BEFORE THE STATE BOARD OF EQUALIZATION
FOR THE STATE OF WYOMING
IN THE MATTER OF THE APPEAL OF )
MEDICAL TESTING LAB, INC. FROM A )
DECISION BY THE EXCISE DIVISION ) Docket No. 2002-156
OF THE DEPARTMENT OF REVENUE )
FINDINGS OF FACT
CONCLUSIONS OF LAW
DECISION AND ORDER
APPEARANCES
J. Kenneth Barbe, of Brown, Drew & Massey, LLP, for Medical Testing Lab, Inc. (Petitioner).
William F. Russell, Assistant Attorney General, for the Department of Revenue (Department).
DIGEST
The matter came before the State Board of Equalization (Board) on a Case Notice filed November 26, 2002, on behalf of Petitioner who was denied an exemption from sales tax by the Department. An order setting the matter for hearing was entered on April 21, 2003. The matter was heard on September 15, 2003, by the Board consisting of Roberta A. Coates, Chairman, Alan B. Minier, Vice-Chairman, and Thomas R. Satterfield, Board Member.
The issue in this matter is:
Whether the disposable supplies consumed by Petitioner in its clinical laboratory are used in the direct medical care of a patient so as to qualify Petitioner for a sales tax exemption pursuant to Wyoming Statute §39-15-105(a)(vi)(C)?
JURISDICTION
The Board is required to “[d]ecide all questions that may arise with reference to the construction of any statute affecting the assessment, levy and collection of taxes, in accordance with the rules, regulations, orders and instructions prescribed by the Department.” Wyo. Stat. Ann. §39-11-102.1(c)(iv). The rules of practice and procedure for appeals before the Board involving tax matters contemplate appeals from final administrative decisions of the Department. Rules, Wyoming State Board of Equalization, Chapter 2, §2. The rules require appeals to be filed with the Board within thirty (30) days of any administrative decision. Rules, Wyoming State Board of Equalization, Chapter 2, §5.
Petitioner timely filed its appeal. The Board is required to decide all issues relating to this appeal and give a written decision, citing findings of fact and conclusions of law following a hearing. Rules, Wyoming State Board of Equalization, Chapter 2, §34. Upon application of any person adversely affected, the Board is mandated to review final Department actions concerning state excise taxes, and "[h]old hearings after due notice in the manner and form provided in the Wyoming Administrative Procedure Act and its own rules and regulations of practice and procedure." Wyo. Stat. Ann. § 39-11-102.1(c)(viii), Wyo. Stat. Ann. §§ 16-3-101 through 16-3-115.
DISCUSSION
Petitioner claims an exemption from sales tax for disposable supplies purchased for use in its laboratory because: (1) it uses the disposable supplies in the direct medical care of patients; (2) it is a Medicare recognized health care provider; and (3) the services it provides aids in the diagnosis and treatment of patients.
The Department counters: (1) that the sales tax exemption for disposable supplies used in the direct medical care of a patient is intended for only doctors and dentists; (2) that Petitioner does not provide direct medical care to patients; and (3) that Petitioner is not a Medicare recognized health care provider within the meaning of its rule.
We find that the supplies used by Petitioner in its laboratory qualify for an exemption from sales tax because they are directly related to the diagnosis and treatment of patients; that the Department’s rule is not limited to doctors and dentists; and that Petitioner is a Medicare recognized health care provider that is within the meaning of the Department’s rule.
FINDINGS OF FACT
I. GENERAL
1. Medical Testing Lab, Inc., Petitioner, is an independently owned clinical laboratory located in Casper, Wyoming. [Exhibit 100]. Petitioner has three locations. The main laboratory, which is located in Casper, Wyoming, houses the laboratory and the equipment necessary to conduct the testing. About 95 percent of patient samples are tested in Petitioner’s main laboratory. The remaining 5 percent of patient samples require special testing that must be performed at a reference lab, like Lab Core. [Transcript Vol. I, p. 22; Exhibit 100].
2. One of the owners, the president and a technologist for the Petitioner is certified medical technologist. [Transcript, Vol. I, p. 21].
