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IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
September 2009 Term
CHARLESTON AREA MEDICAL CENTER, INC.,
Petitioner Below, Appellant
STATE TAX DEPARTMENT OF WEST VIRGINIA,
Respondent Below, Appellee
Appeal from the Circuit Court of Kanawha County
The Honorable Jennifer Bailey, Judge
Civil Action No. 01-AA-55
REVERSED AND REMANDED
Submitted: October 6, 2009
Filed: November 23, 2009
Charles O. Lorensen, Esq. Darrell V. McGraw, Jr. Esq.
George & Lorensen
Charleston, West Virginia Katherine A. Schultz, Esq.
Attorney for Appellant
Scott Johnson, Esq.
Attorney General's Office
Charleston, West Virginia
Attorneys for Appellee
The Opinion of the Court was delivered PER CURIAM.
Justice McHugh, having been disqualified, did not participate in the decision of this case.
Judge Swope sitting by temporary assignment.
SYLLABUS BY THE COURT
1. The same standard set out in the State Administrative Procedures Act, W. Va.
Code, 29A-1-1, et seq., is the standard of review applicable to review of the Tax
Commissioner's decisions under W. Va. Code, 11-10-10(e) (1986). Syl. Pt. 3, in part, Frymier-Halloran v. Paige, 193 W. Va. 687, 458 S.E.2d 780 (1995).
2. Where the issue on an appeal from the circuit court is clearly a question of law
or involving an interpretation of a statute, we apply a de novo standard of review. Syl. Pt.
1, Chrystal R.M. v. Charlie A.L., 194 W. Va. 138, 459 S.E.2d 415 (1995).
3. On appeal of an administrative order from a circuit court, this Court is bound
by the statutory standards contained in W. Va. Code § 29A-5-4[ ] and reviews questions of
law presented de novo; findings of fact by the administrative officer are accorded deference
unless the reviewing court believes the findings to be clearly wrong. Syl. Pt. 1, Muscatell
v. Cline, 196 W. Va. 588, 474 S.E.2d 518 (1996).
4. 'A statute should be so read and applied as to make it accord with the spirit,
purposes and objects of the general system of law of which it is intended to form a part; it
being presumed that the legislators who drafted and passed it were familiar with all existing
law, applicable to the subject matter, whether constitutional, statutory or common, and
intended the statute to harmonize completely with the same and aid in the effectuation of the
general purpose and design thereof, if its terms are consistent therewith.' Syllabus Point 5, State v. Snyder, 64 W. Va. 659, 63 S. E. 385 (1908). Syl. Pt. 3, Joslin v. Mitchell, 213 W.
Va. 771, 584 S.E.2d 913(2003).
5. The word 'shall,'in the absence of language in the statute showing a contrary
intent on the part of the legislature, should be afforded a mandatory connotation. Syl. Pt.
2, Terry v. Sencindiver, 153 W.Va. 651, 171 S.E.2d 480 (1969).
