare+Choice” includes MA.
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No. 79091-9-1/6
dictionary to define “taxable” as “‘subject to taxation’.” Crown Zellerbach, 45
Wn.2d at 755 (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.
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 48.14.020 1 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.
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 Wn.2d at 49-50. But Group
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No. 79091-9-1/7
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 taxation.
To that end, Group Health cites Columbia Riverkeeper v. Port of
Vancouver USA, 188 Wash. 2d 421, 395 P.3d 1031 (2017), and Citizens Alliance for
Property Rights Legal Fund v. San Juan County, 184 Wash. 2d 428, 359 P.3d 753(2015), to suggest that the statutory scheme reveals such an intent. But
Columbia Riverkeeper and Citizens Alliance both involved the Open Public
Meetings Act of 1971 (OPMA), which declares that its provisions are “remedial
and shall be liberally construed.” RCW42.30.910. The OPMA also contains an
express statement of legislative intent that our Supreme Court has characterized
as “some of the strongest language used in any legislation.” Equitable
Shipyards, Inc. v. State, 93 Wash. 2d 465, 482, 611 P.2d 396 (1980); see also
RCW 42.30.010 (“It is the intent of this chapter that. . . actions [of public
agencies] be taken openly and that their deliberations be conducted openly.”).
Here, by contrast, Group Health points to no statement in the Health Care
Reform Act or in the B&O tax chapter reflecting a clear legislative intent to
exempt MA premiums from B&O taxes. The absence of any such statement is
particularly notable given that it is well established that “the legislative purpose
behind the B&O tax scheme is to tax virtually all business activity in the state.”
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No. 79091-9-118
Impecoven v. Dep’t of Revenue, 120 Wash. 2d 357, 363, 841 P.2d 752 (1992).
Moreover, Group Health’s argument ignores the most obvious explanation
for the exemption provided in ROW 82.04.322—to avoid double taxation of
premiums. If not for ROW 82.04.322, premiums received by insurers would be
subject to both the premium tax and the B&O tax. Therefore, contrary to Group
Health’s assertions, adopting the Department’s proffered interpretation of
ROW 82.04.322 does not lead to “absurd results.”
Group Health next points out that in another B&O tax exemption statute,
the legislature used “strikingly different language” than it used in ROW 82.04.322.
Specifically, ROW 82.04.320 provides: “[B&O tax] shall not apply to any person in
respect to insurance business upon which a tax based on gross premiums is paid
to the state.” (Emphasis added.) Group Health argues that because the
legislature used the phrase “upon which a tax based on gross premiums is paid
to the state” to describe the scope of the exemption in ROW 82.04.320, then the
term “taxable” in ROW 82.04.322 must mean something else. But the fact that
“taxable” means something other than that taxes have been paid to the state
does not help Group Health here. Specifically, the difference between the
language used in ROW 82.04.320 and ROW 82.04.322 is that the exemption in
ROW 82.04.320 apparently depends on whether premium taxes have been paid,
whereas the exemption in ROW 82.04.322 depends on whether premium taxes
can be assessed under ROW 48.14.0201. And as discussed above, MA
premiums are not subject to assessment under ROW 48.14.0201. The difference
in language between ROW 82.04.320 and ROW 82.04.322 is not determinative.
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As a final matter, Group Health argues that legislative history supports its
argument that the MA premiums are exempt from B&O taxes. But “[w]e need not
utilize interpretive tools such as legislative history when statutory language is
unambiguous.” Spokane County v. Dep’t of Fish & Wildlife, 192 Wash. 2d 453, 458,
430 P.3d 655 (2018). RCW 82.04.322 is not ambiguous. As discussed, MA
premiums are not exempt from B&O taxes under a plain language reading of that
statute. Furthermore, even if RCW 82.04.322 were ambiguous, this court would
be required to strictly construe that ambiguity against Group Health. Avnet, 187
Wn.2d at 50 (“If there is ambiguity in a provision providing an exemption or
deduction, the court must strictly construe the provision against the taxpayer.”).
Therefore, we do not consult legislative history here.
Federal Preemption
Group Health argues that even if MA premiums are not exempt from B&O
tax under RCW 82.04.322, federal law preempts the Department from imposing
B&O taxes on MA premiums. We agree.
This court reviews questions of federal preemption de novo. McCurry v.
Chevy Chase Bank, FSB, 169 Wash. 2d 96, 100, 233 P.3d 861 (2010). “Whether
federal law preempts state law depends upon whether that was the intent of
Congress.” McCurry, 169 Wn.2d at 100. To determine Congress’s intent, we
first look to the relevant statute’s plain language. Kitsap County Consol. Hous.