3. The tests performed by Petitioner include urinalysis, hematology, coagulation, cytology and microbiology. Cytology is the chemistry of looking for abnormal cells. [Transcript, Vol. I, pp. 22-23]. Most of the tests being performed by Petitioner cannot be done in physician’s office. [Transcript, Vol. I, p. 25]. Daniel Sullivan, M.D., is the Medical Director of Petitioner, and describes the services as follows:
Well, many of the tests that are performed in the clinical laboratory are actually diagnostic tests in the sense that they provide the physician with information concerning the organisms causing a bacterial infection. In the realm of, for instance, chemistry, the diagnosis of diabetes mellitus rests principally on laboratory testing, in other words, the determination of blood sugars and other things that we measure. And then at other times the results of the tests simply assist the physician in making therapeutic decisions with regard to a disease that is already diagnosed.
Again, in considering diabetes mellitus, the blood sugars that are measured following diagnosis assist the physician in making decisions as to the adjustment of the insulin or other glucose-reducing agent that he is having the patient take for the diabetes.
[Transcript, Vol. I, pp. 126-127].
4. Petitioner examines samples from approximately 1300 patients per week, and on some samples, Petitioner will perform multiple tests. Petitioner, itself, collects the samples directly from the approximately 90 percent of the 1300 patients. Approximately 10 percent of the samples tested by Petitioner are collected by someone other than Petitioner, for example, at a physician’s office or a nursing home. [Transcript, Vol. I, pp. 30, 37; Stipulated Updated Summary of Uncontroverted Facts ¶ 10 a and c]. Petitioner typically either bills the patient directly or the patient’s third-party provider for the samples collected and the tests performed. If tests performed are covered by Medicare, the Petitioner bills Medicare. Only in rare cases will Petitioner bill the physician who ordered the test. [Transcript, Vol. I, pp. 39-41].
5. In performance of laboratory tests, Petitioner uses some disposable supplies including: syringes, safety hubs, surgical gloves, cotton, needles, tape, test tubes, alcohol, urine cups, urine dipsticks, reactant slides, tourniquets, bio bags, throat swabs, pap smear packages, and test files. [Transcript, Vol. I, pp. 32-35].
6. With respect to samples collected by physicians or nursing homes and then sent to Petitioner for testing, Petitioner provides the physicians and nursing homes with many of the supplies needed to collect those samples. These particular supplies are purchased by Petitioner and given to physicians and nursing homes with the understanding that the sample collected with those supplies will be sent back to Petitioner for testing. [Transcript, Vol. I, pp. 35-36].
7. In addition to medical-related testing, Petitioner also performs drug screening and breath alcohol testing through a separate entity. The supplies used by the separate entity are accounted for separately from the supplies used by Petitioner in other direct patient care. This drug testing component makes up less than 10 percent of the total testing performed by Petitioner. Petitioner does not seek an exemption for the supplies consumed in drug screening or breath alcohol testing. [Transcript, Vol. I, pp. 25-26, 72, 75-78, 80, 83; Exhibits 100, 109; Stipulated Updated Summary of Uncontroverted Facts ¶ 10b].
8. Petitioner also provides weekly health fair testing at its main laboratory pursuant to a standing order issued by Dr. Sullivan. Specifically, Dr. Sullivan has issued a standing order that allows Petitioner to offer a CBC, a TSH, a PSA, and a chem 27 test. Patients generally request that the results of such tests be sent to the patients’ physicians. When a patient’s health fair test results are considerably out of line, Petitioner personally contacts the patient and informs the patient of the abnormal results and advises the patient to see a physician. [Transcript, Vol. I, pp. 31-32, 73-75; Exhibit 109; Stipulated Updated Summary of Uncontroverted Facts ¶10b].
9. Petitioner can only perform laboratory tests at the request of a physician, dentist, or government agency authorized to use laboratory findings. Wyo. Stat. Ann. § 33-34-107(a). Rules, Wyoming Department of Health, Clinical Laboratories, Chap. 2, §7(b). [Transcript, Vol. I, p. 52; Stipulated Updated Summary of Uncontroverted Facts ¶ 9].
