United States v. State of WV

PUBLISHED

UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

UNITED STATES OF AMERICA, 
Plaintiff,
v.
STATE OF WEST VIRGINIA,
Defendant & Third Party Plaintiff-
Appellant,
v.  No. 02-2037

SECRETARY, DEPARTMENT OF
HEALTH AND HUMAN SERVICES, as
administrator of the Health Care
Financing Administration; HEALTH
CARE FINANCING ADMINISTRATION,
Third Party Defendants-Appellees.

Appeal from the United States District Court
for the Southern District of West Virginia, at Charleston.
Elizabeth V. Hallanan, Senior District Judge.
(CA-99-1138-2)

Argued: May 7, 2003

Decided: August 7, 2003

Before LUTTIG, WILLIAMS, and TRAXLER, Circuit Judges.

Reversed by published opinion. Judge Luttig wrote an opinion and
issued the judgment of the court. Judge Traxler wrote an opinion con-
curring in the judgment. Judge Williams wrote a dissenting opinion.
2 UNITED STATES v. STATE OF WEST VIRGINIA
COUNSEL

ARGUED: Katherine A. Schultz, Senior Deputy Attorney General,
OFFICE OF THE ATTORNEY GENERAL, Charleston, West Vir-
ginia, for Appellant. Sambhav Nott Sankar, Appellate Staff, Civil
Division, UNITED STATES DEPARTMENT OF JUSTICE, Wash-
ington, D.C., for Appellees. ON BRIEF: Darrell V. McGraw, Jr.,
Attorney General, Stephen Stockton, Senior Assistant Attorney Gen-
eral, Jennifer Lea Stollings, Assistant Attorney General, OFFICE OF
THE ATTORNEY GENERAL, Charleston, West Virginia, for Appel-
lant. Robert D. McCallum, Jr., Assistant Attorney General, Karl K.
Warner, II, United States Attorney, Mark B. Stern, Appellate Staff,
Civil Division, UNITED STATES DEPARTMENT OF JUSTICE,
Washington, D.C., for Appellees.

OPINION

LUTTIG, Circuit Judge:

Appellant West Virginia appeals the district court’s grant of sum-
mary judgment for the United States on its claim that West Virginia
tax statute 11-27 is preempted by 5 U.S.C. § 8909(f), which bars
states from taxing insurance carriers with respect to funds they
receive from the Federal Employees Health Benefits Program
(FEHBP). Because we conclude that the statutory language of sec-
tion 8909(f) does not encompass the tax that 11-27 imposes, we
reverse the district court’s judgment.

I.

Congress has provided for federal employees, their families, and
federal retirees (the "Enrollees") to gain access to health benefits
through a program known as the Federal Employees Health Benefits
Program ("FEHBP"). The Federal Employees Health Benefits Act,
whose provisions are now codified in Title 5 of the United States
Code in sections 8901 et seq., sets out the terms of FEHBP and pro-
vides for the Office of Personnel Management ("OPM"), the agency
charged with administering FEHBP, to contract with various health
 UNITED STATES v. STATE OF WEST VIRGINIA 3
insurance carriers (the "Carriers") to offer the Carriers’ health insur-
ance plans to FEHBP Enrollees. To purchase insurance under a
FEHBP plan, Enrollees make payments, matched by contributions
from the federal government, into a specifically designated account in
the United States Treasury, entitled the Federal Employees Health
Benefits Fund (the "Fund"). 5 U.S.C. §§ 8906, 8909. The Fund in turn
disburses payments directly to the Carriers, reimbursing them for the
health care services they purchase on behalf of the Enrollees.

As part of the Omnibus Budget Reconciliation Act of 1990, Con-
gress amended the statutory scheme governing FEHBP, including
section 8909(f), which now reads as follows:

(1) No tax, fee or other monetary payment may be imposed
directly or indirectly, on a carrier . . . of an approved health
benefits plan by any State . . ., with respect to any payment
made from the Fund.

