Birchwood Manor, Inc. v. Com'r of Revenue

• Decision Date: 15 October 2003
• Docket Number: Docket No. 236699.,Docket No. 236698,Docket No. 236646
• Citation: 673 N.W.2d 438,258 Mich. App. 801
• Parties: BIRCHWOOD MANOR, INC., Plaintiff-Appellant, v. COMMISSIONER OF REVENUE, Defendant-Appellee. Health Care and Retirement Corporation, Plaintiff-Appellant, v. Commissioner of Revenue, Defendant-Appellee. Knollview Manor, Inc., Plaintiff-Appellant, v. Commissioner of Revenue, Defendant-Appellee.
• Court: Court of Appeal of Michigan — District of US

673 N.W.2d 438

258 Mich. App. 801

BIRCHWOOD MANOR, INC., Plaintiff-Appellant, v. COMMISSIONER OF REVENUE, Defendant-Appellee.

Health Care and Retirement Corporation, Plaintiff-Appellant, v. Commissioner of Revenue, Defendant-Appellee.

Knollview Manor, Inc., Plaintiff-Appellant, v. Commissioner of Revenue, Defendant-Appellee.

Docket Nos. 236646, 236698, 236699.

Court of Appeals of Michigan.

Released September 23, 2003, at 9:25 a.m.

Vacated October 15, 2003.

Released for Publication November 26, 2003.

Before: BANDSTRA, P.J., and GAGE and SCHUETTE, JJ.

ORDER

Birchwood Manor, Inc. v. Commissioner of Revenue, Docket No. 236646. Health Care and Retirement Corporation v. Commissioner of Revenue, Docket No. 236698. Knollview Manor, Inc. v. Commissioner of Revenue, Docket No. 236699. The Court orders that a special panel shall be convened pursuant to MCR 7.215(J) to resolve the conflict between these consolidated cases and CompuPharm-LTC v. Dep't. of Treasury, 225 Mich.App. 274, 570 N.W.2d 476 (1997).

The Court further orders that the opinion in these consolidated cases released on September 23, 2003, is vacated. MCR 7.215(J)(5).

The appellants may file a supplemental brief within 21 days of the Clerk's certification of this order. Appellee may file a supplemental brief within 21 days of service of appellants' brief. Nine copies must be filed with the Clerk of the Court.

GAGE, J.

Petitioners Birchwood Manor, Inc., Health Care and Retirement Corporation, and Knollview Manor, Inc., appeal as of right the order of the Michigan Tax Tribunal denying petitioners' motion for summary disposition and granting summary disposition to respondent Commissioner of Revenue in these consolidated cases and appeals, which concern the use tax treatment of over-the-counter medications petitioners purchased for their nursing home residents. We find our analysis in this case is limited because we are bound by this Court's decision in CompuPharm-LTC v. Dep't. of Treasury, 225 Mich.App. 274, 570 N.W.2d 476 (1997), which held that nonlegend drugs dispensed to nursing home residents by licensed pharmacists pursuant to physicians' written prescriptions were not exempt from sales tax. MCR 7.215(J)(1). If we were not bound by CompuPharm, we would find that non-legend drugs dispensed to nursing home residents by licensed pharmacists pursuant to physicians' written prescriptions are exempt from use tax. Therefore, were it not for CompuPharm, we would remand this case to the Tax Tribunal for further analysis regarding whether the drugs at issue were dispensed pursuant to written prescriptions. However, because we are bound by CompuPharm, we affirm the order of the Tax Tribunal granting respondent summary disposition.

I

A

Respondent assessed use tax against each petitioner following separate audits. At least a portion of each assessment related to each petitioner's purchase of nonlegend,¹ or over-the-counter, drugs for use in its nursing homes. Each petitioner protested the assessments, claiming some of the medications qualified for the use tax exemption for prescription drugs, M.C.L. § 205.94d, because they were dispensed by a licensed pharmacist pursuant to a prescription written by a physician for a designated resident.² After a respondent upheld the tax assessment, petitioners appealed to the Tax Tribunal.

Petitioners thereafter filed a motion for summary disposition and respondent filed a cross-motion for summary disposition. In December 1997, the tribunal granted petitioners' motion to hold the case in abeyance pending the outcome of CompuPharm, supra. In May 1999, the current cases were removed from abeyance and the tribunal granted respondent's cross-motion for summary disposition. In granting respondent summary disposition, the tribunal followed CompuPharm, ruling that the nonlegend drugs petitioners purchased were not exempt from use tax under M.C.L. § 205.94d.

B

This Court's review of Tax Tribunal decisions is very limited. Michigan Milk Producers Ass'n. v. Dep't. of Treasury, 242 Mich.App. 486, 490, 618 N.W.2d 917 (2000). On appeal, absent a claim of fraud, this Court can determine only whether the tribunal committed an error of law or adopted a wrong legal principle. Id.; Michigan Bell Telephone Co. v. Dep't. of Treasury, 229 Mich.App. 200, 206, 581 N.W.2d 770 (1998). Further, the tribunal's factual findings will not be disturbed as long as they are supported by competent, material, and substantial evidence on the whole record. Michigan Milk Producers, supra at 490-491, 618 N.W.2d 917; Canterbury Health Care, Inc. v. Dep't. of Treasury, 220 Mich.App. 23, 28, 558 N.W.2d 444 (1996).