10. Petitioner must have a physician’s or dentist’s order to preform tests. Some of the tests are done because of the Petitioner’s Medical Director’s standing order for testing at health fairs. [Transcript, Vol. I., pp. 22, 31, 52]. When a physician needs a laboratory test performed on a patient, but cannot collect the sample and perform the tests himself, the physician has a choice to either send the patient to Petitioner or to the hospital laboratory for outpatient testing. In both situations, the physician sends a patient to a laboratory, the laboratory personnel collects the sample, and the patient leaves the laboratory. [Transcript, Vol. I, p. 22].
11. When a physician orders a laboratory test from Petitioner, usually the patient goes to the Petitioner’s facility and the Petitioner collects the samples for the analysis from the patient. The physician does not control how Petitioner performs the test, does not monitor Petitioner’s performance of the test, and does not specify which disposable supplies Petitioner will consume during the test. [Transcript Vol. I, pp. 53-54].
12. A clinical laboratory preforming high complexity tests must have a medical director who is either a pathologist, or who fits into a very limited grand-fathered category of doctoral degreed personnel. [Transcript, Vol. I, pp. 39, 98, 115, 116]. A clinical laboratory is “any facility for the microbiological, serological, chemical hematological, biophysical, cytological or pathological examination of materials derived from the human body for the purpose of obtaining information for the diagnosis, prevention, or treatment of disease or the assessment of medical condition.” [Transcript, Vol. I, p. 42,47-48, 129]. Wyo. Stat. Ann. §33-34-101(a)(ii); Rules, Wyoming Department of Health, Clinical Laboratories, Ch. 1, Sec. 4(f).
II. MEDICAL LABORATORY QUALIFICATIONS
13. Medicare requires that laboratories be certified by the Clinical Laboratory Improvement Amendments of 1988 (CLIA). The CLIA regulations are set forth in 42 C.F.R. §493 (2003). Petitioner is certified under CLIA. A CLIA certified laboratory is authorized to accept human specimens for the purposes of performing laboratory examinations. [Transcript, Vol. I, pp. 96-97, 102, 116; Exhibit 103]. Petitioner is also certified by Medicare and has a Medicare provider number. [Exhibit 103; Transcript Vol., I, p. 26].
14. CLIA requirements are the same for all types of laboratories, including independent laboratories, hospital laboratories, and laboratories located in a physician’s office. The CLIA regulations make no distinction based on ownership of the laboratory. The only distinctions made under the CLIA regulations are based upon the type of testing being done. [Transcript, Vol. I, p. 103].
15. CLIA identifies three levels of laboratory tests: simple, moderate complexity, and high complexity. The level of testing performed by Petitioner is high complexity. 42 C.F.R. §493 (2003). [Transcript, Vol. I, p. 98].
16. Petitioner performs its testing pursuant to the standards required by CLIA. Dr. Sullivan, who is a certified pathologist with specialty boards in anatomic and clinical pathology, is responsible to insure the tests meet the CLIA standards. Dr. Sullivan is a doctor licensed to practice medicine in the State of Wyoming. [Stipulated Updated Summary of Uncontroverted Facts ¶12]. Dr. Sullivan assists treating physicians in interpreting and utilizing the laboratory diagnosis in order to treat the patient. [Transcript, Vol. I, pp. 38-39, 101-103, 124; Exhibits 103, 105, 106 ]. With respect to tissue review, such as pap smears or breast and lung aspirates, normal tests will be reviewed by Petitioner’s cytologist. Abnormal results, as determined by the cytologist, will also be reviewed by the pathologist. In the latter case, the results of both the cytologist and the pathologist will be provided to the physician. [Transcript, Vol. I, p. 23]. Dr. Sullivan is also the Medical Director of the hospital laboratory in the Casper hospital and he provides similar services in all material respects to both the Petitioner’s lab and the hospital lab. [Transcript, Vol. I, pp. 125-126].
III. THE DEPARTMENT’S INTERPRETATION OF THE MEDICAL SUPPLY EXEMPTION
17. A Department of Revenue Rule adopted April 13, 2000, governs the exemption in question:
Physicians and dentists. All purchases of noncapitalized equipment used in their practice by dentists and Medicare recognized health care providers shall be exempt from the sales and use tax. Disposable supplies which are used on a single patient and immediately discarded are exempt from the sales and use tax. All purchase of capitalized equipment depreciated under IRS rules, and office supplies are subject to sales and use taxes.