5 U.S.C. § 8909(f) (emphasis added).

Based on this preemption provision, which, broadly-speaking, for-
bids states from taxing health insurance carriers with respect to funds
they obtain from FEHBP, the United States challenged West Virgin-
ia’s enforcement of West Virginia Code 11-27 et seq., a state tax on
the gross receipts health care providers receive for various broad cate-
gories of services. The tax’s legal incident falls solely on health care
providers (e.g., hospitals), who are required to calculate a percentage
of their receipts in each taxed category of services, and then to pay
that amount to the state tax authority. In stipulations before the court,
West Virginia admits that the tax’s cost may be passed through from
providers to Carriers, and that some providers do in fact pass the tax’s
cost on to Carriers, including with respect to FEHBP covered patient
services. See J.A. at 163, 178. Ultimately though, the provider alone
bears the tax’s legal liability.

The district court granted summary judgment to the United States,
concluding that 11-27, insofar as it taxes health care services pro-
vided to FEHBP Enrollees, is preempted by section 8909(f) because
providers can, and some in fact do, pass the tax’s cost through to the
4 UNITED STATES v. STATE OF WEST VIRGINIA
Carriers, thus indirectly taxing the Carriers’ purchase of those ser-
vices with Fund monies.

II.

We review de novo the district court’s grant of summary judgment
for the United States, viewing the facts and inferences drawn there-
from in the light most favorable to West Virginia. Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 255 (1986). Because this dispute ulti-
mately turns entirely on a question of statutory interpretation, the dis-
trict court properly proceeded to resolve the case on summary
judgment.

West Virginia argues that section 8909(f) of Title 5 cannot preempt
11-27 because 11-27 is not a tax on the Carriers, but on the providers.
Of critical importance, it reasons that even though providers might be
able to pass the economic costs of the tax along to the Carriers, that
potential economic burden does not constitute a tax "imposed [ ] indi-
rectly on [the] Carriers."

Whether the economic pass-through effect with which 11-27 may
burden the Carriers constitutes indirect imposition of a tax on the Car-
riers can be resolved only by first determining what an "indirect tax"
is, as that term relates to the relationship between a tax and its payer.
As neither section 8909(f), nor its accompanying regulation, 48
C.F.R. § 1631.205-41, provides guidance as to that definition, we
instead look to the consistent usage of that term, as it stood in 1990
when Congress amended the provision.1
1
48 C.F.R. § 1631.205-41 does speak to how a tax might be indirectly
imposed on a subject matter, here measurements of FEHPB premiums,
but it does not offer guidance to the different question raised by this case
regarding the relationship between a tax and its payer. The former type
of "indirect" taxation arises where a tax is assertedly calculated on one
subject matter, but in actual fact it is based on a measure of another sub-
ject matter. In such cases, it can fairly be said that such a tax "indirectly"
taxes that latter subject matter. See, e.g., Itel Containers Int’l Corp. v.
Huddleston, 507 U.S. 60, 67 ("The value of international container
leases, however, is included in the cost of transporting goods, which in
turn is added to the value of the goods when calculating [Value Added
 UNITED STATES v. STATE OF WEST VIRGINIA 5
For over two hundred years, a single, consistent usage of the term
"indirect tax" has been employed in reference to the relationship
between a tax and its payer. That usage establishes that an indirect tax
is one imposed on goods. Examples abound since our Founding. At
that time, taxes were understood to be imposed indirectly on persons
when they were imposed in the form of "Imposts or Duties," U.S.
Const. art. I, section 10, cl. 2., or as "excises." See The Federalist No.
12, at 61 (Alexander Hamilton) (Clinton Rossiter ed., 1961) ("[I]n
America, far the greatest part of the national revenue is derived from
taxes of the indirect kind, from imposts, and from excises. Duties on
imported articles form a large branch of this latter description."); The
Federalist No. 36, at 187 (Alexander Hamilton) ("[T]axes may be
subdivided into those of the direct and those of the indirect kind.
Though objection be made to both, yet the reasoning upon it seems
to be confined to the former branch. And indeed, as to the latter, by
which must be understood duties and excises on articles of consump-
tion, one is at a loss to conceive what can be the nature of the difficul-
ties apprehended.").