Appellant Charleston Area Medical Center, Inc. (hereinafter CAMC),
appeals from a final decision of the Circuit Court of Kanawha County, West Virginia,
affirming the denial of CAMC's Petition for Reassessment, filed with the State Tax
Department of West Virginia, Office of Hearings and Appeals. In that petition, CAMC
sought to vacate an assessment by the State Tax Commissioner, and sought a refund of that
assessment. The circuit court, however, upheld the validity of the assessment concluding
that CAMC's provision of in-house health care benefits to certain employees should be
considered gross receipts for the purposes of the West Virginia Health Care Provider Tax
Act of 1993 (hereinafter also referred to as the Act). See
W. Va. Code § 11-27-1 to -37
(2005 & Supp. 2009). Because the circuit court ignored any application of West Virginia
Code § 11-27-22(c), which mandates that a health care provider's method of accounting for
purposes of the Act be consistent with its accounting methods used for federal income tax
purposes, we reverse and remand this case for entry of an Order directing that Appellee State
Tax Department of West Virginia refund to CAMC the amounts paid under protest by
CAMC after the administrative decision below. (See footnote 1)
I. FACTUAL AND PROCEDURAL HISTORY
During the relevant time period, the 1996 and 1997 tax years, CAMC, a non-
profit corporation operating hospital facilities in Charleston, West Virginia, provided an
optional self-insurance program to its approximately 4,500 employees, as well as its
retirees. (See footnote 2)
Employees and retirees opting to participate in the program (hereinafter jointly
referred to as covered employees) were eligible to receive health care at both CAMC
facilities and other unrelated, or outside, facilities. (See footnote 3)
To fund the program, CAMC withheld monthly premiums from covered
employees' paychecks (retirees made monthly contributions), and deposited the withholdings
into a trust fund. CAMC included these premiums in its gross receipts, and thus paid health
care provider taxes on those monies. When a covered employee utilized an outside provider,
CAMC would pay that provider out of the fund. Covered employees would sometimes also
have to pay a deductible or co-pay when using an outside provider, but the fund would cover
the balance. CAMC paid the outside providers in cash and then those providers presumably
reported those payments as income in their gross receipts for tax purposes.
At issue in this case is the care CAMC provided to its covered employees at
its own facilities. Unlike the system used for outside providers, when a covered employee
obtained health care at a CAMC facility, no money was withdrawn from the trust fund.
Instead, CAMC treated covered employees as a regular patients, recording all aspects of their
treatment in the hospital's billing system. Thus, CAMC tracked the charges associated with
the covered employee's treatment in the same manner that it would track any other patient's
costs, recording the expenses in its billing system.
Unlike other patients, however, CAMC never billed the covered employees or
any third party, such as an insurance company, for the charges incurred, nor did it receive any
monetary payment for those costs in any other form. Instead, after recording the covered
employees' medical costs in the accounting system, CAMC would then make an adjusting
entry and remove that amount from the system. Essentially, because CAMC understood that
it would never receive any financial remuneration for the care it provided to its covered
employees, it removed the value of that care from its accounts receivable. By removing
the amount from the accounts receivable, CAMC also removed the amount from its taxable
gross receipts, and thus did not pay the health care provider tax on the cost of the health
care provided through its health insurance program.
In February 1998, the State Tax Commissioner assessed an additional health
care provider tax against CAMC for the period of July 1, 1994, through June 30, 1997,
asserting that CAMC was liable for the additional tax based on the accounting entries
reflecting the costs associated with health care provided to covered employees. The
additional tax for the three years totaled $699,515, which consisted of $537,456 in taxes and
$132,059 in interest.
CAMC objected to the assessment, and filed a Petition for Reassessment with
the State Tax Commissioner. On December 2, 1999, an administrative law judge (hereafter
ALJ) assigned to the case by the West Virginia State Tax Commissioner's Office of
Hearing Appeals, conducted a hearing on the Petition for Reassessment. At that hearing,
CAMC presented two witnesses, while the State Tax Commissioner relied solely on the
Notice of Assessment. Following additional briefing, the ALJ issued an administrative
decision on March 6, 2001, modifying the earlier assessment. Specifically, the ALJ
concluded that the portions of the assessment relating to time periods barred by the statute
of limitations could not be collected. The ALJ sustained the assessment for the 1996 and
1997 tax periods, however, and ordered CAMC to pay $198,269 in taxes and $56,904.92 in
CAMC paid the amount ordered under protest and, on May 2, 2001, filed a
petition appealing that administrative decision to the Circuit Court of Kanawha County, West
Virginia. On May 1, 2008, the circuit court entered an order affirming the assessment by the
State Tax Commissioner for the 1996 and 1997 tax periods, and dismissing the case. (See footnote 4)
In affirming the assessment, both the ALJ and the circuit court found that
CAMC had received payment for the medical services provided to covered employees in
the form of services rendered. By statute, (See footnote 5)
a provider's gross receipts are required to include
both cash payments and payments in kind. Both the ALJ and the circuit court reasoned
that the provision of the self-insurance program by CAMC was part of the covered
employees' compensation and, thus, the employees paid for their medical care by
performing their duties. Moreover, as the ALJ stated,
[t]he economic advantage of health coverage is a great incentive
for a majority of the workers in the job place, who, but for that
job benefit, would otherwise not be able to afford such
coverage. By providing such a benefit to its employees, CAMC,
in return, obtains the continued benefit in terms of reduced
employee turnover and absenteeism, high productivity and
growth of experience in staff level.
