Davis Memorial Hosp. v. State Tax Com'R

• Decision Date: 14 October 2008
• Docket Number: No. 33862.,33862.
• Citation: 671 S.E.2d 682
• Parties: DAVIS MEMORIAL HOSPITAL, Petitioner Below, Appellant, v. WEST VIRGINIA STATE TAX COMMISSIONER, Respondent Below, Appellee.
• Court: West Virginia Supreme Court

671 S.E.2d 682

DAVIS MEMORIAL HOSPITAL, Petitioner Below, Appellant, v. WEST VIRGINIA STATE TAX COMMISSIONER, Respondent Below, Appellee.

No. 33862.

Supreme Court of Appeals of West Virginia.

Submitted September 23, 2008.

Decided October 14, 2008.

Syllabus by the Court

1. "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." Syllabus point. 1, Chrystal R.M. v. Charlie A.L., 194 W.Va. 138, 459 S.E.2d 415 (1995).

2. "A statute that is ambiguous must be construed before it can be applied." Syllabus point 1, Farley v. Buckalew, 186 W.Va. 693, 414 S.E.2d 454 (1992).

3. "The primary object in construing a statute is to ascertain and give effect to the intent of the Legislature." Syllabus point 1, Smith v. State Workmen's Compensation Commissioner, 159 W.Va. 108, 219 S.E.2d 361 (1975).

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)." Syllabus point 3, Buda v. Town of Masontown, 217 W.Va. 284, 617 S.E.2d 831 (2005).

5. "`Where a person claims an exemption from a law imposing a license or tax, such law is strictly construed against the person claiming the exemption' Syllabus Point 4, Shawnee Bank, Inc. v. Paige, 200 W.Va. 20, 488 S.E.2d 20 (1997) (citations omitted)." Syllabus point 1, RGIS Inventory Specialists v. Palmer, 209 W.Va. 152, 544 S.E.2d 79 (2001).

6. "A cardinal rule of statutory construction is that significance and effect must, if possible, be given to every section, clause, word or part of the statute." Syllabus point 3, Meadows v. Wal-Mart Stores, Inc., 207 W.Va. 203, 530 S.E.2d 676 (1999).

7. "In ascertaining the intent of the Legislature in the enactment of a statute and determining whether it is unambiguous, the grammatical construction, while not controlling, is an important aid." Syllabus point 4, Pond Creek Pocahontas Co. v. Alexander, 137 W.Va. 864, 74 S.E.2d 590 (1953).

8. The term "support," as defined in W. Va.Code § 11-15-9(a)(6)(F)(i)(II) (2007) (Supp.2008), includes, but is not limited to, gross receipts from: (1) fundraisers, which include receipts from admissions; (2) sales of merchandise; (3) performance of services; or (4) furnishing of facilities, in any activity which is not an unrelated trade or business within the meaning of Section 513 [26 USCS § 513] of the Internal Revenue Code of 1986, as amended.

Ancil G. Ramey, L. Frederick Williams, Robert L. Bailey, Steptoe & Johnson PLLC, Charleston, and Robert A. Wilson, Jr., Wilson & Mills, LLC, Atlanta Georgia, for the Appellant Davis Memorial Hospital.

Darrell V. McGraw, Jr., Attorney General, L. Wayne Williams, Assistant Attorney General, Charleston, for the Appellee West Virginia State Tax Commissioner.

DAVIS, Justice:¹

Davis Memorial Hospital (hereinafter referred to as "Davis Memorial"), Appellant and petitioner below, appeals from a decision of the Circuit Court of Randolph County that affirmed the denial of its claim for a refund of West Virginia consumers sales tax and West Virginia use tax paid for the year 2002. The circuit court affirmed the decision of the West Virginia State Tax Commissioner, respondent below and appellee (hereinafter referred to as "Tax Commissioner"), which interpreted the term "support," as defined in W. Va.Code § 11-15-9(a)(6)(F)(i)(II) (2007) (Supp.2008), as including Davis Memorial's receipts from patient revenues, also referred to as "exempt purpose income."² With its exempt purpose income included in the calculation of its "support," Davis Memorial does not qualify for an exemption from West Virginia sales tax and use tax. We agree with the Tax Commissioner's interpretation of the relevant statutes. Therefore, we affirm the circuit court's ruling upholding that interpretation.