And, up to the present time, the Supreme Court has consistently
employed this same usage, saying, for example, that "an indirect tax
[is] a tax levied on the goods themselves, and computed as a percent-
age of the manufacturer’s sales price rather than the income or wealth
of the purchaser or seller." Zenith Radio Corp. v. United States, 437
U.S. 443, 446 (1978). Compare Camps Newfound/Owatonna, Inc. v.

Tax] liability. Itel admits this is tantamount to an indirect tax on the
value of international container leases[.]"); Aloha Airlines, Inc. v. Direc-
tor of Taxation of Hawaii, 464 U.S. 7, 14 ("Beyond question, a property
tax that is measured by gross receipts constitutes at least an "indirect" tax
on the gross receipts of the airlines.").
To ensure that such "indirect" taxes do not escape preemption,
§ 1631.205-41 says section 8909(f)’s preemption "applies to all forms of
direct and indirect measurements of FEHBP premiums" "regardless of
how [the taxes] may be titled, to whom they must be paid, or the purpose
for which they are collected[.]" This regulatory instruction, saying noth-
ing about from whom the tax is collected, sheds no light on what consti-
tutes indirectness, as such relates to the relationship between a tax and
its payer.
6 UNITED STATES v. STATE OF WEST VIRGINIA
Town of Harrison, 520 U.S. 564, 639-40 (1997) (Thomas, J., dissent-
ing) (recognizing the distinction between direct and indirect taxes and
that indirect taxes are marked by their being taxes on goods), United
States v. Ptasynski, 462 U.S. 74, 80 (1983) ("The Uniformity Clause
[governing duties, imposts, and excises] conditions Congress’ power
to impose indirect taxes."), Michelin Tire Corp. v. Wages, 423 U.S.
276, 291 n.12 (1976) (citing Hamilton’s definition of an indirect tax
from The Federalist Papers), with Hylton v. United States, 3 U.S. 171
(1796) ("The general division of taxes is into direct and indirect.
Although the latter term is not to be found in the Constitution, yet the
former necessarily implies it. Indirect stands opposed to direct. There
may, perhaps, be an indirect tax on a particular article, that cannot be
comprehended within the description of duties, or imposts, or excises;
in such case it will be comprised under the general denomination of
taxes. For the term tax is the genus, and includes, (1) Direct taxes. (2)
Duties, imposts, and excises. (3) All other classes of indirect kind,
and not within any of the classifications enumerated [above]."). As a
consequence of this consistent usage, Congress’ reference in section
8909(f) to a tax being imposed indirectly, without further legislative
or agency definition, is best understood to refer to a tax, and the legal
incidents thereof, being levied on goods in which taxpayers transact.

That indirect taxes have consistently been defined with respect to
the legal incidents of goods-based levies, duties, and the like provides
strong reason to reject the United States’ interpretation of section
8909(f), asserting that the pass-through of tax costs, as an economic
matter, equates to the indirect imposition of a tax. But it is not the
only reason. Also pivotal here is that the Supreme Court has expressly
considered and rejected like economic pass-through theories in for-
mulating its understanding of what constitutes indirect taxation in the
analogous constitutional field of preemption of state taxation of the
federal government.

In United States v. Fresno, 429 U.S. 452, 459 (1977), the Court
rejected a general economic pass-through theory of "indirect" taxation
in deciding whether a state could tax federal employees on their pos-
sessory interests in housing owned and supplied to them by the fed-
eral government as part of their compensation. The Court there noted
first that
 UNITED STATES v. STATE OF WEST VIRGINIA 7
[s]ince McCulloch, [the Supreme] Court has adhered to the
rule that States may not impose taxes directly on the Federal
Government, nor may they impose taxes the legal incidence
of which falls on the Federal Government.