Thus, because the ALJ and the circuit court found that CAMC received a benefit for
providing medical care to covered employees, they each concluded that the care was paid for
in kind, and such payment should have been included in CAMC's gross receipts. Had they
been included in those receipts, the health care provider tax would have applied.
Accordingly, each affirmed the assessment for the tax periods not barred by the statute of
II. STANDARD OF REVIEW
The same standard set out in the State Administrative Procedures Act, W. Va.
Code, 29A-1-1, et seq., is the standard of review applicable to review of the Tax
Commissioner's decisions under W. Va. Code, 11-10-10(e) (1986). Syl. Pt. 3, in part, Frymier-Halloran v. Paige, 193 W. Va. 687, 458 S.E.2d 780 (1995). The West Virginia
Administrative Procedures Act provides that an agency action may be set aside if it is
'[c]learly wrong in view of the reliable, probative and substantial evidence on the whole
record; or . . . [a]rbitrary or capricious or characterized by abuse of discretion or clearly
unwarranted exercise of discretion.' Id. at 695, 458 S.E.2d at 788 (quoting W. Va. Code
§ 29A-5-4(g)(5) and -4(g)(6)(1964)). The 'clearly wrong' and the 'arbitrary and capricious'
standards of review are deferential ones which presume the agency's actions are valid as long
as the decision is supported by substantial evidence or by a rational basis. Id.
However, the clearly erroneous rule does not protect findings made on the
basis of incorrect legal standards. Frymier-Halloran, 193 W. Va. at 695 n. 13, 458 S.E.2d
at 788 n. 13. As always [w]here the issue on an appeal from the circuit court is clearly a
question of law or involving an interpretation of a statute, we apply a de novo standard of
review. Syl. Pt. 1, Chrystal R.M. v. Charlie A.L., 194 W. Va. 138, 459 S.E.2d 415 (1995).
Thus, [o]n appeal of an administrative order from a circuit court, this Court is bound by the
statutory standards contained in W. Va. Code § 29A-5-4 and reviews questions of law
presented de novo; findings of fact by the administrative officer are accorded deference
unless the reviewing court believes the findings to be clearly wrong. Syl. Pt. 1, Muscatell
v. Cline, 196 W. Va. 588, 474 S.E.2d 518 (1996).
The West Virginia Health Care Provider Tax Act of 1993 imposes a series of
annual broad-based taxes on a variety of services rendered by health care providers. The
purpose of this tax is to assist the State of West Virginia (hereinafter the State) in raising
its share of funds necessary to draw down federal matching funds for Medicaid. W. Va.
Code § 11-27-1. To that end, the Act is designed to conform with a federal statute that
places limitations and restrictions on the flexibility states have to raise state share for its
medical assistance program. Id.
at § 11-27-1(f).
Under the Act, health care providers are taxed, at varying rates, for the
privilege of providing sixteen separate types of health care services. (See footnote 6) Id. at § 11-27-4 to -19.As an example, for providing inpatient hospital services, CAMC is taxed at two and one-
half percent of the gross receipts derived by the taxpayer from furnishing inpatient hospital
services in this state. Id. at § 11-27-9(b) (emphasis added). While the tax rates vary for the
different categories of services, the tax is always based on the provider's gross receipts
from furnishing that service. Id. at §§ 11-27-4 to -19.
