The United States District Court has certified to us the following state law question: "Whether for-profit nursing homes are entitled to take a patient services exemption to their Business & Occupation taxes under RCW 82.04.4289." (Order Certifying Question to Supreme Court at 1.) The answer to that question is no.
In 1992, Sehome Park Care Center, Inc., and several other for-profit nursing homes petitioned for bankruptcy in the United States District Court, Western District of Washington at Seattle. Their petitions were consolidated by the bankruptcy court. The Petitioners then filed an adversary proceeding against the Department of Revenue (Department) in bankruptcy court seeking a determination of their Business & Occupation (B&O) tax liability under RCW 82.04.4289, a statute which is commonly referred to as the patient services exemption. The Petitioners claimed that this exemption applied to all nursing homes, whether for-profit or nonprofit. The Department took the position that the B&O tax exemption was afforded only to nonprofit nursing homes.
A bankruptcy judge reviewed what he referred to as the "plain language" of RCW 82.04.4289 as it existed until July 1, 1993, as well as the amended version of that statute which became effective July 1, 1993, and concluded that under both versions the Petitioners were entitled to a full exemption from B&O tax liability. (Order re: B&O Tax Claim at 2.) The judge, therefore, entered an order enjoining the Department from "assessing, collecting or otherwise seeking to enforce any B&O tax liability against the Debtors...." (Order re: B&O Tax Claim at 3.)
The Department appealed that order to the United States District Court, Western District of Washington at Seattle. That court then certified this question to us: "Whether for-profit nursing homes are entitled to take a patient services exemption to their Business & Occupation taxes under RCW 82.04.4289." (Order Certifying Question to Supreme Court at 1.)
Two versions of RCW 82.04.4289, the patient services
Laws of 1981, ch. 178, § 2, at 841. In 1993, section 305 of Engrossed Second Substitute Senate Bill 5304 was enacted, amending the above statute, as follows:
Laws of 1993, ch. 492, § 305, at 492.
Petitioners argue that both versions unambiguously exempt patient services income for all nursing homes, and that even if there is ambiguity, the rules of statutory construction favor their interpretation. The Department
In 1960, although the Legislature had not amended the statute, the Commission revised the rule to exclude nursing homes from being eligible to claim the exemption.
The Commission's rule interpreting the 1961 change,
Turning to the 1993 amendment to RCW 82.04.4289, we see that the Legislature deleted hospitals from the statute entirely, and inserted a comma after the words "nursing homes." Rather than resolving the ambiguity, the comma made it even more difficult to decide which institutions were modified by the "but only if" language.
Again we look to the legislative history to clarify the ambiguity and determine the Legislature's intent. The 1993 amendment was part of the Health Care Reform Act, which began as Senate Bill 5304. If the Legislature had intended to change the applicability of the tax exemption so that it extended to both nonprofit and for-profit nursing homes, one would expect to find that fact in the published bill summaries. These summaries reflect no such change. See 1 Legislative Digest and History of Bills, 53rd Wash. State Leg., 126-29 (5th ed. May 4, 1994); Final Legislative Report, 53rd Wash. State Leg., 235-41 (1993). In fact, these documents reveal that the thrust of the bill was to increase, rather than decrease, taxes in order to pay for health care reform. The title of the section, "Hospital Exemption Deleted," also fails to reflect any change with regard to nursing homes. Thus, the legislative history of the 1993 amendment supports continuation of the patient services exemption for only those nursing homes that are organized as nonprofit entities.
In conclusion, for the reasons stated above, we answer no to the question propounded to us by the federal district court.
DURHAM, C.J., and DOLLIVER, SMITH, GUY, JOHNSON, MADSEN, TALMADGE, and PEKELIS, JJ., concur.
"In computing tax liability of hospitals under [the Business and Occupation Tax] Title II, there may be deducted from the measure of the tax the following:
"(b) Amounts derived as compensation for services rendered to patients of a hospital or other institution which is organized as a non-profit corporation....
"Persons operating hospitals, clinics, or other institutions, which are not organized or operated as above provided, are taxable under the classification of `Service and Other Business Activities' of Title II, at the rate of 1/2 of 1% of the gross income received from hospital services." Excise Tax Div. of the Tax Comm'n, Rules Relating to the Revenue Act, Rule 168 (revised May 1, 1945) (on file at Washington State Archives).
"The terms `hospital' and `hospital or other institution' mean only institutions licensed as hospitals under Ch. 70.41 RCW and, hence, included within the definition of the term `hospital' in RCW 70.41.020(3). The terms do not include nursing homes, convalescent homes, clinics, rest homes, health resorts or similar institutions." Excise Tax Div. of the Tax Comm'n, Rules Relating to the Revenue Act, Rule 168 (revised Jan. 1, 1960) (on file at Washington State Archives).
"The term `hospital' means only institutions defined as hospitals in Ch. 70.41 RCW. The term `nursing home' means only institutions defined as nursing homes in Ch. 81.51 RCW.
"In computing business tax liability of hospitals, there may be deducted from the measure of the tax the following:
"In computing business tax liability of nursing homes and homes for unwed mothers there may be deducted from the measure of tax the following. Amounts derived as compensation for services rendered to patients by nursing homes and homes for unwed mothers operated as religious or charitable organizations but only if no part of the net earnings received by such nursing homes or homes for unwed mothers inures, directly or indirectly, to any person other than the institution entitled to deduction hereunder." Excise Tax Div. of the Tax Comm'n, Rules Relating to the Revenue Act, Rule 168 (revised Jan. 1, 1964) (on file at Washington State Archives) (emphasis added).