Fresno, 429 U.S. at 459. The cases the Court cited to establish the lat-
ter proposition involved taxes levied on goods, such as in United
States v. Mississippi Tax Comm’n, 421 U.S. 599 (1975), where the
government actor was liable for sales taxes on liquor products, and in
Kern-Limerick, Inc. v. Scurlock, 347 U.S. 110 (1954), where the gov-
ernment assumed responsibility by contract for another form of a state
excise tax. See Fresno, 429 U.S. at 459 n.7. These case citations make
clear that the Court’s reference to taxes not imposed directly on the
Federal Government but whose legal incidence falls on the Federal
Government was a reference to indirect taxes.

Having thus noted that states can enforce neither direct nor indirect
taxes against the federal government, the Court then acknowledged
that

[t]he decisions of this Court since McCulloch have been less
uniform on the question whether taxes, the economic but not
legal incidence of which falls in part or in full on the Fed-
eral Government, are invalid.

Fresno, 429 U.S. at 459-60 (emphasis added). On this question, the
Court concluded that its precedent yielded the rule that "the economic
burden on a federal function of a state tax imposed on those who deal
with the Federal Government does not render the tax unconstitutional
so long as the tax is imposed equally on the other similarly situated
constituents of the State." Id. at 462. Applying this rule, the Court
concluded that the state’s tax of the government employees’ housing
benefit, though passing an economic burden through to the federal
government by lowering the effective pay rate of its employees, was
not a prohibited tax on the federal government because the tax equally
applied to other similarly situated constituents of the State.2
2
Cf. North Dakota v. United States, 495 U.S. 423, 445 (1990) (Scalia,
J., concurring) (characterizing a state excise tax on construction projects,
levied solely against contractors working on behalf of the federal govern-
ment, as an "indirect tax" because the tax was directed at the federal gov-
ernment alone, and, as an economic matter, the government bore the
burden of the tax costs).
8 UNITED STATES v. STATE OF WEST VIRGINIA
Fresno’s holding therefore results in the rule that an economic
pass-through of a generally applicable tax does not constitute a tax,
direct or indirect, of the recipient of the pass-through. This is the nec-
essary implication of the Court’s statements. For, the Court’s conclu-
sion that states, prohibited from imposing taxes directly or indirectly
on the federal government, can yet impose economic burdens on the
federal government by broadly taxing parties that contract with the
federal government, necessarily implies that such economic imposi-
tions are not themselves direct or indirect impositions of tax on the
federal government.

Fresno’s rule should apply here by analogy because of the many
similarities between section 8909(f)’s preemption and the Constitu-
tion’s preemption of state taxation of the federal government. Section
8909(f) precludes states from taxing the Carriers directly or indirectly.
The Constitution precludes states from taxing the federal government
directly or indirectly. Both ensure that state tax laws do not thwart the
will of the federal government. Both face the economic reality that the
states’ tax regimes would be seriously hampered were all state taxes
of non-protected tax payers that create pass-through economic bur-
dens on protected taxpayers treated as indirect taxes of those pro-
tected taxpayers. Because of these similarities, we think that like
reasoning ought govern analysis of indirect taxation under each. Thus,
we follow Fresno’s rule and hold that section 8909(f) prohibits states
from placing legal incidents of direct or indirect taxes on Carriers
with respect to FEHBP funds but allows states to tax other parties in
ways that may impose economic burdens on Carriers with respect to
FEHBP funds, so long as those taxes are equally applied to the states’
other similarly situated constituents.

The government suggests that we should not reach this conclusion
because other circuits have decided the matter differently, adopting an
economic pass-through analysis under section 8909(f). In particular,
it points to the Second and Third Circuits, which in Health Maint.
Org. of New Jersey v. Whitman, 72 F.3d 1123, 1131 (3rd Cir. 1995),
and Travelers Ins. Co. v. Cuomo, 14 F.3d 708, 716 (2d Cir. 1993),
concluded, respectively, that special fixed assessments of insurance
carriers and surcharges added to the hospital rates paid by insurance
carriers both constitute state action prohibited by section 8909(f)
 UNITED STATES v. STATE OF WEST VIRGINIA 9
because they "resulted in increased payments from the Fund," Whit-
man, 72 F.3d at 1130.