Each tax category defines gross receipts as:
the amount received or receivable, whether in cash or in kind,
from patients, third-party payors and others for . . . [particular
health] services furnished by the provider, including retroactive
adjustments under reimbursement agreements with third-party
payors, without any deduction for any expenses of any kind:
Provided, That accrual basis providers shall be allowed to
reduce gross receipts by their contractual allowances, to the
extent such allowances are included therein, and by bad debts,
to the extent the amount of such bad debts was previously
included in gross receipts upon which the tax imposed by this
section was paid.
See, e.g., § 11-27-9(c)(1) (emphasis added). Thus, the tax is based on the gross receipts
for a particular service, and gross receipts include the accounts received or receivable for the
provision of that service. Id. Importantly, the receivables include payments in cash or in
In this case, the State Tax Commissioner levied an additional assessment on
CAMC, taxing the cost of the care that CAMC provided to its covered employees, which the
State Tax Commissioner believed constituted receivables and thus should have been
included in CAMC's gross receipts. In assessing the additional tax, the State Tax
Commissioner concluded that CAMC received the services of its covered employees in
exchange for the payments otherwise due for the health services provided to them. Because
this exchange is payment in kind for those services, and because gross receipts include in
kind payments, the State Tax Commissioner contends that the cost of the care provided
should be included in the gross receipts.
CAMC disputes the State Tax Commissioner's contention that the cost of the
care it provided to its covered employees constituted an accounts receivable, and points
out that it never billed any party for those costs, nor did it ever receive, or expect to receive,
remuneration for them. (See footnote 7) Although CAMC tracked the costs through entries (See footnote 8) in its accounting
system, CAMC contends that those entries were never intended to be part of its gross
receipts. To the contrary, according to CAMC, the method used relative to its covered
employees was purely for tracking purposes, not billing purposes. CAMC argues that its
method of accounting is supported by the generally accepted accounting principals, and it
points out that it does not report the costs of the health care provided to its covered
employees as gross receipts on its federal income tax forms.
CAMC additionally points out that not all of its employees opted into the self-
insurance program, and that those not in the program did not receive additional compensation
in any other form. Similarly, an employee was expected to work the same number of hours
and perform the same duties, regardless of whether he or she opted into the self-insurance
program. Thus, CAMC argues that the State Tax Commissioner failed to present any
evidence that CAMC obtained a greater benefit from covered employees then from
employees who did not participate in the self-insurance program.
Along those same lines, CAMC notes that although it provided coverage to all
employees participating in the self-insurance plan, not all of those covered employees
actually partook of the health care services offered by CAMC, while others used a substantial
amount of care. Thus, CAMC contends, the value of the services rendered to a covered
employee bore no relation to any benefit CAMC gleaned through the alleged in kind
b. Accounting Method
The reason for this Court's reversal of the circuit court stems from the failure
of both the ALJ and the circuit court to properly apply the provisions of West Virginia Code
§ 11-27-22(c). That statute requires accounting consistency in the methods of accounting
used in calculating health care provider taxes and federal income taxes. Specifically, West
Virginia Code § 11-27-22(c), provides, in relevant part, that [a] taxpayer's method of
accounting under this article shall
be the same as taxpayer's method of accounting for federal
income tax purposes. Id.
(emphasis added). Undisputedly, CAMC did not report the
accounting entries reflecting the costs associated with the health care it provided to its
covered employees through its self insurance program as gross receipts for federal income
tax purposes. Thus, CAMC argues that by requiring it to report those costs in its gross
receipts for purposes of the health care provider tax, the State Tax Commissioner, in effect,
is requiring that CAMC use a different method of accounting than it uses for calculating its
federal income tax, which directly contradicts the plain language of the statute.
