Walgreens Specialty Pharmacy, LLC v. Comm'r of Revenue

• Decision Date: 15 August 2018
• Docket Number: A17-1991
• Parties: WALGREENS SPECIALTY PHARMACY, LLC, Respondent, v. COMMISSIONER OF REVENUE, Relator.
• Court: Minnesota Supreme Court

916 N.W.2d 529

WALGREENS SPECIALTY PHARMACY, LLC, Respondent,

v.COMMISSIONER OF REVENUE, Relator.

A17-1991

Supreme Court of Minnesota.

Filed: August 15, 2018

Walter A. Pickhardt, Michael J. Kaupa, Faegre Baker Daniels LLP, Minneapolis, Minnesota, for respondent.

Lori Swanson, Attorney General, Michael Goodwin, Assistant Attorney General, Saint Paul, Minnesota, for relator.

OPINION

LILLEHAUG, Justice.

Respondent Walgreens Specialty Pharmacy, LLC ("WSP") requested refunds from the Department of Revenue for taxes paid under Minnesota's Legend Drug Tax, see Minn. Stat. § 295.52, subd. 4 (2016), on transactions between WSP's non-resident pharmacies and Minnesota-based patients and doctors. Relator Commissioner of Revenue ("Commissioner") denied the requested refunds. WSP sought relief from the Minnesota Tax Court, arguing that the Legend Drug Tax did not apply to the transactions at issue. The tax court agreed with WSP and granted its motion for summary judgment. We reverse.

FACTS

The facts underlying this appeal are not in dispute. WSP is a single-member limited liability company, organized under the laws of Delaware and headquartered in Florida.¹ WSP is a wholly owned subsidiary of Walgreen Company ("Walgreens"), which is incorporated in Illinois. During the tax years at issue, 2008–2013, WSP operated a retail pharmacy business, selling specialty drugs used to treat chronic, rare, and complex medical conditions. WSP owned and operated retail pharmacy locations in New Jersey (now closed), Massachusetts (now closed), Michigan, Oregon, Pennsylvania, and Texas—but not in Minnesota. The Minnesota Board of Pharmacy licensed all of those locations to dispense legend drugs² to Minnesota residents.³ WSP did not own or rent any property in Minnesota, and did not employ anyone in Minnesota.

Walgreens employed a representative in Minnesota to promote the services of WSP to doctors, medical-practice managers, hospitals, and others. WSP contracted with health-plan companies and others in Minnesota to sell legend drugs prescribed by Minnesota healthcare providers to customers in Minnesota. Minnesota customers could also order refills from WSP for prescribed legend drugs, through a common website shared by Walgreens and WSP. During the tax years at issue, WSP filled for Minnesota-based customers hundreds of thousands of prescriptions worth hundreds of millions of dollars.

WSP filled these prescriptions from its inventory of legend drugs obtained from wholesalers and manufacturers, licensed and unlicensed, located outside of Minnesota. WSP delivered the prescribed drugs to a common carrier (such as UPS or FedEx), which then shipped the legend drugs to Minnesota-based customers—either to the customer's home or, if the drug was to be administered by a doctor, to a treatment facility.

WSP filed amended tax returns for the tax years at issue, requesting refunds of the 2-percent legend-drug taxes paid on its wholesale cost for the legend drugs sold to Minnesota-based customers during those years. The Commissioner denied the refund claims, and WSP appealed. The tax court concluded that the relevant transactions were not subject to the tax because WSP received the legend drugs outside of Minnesota. Walgreens Specialty Pharmacy, LLC v. Comm'r of Revenue , No. 8902-R, 2017 WL 5617609, at *8 (Minn. T.C. Oct. 16, 2017). In reaching this conclusion, the tax court acknowledged that subdivision 4(a) "provides that delivery of drugs within Minnesota can trigger liability for" the tax, but held that the statute imposes the tax "solely [on] the receipt of drugs." Id. at *10.

ANALYSIS

The first issue presented by this case is whether Minnesota's Legend Drug Tax applies to transactions between Minnesota-based customers and a non-resident pharmacy that receives drugs outside of Minnesota, fills prescriptions from Minnesota-based medical providers from those drugs, and uses a common carrier to ship the prescribed legend drugs to Minnesota-based customers. If so, we must then decide whether application of the tax comports with the Due Process and Commerce Clauses of the United States Constitution. On cross-motions for summary judgment, the tax court denied the Commissioner's motion and granted WSP's motion. We review a grant of summary judgment de novo. Montemayor v. Sebright Prods., Inc. , 898 N.W.2d 623, 628 (Minn. 2017). Here, we review de novo the tax court's application of the law to the undisputed facts. Chapman v. Comm'r of Revenue , 651 N.W.2d 825, 830 (Minn. 2002).

I.

