Lacey Nursing Center, Inc. v. Department of Revenue
| Decision Date | 02 November 1995 |
| Docket Number | No. 62079-2,62079-2 |
| Court | Washington Supreme Court |
| Parties | LACEY NURSING CENTER, INC.; Valley Terrace, Inc.; Burien Terrace, Inc.; Skagit Valley Convalescent Center, Inc.; Regency Care Centers, Inc.; Laurel Hill Enterprises, Inc.; Good Samaritan Health Care Center; Regency Care Center of Arlington; Care Centers, Inc.; Brady R. Lane, d/b/a Ridgefield Care Center; Port Orchard Care Center, Inc.; Washington Health Care Association, Respondents, v. The DEPARTMENT OF REVENUE, Petitioners. |
Christine O. Gregoire, Attorney General, Cameron G. Comfort, Leland T. Johnson, Asst. Attorneys General, Olympia, for petitioners.
Kargianis, Austin & Osborn, George E. Kargianis, Susan Machler, Seattle, Workland, Witherspoon & Brajcich, Raymond G. Dodge, Jr., Spokane, for respondents.
Petitioner State of Washington, Department of Revenue, seeks direct discretionary review of a decision of the Thurston County Superior Court which ruled that a suit by nursing homes demanding refunds of state Business and Occupation taxes may be maintained as a class action. We reverse.
The question presented in this case is whether an action by nursing homes for refund of Business and Occupation taxes under RCW 82.32.180 may be maintained as a class action.
Petitioner Department of Revenue (Department) is the state agency responsible for assessment and collection of Business and Occupation taxes in Washington. 1 Respondents are nursing homes 2 (nursing homes) seeking Business and Occupation tax refunds under RCW 82.32.180. 3
On December 6, 1993, Respondent nursing homes filed a notice of appeal and class action complaint under RCW 82.32.180. On December 20, 1993, they filed a first amended notice of appeal and class action complaint seeking refunds of Business and Occupation taxes (B & O taxes) on behalf of all licensed nursing homes for the period 1989 to 1993. The complaint included in the class of plaintiffs "all other persons similarly situated who are taxpayers and owners/operators of licensed nursing homes in Washington and who are so numerous that joinder of all members is impracticable." 4 The complaint asserted that the class should receive a partial Business and Occupation tax exemption for the sale or rental of real estate under RCW 82.04.390 to the extent their revenue from that source could be apportioned.
On December 17, 1993, Respondent nursing homes filed a motion for class certification and preassignment. On January 14, 1994, the Thurston County Superior Court, the Honorable Richard A. Strophy, preassigned the case, but continued the hearing on the class certification motion. 5 The case was subsequently preassigned to Judge Strophy.
The nursing homes renewed their class certification motion on May 9, 1994. At a hearing on May 18, 1994, Judge Strophy orally granted the motion, ruling that class actions are permitted under RCW 82.32.180 and that the nursing homes had sufficiently established the prerequisites for class action under Superior Court Civil Rule 23. 6
On June 17, 1994, Respondents filed a second amended notice of appeal and class action complaint, which added an additional refund claim under the patient services exemption of RCW 82.04.4289. 7 On June 29, 1994, the trial court entered findings of fact, including the following:
2.1 Plaintiff's [sic] claims for tax refunds are brought under RCW 82.32.180.
2.2 The class is composed of owners and/or operators of licensed nursing homes in Washington, as defined in RCW 18.51.010, who pay B & O taxes on the amounts received from the operation of said facilities.
2.3 The class is so numerous that joinder of all members is not practicable.
2.4 There are questions of law common to the class.
2.5 The claims of the representative parties are typical of the claims of the members of the class. 2.6 The representatives of the class will fairly and adequately protect the members of the class.
2.7 The prosecution of separate actions by individual members of the class would create a risk of inconsistent or varying adjudications by the Department of Revenue with respect to individual members of the class which would establish incompatible standards of conduct.