II

This case requires us to analyze the use tax exemption for prescription drugs provided in M.C.L. § 205.94d. The precise question petitioners request be decided is whether nonlegend drugs dispensed to nursing home residents by licensed pharmacists pursuant to physicians' written prescriptions are exempt from use tax. Petitioners assert that although the drugs at issue in this case could be purchased by the public over the counter, federal and state Medicaid and Medicare regulations require that nursing home residents receive drugs only pursuant to a written prescription. However, this issue, as it relates to the sales tax, was decided by a panel of this Court in CompuPharm, supra.

A

The Michigan Constitution exempts "prescription drugs for human use" from sales and use tax. Const. 1963, art. 9, § 8. This provision provides, "No sales tax or use tax shall be charged or collected from and after January 1, 1975 on the sale or use of prescription drugs for human use...." Id. However, the Constitution does not define "prescription drugs for human use."

M.C.L. § 205.94d exempts prescription drugs from use tax. The statute defines "prescription drug for human use" as follows:

"Prescription drug for human use" means insulin or a drug dispensed by a licensed pharmacist pursuant to a written prescription prescribed by a licensed physician or other health professional as defined in section 21005 of the public health code [MCL 333.21005] for the use of a designated person, or oxygen dispensed pursuant to a written prescription or order issued by a licensed physician or other health professional.... [MCL 205.94d(2).]

Petitioners assert the nonlegend drugs they purchased qualified for exemption from use tax because they met the statutory definition of prescription drugs, despite their over-the-counter nature. Specifically, petitioners contend the items were (1) drugs, (2) dispensed by a licensed pharmacist, (3) pursuant to prescriptions written by licensed physicians or other health professionals for the use of designated persons. Therefore, petitioners urge that the tribunal committed an error of law by failing to apply the statutory definition of prescription drugs.

B

In CompuPharm, supra, at 279-280, 570 N.W.2d 476, this Court ruled that nonlegend drugs dispensed to nursing home residents do not qualify for tax exemption, even if a licensed pharmacist dispenses them pursuant to a written prescription. CompuPharm presented facts similar to those in the instant case. CompuPharm, a pharmaceutical company, argued its sales of over-the-counter drugs to nursing home residents were exempt from sales tax because the drugs were dispensed by licensed pharmacists to fill prescriptions written by doctors. Id. at 275-276, 570 N.W.2d 476. In other words, CompuPharm argued for a transactional approach, under which the method by which a drug is distributed is key to its status. The company premised its argument on federal Medicaid regulations that require all medications given to nursing home patients be dispensed only pursuant to physicians' orders. Id. at 275-276, 570 N.W.2d 476.

The panel rejected CompuPharm's argument. In rejecting the argument, the panel relied on this Court's decision in Syntex Laboratories, Inc. v. Dep't. of Treasury, 188 Mich.App. 383, 470 N.W.2d 665 (1991), finding that this Court had rejected a transactional approach in Syntex. Relying on Syntex, the CompuPharm panel focused on the nature of the nonlegend drugs distributed to nursing home residents rather than their means of distribution. CompuPharm, supra at 279-280, 570 N.W.2d 476. Because the drugs were available without a prescription, the panel found they were not exempt from tax. Id. The panel explained:

In the instant case, adopting petitioner's interpretation [a transactional approach] would potentially confer prescription drug (and sales tax-exempt) status on anything that could reasonably be characterized as a drug, rather than merely on "legend" drugs, because the only requirements would be that the substance be a drug and that it be prescribable. Such an interpretation does not comport with the commonly understood meaning of "prescription drug" as found in Syntex. It would also open the door to potential abuse by providing a method of avoiding the payment of sales tax on otherwise taxable items. [Id.]

The panel also rejected CompuPharm's argument that Medicaid regulations requiring the drugs to be dispensed pursuant to a written prescription conferred prescription drug status. Id. at 280, 570 N.W.2d 476. The panel concluded, "[T]he purpose of this requirement is `to ensure that medical care is being provided in accordance with each recipient's individualized medical care plan.' Thus, the requirement exists for recordkeeping and oversight purposes that are unrelated to the intent of the constitutional exemption from taxation." Id.

Although the present case involves use tax rather than sales tax, this Court has noted the use tax act and the sales tax act define prescription drugs nearly identically. Id. at 278, 570 N.W.2d 476. We find that because the instant case presents facts and issues nearly identical to CompuPharm, CompuPharm applies to this case. Therefore, we are bound by CompuPharm's holding that nonlegend drugs dispensed to nursing home residents do not...