CHESAPEAKE HOSP. AUTHORITY v. Com.

• Decision Date: 02 November 2001
• Docket Number: Record No. 002813,Record No. 002820.
• Citation: CHESAPEAKE HOSP. AUTHORITY v. Com., 554 S.E.2d 55, 262 Va. 551 (2001)
• Parties: CHESAPEAKE HOSPITAL AUTHORITY, d/b/a Chesapeake General Hospital, v. COMMONWEALTH of Virginia, DEPARTMENT OF TAXATION. Commonwealth of Virginia, Department of Taxation, v. Chesapeake Hospital Authority, d/b/a Chesapeake General Hospital.
• Court: Virginia Supreme Court

554 S.E.2d 55

262 Va. 551

CHESAPEAKE HOSPITAL AUTHORITY, d/b/a Chesapeake General Hospital, v. COMMONWEALTH of Virginia, DEPARTMENT OF TAXATION.

Commonwealth of Virginia, Department of Taxation, v. Chesapeake Hospital Authority, d/b/a Chesapeake General Hospital.

Record Nos. 002813, 002820.

Supreme Court of Virginia.

November 2, 2001.

James A. Leftwich (Basnight, Kinser, Telfeyan, Leftwich & Nuckolls, on brief), Chesapeake, for appellant in Record No. 002813.

Sydney E. Rab, Asst. Atty. Gen. (Mark L. Earley, Atty. Gen.; Richard B. Campbell, Deputy Atty. Gen.; Michael K. Jackson, Senior Asst. Atty. Gen.; J. Patrick Griffin, Senior Asst. Atty. Gen.; John P. Josephs, Jr., Asst. Atty. Gen, on briefs), for appellee in Record No. 002813.

Amicus Curiae: Virginia Hospital & Healthcare Assoc.; William L.S. Rowe (Susan C. Ward; Hunton & Williams, on brief), Richmond, in support of appellant in Record No. 002813.

Sydney E. Rab, Asst. Atty. Gen. (Mark L. Earley, Atty. Gen.; Richard B. Campbell, Deputy Atty. Gen.; Michael K. Jackson, Senior Asst. Atty. Gen.; J. Patrick Griffin, Senior Asst. Atty. Gen.; John P. Josephs, Jr., Asst. Atty. Gen, on briefs), for appellant in Record No. 002820.

James A. Leftwich (Basnight, Kinser, Telfeyan, Leftwich & Nuckolls, on brief), Chesapeake, for appellee in Record No. 002820.

Amicus Curiae: Virginia Hospital & Healthcare Assoc.; William L.S. Rowe (Susan C. Ward; Hunton & Williams, on brief), Richmond, in support of appellee in Record No. 002820.

Present: All the Justices.

Opinion by Chief Justice HARRY L. CARRICO.

On April 3, 1997, the Commonwealth of Virginia, Department of Taxation (the Department) issued a notice of assessment to Chesapeake Hospital Authority, d/b/a Chesapeake General Hospital (the Hospital), for use tax on the cost of certain food prepared and served by the Hospital during the assessment period beginning December 1, 1993, and ending November 30, 1996. The Hospital filed an administrative application for correction of erroneous assessment with the Tax Commissioner pursuant to Code § 58.1-1821. On May 19, 1998, the Tax Commissioner issued a determination letter upholding the assessment. The Hospital paid the assessment under protest and filed an application in the trial court for correction of the assessment pursuant to Code § 58.1-1825.

The trial court held the assessment was erroneous and, in a final order entered August 30, 2000, awarded the Hospital judgment for $28,487.98, representing the amount of the erroneous tax plus interest collected for the assessment period. We awarded the Department this appeal.

In Record No. 002820, the Department seeks reversal of the trial court's award of judgment to the Hospital. In Record No. 002813, the Hospital seeks a ruling that the trial court erred in refusing to hold that interest on the judgment should be compounded daily. Finding that the trial court did not err in either respect, we will affirm its judgment.

The record shows that the Hospital's dietary department purchases raw food and ingredients, and the Department agrees there is "no taxation" on these purchases. The dietary department prepares meals and serves them to patients, and the Department concedes the furnishing of meals to patients is exempt from sales and use tax. The dietary department operates a cafeteria and a catering service and collects sales tax on the food sold to physicians, employees, and others.

The dietary department also prepares food and serves it free of charge, without collecting sales tax, at meetings of members of the medical staff, the Process Improvement Committee, and the Hospital Authority, as well as at annual banquets recognizing volunteers. In these situations, the Hospital uses an accounting entry called "dietary transfers" to record the value of the food transferred to the different departments of the hospital, and it was upon these dietary transfers that the Department based its assessment of April 3, 1997.