In considering this issue, the ALJ acknowledged in his decision that West
Virginia Code § 11-27-22(c) requires consistency in the accounting methods. Yet, the ALJ
refused to apply the clear statutory directive, finding it inconsistent with other aspects of the
statute. The ALJ states in his decision, which was affirmed by the circuit court: (See footnote 9)
While it is true that W. Va. Code § 11-27-22(c) requires that
health care providers follow the same method of accounting on
their West Virginia returns as that adopted on their federal
income tax returns, the provision does not permit the departure
from yet another mandatory provision of the statute imposing
the very tax. That provision, in each case, states that [T]he
[sic] tax imposed in subsection (a) of this section shall be . . .
percent of the gross receipts derived by the taxpayer from
furnishing (health care) services in this state.
. . .
Obviously, the mandatory provisions imposing the tax measured
by gross receipts should in all cases supersede any other
provision, mandatory that it may be, setting forth the mere
accounting method used as a starting point for determining
(internal citations omitted).
In reviewing any statute, it is well-established in West Virginia that
'[a] statute should be so read and applied as to make it accord
with the spirit, purposes and objects of the general system of law
of which it is intended to form a part; it being presumed that the
legislators who drafted and passed it were familiar with all
existing law, applicable to the subject matter, whether
constitutional, statutory or common, and intended the statute to
harmonize completely with the same and aid in the effectuation
of the general purpose and design thereof, if its terms are
consistent therewith. Syllabus Point 5, State v. Snyder, 64 W.
Va. 659, 63 S.E. 385 (1908).
Syl. Pt. 3, Joslin v. Mitchell, 213 W. Va. 771, 777, 584 S.E.2d 913, 919 (2003).
In deciding the meaning of a statutory provision, [w]e look first
to the statute's language. If the text, given its plain meaning,
answers the interpretive question, the language must prevail and
further inquiry is foreclosed. Appalachian Power Co. v. State
Tax Dep't, 195 W. Va. 573, 587, 466 S.E.2d 424, 438 (1995). See also Syl. pt. 2, Crockett v. Andrews, 153 W. Va. 714, 172
S.E.2d 384 (1970) ([w]here the language of a statute is free
from ambiguity, its plain meaning is to be accepted and applied
without resort to interpretation.); Syl. pt. 2, State v. Epperly, 135 W. Va. 877, 65 S.E.2d 488 (1951) ([a] statutory provision
which is clear and unambiguous and plainly expresses the
legislative intent will not be interpreted by the courts but will be
given full force and effect.).
Davis Mem'l Hosp. v. West Virginia State Tax Comm'r, 222 W. Va. 677, 682, 671 S.E.2d
682, 687 (2008).
There has been no issue raised concerning any ambiguity found within the
provisions of West Virginia Code § 11-27-22(c). Moreover, a plain reading of that statutory
provision indicates that it clearly and unambiguously provides, in relevant part, that [a]
taxpayer's method of accounting under this article shall be the same as taxpayer's method of
accounting for federal income tax purposes. Id. (emphasis added). As this Court has
previously held, [t]he word 'shall,' in the absence of language in the statute showing a
contrary intent on the part of the legislature, should be afforded a mandatory connotation.
Syl. Pt. 2, Terry v. Sencindiver, 153 W.Va. 651, 171 S.E.2d 480 (1969); accord Clower v.
West Virginia Dept. of Motor Vehicles, 223 W. Va. 535, ___, n. 8, 678 S.E.2d 41, 50 n. 8
(2009)(The Legislature's use of the word shall . . . is given the mandatory meaning of that
Despite the mandatory meaning of the term shall in West Virginia Code §
11-27-22(c), the ALJ determined that the provisions of West Virginia Code § 11-27-4(b),
which provides that [t]he tax imposed in subsection (a) of this section shall be one and
three-fourths percent of the gross receipts derived by the taxpayer from furnishing
ambulatory surgical center services in this state[,] (See footnote 10) supersede[d] any other provision,
including the mere accounting method set forth in West Virginia Code § 11-27-22(c).