Rules, Wyoming Department Of Revenue, Chap. 2, §14(z). [Stipulated Updated Summary of Uncontroverted Facts ¶8].
18. Petitioner is a Medicare recognized health care provider, or sometimes referred to as a supplier, under Medicare Part B. Petitioner was first issued its Medicare Provider Identification Number in 1998. [Transcript, Vol. I, pp. 112-113; Exhibits 512, 101, 110; Stipulated Updated Summary of Uncontroverted Facts ¶1]. The term “provider” is used in the Medicare context in both a technical and generic sense. In the technical sense of the word, a healthcare ”provider” is defined as a hospital, skilled nursing facility, and other like entity, as opposed to physicians and independent laboratories who are technically characterized as healthcare “suppliers” under the Medicare rule defining terms. [Exhibit 512]. As a practical matter, the term “provider” is also used in the Medicare context in a more general sense to describe those who provide health care and are eligible to be paid under Medicare. In its generic sense, a Medicare health care “provider” includes doctors, dentists, laboratories and all other health care suppliers under Medicare Part B. In fact, the Medicare number under which the Petitioner operates is called a “provider” number. [Transcript, Vol. I, pp. 95-96].
19. Medicare only issues provider numbers to facilities and individuals who are licensed to practice or provide a healthcare service under state law and who provide services that are specifically reimbursable under the Medicare program. Physician services, imaging services, and laboratory services are all services that are specifically reimbursable under Medicare regulations. [Transcript, Vol. I, pp. 100-101, 242-243; Exhibit 513].
20. Even though a clinical testing laboratory is classified as a supplier as opposed to a provider under the Medicare definitions, a clinical laboratory is known in the generic sense of Medicare regulations as a provider. The same is true for physicians, who are technically classified as suppliers as opposed to being technically classified as providers. The Department uses of the term “Medicare recognized health care provider” in its Rule. The Rule is not intended to distinguish Part A “Providers” and Part B “Suppliers.” In its interpretation of the Rule, the Department has applied the exemption to both Medicare Providers and Medicare Suppliers and does not contend only Part A “Providers” are entitled to an exemption. [Transcript, Vol. I, pp. 138, 142-150, Vol. II, pp, 237, 242-243; Exhibits 116, 117,118].
21. The Department indicated it had “confirmed with Medicare and the Wyoming Department of Health that Medical Testing Lab, Inc. is licensed as a direct medical care provider” in an October 28, 2002, letter denying Petitioner the requested exemption. [Transcript, Vol. I, p. 139, Vol. II, pp. 238-240; Stipulated Updated Summary of Uncontroverted Facts ¶7].
22. The Department issues rulings concerning sales tax issues. The Department has issued rulings that the disposable supplies used by the following entities are exempt from sales tax pursuant to Wyo. Stat. Ann. §39-15-105(a)(vi)(C), because such supplies are considered by the Department to be used in the direct medical care of patients:
a. Hospital laboratories whose tests are the same services the Petitioner preforms. Hospitals may conduct tests for people who are not admitted as patients in the hospital and for emergency room patients and for patients admitted to a hospital. The Department speculated that it is possible it misconstrued the nature of hospital laboratories and may have extended the exemption too far. [Transcript, Vol. I, pp. 127-128, 142, 152, 245-246, 296-297].
b. Imaging Centers purchasing x-ray film, x-ray developing solution and x-ray barium products because these supplies are “directly necessary to aid a health care provider in medical diagnosis.” [Exhibits 115, 116; Transcript, Vol. I, 144-147].
c. Nursing homes wherein the supplies are being used by nursing home personnel and not necessarily by doctors. [Exhibit 117; Transcript, Vol. I, pp. 147-149].
d. A kidney dialysis clinic, regardless of whether or not a doctor maintains his office as part of the clinic. [Exhibit 118; Transcript, Vol. I, pp. 148-149].
e. A physician who personally collects a blood sample from a patient using supplies purchased by the physician. [Transcript, Vol. I, pp. 149-150].
f. A physician who directs his nurse to collect a blood sample from a patient using supplies purchased by the physician. [Transcript, Vol. I, p. 150].
