Group Health Co-op. of Puget Sound, Inc. v. Washington State Tax Commission

• Decision Date: 02 November 1967
• Docket Number: No. 38714,38714
• Citation: 72 Wn.2d 422,433 P.2d 201
• Court: Washington Supreme Court
• Parties: GROUP HEALTH COOPERATIVE OF PUGET SOUND, INC., Respondent, v. WASHINGTON STATE TAX COMMISSION, Appellant.

Page 422

72 Wn.2d 422

433 P.2d 201

GROUP HEALTH COOPERATIVE OF PUGET SOUND, INC., Respondent, v. WASHINGTON STATE TAX COMMISSION, Appellant.

No. 38714.

Supreme Court of Washington, Department 2.

Nov. 2, 1967.

Rehearing Denied Jan. 22, 1968.

John J. O'Connell Atty. Gen., Henry W. Wager, Timothy R. Malone, Asst. Attys. Gen., Olympia, for appellant.

Houghton, Cluck, Coughlin, Schubat & Riley, Seattle, for respondent.

HAMILTON, Judge.

Respondent Group Health Cooperative of Puget Sound, Inc., appealed to the Superior Court of Thurston County from an order of the State Tax Commission imposing a retroactive assessment of business and occupation taxes against amounts derived from certain of its activities and receipts between the years of 1959 and 1962. Respondent contended the amounts against which the tax was assessed were covered by and entitled to be excluded from the tax under the provisions of RCW 82.04.430(2) and/or RCW 82.04.430(9). The superior court, upon the basis of admitted facts and supplementary oral testimony, entered findings of fact, conclusions of law, and judgment reversing the holding of the Tax Commission upon the ground that the tax assessed ws deductible pursuant to RCW 82.04.430(9). The Tax Commission appeals.

Appellant assigns error to pertinent portions of the trial court's findings of fact, conclusions of law, and judgment. Primarily, the arguments emanating from appellant's assignments go to the issue of whether the deductions permitted under either RCW 82.04.430(2) or (9) are applicable to the pertinent activities of respondent. Secondarily, respondent contends that appellant is foreclosed from making retrospective assessments dating back to 1959 by virtue of its prior treatment of the assessed income as deductible under RCW 82.04.430(9).

Backgroundwise, the stipulated facts, the testimony, and the trial court's findings reveal that respondent is a nonprofit, non-stock, membership corporation, whose principal activity is furnishing comprehensive prepaid medical and hospital care to its individual membership and organizational contractees.

Individual membership is open to any person or family unit without discrimination upon approval of a prescribed application and the payment of $200 in entrance fees coupled with regular monthly sums as fixed from time to time by respondent's board of trustees. The $200 entrance fee, a portion of which is refundable following termination of membership, is characterized by respondent as 'capital dues' and is devoted to capital facilities. The monthly payments, in turn, are characterized as 'medical dues' and are devoted to operational expenses.

Organizational participation, e.g., labor unions, fraternal bodies, etc., in respondent's services is accomplished by group contract. The form, nature, and characterization of the amounts received from such group contracts are not revealed by the record, and any allocation of such amounts for tax purposes has been deferred by the parties pending disposition of this case.

In carrying out its purpose and function, respondent has acquired a hospital complex in central Seattle which, besides hospital wards, houses respondent's principal laboratory, X ray, pharmaceutical, physiotherapy, surgical, specialized professional and administrative staff, and warehousing departments. When member patients, for any medical reason, are required to be observed or treated for any continuous period beyond 24 hours they are referred to and afforded hospitalization at this main facility (hereafter referred to as the 'central facility'). Included within the complex of the central facility is an area designated as the 'central clinic,' the 'out-patient clinic,' or the 'diagnostic and treatment (hereafter referred to as the 'central clinic'), to which member patients come or are directed, on a round-the-clock basis, for such medical care, consultation, and attention as may not require overnight retention. The entire central facility complex is and has been exempt from property taxation since 1949.

In addition to the central facility and the central clinic, respondent owns and operates, for the convenience of its members, three separate 'outlying clinics' at Renton, Northgate, and Burien, established in 1948, 1958, and 1964 respectively. These outlying clinics are operated by regular professional and staff personnel assigned thereto, are open only during normal business hours, and furnish such medical care, attention, and treatment to member patients as does not require overnight facilities and service. Member patients who cannot be cared for at these outlying clinics or who require hospitalization or specialized treatment are referred to the central facility. At all times concerned, ad valorem taxes have been paid by respondent with respect to each of the outlying clinics.