Let there be no mistake that absent from the Act is any express language by the
Legislature that it intended anything other than the mandatory meaning set forth in West
Virginia § 11-27-22(c), which clearly provides that a taxpayer's accounting method for the
purposes of the health care provider tax shall be the same as the taxpayer's method of
accounting for federal income tax purposes. Id. (emphasis added). In other words, there
is no indication that the other statutory provisions establishing the rate and measure of the
tax imposed, which were relied upon by the ALJ, superceded, changed, or otherwise altered
a taxpayer's accounting method.
To the contrary, by mandating accounting consistency between state and
federal taxes, the Legislature, in enacting West Virginia Code § 11-27-22(c), sought to assist
taxpayers in maintaining consistency in their record keeping and, in so doing, prevent the
significant burden on the taxpayer that having to keep multiple sets of books and to apply
multiple accounting methods would impose. The ALJ, and ultimately the circuit court,
however, simply ignored the clear and unambiguous statutory provision established in West
Virginia Code § 11-27-22(c).
Because of this action, the ALJ and ultimately the circuit court assessed
additional health care provider taxes because of a decision mandating CAMC to deviate from
the accounting method it uses for federal tax purposes. This is clear given that for federal
tax purposes, CAMC did not include accounting entries associated with the self-insurance
benefits in its gross receipts, while the ALJ required those same entries, which reflect non-
cash items, to be included in gross receipts for the health care provider tax. This was
erroneous and violated the provisions of West Virginia Code § 11-27-22(c).
Based upon the foregoing, the Court concludes that the circuit court erred in
denying CAMC's petition for reassessment of the additional health care provider tax and
interest at issue in this case. Consequently, the Court reverses the final order of the Circuit
Court of Kanawha County and remands this case for entry of an Order directing that
Appellee State Tax Department of West Virginia refund to CAMC the amounts paid under
protest by CAMC after the administrative decision below.
There are other errors raised by the Appellant; however, it is not necessary to address
these errors due to the Court's decision to reverse based upon the ALJ's failure to apply the
mandate of West Virginia Code § 11-27-22(c).
CAMC has since changed its self-insurance program and, thus, the question presented
in this case is limited to the taxes collected for those years.
The self-insurance program was the only type of insurance offered by CAMC to its
employees. Consequently, employees opting not to participate in the self-insurance program
either obtained insurance on their own, perhaps through a spouse, or had no health insurance
No explanation is given for the
delay by the circuit court in issuing this
W. Va. Code § 11-27-9(c)(1)(defining gross receipts).
During the time period at issue in this case, CAMC reported and paid health care
provider taxes on its provision of five types of health services: (1) ambulatory surgical
centers, (2) emergency ambulance services, (3) inpatient hospital services, (4) physicians'
services, and (5) therapists' services.
The State Tax Commissioner contends that no health care is free, even when it is
rendered by a health care provider to its employees. Thus, he argues, CAMC must have
recouped the costs of such care somewhere, likely by passing the cost on to its employees
in the form of reduced wages; the fact that CAMC recouped its expenses in ways more subtle
than through cash payments does not mean it should be exempt from paying taxes on that
Contrary to CAMC's contention that the entries were not accounts receivable, in
the hearing before the ALJ, CAMC's expert witness in the field of health care accounting,
Charles Gibbs, in explaining the accounting method used by CAMC referred to these entries
as accounts receivable.
The circuit court's Order did not specifically address this matter; however, it did
affirm the ALJ's decision regarding the issue.
See, e.g., W. Va. Code § 11-27-4(b)(setting forth similar rate and measure of tax
language relative to ambulatory surgical centers); W. Va. Code § 11-27-7(b)(setting forth
similar rate and measure of tax language relative to emergency ambulance service); W. Va.
Code § 11-27-9(b)(setting forth similar rate and measure of tax language relative to inpatient
hospital services); W. Va. Code § 11-27-16(b)(setting forth similar rate and measure of tax
language relative to physicians' services); and W. Va. Code § 11-27-19(b)(setting forth
similar rate and measure of tax language relative to therapists' services).