23. The Department explained its rationale for excluding Petitioner, by stating that in the Department’s opinion, the statue is too vague to be anything but arbitrary. The Department does not know how to apply the exemption so the Department set its sights on physicians and dentists. Because the Petitioner does not provide treatment, the Department states that Petitioner does not qualify. Further, the Department’s explanation of medical care includes treatment, diagnosis and curing of a disease. In the Department’s logic the Petitioner is a “step away” from the treatment of the patient and therefore the medical care is not direct. In the Department’s logic it is not enough that Petitioner’s services are provided under a doctor’s orders. Rather, there must be a direct doctor patient relationship. The Department’s distinction is that the person performing the tests is the determining factor. As the Department explained, “They really don’t, as a clinical laboratory, they don’t really do the diagnosis, prevention and treatment of disease that’s found at the doctor’s and dentists.” [Transcript, Vol. I, p. 156, 157, 159-160, 168, 172, 188, 260, 268, 282, 299]. We disagree with the Department’s interpretation.
24. Comparing the Department’s treatment of Petitioner to physicians and hospitals, the same exact supplies, used for the same exact purposes, on the same exact patients, are exempt when used by a physician or someone in his office, or by someone in a hospital laboratory, but not exempt when used by Petitioner. [Transcript, Vol. I, pp. 154-155; Vol. II, pp. 246-249]. Also, comparing the Department’s treatment of Petitioner to radiology clinics, medical supplies used for diagnostic purposes are exempt in radiology clinics but not in Petitioner’s lab. This is obviously inconsistent and unreasonable. [Exhibits 115, 116; Transcript, Vol. I, pp. 144-147].
25. In the process of promulgation of the rule at issue, the Department represented that it would use the Medicare list of approved providers to guide it in determining who falls under the sales tax exemption provided by Wyo. Stat. Ann. §39-15-105(a)(vi)(C). [Exhibit 114; Transcript, Vol. I, p. 141]. Shortly after this rule was promulgated, the Department obtained a list of Medicare recognized healthcare providers in Wyoming, a list which included Petitioner. [Transcript, Vol. I, pp. 130-140].
IV. HISTORY OF RULING
26. In a letter dated March 2, 2001, Petitioner, through its accountant, Mr. Richard Reimann, submitted an inquiry to the Department as to whether Wyo. Stat. Ann. §39-15-105 (a)(vi) applied so that Petitioner could claim exemption from sales tax for the purchase of its disposable supplies used in its laboratory testing. [Exhibit 501; Stipulated Updated Summary of Uncontroverted Facts ¶3].
27. The Department responded to Petitioner’s request for an interpretation of Wyo. Stat. Ann. §39-15-105 (a)(vi) in a letter dated March 14, 2001, as follows:
The supplies purchased by Medical Testing Lab are subject to sales tax per WY Dept. of Rev. Rules, Chap. 2, Sec. 14(aa) that states: “Purchases by businesses and professional persons of equipment, tools and supplies for use in conducting their businesses or professions shall be subject to the sales or use tax.”
There is an exemption for medical supplies. However, those supplies have to be used in the direct medical or dental care of Patient in accordance with W.S. 39-15-105(a)(vi) which states that “Sales of all noncapitalized equipment and disposable supplies which are used in the direct medical or dental care of a patient ...” are tax exempt. By rule, we recognize that a Medicare recognized health care provider renders the direct medical or dental care contemplated by the exemption. Thus, the exemption applies to sales of non-capitalized equipment and disposable supplies to the Medicare recognized healthcare provider or dentist who uses them in direct patient care.
[Exhibit 502; Transcript Vol. I, pp. 43-44; Stipulated Updated Summary of Uncontroverted Facts ¶4].