Neither Whitman nor Travelers, however, involved a tax that was
levied on a party other than the Carriers. Rather, both cases involved
impositions levied on the Carriers themselves: In Whitman, the impo-
sition was levied by the state on the Carriers as a direct special assess-
ment; in Travelers, the imposition was levied by the hospital on the
Carriers, under the state’s dictate, as a surcharge added to invoices
paid by the Carriers. Thus, in those cases, there was never a question
as to whether the legal incidents of the tax fell on the Carriers.

The economic pass-through analysis that these courts engaged in
was only employed to answer the question of whether the impositions
at issue were made "with respect to any payment made from the
Fund." § 8909(f). On this score, the courts concluded that the imposi-
tion on the Carriers respected payments made from the Fund since the
Carriers received their payments from the Fund based on the costs
they accrued in providing care to the Enrollees. Consequently, the
holdings of Whitman and Travelers are inapposite here, and there is
no split between our understanding of section 8909(f) and theirs.

The dissent, in an attempt to give a broader definition to the term
"indirect" and to argue that the Supreme Court has adopted the eco-
nomic pass through theory, asserts that "the [Supreme] Court has
interpreted statutory language nearly identical to § 8909(f)(1) as pro-
hibiting taxes that could be passed through." Post at 13. In particular,
the dissent contends that, in Northwest Airlines, Inc. v. County of
Kent, Michigan, 510 U.S. 355, 365 (1994), the Court "recognized that
fees levied on airlines, such as ‘[l]anding fees, terminal charges, and
other airport user fees,’ were levied indirectly on ‘persons traveling
in air commerce or on the carriage of [such] persons.’" Post at 13-14
(emphasis added). The Court concluded no such thing.

The question presented in Northwest Airlines was whether the vari-
ous airport fees were "fee[s]" or "other charge[s]" "directly or indi-
rectly" imposed on "persons traveling in air commerce or on the
carriage of persons traveling in air commerce," which are prohibited
by the Anti-Head Tax Act. 510 U.S. at 365 (quoting 49 U.S.C.
§ 1513(a)). In resolving this question, the Court did not hold, contrary
10 UNITED STATES v. STATE OF WEST VIRGINIA
to Judge Williams’ belief, that the airport fees were imposed "indi-
rectly" on passengers. The Court held, rather, and only, that such fees
were imposed "directly or indirectly" on either "persons traveling in
air commerce or on the carriage of persons traveling in air com-
merce," (i.e., on passengers or airlines). Id. (emphases added).

The sleight of hand employed by Judge Williams lies in her selec-
tive quotation and omission from the actual text of the Court’s opin-
ion, as confirmed by a comparison of the actual text (which was
nothing more in substance than a quotation from the Anti-Head Tax
Act itself) with Judge Williams’ selective quotation from that text
(and therefore also from the statute). It was unnecessary for the
Supreme Court to be more specific than it was. However, if one were
forced to say whether the Court regarded the imposed fees as "direct"
or as "indirect" fees on "persons traveling in air commerce" or on "the
carriage of persons traveling in air commerce," the obvious conclu-
sion would have to be that the Court regarded the fees as "direct"
impositions on "the carriage of persons traveling in air commerce,"
not as "indirect" fees imposed on "persons traveling in air commerce."
After all, the question presented to the Court was whether airport fees
that were being directly imposed on carriers were prohibited by the
Anti-Head Tax Act. The Court did not even have a question before
it as to the indirect imposition of fees on passengers.3

