The Washington Supreme Court held that a business & occupation (“B&O”) tax deduction contained in RCW 82.04.4311 is limited to payments received from Washington and federal programs, but not payments received from other states’ medical programs. The B&O tax is a gross receipts tax imposed on nearly every type of enterprise, including for-profit and not-for-profit hospitals. The taxpayers are Washington hospitals that claimed that their receipt of payments from other states’ medical programs related to patients they treated in Washington State should qualify for the deduction. In deciding that the statutory deduction did not apply to payments from other states, the court relied on a statutory construction principle known as the “series-qualifier” rule and rejected the taxpayers’ application of the “last antecedent” rule. While acknowledging that these principles would produce different results, the Court held – in a footnote – that the statute “unambiguously” requires that payments from other states do not qualify for the deduction. The court also did not have a difficult time dismissing the taxpayers’ claims that applying the deduction to in-state payments but not out-of-state payments violates the Commerce Clause. The court held under the “government function exemption” from the Commerce Clause, disparate treatment between in-state and out-of-state interests is tolerated if the challenged provision (1) benefits the exercise of a government function, and (2) treats private interests the same.

Peacehealth St. Joseph Med. Ctr. v. Dep’t of Revenue, Wash., No. 97557-4 (Aug. 6, 2020).