The business and occupation taxes in question were assessed on July 26, 1963, against that portion of respondent's gross revenue, derived from its members as monthly 'medical dues,' attributable on a cost of operation basis to the services furnished by the central and existent outlying clinics between the years of 1959 and 1962, inclusive. (It should be noted at this point that the Burien clinic heretofore referred to was not in existence during the tax period in question; however, its tax status after 1964 will be affected by this case.) No tax was assessed upon that portion of such gross receipts as were allocable to the operation of respondent's central facility, exclusive of the central clinic.

In approaching the issues raised by the respective arguments and contentions of the parties, we pause to observe that although appellant has assigned error to a number of the trial court's findings of fact, it does not contend such findings are lacking in evidentiary support. Rather, appellant contents itself with challenging the trial court's conclusions of law. Under these circumstances, and since the findings of fact are to a large measure predicated upon stipulated or undisputed facts we in turn accept such findings as verities. Thorndike v. Hesperian Orchards, Inc., 54 Wash.2d 570, 343 P.2d 183 (1959).

The issues of law thus presented will be discussed in the following order: (a) Whether appellant is foreclosed, under the circumstances prevailing, from making a retrospective assessment; (b) the extent or applicability of the deduction permitted by RCW 82.04.430(9); and (c) the applicability of the deduction provided by RCW 82.04.430(2).

Prefatory to a consideration of the first issue, it is necessary to understand that RCW 82.04.430(9), which permits a deduction of certain types of hospital revenue from the measure of the business and occupation tax, was amended by the legislature in 1961 and that the assessment here concerned (for the years 1959 through 1962, inclusive) spans the amendment. Thus, we are concerned with the affect of appellant's actions and rulings before and after the 1961 amendment, for it is these actions which respondent contends amount to a retroactive impeachment of appellant's own rulings.

Upon this issue, the trial court entered finding of fact No. 5, which, in part, reads:

Since June 9, 1949, and up to the time that the assessment was made on July 26, 1963, which is complained of herein, the Commission at all times herein has treated the dues and other income covered by the assessment (Ex. 1) in this proceeding as deductible pursuant to RCW 82.04.430(9).

This finding was supported and buttressed by the following circumstances: In 1947, the attorney general rendered an opinion holding that respondent's organization, as it then existed, was entitled to deduct its membership fee revenue under RCW 82.04.430(9) as that statute then read, ¹ subject, however, to the attainment of a tax exemption upon its hospital property; in 1948, respondent established and commenced operating the outlying clinic in Renton; in 1949, respondent was granted a tax exemption on its hospital property at which time it was operating what is now the central clinic at a separate location; appellant, upon being notified of the property tax exemption, advised respondent by letter ² it would thereafter be entitled to the deduction in question under RCW 82.04.430(9); in 1953, appellant audited respondent and issued an assessment measured in part by the fees paid by the members, which assessment appellant, upon petition of respondent, amended to continue the deduction of the fee revenue as before; in 1958, respondent established and began the operation of its second outlying clinic in Northgate; and, so far as the record reveals, appellant continued to allow the pertinent deduction until after the 1961 statutory amendment and the assessment of July, 1963.

Under these facts, the net effect of appellant's 1963 assessment, insofar as it relates to respondent's fee revenue prior to the 1961 amendment of RCW 82.04.430(9), is an aboutface with respect to its own prior administrative determination, interpretation, and application of the statutory deduction to respondent's operation. Appellant's ruling allowing the deduction in 1949 and the years following thereafter did not amount to an administrative modification or amendment of a legislative enactment as appellant now contends. Respondent's initial application and continued claim of the pertinent deduction, under the statute as worded by the 1945 legislative amendment, clearly called for and authorized a factual determination and exercise of judgment and discretion on the part of appellant with respect to respondent's organization. If the allowance of the deduction prior to the 1961 amendment of RCW 82.04.430(9) was erroneous, as appellant now contends it was, the error was due to appellant's misconstruction of the facts rather than its misinterpretation of the law as it then stood. This being so, we are satisfied appellant's turnabout falls within the ambit of our decision in Hansen Baking Co. v. City...