Applying both the consistently employed understanding of an "in-
direct tax" and Fresno’s economic pass-through analysis, we con-
clude that section 8909(f) does not preempt 11-27. First, though it is
3
Of course, it does not follow from the fact that a tax is imposed
directly on an airline (even if the Court had held in Northwest Airlines
that a direct tax had been imposed on airlines) that that tax constitutes
an indirect imposition of a tax on passengers. Post at 14 n.4. If anything
precisely the opposite conclusion follows. It is the dissent’s failure to
recognize the error in this deduction that leads to the dissent’s erroneous
construction of the statute. In this respect, the dissent commits the same
error as did the lone dissent in Northwest Airlines. We would have
thought that the fact that our colleague today adopts the interpretation of
the Federal Employees Health Benefits Act that arguably would be sug-
gested by the dissent’s interpretation of the Anti-Head Tax Act in North-
west Airlines would have given pause; for, obviously, seven members of
the Supreme Court disagreed with that dissent.
 UNITED STATES v. STATE OF WEST VIRGINIA 11
readily apparent that 11-27 is an indirect tax, it is of equal immediate
apparency that it is an indirect tax of the providers, not of the Carri-
ers, for the legal incidents of the tax fall on the providers alone. And
second, since we decline to imply some novel economic pass-through
theory to section 8909(f)’s prohibition on indirect taxation, the fact
that 11-27 equally applies to the states’ other similarly situated con-
stituents (i.e., it applies to all providers of the specified categories of
health care services, not just to providers of services to Enrollees) suf-
fices to establish that any economic burden it may pass through to the
Carriers does not equate to an imposition of an indirect tax on them.4

CONCLUSION

For the reasons given above, the judgment of the district court is
reversed.

REVERSED

TRAXLER, Circuit Judge, concurring:

I join with Judge Luttig insofar as he holds that the district court
erred in determining that West Virginia’s provider tax was preempted
by section 8909(f). I further agree that the case before us is readily
distinguishable from Health Maint. Org. of New Jersey v. Whitman,
72 F.3d 1123 (3d Cir. 1995), and Travelers Ins. Co. v. Cumo, 14 F.3d
708 (2d Cir. 1993), for the reason he ascribes: the taxes in those cases
were imposed on carriers, not providers, in contravention of federal
law. Here, the West Virginia provider tax is imposed on the gross
receipts of providers, and is in no way aimed at carriers. In light of
a plain reading of section 8909(f), the provider tax is not subject to
preemption. The mere fact that a provider may opt to pass through the
cost it bears to carriers, including FEHB carriers, does not, in my
judgment, transform the West Virginia provider tax into an illicit indi-
rect imposition of a state tax upon the FEHB Fund.
4
Because we conclude that West Virginia Code 11-27 is not preempted
by 5 U.S.C. § 8909(f), we do not need to address West Virginia’s alter-
native arguments in support of its tax.
12 UNITED STATES v. STATE OF WEST VIRGINIA
WILLIAMS, Circuit Judge, dissenting:

The Federal Employees Health Benefits Act prohibits States and
their subdivisions from imposing a "tax, fee, or other monetary pay-
ment" "directly or indirectly" on "a carrier" "with respect to any pay-
ment made from the [Employees Health Benefits] Fund." 5 U.S.C.A.
§ 8909(f)(1) (West 1996). Because West Virginia’s Health Care Pro-
vider Taxes, W. Va. Code Ann. § 11-27-1 to 11-27-36 (Michie 2002),
are imposed indirectly on insurance carriers that participate in the
Federal Employees Health Benefits Program (FEHBP), I respectfully
dissent.

