Pilcher v. State, 27043-9-II.
| Decision Date | 02 July 2002 |
| Docket Number | No. 27043-9-II.,27043-9-II. |
| Citation | 49 P.3d 947,112 Wash.App. 428 |
| Parties | Charles A. PILCHER, M.D., Appellant, v. STATE of Washington, Department of Revenue, Respondent. |
| Court | Washington Court of Appeals |
George Carl Mastrodonato, Lane Powell Spears Lubersky, Olympia, Michael Barr King, Lane Powell Spears Lubersky, Seattle, for Appellant.
Anne Elizabeth Egeler, Cameron Gordon Comfort, Assistant Attorneys General, for Respondent.
Dirk Jay Giseburt, Settle, for Amicus Curiae.
Dr. Charles A. Pilcher appeals a judgment for the Washington Department of Revenue (Department) in his business and occupation (B & O) tax refund action. He argues that the Department wrongfully required him to pay B & O tax on that portion of his gross receipts from Evergreen Hospital that he had paid to the physicians he hired to staff the hospital's emergency department. We hold that (1) substantial evidence supports the trial court's findings of fact, and (2) Pilcher's payments to the physicians under his contract with Evergreen are not excludable from income as pass-through payment exemptions. We affirm.
Evergreen Hospital (the Hospital) provides emergency services to patients through its emergency department. Evergreen contracts out its emergency department physician services, rather than hire the necessary emergency room physicians itself.
Dr. Pilcher is a licensed physician and Certified Specialist in Emergency Medicine. During the 1986-89 audit period at issue here, he contracted with the Hospital (the Hospital/Pilcher contract) to serve as Medical Director and as the providing physician for the Hospital's emergency department.1
As part of the Hospital/Pilcher contract, Dr. Pilcher agreed that he "or one or more of his agents or employees, shall be in attendance and on duty as a physician in the emergency department of the Hospital at all times, so as to provide the Hospital 24-hour on-duty coverage." Clerk's Papers (CP) at 662 ( 5.1). Because it would be physically impossible for Dr. Pilcher to be on duty 24 hours a day, seven days a week, CP at 664 ( 6), the Hospital agreed that Dr. Pilcher could "from time to time associate competent, licensed, physicians or associates, in his sole discretion[.]" CP at 664 ( 5.10).
The Hospital/Pilcher contract provided that (1) the relationship of Dr. Pilcher "and his agents and employees to the Hospital shall be that of an independent contractor," CP at 209, and (2) neither he "nor his employees or agents shall be deemed employees of the hospital for any purpose whatsoever...." CP at 209. The contract held Dr. Pilcher directly responsible if the medical care rendered by the physicians he retained was not consistent with the hospital's "intent of supplying a high degree of quality medical care." CP at 663 ( 5.5). The contract further provided that "failure to maintain said quality care and failure to correct the situation will constitute a breach by the Doctor [Pilcher]." CP at 212.
Dr. Pilcher hired at least five other physicians to work in the Hospital's emergency department. He prepared and required each physician to sign a contract (Pilcher/physician contract),2 specifying the terms of their relationship. None of these physicians entered into contracts with the Hospital for emergency room services.3 Rather, the physicians worked as "independent contractor[s] to [Dr. Pilcher]," CP at 221, and Dr. Pilcher could terminate the physicians as he saw fit.
Under the Pilcher/physician contracts, each retained physician acknowledged that Dr. Pilcher was "responsible for all administrative matters pertaining to their practices in the Emergency Department." CP at 665 ( 7.4).4 Each agreed, however, to accept delegated administrative assignments by Dr. Pilcher "for the benefit of [individual] professional growth or of the department as a whole." CP at 222.
CP at 212. On a monthly basis, Dr. Pilcher and his retained physicians submitted their emergency services fees for the Hospital to bill its patients.5 Dr. Pilcher, his retained physicians, and the Hospital agreed that all of the emergency room physicians' submitted "charges shall be considered the gross charges by [Dr. Pilcher] during that one-month period." CP at 214. Once a month, the Hospital compensated Dr. Pilcher by paying him the charges he and his retained physicians had submitted to the Hospital, "less 18.7 percent thereof for costs of collection, billing, and general overhead."6 CP at 664, Finding 5.7.