28. Petitioner understood that it was entitled to the sales tax exemption provided by Wyo. Stat. Ann. §39-15-105(a)(vi)(C). [Transcript, Vol. I, pp. 44-45]. Pursuant to its understanding, Petitioner contacted its vendors, via letter dated March 30, 2001, to initiate reimbursement for all state sales tax paid to the respective vendors for supplies that were used in the direct medical care of patients over the previous three years. Abbott Laboratories, refunded monies to Petitioner and then sought reimbursement from the Department. The Department denied this refund request, and Abbott Laboratories has since required Petitioner to pay sales tax on its purchase of supplies. [Exhibits 503, 504, 505; Stipulated Updated Summary of Uncontroverted Facts ¶5].
29. On October 28, 2002, the Department issued a letter of determination to Petitioner in which the Department essentially states that the supplies purchased by Petitioner were subject to sales tax because Petitioner did not use such supplies in the direct medical care of patients, but rather provided “material or services to those who provide the actual direct patient care.” [Exhibit 500; Stipulated Updated Summary of Uncontroverted Facts ¶6]. This final determination letter explains the Department’s rationale:
You must be aware that our interpretation of what constitutes a “direct medical care provider” is not necessarily the same as the Department of Health or Medicare nor does it have to be. For sales/use tax purposes, we have historically and consistently considered “direct medical care providers(s)” to be those medically trained and certified personnel who are actually performing hands-on, one-to-one care and/or treatment to the patient, i.e., physicians and dentists. Our interpretation and application does not include those parties who may have some involvement with the patient’s treatment but are removed from the actual physical contact of treatment.
[Exhibit 500, p. 000004]. It appears the Department did not understand the employees of the Petitioner were medically trained (a medical technologist, a cytologist and a pathologist) and had direct contact with the patients when the Department made its ruling.
30. Petitioner filed a Notice of Appeal of the Department’s October 28, 2002, ruling on November 26, 2002. [Exhibit 500].
31. Any Discussion above or Conclusion of Law below which includes a finding of fact may also be considered a Finding of Fact and, therefore, is incorporated herein by this reference.
CONCLUSIONS OF LAW
I. GENERAL LAW
32. The letter of appeal by Petitioner was timely filed and the Board has jurisdiction to determine this matter.
33. The disposable supplies purchased by an entity for its own use are subject to sales tax:
Except as provided by W.S. 39-15-105, there is levied an excise tax upon
. . . [t]he sales price of every retail sale of tangible personal property within the state;
Wyo. Stat. Ann. §39-15-103(a)(i)(A).
34. There is an exemption from sales tax for disposable supplies under certain circumstances:
(a) The following sales or leases are exempt from the excise tax imposed by this article:
* * * *
(vi) For the purpose of exempting sales of services and tangible personal property which are essential human goods and services, the following are exempt:
* * * *
(C) Sales of all noncapitalized equipment and disposable supplies which are used in the direct medical or dental care of a patient. The exemption in this subparagraph shall not include capitalized equipment or office supplies used in the normal course of business.
Wyo. Stat. Ann. §39-15-105(a)(vi)(C).
35. The Department promulgated a rule to interpret and administer the sales tax exemption in Wyo. Stat. Ann. §39-15-105(a)(vi)(C):
Physicians and dentists. All purchases of noncapitalized equipment used in their practice by dentists and Medicare recognized health care providers shall be exempt from the sales and use tax. Disposable supplies which are used on a single patient and immediately discarded are exempt from the sales and use tax. All purchases of capitalized equipment depreciated under IRS rules, and office supplies are subject to sales and use tax.
Rules, Wyoming Department of Revenue, Chap. 2, §14(z).
36. Another Department rule applies to purchases by businesses and professions:
Purchases by Businesses. Purchases by businesses and professional persons of equipment, tools and supplies for use in conducting their businesses or professions shall be subject to the sales or use tax.
Rules, Wyoming Department of Revenue, Chap. 2, §14(aa).
37. Petitioner claims an exemption from sales tax for disposable supplies purchases for use in its laboratory because: (1) it uses the disposable supplies in the direct medical care of patients; (2) it is a Medicare recognized health care provider; and (3) the services it provides aids in the diagnosis and treatment of patients.
