Deaconess Medical Center v. Department of Revenue

Petrich, J.

(concurring in part, dissenting in part) — I concur in the majority opinion's decision that the Superior Court's order regarding prostheses must be reversed. However, I do not agree with the majority opinion regarding prescription items, and I dissent.

The majority opinion concludes that the Department invited error by contending "for the first time that reagents *789and nutrition products are not prescription items." Majority, at 784-85. I believe this conclusion partially misstates both the Department's argument before this court and the Department's positions in the prior proceedings.

The majority correctly notes that the Department's argument here, which claims the Superior Court erred on the nutrition products issue because there was no evidence that such products were prescribed is inconsistent with its position in the prior proceedings:

We agree that the nutrients in question ... do constitute "other substances other than food . . . ." Thus, they are prescription drugs by statutory definition. They must be sold to patients . . . exempt of sales or use tax . . . when the charges for such things are clearly identifiable on patients' billings.

Final Determination 86-199.

The nutrition products would be entitled to the prescription drug exemption if they are resold to patients by clearly identifiable charges.

Department's Hearing Memorandum before the Board of Tax Appeals.

Nutrition products are not exempt because there is no separate line item proving resale to patients . . . The nutrition products would be entitled to the prescription drug exemption if they are resold to patients by clearly identifiable charges.

Department's Trial Brief before the Superior Court.

It is well established that the appellate court will not review a case on a theory different from that which was presented at the trial level. State v. Reano, 67 Wn.2d 768, 771, 409 P.2d 853 (1966). As explained below, we are reviewing the decision of the Board of Tax Appeals de novo. There is no reason why the same rule should not apply to our review of the administration agency's decision. Therefore, I concur in the majority's decision that the Department is not entitled to its present challenge of the Superior Court's reversal of the Board's conclusion regarding nutrition products, and that the Superior Court's order must be affirmed. I do not agree, however, that the same is true of the Department's position regarding laboratory reagents.

*790The Department's argument before this court is that the Superior Court erred because there was no evidence that reagents are prescribed. While this was not the Department's only position in the prior proceedings, it was presented in those proceedings:

We do not dispute that laboratory reagents may be drugs or other substances which are generically classified as "prescription" items . . .. However, at the time of their purchase . . . they are not prescribed for any person or any purpose. Moreover, they are admittedly not purchased for resale to any person.

Final Determination 86-199.

[RJeagents do not satisfy the requirement for the prescription drug exemption because the reagents are not resold . . . [Moreover] the reagents are not entitled to the exemption because when purchased by the hospital . . . they are not prescribed . . . for any person. The exemption for prescription drug is only for the patient.

Department's Hearing Memorandum before the Board of Tax Appeals.

It is true that the Department limited its argument before the Superior Court to the issue of resale:

Laboratory reagents do not qualify for the exemption because they are not resold to patients ... If a reagent were to be resold to patients for an identifiable charge, then the reagent would be exempt from tax.

Department's Trial Brief before the Superior Court.

However, this "change" of position before the Superior Court is irrelevant to our consideration of the Department's appeal because of the de novo nature of appeals taken from decisions of the Board of Tax Appeals:

As this matter came before the Board of Tax Appeals for a formal hearing, judicial review of the Board's decision is governed by RCW 34.04.130 and 34.04.140. RCW 82.03.180. Review is on the record of the administrative tribunal itself, not of the superior court. Franklin Cy. Sheriff's Office v. Sellers, 97 Wn.2d 317, 323-24, 646 P.2d 113 (1982), cert. denied, 459 U.S. 1106 (1983). Issues of law are reviewed under the "error of law" standard of RCW 34.04.130(6)(d). Sellers, at 325. This standard "allows the reviewing court to essentially substitute its judgment for that of the administrative body, though *791substantial weight is accorded the agency's view of the law." Sellers, at 325.

United Parcel Serv., Inc. v. Department of Rev., 102 Wn.2d 355, 359-60, 687 P.2d 168 (1984).

Because this court's review is of the decision of the Board of Tax Appeals, not the decision of the Superior Court, the position taken by the Department before the Superior Court is irrelevant to the position taken by the Department before this court. The Department's position before this court, that reagents do not qualify for the prescription drug exemption because they are not prescribed, was included in the Department's position before the Board. Therefore, I dissent from the majority's conclusion that the Department invited any error as to reagents.4

I conclude that the issue of whether reagents are subject to the prescription drug exemption is properly before this court. Both the sales tax exemption, RCW 82.08.0281, and the use tax exemption, RCW 82.12.0275, employ the same definition for "prescription drugs." After excluding some substances from the exemption, the definition requires that all other substances must be:

ordered by (1) the written prescription to a pharmacist by a practitioner authorized . . ., or (2) upon an oral prescription of such practitioner which is reduced promptly to writing and *792filed by a duly licensed pharmacist, or (3) by refilling any such written or oral prescription . . ., or (4) . . . written directions and specifications for the preparation, grinding, and fabrication of lenses . . ..

No evidence has been presented that laboratory reagents fall within any of these categories. Therefore, laboratory reagents do not qualify for the prescription drug exemption.

All items purchased by the hospital "for the purpose of resale as tangible personal property in the regular course of business without intervening use" are purchases not at retail, RCW 82.04.050, and therefore are exempted from sales and use taxes, RCW 82.08.020 and 82.12.020. The hospital has the burden of proving that the purchases were made for resale purposes. RCW 82.04.470. No evidence was presented to the Board that the hospitals had met this burden of proof as to laboratory reagents. Accordingly, the Board did not err in determining that the resale exemption did not apply.

In conclusion, I join in the majority's decision to reverse the Superior Court's reversal of the Board regarding prosthetic devices and to affirm the Superior Court's reversal of the Board regarding nutrition products. However, I would reverse the Superior Court's reversal of the Board regarding laboratory reagents, and would reinstate the decision of the Board that such purchases do not fall within either the prescription drug exemption or the resale exemption.

Much of the difficulty in this case arises from its unusual procedural posture. As noted above, this court reviews de novo the decision of the Board, without regard for the actions of the Superior Court. This standard of review does not create problems when the Superior Court affirms the Board. However, when the Superior Court reverses the decision of the Board and an appeal is filed, a difficult situation arises. The appellant, the party who is aggrieved by the Superior Court's action, is desirous of having the Board's decision affirmed and of having the Superior Court's actions ignored. Accordingly, the appellant is placed in the position of defending the position of the Board, rather than demonstrating the errors made by the Superior Court, and must write what is in effect a respondent's brief. The respondent is then placed in the position of demonstrating the errors made by the Board, and must write what is in effect an appellant's brief. This "role reversal" is confusing for the court and counsel, as is evident in this case. The Department's appellant's brief focuses on the errors made by the Superior Court, but does not defend the decisions of the Board. Much of the concern about invited error arises from the confusion caused by the reversed roles of the parties to this appeal.