The Evergreen/Pilcher contract provided that Dr. Pilcher was solely responsible for paying the physicians he retained:
[Dr. Pilcher] shall be exclusively responsible for the payment of all wages and salaries ... and the filing of all necessary documents, forms and returns pertinent to all of the foregoing. In the event that [Dr. Pilcher] fails to make any such payment or filing, he shall hold harmless and provide the Hospital with a defense against any and all claims that the Hospital is responsible for such payment or filing.
CP at 218 (emphasis added). This provision fairly reflected the actual relationship and practices of the Hospital and Dr. Pilcher.
The physicians Dr. Pilcher retained likewise acknowledged in their contracts that Dr. Pilcher was exclusively responsible for paying them.7 The amount of their compensation was strictly between Dr. Pilcher and the individual physicians. Under the Pilcher/physician contracts, Dr. Pilcher paid each physician his or her total billed charges for providing emergency department medical services each month, "less 22.7 percent."8 If for some reason the physicians were not paid, the Hospital "would have expected Dr. Pilcher to resolve the issue." Report of Proceedings (RP) at 216.
The Washington Department of Revenue audited Dr. Pilcher and determined that (1) he had underreported payments he received from the Hospital; (2) "[t]he difference was the amounts deducted which represented amounts [Dr. Pilcher] paid to other physicians which [he] subcontracted with to staff the emergency room in [his] absence"; CP at 637, and (3) WAC 458-20-111 (Rule 111)9 did not apply or allow an exemption. The Department assessed additional business and occupation (B & O) taxes of $49,166, plus statutory interest.
Dr. Pilcher filed an administrative appeal with the Department's Appeals Division, which upheld the Department's assessment. Dr. Pilcher paid the assessment, then filed for a refund. He next appealed to the Board of Tax Appeals (BTA), which also upheld the Department's assessment.10 Dr. Pilcher filed a de novo, excise-tax-refund appeal under RCW 82.32.180, and the parties had a bench trial in Thurston County Superior Court.
Dr. Pilcher admitted that the Hospital had issued I.R.S. Forms 1099 to him that "include[d] the gross income or the gross amount that was paid to [him]," RP at 64-65, which gross amounts he reported as his gross income for federal income tax purposes. On his federal income tax return, Dr. Pilcher also deducted, as a business expense (labor cost), the amounts he paid to the physicians he retained to staff the Hospital's emergency department "[b]ecause [he] was entitled to it." RP at 154.
In a letter opinion denying Dr. Pilcher's refund claim, the trial court stated:
This court will uphold the Board of Tax Appeal decision. Dr. Pilcher was the sole contracting agent with Evergreen Hospital and ultimately responsible for the hiring and firing of the contracting ER physicians. Although he considered himself a conduit for all the physicians and in practice the ER physicians made decisions as a group, by the terms of the contract with Evergreen, Dr. Pilcher could have overridden their collective decisions. The court is not persuaded that the practice overrides the clear and unambiguous terms of the contract.
CP at 640. The trial court filed findings of fact and conclusions of law consistent with its letter opinion, and entered judgment in the Department's favor, from which Dr. Pilcher now appeals.
"[C]hallenged findings will be binding on appeal if they are supported by substantial evidence in the record." In the Matter of the Contested Election of Schoessler, 140 Wash.2d 368, 385, 998 P.2d 818 (2000) (citation omitted). "Substantial evidence exists where there is a sufficient quantity of evidence in the record to persuade a fair-minded, rational person of the truth of the finding." Schoessler,140 Wash.2d at 385,998 P.2d 818 (citation omitted).
On appeal, we view the evidence in the light most favorable to the prevailing party. Bennett v. Dep't of Labor & Indus., 95 Wash.2d 531, 534, 627 P.2d 104 (1981). Under the substantial evidence standard, we Isla Verde Intl Holdings, Inc. v. City of Camas, 99 Wash.App. 127, 133-34, 990 P.2d 429 (1999), review granted, 141 Wash.2d 1011, 10 P.3d 1071 (2000) (citation omitted).
Dr. Pilcher argues that any doubt as to the imposition of a tax must be resolved in his favor and that the trial court's decision in favor of the Department is not sustainable in light of controlling case law.
The B & O tax applies to virtually all business activities conducted in this state. Simpson Inv. Co. v. Dep't of Revenue, 141 Wash.2d 139, 149, 3 P.3d 741 (2000). RCW...
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