38. The Department counters that the sales tax exemption for disposable supplies used in the direct medical care of a patient is intended for only doctors and dentists, that Petitioner does not provide direct medical care to patients, and that Petitioner is not a Medicare recognized health care provider within the meaning of its rule.
II. BURDEN OF PROOF
39. The Rules of the Board state in relevant part that:
Except as specifically provided by law or in this section, the Petitioner shall have the burden of going forward and the ultimate burden or persuasion, which burden shall be met by a preponderance of the evidence. If Petitioner provides sufficient evidence to suggest the Department determination is incorrect, the burden shifts to the Department to defend its action. For all cases involving a claim for exemption, the Petitioner shall clearly establish the facts supporting an exemption.
Rules, Wyoming State Board of Equalization, Chap. 2, §20.
III. THE STATUTE, THE RULE AND PRIOR INTERPRETATION EXEMPTS PETITIONER’S SUPPLIES
40. We find the Petitioner met its burden of going forward, Petitioner also met its burden of persuasion. Finally, Petitioner clearly established the facts supporting an exemption.
41. “The general rule is taxation; exemptions are the exception. There is a presumption created against granting exceptions and favor of taxation.” State Board of Equalization v. Tenneco Oil Co., 694 P.2d 97, 100 (Wyo. 1985). “As a general rule tax exemptions are given strict interpretation against an assertion of a taxpayer and in favor of the taxing power.” 3A Sutherland Stat. Const. §66.09, at 42(5th ed. 1992). Appeal of Chicago & North Western Railway Company, 70 Wyo. 84, 246 P. 2d 789, 795 (Wyo. 1952), Eastern Laramie County Solid Water Disposal Dist. v. State Bd. of Equalization, 9 P. 3d 268, 271 (Wyo. 2000), In the Matter of the Appeal of Union Tank Car Company, 2003 WL 1901518, SBOE Docket No. 2001-209(April 1, 2003).
42. “A statutory exemption from taxation must be clearly conferred in plain words.” Commissioners of Cambria Park v. Board of Commissioners of Weston County, 62 Wyo. 446, 174 P.2d 402, 405 (Wyo. 1946). Thus, Petitioner bears the burden of demonstrating the existence of sales tax exemption for disposable supplies. In the Matter of the Appeal of Union Tank Car Company, supra.
43. The Department argues that the phrase “medicare recognized health care providers,” in the context of the Department’s Rule Chapter 2, Section 14(z), is intended to apply only to physicians and dentists. However, the Department has applied the exemption to allow sales tax exemptions to non-physicians. Findings of Fact ¶22.
44. Evidence of the interpretation of a sales tax exemption statute can properly be shown through administrative interpretation thereof. 30 A.L.R. 5th 494 at §2[b]. In this regard, the Department has the authority to promulgate rules and regulations that provide guidance in the interpretation of exemption statutes like the one at issue. Wyo. Stat. Ann. §39-11-102(c)(xix). However, the Department is not allowed to rewrite statutes through this rule-making authority, U.S. West v. Wyoming Public Service Comm’n, 992 P.2d 1092, 1096 (Wyo. 1999), and is required to follow the directive of the rules and regulations that it promulgates. See State ex rel. Dept. of Revenue v. Buggy Bath Unlimited, Inc. 18 P.3d 1182, 1188 (Wyo. 2001). The Department’s interpretation of its own rules and regulations will be entitled great deference, but will be rejected “if unreasonable, plainly erroneous, or inconsistent with the regulation’s plain meaning.” Lewis v. Babbitt, 998 F. 2d 880, 882 (10th Cir. 1993). The rules of construction and interpretation which apply to statutes, similarly govern the construction and interpretation of rules and regulations of administrative agencies. Hercules Powder Co. v. State Bd. of Equalization, 210 P.2d 824, 827 (Wyo. 1949).
45. When rules have been properly promulgated pursuant to statutory authority, they “have the force and effect of law.” State ex rel. Dept. of Revenue v. Buggy Bath Unlimited, Inc. supra at 1188; In the Matter of the Appeal of Union Tank Car Company, supra. The Board concludes that Chapter 2, Section 14(z) of the Department’s rule is properly promulgated rule that has the force and effect of law.