We turn first to the question of whether the Legend Drug Tax applies to the transactions at issue here. The Legend Drug Tax is one of several MinnesotaCare provider taxes, under which a 2-percent tax is levied on the gross revenues of hospitals, surgical centers, wholesale drug distributors, and on the price paid (here, the wholesale cost) by those who receive or deliver legend drugs in Minnesota. Minn. Stat. § 295.52 (2016).⁴ WSP contends that the Legend Drug Tax, properly construed, applies only to the receipt of legend drugs in Minnesota. The Commissioner argues that liability for the Legend Drug Tax is imposed on in-state receipt or delivery of the drugs. The parties' dispute requires that we interpret the Legend Drug Tax, Minn. Stat. § 295.52, subd. 4.

"The objective of statutory interpretation is to ascertain and effectuate the Legislature's intent." State v. Struzyk , 869 N.W.2d 280, 284 (Minn. 2015) (citation omitted). "The first step in statutory interpretation is to ‘determine whether the language of the statute, on its face, is ambiguous.’ " 500, LLC v. City of Minneapolis , 837 N.W.2d 287, 290 (Minn. 2013) (quoting Larson v. State , 790 N.W.2d 700, 703 (Minn. 2010) ). "A statute is ambiguous if it is susceptible to more than one reasonable interpretation." Id. (citation omitted). If a statute is ambiguous, we may look to canons of construction to ascertain its meaning. Id. But when the intent of the Legislature is clear from the unambiguous language of the statute, we apply the statute according to its plain meaning. Id. We interpret statutes to give effect to all of their provisions and assume that the Legislature does not intend to enact unconstitutional statutes. See Minn. Stat. §§ 645.16, .17(3) (2016).

We conclude that the plain language of the statute at issue here encompasses out-of-state pharmacies that deliver legend drugs to Minnesota-based customers for use in Minnesota. The statute states:

Subd. 4. Use tax; legend drugs. (a) A person that receives legend drugs for resale or use in Minnesota, other than from a wholesale drug distributor that is subject to tax under subdivision 3, is subject to a tax equal to the price paid for the legend drugs multiplied by the tax percentage specified in this section. Liability for the tax is incurred when legend drugs are received or delivered in Minnesota by the person.

(b) A tax imposed under this subdivision does not apply to purchases by an individual for personal consumption.

Minn. Stat. § 295.52, subd. 4.⁵

The first sentence of subdivision 4(a), standing on its own, identifies who is "subject to" the tax: persons that receive legend drugs. This sentence also describes the taxable activity: receipt of legend drugs "for resale or use in Minnesota." The second sentence of subdivision 4(a) identifies when "[l]iability" for the tax is incurred: when that person "receive[s] or deliver[s]" legend drugs "in Minnesota." Id. Reading these two sentences together, and giving effect to all of their words, as we must, see State v. Prigge , 907 N.W.2d 635, 638 (Minn. 2018) (citing State v. Riggs , 865 N.W.2d 679, 683 (Minn. 2015) ("[W]e construe a statute as a whole and interpret its language to give effect to all of its provisions.") ), the plain language of subdivision 4(a) establishes that the Legend Drug Tax applies: (1) to a person who receives legend drugs for resale or use in Minnesota (2) when that person receives or delivers those drugs in Minnesota.⁶ See also Minn. Stat. §§ 645.08(1) (2016) (requiring that we construe "words and phrases ... according to the rules of grammar"), 645.16 (requiring that we "give effect to all" of a statute's provisions).

With these two elements of the statute in mind, we now consider whether WSP's transactions with Minnesota-based customers are subject to Minnesota's Legend Drug Tax. First, there is no question that WSP received legend drugs for resale or use in Minnesota. WSP operated out-of-state pharmacies and filled prescriptions from Minnesota by taking prescribed drugs from its drug inventories to do so, meaning the prescribed drugs would be used or resold in Minnesota. The first element of subdivision 4(a) is met.

As for the second element, there is no dispute that WSP then delivered the drugs to Minnesota-based customers by common carrier. The issue then is whether, by delivering drugs to Minnesota-based customers by common carrier, WSP thereby "delivered" the legend drugs "in Minnesota" as stated in subdivision 4(a). See Minn. Stat. § 295.52, subd. 4(a).

"Deliver" is not defined in chapter 295, which governs the MinnesotaCare provider taxes. See Minn. Stat. § 295.50 (2016) (providing the definitions that apply to Minn. Stat. §§ 295.50 –.59 (2016) ). But we find helpful guidance in other uses of the word "deliver" in this chapter. First, the phrase "delivered outside of Minnesota" is defined as:

property which the seller delivers to a common carrier for delivery outside Minnesota, places in the United States mail or parcel post directed to the purchaser outside Minnesota, or delivers to the purchaser outside Minnesota by means of the seller's own delivery vehicles, and which is not later returned to a point within Minnesota, except in the course of interstate commerce.

Id. , subd. 2a. Although this definition addresses delivery "outside of Minnesota," it recognizes that "delivery" encompasses a seller's use of a common carrier. See also Minn. Stat. § 297A.66, subd. 1(b) (2016) (defining the "[d]...