Auth. v. Henry-Levinqston, 196 Wash. App. 688, 701, 385 P.3d 188 (2016). We
may consult a dictionary to discern the meaning of undefined statutory terms in a
federal statute. Kitsap County Consol. Hous. Auth., 196 Wn. App. at 701.
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Here, the federal statute at issue is 42 U.S.C. § 1395w-24(g), which was
enacted as part of the Balanced Budget Act of 1997 (BBA). See Balanced
BudgetAct of 1997, Pub. L. No. 105-33~ 1854(g), 111 Stat. 251, 312. That
statute provides that “[n]o State may impose a premium tax or similar tax with
respect to [MA premiums].” 42 U.S.C. § 1 395w-24(g) (emphasis added). We
conclude that the plain language of 42 U.S.C. § 1395w-24(g) preempts the
Department from imposing B&O taxes on MA premiums.
The BBA did not define “similar tax” for purposes of preemption. See
Medicare Program; Establishment of the Medicare+Choice Program, 63 Fed.
Reg. 34,968, 35,014 (June 26, 1998) (observing that “similar tax” is not
specifically defined). But the first dictionary definition for “similar” is “having
characteristics in common.” WEBSTER’S THIRD NEW INTERNATIONAL DICTIONARY
2120 (2002). The B&O tax has characteristics in common with a premium tax.
Like a premium tax, the B&O tax is assessed against premium revenue. Indeed,
CMS acknowledged that this was a defining characteristic when it observed that
the BBA did not define “premium tax” or “similar tax,” “other than by reference to
the applicability of such a tax to revenue received from the Federal Government
for health plan enrollees.” 63 Fed. Reg. at 35,014 (June 26, 1998) (emphasis
added). And, like a premium tax, the B&O tax is assessed on a gross basis.
See 42 C.F.R. § 422.404(b) (clarifying that certain taxes assessed on a net basis
are not preempted). Therefore, under the plain language of 42 U.S.C. § 1395w-
24(g), the B&O tax is “similar” to a premium tax and is preempted by that statute.
The Department contends that the B&O tax is not “similar” to a premium
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tax by pointing to a handful of ways in which the administration and collection of
the B&O tax differs from the premium tax. The Department asserts that “[m]ost
significantly, the B&O tax applies to virtually all business activities; the premium
tax applies only to the business of insurance.” But as discussed, the B&O tax
shares defining characteristics with a premium tax—namely, it is assessed
against premium revenue and on a gross basis. We are not persuaded by the
Department’s argument that B&O tax is not similar to a premium tax merely
because B&O tax applies to noninsurance businesses and because the state has
chosen to administer the B&O tax differently.
Group Health Cooperative v. City of Seattle, 146 Wash. App. 80, 189 P.3d
216 (2008), is instructive on this point. There, GHC challenged the city of
Seattle’s imposition of B&O taxes assessed against payments GHC received from
the Federal Employees Health Benefits (FEHB) fund (FEHBF). Group Health
Coop., 146 Wn. App. at 83-84. A federal statute prohibits states from imposing
any “tax, fee, or other monetary payment. . . directly or indirectly, on a carrier”
with respect to any payment made from the FEBHF. 5 U.S.C. § 8909(f)(1). The
city argued that it was not taxing GHC in its role as a “carrier,” as prohibited by
federal law, but that it was instead taxing GHC in its role as a health care provider,
which is not prohibited by the federal statute. Group Health Coop., 146 Wn. App.
at 95. We rejected that argument, reasoning that the city could not escape federal
preemption “by unilaterally recharacterizing [GHC] as a health care ‘provider’
rather than a carrier.” Group Health Coop., 146 Wn. App. at 95. We also
observed that the city was, by its own admission, taxing FEHB premium revenue,
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even though the city tried to recast that revenue as payments for medical
services. Group Health Coop., 146 Wn. App. at 93. Here, like the city in Group
Health Cooperative, the Department does not dispute that it is taxing premium
revenue on a gross basis. These characteristics are dispositive here. Thus, like
the city, the Department cannot escape federal preemption by characterizing the
B&O tax as “dissimilar” to a premium tax simply because it is applicable to
noninsurance businesses and because the state has unilaterally decided to
administer the B&O tax differently.
The Department argues that Group Health Cooperative is distinguishable
from this case because the language in the FEHB statute’s preemption provision
and the language in 42 U.S.C. § 1395w-24(g) “differ[] sharply.” But CMS itself
has observed that the scope of state tax preemption for MA premiums was
intended to mirror the scope of state tax preemption for FEHB premium revenue.