46. The statutory exemption is not based on the identity of the user of the supplies (i.e. physicians). Rather, the exemption is based on the way the supplies are used. The entire exemption is founded on the premise that direct medical care of a patient is an “essential human service.” Wyo. Stat. Ann. §39-15-105(a)(vi)(C). The service is no less essential, nor any less a part of a patient’s direct medical care because the doctor has chosen to send the patient to a lab rather than providing the service himself. In fact, because of the complexity of testing provided by Petitioner, few physicians have in-house laboratory testing capabilities to provide the essential service provided by Petitioner.
47. The Department’s application and interpretation of the statute and rule renders the same exact procedure (drawing and testing blood and urine samples and cells) for the same exact purpose (diagnosis and treatment of a patient) as both “direct medical care” if done in a hospital or in a physician’s office and not “direct medical care” when done by Petitioner. The Department’s interpretation is unreasonable, plainly erroneous and inconsistent with the plain meaning of the regulation and the statute. Because we find the interpretation to be “unreasonable, plainly erroneous, or inconsistent with the regulation’s plain meaning” it will be rejected. Lewis v. Babbitt, supra.
48. The dictionary definition of medicine is:
the science and art of diagnosing, treating, curing, and preventing disease, relieving pain, and improving, curing and preventing disease, relieving pain, and improving and preserving health . . .
Webster’s New World, College Dictionary, 4th Ed., 2002, p. 894,
49. The Department argues for this Petitioner to qualify for the exemption the entity preforming the service must preform all the tasks of diagnosing, treating, curing, and preventing disease, relieving pain and improving and preserving health and that only doctors and dentists preform all the tasks so that the exemption is to be limited to doctors and dentists.
50. We reject the Department’s interpretation that demands the person using the supplies is the key to the exemption. It is the use of the supplies that is the determining factor.
51. To be exempt the supplies must meet the following criteria:
1. They must be disposable.
2. They cannot be capital equipment or office supplies.
3. There must be use of the supplies in the medical care which is a service used to diagnose, treat, cure or prevent disease or pain.
4. The use of the supplies must be necessary to a health provider.
5. The supplies must be used by either a Medicare recognized health care provider or supplier in the technical sense.
52. We find the reasoning of the Department in their letter to X-Ray Specialties persuasive:
The x-ray film, x-ray developing solution and x-ray barium products are exempt as being directly necessary to aid a health care provider in medical diagnosis. [Emphasis added].
[Exhibit 115, p. MTL 0245]. This opinion is supported in the case of Beesting v. Medical Appeals Unit of Industrial Council, et. al., 73 N.Y.S.2d 465, 466 (1947) where the court found: “Treatment by X-rays is a species of medical care.”
53. The supplies Petitioner is requesting to exempt from sales tax are necessarily used to aid a physician in a medical diagnosis and sometimes the treatment of a disease. This evidence is uncontroverted.
54. Another reason to exempt Petitioner’s purchase of disposable supplies is because Petitioner falls directly within the Department’s rule. Petitioner is a Medicare recognized health care provider, in the generic sense. The Department admitted “provider” was intended to be the generic term under Medicare because doctors and dentists were definitely included. It is not sufficient that the Department did not like the list of Medicare providers after the rule was adopted. If the Department does not like the rule they should take steps to repeal or amend the rule.
THIS SPACE INTENTIONALLY LEFT BLANK
ORDER
IT IS THEREFORE HEREBY ORDERED: The decision of the Department of Revenue to levy sales tax on the Petitioner’s claimed exempt disposable supplies is reversed. This matter is remanded to the Department of Revenue for action consistent with this decision.
Pursuant to Wyoming Statute Section 16-3-114, and Rule 12, Wyoming Rules of Appellate Procedure, any person aggrieved or adversely affected in fact by this decision may seek judicial review in the appropriate district court by filing a petition for review within 30 days of the date of this decision.
Dated this 30th day of December, 2003.
STATE BOARD OF EQUALIZATION
_____________________________________
Roberta A. Coates, Chairman
________________________________
Alan B. Minier. Vice Chairman
_____________________________________
Thomas J. Satterfield
ATTEST:
________________________________
Wendy Soto, Executive Secretary