Judge Luttig reaches his decision by defining "indirect tax" as a tax
on goods and relying on the Supreme Court’s refusal to apply eco-
nomic pass-through theories to preemption of state taxes implied in
the Constitution. Ante at 6. I disagree with both of these bases. First,
even accepting Judge Luttig’s claim that "indirect tax" is a term of art
synonymous with "a tax levied on goods," § 8909(f)(1) clearly does
not employ this term of art. The more natural reading of § 8909(f)(1)
is that the adverb "indirectly" modifies "imposed," thus describing a
tax the economic burden of which falls on a carrier while the legal
incidence does not.1 Second, while it appears that the Supreme Court
has rejected economic pass-through theories in its jurisprudence
regarding constitutional limits on a State’s power to tax,2 Congress
1
It is a basic canon of statutory construction that all words in a statute
are to be given effect. Under Judge Luttig’s interpretation of
§ 8909(f)(1), "directly and indirectly" are not given effect because both
"direct taxes" and "indirect taxes" fall under the statute’s broad prohibi-
tion, which provides that "[n]o tax, fee, or other monetary payment may
be imposed . . . on a carrier." Thus, to give effect to the term "indirectly,"
§ 8909(f)(1) must be construed to prohibit taxes the legal incidence of
which falls on providers while the economic burden is shouldered by car-
riers. In the present case, I believe that the tax at issue is an indirect tax
that is directly imposed on the providers but, to the extent that the eco-
nomic burden is passed through, is indirectly imposed on the carriers.
2
In some cases, however, the pass-through of the economic burden of
a tax to the federal government is so clearly intentional that the tax is
preempted under the Constitution, not because it is "indirectly imposed"
on the government, but rather because the legal incidence is considered
 UNITED STATES v. STATE OF WEST VIRGINIA 13
clearly has the power to protect a federal program from the economic
burden of a State tax, regardless of the tax’s legal incidence. See
United States v. County of Fresno, 429 U.S. 452, 460 (1977) ("So
long as the [State] tax is not directly laid on the Federal Government,
it is valid if nondiscriminatory or until Congress declares otherwise."
(emphasis added)(internal citation omitted)); accord United States v.
Mexico, 455 U.S. 720, 737 (1982) ("If [federal immunity from state
taxation] is to be expanded beyond its narrow constitutional limits, it
is Congress that must take responsibility for the decision, by so
expressly providing as respects contracts in a particular form, or con-
tracts under particular programs."). As evidenced by the plain mean-
ing of § 8909(f)(1),3 Congress intended to provide the Fund more
protection from State taxes than it would receive from the implied
limits in the Constitution: "No tax, fee, or other monetary payment
may be imposed, directly or indirectly, on a carrier . . . of an approved
health benefits plan by any State . . . with respect to any payment
made from the Fund." 5 U.S.C.A. § 8909(f)(1). Congress was clearly
trying to avoid money from the Fund being used to shoulder the eco-
nomic burden of certain State taxes.

Indeed, the Court has interpreted statutory language nearly identi-
cal to § 8909(f)(1) as prohibiting taxes that could be passed through.
See Northwest Airlines, Inc. v. County of Kent, MI, 510 U.S. 355, 365
(1994). The statute at issue in Northwest Airlines, the Anti-Head Tax
Act (AHTA), "prohibits States and their subdivisions from levying a
‘fee’ or ‘other charge’ ‘directly or indirectly’ on ‘persons traveling in
air commerce or on the carriage of persons traveling in air com-
merce.’" Id. (quoting 49 U.S.C. § 1513(a)). The Court recognized that
fees levied on airlines, such as "[l]anding fees, terminal charges, and