63 Fed. Reg. at 35,014 (June 26, 1998) (observing that a Senate Finance
Committee report summarizing the BBA stated that “‘[t]he current law on federal
preemption of state premium taxes or fees on Federal payments from the
FEHB[ Program] to health plans will be extended to [MA premiums]”). More
importantly, B&O tax is, as discussed, “similar” to a premium tax under the plain
language of 42 U.S.C. § 1395w-24(g). In other words, the outcome here is not
dictated by Group Health Cooperative or the FEHB statute, but by a plain
language reading of 42 U.S.C. § 1395w-24(g).
Additionally, CMS’s own regulations confirm that B&O tax is preempted
under 42 U.S.C. § 1395w-24(g). For example, B&O taxes do not fit within the
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No. 79091-9-1/13
savings clause that CMS promulgated to clarify the scope of the prohibition on
state taxation of MA premiums. That clause provides:
Nothing in this section shall be construed to exempt any MA
organization from taxes, fees, or other monetary assessments
related to the net income or profit that accrues to, or is realized by,
the organization from business conducted under this part, if that
tax, fee, or payment is applicable to a broad range of business
activity.
42 C.F.R. § 422.404(b) (emphasis added). In other words, to fit within the
savings clause, a state tax must be assessed based on net income or profit. But
the Department does not dispute that B&O tax is not assessed against net
income or profit. Rather, it is assessed on a gross receipts basis. See Avnet,
187 Wn.2d at 50. Therefore, B&O tax is not saved from federal preemption by
the savings clause.
The Department asserts that the savings clause is illustrative, not
exclusive. It argues that “merely because [CMSJ clarified that net income taxes
are not included within the preemption provision does not mean that broadly
applicable gross receipts taxes are ‘similar taxes’ to premium taxes.” But when
CMS first published the interim final version of the savings clause, it explained
that the savings clause was intended to “clarify the scope of what constitutes a
prohibited premium tax.” 63 Fed. Reg. at 35,014 (June 26, 1998) (emphasis
added). If, as the Department asserts, the savings clause is merely illustrative, it
does little to clarify what is prohibited under 42 U.S.C. § 1395w-24(g).
As a final matter, the Department relies on a number of cases to argue
that this court should be “reluctant” to conclude that federal law preempts B&O
tax. But none of these cases are persuasive here. In National Private Truck
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Council, Inc. v. Oklahoma Tax Commission, 515 U.S. 582, 115 5. Ct. 2351 132
L. Ed. 2d 509 (1995), the Court considered whether state courts are required to
award declaratory and injunctive relief under § 1983 in state tax cases. Nat’l
Private Truck, 515 U.S. at 588. And in California State Board of Equalization v.
Sierra Summit, Inc., 490 U.S. 844, 109 S. Ct. 2228, 104 L. Ed. 2d 910 (1989), the
Court considered whether immunity from state taxation could be inferred, by
negative implication, from a statute that in fact confirmed that bankruptcy estates
are subject to state tax. Cal. Bd. of Equalization, 490 U.S. at 852. But neither
National Private Truck nor California Board of Equalization involved the
construction of a federal statute expressly aimed at preempting state taxes.
Therefore, the Department’s reliance on these cases is misplaced.
The Department’s reliance on cases citing National Private Truck and
California Board of Equalization is similarly misplaced. In Washington Trucking
Associations v. Employment Security Department, 188 Wash. 2d 198, 393 P.3d 761(2017), the Washington State Supreme Court relied in part on National Private
Truck merely to confirm that state courts are barred from awarding damages
under § 1983 in state tax cases when there is an adequate state law remedy.
Washington Trucking Assocs., 188 Wn.2d at 211. Thus, like National Private
Truck, Washington Trucking is not persuasive here. And in Florida Department
of Revenue v. Piccadilly Cafeterias, Inc., 554 U.S. 33, 128 5. Ct. 2326, 171 L.
Ed. 2d 203 (2008), the Court applied a canon of construction articulated in
California Board of Equalization only after assuming, for purposes of argument,
that the federal statute at issue was ambiguous. Florida Dep’t of Revenue, 554
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U.S. at 41, 47. But 42 U.S.C. § 1 395w-24(g) is not ambiguous. As discussed
above, the plain language of that statute preempts B&O taxes because they are
similar to premium taxes. Therefore, Florida Derartment of Revenue is also
unpersuasive.
We reverse and remand to the trial court to determine the refund amount.
WE CONCUR:
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