I. FACTUAL AND PROCEDURAL HISTORY

Davis Memorial is an Internal Revenue Code § 501(c)(3) not-for-profit healthcare provider.³ As such, Davis Memorial is exempt from West Virginia sales tax and use tax⁴ if it passes the "support test" set out in W. Va.Code § 11-15-9(a)(6)(C) (2007) (Supp. 2008),⁵ i.e., if it "annually receives more than one half of its support from any combination of gifts, grants, direct or indirect charitable contributions or membership fees." (Emphasis added). The issue presented in this case is the meaning of the term "support" as that term is described in W. Va.Code § 11-15-9(a)(6)(F)(i)(II).

W. Va.Code § 11-15-9(a) states in relevant part:

(a) .... The following sales of tangible personal property and services are exempt as provided in this subsection:

. . . .

(6) Sales of tangible personal property or services to a corporation or organization which has a current registration certificate issued under article twelve [§§ 11-12-1 et seq.] of this chapter, which is exempt from federal income taxes under Section 501(c)(3) or (c)(4) of the Internal Revenue Code of 1986, as amended, and which is:

. . . .

(C) A corporation or organization which annually receives more than one half of its support from any combination of gifts, grants, direct or indirect charitable contributions or membership fees;

. . . .

(F) For purposes of this subsection:

(i) The term "support" includes, but is not limited to:

(I) Gifts, grants, contributions or membership fees;

(II) Gross receipts from fundraisers which include receipts from admissions, sales of merchandise, performance of services or furnishing of facilities in any activity which is not an unrelated trade or business within the meaning of Section 513 of the Internal Revenue Code of 1986, as amended; (III) Net income from unrelated business activities, whether or not the activities are carried on regularly as a trade or business;

(IV) Gross investment income as defined in Section 509(e) of the Internal Revenue Code of 1986, as amended;

(V) Tax revenues levied for the benefit of a corporation or organization either paid to or expended on behalf of the organization; and

(VI) The value of services or facilities (exclusive of services or facilities generally furnished to the public without charge) furnished by a governmental unit referred to in Section 170(c)(1) of the Internal Revenue Code of 1986, as amended, to an organization without charge. This term does not include any gain from the sale or other disposition of property which would be considered as gain from the sale or exchange of a capital asset or the value of an exemption from any federal, state or local tax or any similar benefit;

W. Va.Code § 11-15-9 (2007) (Supp 2008) (emphasis added).

On May 9, 2005, Davis Memorial filed a claim for a refund of West Virginia consumers sales tax and West Virginia use tax paid during the calendar year 2002. Davis Memorial sought the refund based upon its claim that it met the "support test" and, therefore, was exempt from paying State sales and use taxes. The amount of the refund sought for the calendar year 2002 is $799,501.16. The Tax Commissioner denied the claimed refund and Davis Memorial filed a timely appeal to the West Virginia Office of Tax Appeals (hereinafter referred to as "the OTA"). Following an administrative hearing, the OTA affirmed the Tax Commissioner's denial of the refund. The Administrative Law Judge presiding over the case⁶ concluded that Davis Memorial was required to include receipts from patient revenues, i.e., its exempt purpose income, in calculating its support for purposes of claiming the tax exemptions set forth in W. Va.Code § 11-15-9(a)(6), and therefore, Davis Memorial did not meet the "support test" in that less than one-half of its support was received from "gifts, grants, direct or indirect charitable contributions or membership fees." It is undisputed that if Davis Memorial's exempt purpose income was not included in the calculation of its "support," then it would meet the support test and would be exempt from State sales and use taxes.

Davis Memorial appealed the OTA decision to the Circuit Court of Randolph County. The circuit court affirmed the OTA decision upholding the Tax Department's denial of the requested refund. Davis Memorial then appealed to this Court, and we now affirm.

II. STANDARD OF REVIEW

Determining what is meant by the term "support," as that term is used in W. Va.Code § 11-15-9(a)(6)(F), presents a pure question of law. Therefore, this Court's review is de novo. "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).

III. DISCUSSION

The sole issue presented for resolution in this case is the meaning of W. Va. Code 11-15-9(a)(6)(f)(i)(II), which states:

(F) For purposes of this subsection:

(i) The term "support" includes, but is not limited to:

. . . .

(II) Gross receipts from fundraisers which include receipts from admissions, sales of merchandise, performance of services or furnishing of facilities in any activity which is not an unrelated trade or business within the meaning of Section 513 of the Internal Revenue Code of 1986, as amended[.]

Davis Memorial argues that the Legislature plainly limited the foregoing definition of support to "fundraisers," and then provided four specific types of funds obtained from "fundraisers," namely: (1) admissions, (2) sales of merchandise, (3) performance of services, or (4) furnishing of facilities, all...