Background
In 2003, Davis Memorial Hospital (“Davis”), along with twelve other hospitals throughout the State of West Virginia, filed refund claims with the State. The refund claims represented the amount of consumers’ sales and services tax or use tax that Davis and the other hospitals had been charged and had paid on their purchases of prescription drugs for a specified period.
The State denied the refund claims, and the hospitals appealed to the West Virginia Office of Tax Appeals (“OTA”), a quasi-judicial body charged with authority to decide matters arising under state tax laws. In late 2004, OTA denied the appeal of the hospitals. In February of 2005, each of the thirteen hospitals appealed to the circuit courts of their respective counties.
The first circuit court to reach a decision in the matter was the Circuit Court of Randolph County. That circuit court issued a ruling favorable to Davis, which the State appealed to the West Virginia Supreme Court of Appeals. The parties agreed to stay proceedings of matters in the other counties pending resolution of the matter by the West Virginia Supreme Court of Appeals.
On January 10, 2007, the West Virginia Supreme Court of Appeals, by a vote of four to one, declined to hear the appeal of the West Virginia State Tax Commissioner (the “State”) in the case of Davis Memorial Hospital v. Helton. As a result, Davis’ entitlement to the claimed refund became final.
At issue in Davis was whether it was entitled to assert an exemption under West Virginia Code § 11-15-9(a)(11) (the “Prescription Drug Exemption”) when the prescription drugs at issue were purchased by Davis prior to the identification of the patient or the issuance of a prescription. The Prescription Drug Exemption provides an exemption from sales tax for “sales of drugs, durable medical goods, mobility-enhancing equipment and prosthetic devices dispensed upon prescription and sales of insulin to consumers for medical purposes.”
In its only occasion to interpret the Prescription Drug Exemption, the West Virginia Supreme Court of Appeals declared the statutory exemption free from ambiguity. Syncor International Corporation v. Commissioner, 208 W. Va. 658, 542 S.E.2d 479, 484 (2001). Further, the Syncor Court held that, “[a]ll that is required for entitlement to the exemption under W.Va. Code § 11-15-9(a)(11) is (1) a sale; (2) of a drug; (3) that is dispensed upon prescription.”
In Davis, the State argued primarily that the Supreme Court’s analysis in Syncor is inapplicable because Syncor involved core (individual patient-unit dosage) sales rather than the bulk purchases at issue in Davis. The Circuit Court of Randolph County was not persuaded by the distinction and ruled wholly in favor of Davis. By virtue of the Supreme Court’s vote not to review the circuit court’s ruling in Davis, that hospital’s entitlement to the refund became legally final.
At this early stage, we are uncertain whether the State is willing to concede the issue in the identical cases in other circuit courts involving the other twelve hospitals. Pending a final resolution of the matter, however, a prudent course of action for healthcare providers is to file protective refund claims for open periods.
In general, for sales tax, currently the earliest open year is 2003 and the limitations period for that year ends on January 30, 2007. For use tax, a quarterly tax, the earliest currently open period is the first quarter of 2004 and the limitations period for that quarter ends on April 16, 2007 (the 15th is a Sunday).
The purchases for which refunds of tax paid ought to be claimed are of any drug or device which is of the nature that requires a prescription to be dispensed or administered to patients.
If you have any individual inquiries or questions, please contact the Bowles Rice Tax Team. Specifically, the individual attorneys at Bowles Rice directly involved with Davisare: Mike Caryl at 304-264-4225 and Heather Harlan at 304-347-1194.
The author presents these materials with the understanding that the information provided is not legal advice. Due to the rapidly changing nature of the law, information contained in this publication may become outdated. Anyone using these materials should always research original sources of authority and update this information to ensure accuracy when dealing with a specific matter. No person should act or rely upon the information contained in this publication without seeking the advice of an attorney.
Circular 230 Notice: With respect to federal tax issues, no advice, statement or information contained in this communication is intended to be, or written for the purpose of being, (a) relied upon by a taxpayer as the exclusive basis to avoid penalties under the Internal Revenue Code, or (b) used in connection with the promotion, marketing or recommendation of any tax shelter product or tax shelter transaction.