to fall on the government and the person who is legally liable for its pay-
ment is considered to be merely collecting the tax from the government
for the State. See, e.g., United States v. State Tax Comm’n, 421 U.S. 599,
607 (1975) ("The Tax Commission clearly intended—indeed, the scheme
unavoidably requires—that the out-of-state distillers and suppliers pass
on the markup to the military purchasers.").
3
Tellingly, although Judge Luttig mounts a strident attack against my
interpretation of Northwest Airlines, he fails to offer any rejoinder to my
textual analysis of § 8909(f).
14 UNITED STATES v. STATE OF WEST VIRGINIA
other airport user fees," were levied indirectly on "persons traveling
in air commerce or on the carriage of [such] persons."4 Id. Similarly,
while the legal incidence of West Virginia’s tax falls on the health
care providers, because the economic burden ultimately will be
shifted to the carriers, the tax is indirectly imposed on the carriers. In
this case, we can say, without a doubt, that West Virginia’s Health
Care Provider Taxes are imposed indirectly on at least two carriers
participating in FEHBP because West Virginia has stipulated that
"Morgan County War Memorial Hospital currently passes on the cost
of West Virginia’s health care provider taxes . . . to GEHA and Mail
Handlers carriers." (J.A. at 163.) West Virginia has also stipulated
that "these carriers pass the cost on to the Employees Health Benefits
Fund." (J.A. at 163.)
4
My description of the Court’s holding in Northwest Airlines does not,
as Judge Luttig suggests, involve any "sleight of hand" or selective quo-
tation. Rather, I have simply distilled the governing principles of that
opinion — which are relatively straightforward — and described those
governing principles as they pertain to the facts of this case. As stated
by the Court in Northwest Airlines, the airport user fees at issue in North-
west Airlines were levied directly on the airlines. 510 U.S. at 355. The
Court nonetheless concluded that the fees fit the definition of being "di-
rectly or indirectly" imposed on persons traveling in air commerce or on
the carriage of such persons. Id. at 365. After all, the Court reminds us,
in a previous case the Court had already concluded that "§ 1513(a)’s
compass is not limited to direct ‘head’ taxes." Id. (emphasis added).
Because the Court established that the fees at issue were levied directly
on airlines for the use of the airport, and not directly on passengers or
the carriage of passengers, it follows that the fees fit the description in
§ 1513(a) because they were indirectly levied on passengers or the car-
riage of passengers. Thus, my conclusion as to the persuasive value of
the decision follows from a faithful reading of the decision itself; no
manipulation or deceit is required or is employed. Indeed, unlike Judge
Luttig, the dissent in Northwest Airlines had no difficulty discerning the
purport of the majority’s analysis: "To be sure, the Act’s apparently
broad ban on any fees, taxes, or charges imposed ‘directly or indirectly,
on persons traveling in air commerce,’ etc., superficially supports the
[majority’s] interpretation. Any cost an airline bears is in some sense an
‘indirect’ charge ‘on persons traveling in air commerce,’ because the air-
line ultimately will pass that cost on to consumers in the form of higher
ticket prices." 510 U.S. at 376 (Thomas, J., dissenting) (emphasis in orig-
inal).
 UNITED STATES v. STATE OF WEST VIRGINIA 15
Section 8909(f)(1), of course, does not preempt all fees and taxes
that are indirectly imposed on a carrier. Rather, a tax is preempted
under § 8909(f)(1) only if it is imposed with respect to a payment
made from the Fund rather than some other source such as a state or
private fund. To address whether West Virginia’s Health Care Pro-
vider Taxes are imposed with respect to a payment made from the
Fund, a brief description of how the Fund works is helpful. Contribu-
tions are made to the Fund by the federal government and individual
enrollees. 5 U.S.C.A. §§ 8906, 8909 (West 1996). Participating insur-
ance carriers then pay the cost of health services for enrollees. 5
U.S.C.A. §§ 8902(a), 8903 (West 1996). The insurance carrier, in
turn, draws money out of the Fund to cover claims and its expenses.
5 U.S.C.A. § 8909(a). West Virginia’s Health Care Provider Taxes
are directly imposed on the gross receipts of health care providers.
See, e.g., W. Va. Code Ann. § 11-27-9(b) ("The tax imposed in sub-
section (a) of this section shall be two and one-half percent of the
gross receipts derived by the taxpayer from furnishing inpatient hos-
pital services in this state."). Any payments received from an enrollee
or insurance carrier participating in FEHBP would thus be taxed as
a portion of health care providers’ gross receipts. See, e.g., W. Va.
Code Ann. § 11-27-9(c)(1) ("‘Gross receipts’ means the amount
received or receivable, whether in cash or in kind, from patients,
third-party payors and others for inpatient hospital services furnished
by the provider . . . ."). Because such payments ultimately will be
reimbursed out of the Fund, West Virginia’s Health Care Provider
Taxes are imposed "with respect to . . . payment[s] made from the
Fund." Accordingly, to the extent West Virginia’s Health Care Pro-
vider Taxes are applied to receipts from a carrier participating in
FEHBP, they are preempted.

In short, because West Virginia’s Health Care Provider Taxes are
imposed indirectly on carriers with regard to payments made from the
Fund, I would affirm the district court.