2.8 The questions of law common to the members of the class predominate over any questions affecting only individual members. 8
From these findings of fact the court entered conclusions of law that:
3.1 Class refund actions are permitted under RCW 82.32.180.
3.2 The action shall be maintained as a class action.
3.3 The class shall be composed of all owner and/or operators of licensed nursing homes as defined in RCW 18.51.010. 9
On August 22, 1994, the trial court denied a motion for reconsideration filed by the Department of Revenue. On December 30, 1994, Respondent nursing homes filed a third amended notice of appeal and class action complaint adding an alternative cause of action which they claimed was sufficient to plead individual actions for B & O tax refunds under RCW 82.32.180. 10 The complaint named numerous additional parties seeking refunds. 11 We granted review on March 6, 1995.
Under the Washington Revenue Act, a business and occupation tax is imposed on "every person ... for the act or privilege of engaging in business activities." The tax is "measured by the application of rates against value of products, gross proceeds of sales, or gross income of the business[.] ..." 12 "Business" is defined to include "all activities engaged in with the object of gain, benefit, or advantage to the taxpayer or to another person or class, directly or indirectly." 13 Under the Act, the Department of Revenue has authority to promulgate regulations which have the force of law. 14 WAC 458-20-168 (Rule 168) governs taxation of hospitals, medical care facilities, and adult family homes.
Under WAC 458-20-168(2)(b), the term "nursing home" means "only institutions defined as nursing homes in chapter 18.51 RCW." Under RCW 18.51.010(1), "nursing home" is defined as "any home, place or institution which operates or maintains facilities providing convalescent or chronic care, or both, for a period in excess of twenty-four consecutive hours for three or more patients not related by blood or marriage to the operator, who by reason of illness or infirmity, are unable properly to care for themselves." The statute also provides that "[c]onvalescent and chronic care may include but not be limited to any or all procedures commonly employed in waiting on the sick, such as administration of medicines, preparation of special diets, giving of bedside nursing care, application of dressings and bandages, and carrying out of treatment prescribed by a duly licensed practitioner of the healing arts...."
Under WAC 458-20-168(3) "[t]he sale of tangible personal property which is not part of the medical service being provided to a patient is taxable under the retailing B & O tax classification...."
Under the "service" classification, WAC 458-20-168(3)(b) provides in part that "[t]he gross income derived from personal and professional services of hospitals, ... nursing homes, convalescent homes, clinics, rest homes, health resorts, and similar health care institutions is subject to business and occupation tax under the service and other activities classification."
The Business and Occupation tax was imposed upon services provided by Respondent nursing homes (a) providing services of trained personnel and mental health coordinators on staff, (b) supervising and assisting residents, (c) providing a structured environment for residents to promote health care treatment, (d) purchasing and preparing food for residents, and (e) providing lodging. 15
Respondent nursing homes brought this action against the state under RCW 82.32.180 and Superior Court Civil Rule 23 (CR 23). CR 23, identical to Rule 23 of the Federal Rules of Civil Procedure, 16 " 'provides a means by which, where a large group of persons are interested in a matter, one or more may sue or be sued as representatives of the class without needing to join every member of the class.' " 17 "Class actions are specialized types of suits, and as a general rule must be brought and maintained in strict conformity with the requirements of CR 23." 18
CR 23(a) provides:
One or more members of a class may sue or be sued as representative parties on behalf of all only if (1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class.
19 "A trial court abuses its discretion when its decision is manifestly unreasonable or based upon untenable grounds." 20 "[A] trial court's class certification will be upheld if it appears from the record that the court considered all of the criteria of CR 23." 21
On June 29, 1994, the trial court entered an order certifying this case as a class action. Respondents claim this was proper because RCW 82.32.180, a procedural statute, is in conflict with CR 23, and "[w]here a rule of court is inconsistent with a procedural statute, the court's rulemaking power is supreme." 22 They assert that CR 23 impliedly permits excise tax refund class actions because they are not expressly precluded under RCW 82.32.180. Petitioner Department claims the trial court erred in certifying this case as a class action because Respondents did not establish their right to the certification under CR 23 and that Respondents relied solely upon the declaration of George Kargianis. 23
The trial court determined the evidence presented by Respondents...
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