Justices reject hospital's attempt to lower tax

By Steve Korris | Oct 2, 2008


CHARLESTON – Davis Memorial Hospital of Elkins tried to dodge an $800,000 tax through a word trick that would have turned it from a big non-profit into a little charity, but the state Supreme Court rejected the trick and enforced the tax.

The Court ruled Oct. 10 that Davis Memorial defined "support" too narrowly when it declared that most of its support came from charitable activities.

Davis Memorial's definition of support excluded $64 million in patient revenues, but the Justices held that the hospital must include that amount in its calculation of support.

The Justices admitted that state law on tax exemptions created ambiguity, but they chose to ignore the hospital's analysis of the meanings of "or," "which," and a comma.

"While a grammatical analysis may be a useful tool in interpreting a statute, it is not controlling, and it will not justify an interpretation that is contrary to the intent of the Legislature," Justice Robin Davis wrote.

The Legislature intended to give a broad meaning to "support" in order to limit exemptions from taxation, she wrote.

Davis Memorial applied in 2005 for a refund of $799,501.56 in sales and use taxes that it paid for 2002.

Davis Memorial relied on state law granting exemption to a nonprofit that receives more than half of its support from gifts, grants, contributions and membership fees.

The state tax commissioner denied the refund. So did the Office of Tax Appeals.

Davis Memorial petitioned for relief in Randolph Circuit Court, but Judge John Henning affirmed the denial of the exemption.

Davis Memorial appealed, but all five Justices rejected the hospital's argument.

To cinch the case, Justice Davis dug into 71 years of charity law.

She wrote that in 1937, when legislators adopted a consumer sales tax, they included no exemptions for charities.

In 1955, she wrote, legislators exempted charities that did not charge for services. In 1974, she wrote, they exempted charities that made "casual and occasional sales."

In 1989, she wrote, they adopted the current exemption law.

"Given this history of gradual change and narrowly defined groups of charitable organizations to which a sales tax exclusion would apply, we find it difficult to believe that the Legislature intended such a dramatic change in the law as advocated by Davis Memorial," Davis wrote.

The Legislature declared that the purpose of the law was to impose a tax, she wrote.

The law states that "it shall be presumed that all sales and services are subject to the tax until the contrary is clearly established," she wrote.

"We believe the foregoing provisions clearly reflect the legislative intent that presumptions are to be made in favor of taxability," she wrote.

She quoted a 1997 decision that, "Where a person claims an exemption from a law imposing a license or tax, such law is strictly construed against the person claiming the exemption."

Thomas McHugh, temporary substitute for Justice Joseph Albright, disqualified himself from the case. Raleigh Circuit Judge John Hutchison substituted for McHugh.

Assistant attorney general Wayne Williams represented the tax commissioner.

Ancil Ramey, Frederick Williams and Robert Bailey, of Steptoe & Johnson in Charleston, represented Davis Memorial. So did Robert Wilson of Atlanta.

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