The assessment was imposed pursuant to Code § 58.1-604, which provides in pertinent part that "[t]here is hereby levied and imposed in addition to all other taxes and fees now imposed by law, a tax upon the use or consumption of tangible personal property in this Commonwealth." The use tax imposed by Code § 58.1-604 "applies to the use, consumption or storage of tangible personal property in Virginia when the Virginia sales or use tax is not paid at the time the property is purchased." 23 VAC XX-XXX-XXXX.

The Department and the Hospital join issue on whether the latter's "claims derive from similar statutory language exempting from taxation `tangible personal property for use or consumption by' a political subdivision (Va.Code § 58.1-609.1(4)) or a nonprofit hospital (Va.Code § 58.1-609.7(4))."¹ The Department agrees that food is tangible personal property within the meaning of both the statute imposing the tax and the statutes providing the exemptions. The Department also agrees that the Authority is a political subdivision of the Commonwealth, created by the General Assembly "to provide improved medical care and related services" to "the residents of the City of Chesapeake and such other persons who might be served by the Authority." 1966 Va. Acts ch. 271 as amended by 1987 Va. Acts ch. 396. Finally, the Department agrees that the Hospital provides its services on a nonprofit basis and is exempt from federal and state income tax.

In its first assignment of error, the Department asserts that "[t]he Circuit Court erred by failing to give the Department's rulings and policy proper deference by ignoring the Department's long-standing administrative interpretation."² The Department argues that, to provide the proper deference, the trial court should have given "great weight" to the published rulings of the Tax Commissioner on questions similar to the issue presented here.³ Throughout its opening brief, the Department repeatedly asserts that the actions of the Tax Commissioner are entitled to a heightened level of deference, resulting in judgment in the Department's favor.

The Department emphasizes one of the Tax Commissioner's published rulings, P.D. 95-70 (April 3, 1995).⁴ In this ruling, the Tax Commissioner denied a hospital an exemption for "[i]nternal accounting charges for catered meals provided by the hospital's food service division to various hospital departments for staff meetings, board meetings, [and] technical and educational meetings... because the hospital exercises no control over the consumption of such meals." Further, in P.D. 95-70 and in his determination letter upholding the assessment in this case, the Tax Commissioner relied "heavily" on an opinion of the Attorney General of Virginia which, according to the determination letter, stated that "catered meals purchased by the state with public funds and consumed by guests attending a conference hosted by the state [did not] warrant exemption." Citing 1969-1970 Att'y Gen.Ann.Rep. 291.⁵

Responding, the Hospital points out that "[o]n July 1, 1980, § 58.1-205 became effective and codified the effects of regulations, rulings, and administrative interpretations of the Tax Department." The Code section provides as follows:

In any proceeding relating to the interpretation or enforcement of the tax laws of this Commonwealth, the following rules shall apply:

1. Any assessment of a tax by the Department shall be deemed prima facie correct.

2. Any regulation promulgated as provided by subsection B of § 58.1-203 shall be sustained unless unreasonable or plainly inconsistent with applicable provisions of law.⁶

3. Rulings issued in conformity with § 58.1-203 and published as provided in § 58.1-204 shall be accorded judicial notice.⁷

4. In any proceeding commenced under §§ 58.1-1821, 58.1-1824 or 58.1-1825 before January 1, 1985, unpublished rulings and other administrative interpretations which are documented and established by competent evidence to have been in effect prior to July 1, 1980, shall be accorded judicial notice and shall be given such weight as the reviewing authority deems appropriate. In all proceedings commenced after such date, such rulings and interpretations shall be subject to the provisions of subsection 5.⁸

5. Rulings and administrative interpretations other than those described in subsections 2, 3 and 4 shall not be admitted into evidence and shall be accorded no weight, except that an assessment made pursuant to any such ruling or interpretation shall be entitled to the presumption of correctness specified in subsection 1.

The Hospital says "[t]his statute does not afford the Tax Commissioner's rulings great weight."

The Department's reply brief consists of a set of confusing statements of the Department's position concerning the effect of the enactment of Code § 58.1-205. The Department says on the one hand that Code § 58.1-205 "is silent about the weight to be given published rulings" and that the "rulings are not cited as persuasive authority." On the other hand, the Department states that "[t]he Court must analyze the published rulings to determine the appropriate weight in the same manner as before the enactment of § 58.1-205," meaning, of course, to give the rulings "great weight," as we did before 1980. See Virginia Dept. of Taxation v. Progressive Community Club, Inc., 215 Va. 732, 739, 213 S.E.2d 759, 763 (1975) (construction of statute by state official charged with its administration entitled to great weight).

Further, the Department says that the statute is also silent "as to the weight to be given a policy published in anything other than a regulation." Even so, the Department says that "the court determines the appropriate weight based on principles developed and applied over the years," meaning, again, to give the policies pre-Code § 58.1-205 "great weight."

Finally, the Department states that "an unpublished policy is inadmissible and entitled to no weight." The Department immediately turns around and...