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Group Health Cooperative v. State

Court of Appeals of Washington, Division 1

April 1, 2019

GROUP HEALTH COOPERATIVE, a Washington nonprofit corporation; and GROUP HEALTH OPTIONS, INC., a Washington corporation, Appellants,

          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 Medicareਚ≱ 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.


         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 judgment in favor of the Department. Group Health appeals.


         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. Durant v. 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 Wn.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 Wn.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 Wn.2d 44, 49-50, 384 P.3d 571 (2016).

         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.

         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 RCW 48.14.0201 and therefore are not exempt from B&O tax under RCW 82.04.322.

         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) ...

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