671 S.E.2d 682
Davis Memorial Hospital (hereinafter referred to as “Davis Memorial”),
Appellant and petitioner below, appeals from a decision of the Circuit Court of Randolph
County that affirmed the denial of its claim for a refund of West Virginia consumers sales
tax and West Virginia use tax paid for the year 2002. The circuit court affirmed the decision
of the West Virginia State Tax Commissioner, respondent below and appellee (hereinafter
referred to as “Tax Commissioner”), which interpreted the term “support,” as defined in
W. Va. Code § 11-15-9(a)(6)(F)(i)(II) (2007) (Supp. 2008), as including Davis Memorial's
receipts from patient revenues, also referred to as “exempt purpose income.” (See footnote 2) With its
exempt purpose income included in the calculation of its “support,” Davis Memorial does
not qualify for an exemption from West Virginia sales tax and use tax. We agree with the
Tax Commissioner's interpretation of the relevant statutes. Therefore, we affirm the circuit
court's ruling upholding that interpretation.
(a) . . . . The following sales of tangible personal
property and services are exempt as provided in this subsection:
. . . .
(6) Sales of tangible personal property or services to a
corporation or organization which has a current registration
certificate issued under article twelve [§§ 11-12-1 et seq.] of this
chapter, which is exempt from federal income taxes under
Section 501(c)(3) or (c)(4) of the Internal Revenue Code of
1986, as amended, and which is:
. . . .
(C) A corporation or organization which annually
receives more than one half of its support from any combination
of gifts, grants, direct or indirect charitable contributions or
membership fees;
. . . .
(F) For purposes of this subsection:
(i) The term “support” includes, but is not limited to:
(I) Gifts, grants, contributions or membership fees;
(II) Gross receipts from fundraisers which include
receipts from admissions, sales of merchandise, performance of
services or furnishing of facilities in any activity which is not an
unrelated trade or business within the meaning of Section 513
of the Internal Revenue Code of 1986, as amended;
(III) Net income from unrelated business activities,
whether or not the activities are carried on regularly as a trade
or business;
(IV) Gross investment income as defined in Section
509(e) of the Internal Revenue Code of 1986, as amended; (V) Tax revenues levied for the benefit of a corporation
or organization either paid to or expended on behalf of the
organization; and
(VI) The value of services or facilities (exclusive of
services or facilities generally furnished to the public without
charge) furnished by a governmental unit referred to in Section
170(c)(1) of the Internal Revenue Code of 1986, as amended, to
an organization without charge. This term does not include any
gain from the sale or other disposition of property which would
be considered as gain from the sale or exchange of a capital
asset or the value of an exemption from any federal, state or
local tax or any similar benefit;
W. Va. Code § 11-15-9 (2007) (Supp 2008) (emphasis added).
On May 9, 2005, Davis Memorial filed a claim for a refund of West Virginia
consumers sales tax and West Virginia use tax paid during the calendar year 2002. Davis
Memorial sought the refund based upon its claim that it met the “support test” and, therefore,
was exempt from paying State sales and use taxes. The amount of the refund sought for the
calendar year 2002 is $799,501.16. The Tax Commissioner denied the claimed refund and
Davis Memorial filed a timely appeal to the West Virginia Office of Tax Appeals (hereinafter
referred to as “the OTA”). Following an administrative hearing, the OTA affirmed the Tax
Commissioner's denial of the refund. The Administrative Law Judge presiding over the
case (See footnote 6) concluded that Davis Memorial was required to include receipts from patient revenues,
i.e., its exempt purpose income, in calculating its support for purposes of claiming the tax
exemptions set forth in W. Va. Code § 11-15-9(a)(6), and therefore, Davis Memorial did not
meet the “support test” in that less than one-half of its support was received from “gifts,
grants, direct or indirect charitable contributions or membership fees.” It is undisputed that
if Davis Memorial's exempt purpose income was not included in the calculation of its
“support,” then it would meet the support test and would be exempt from State sales and use
taxes.
Davis Memorial appealed the OTA decision to the Circuit Court of Randolph
County. The circuit court affirmed the OTA decision upholding the Tax Department's denial
of the requested refund. Davis Memorial then appealed to this Court, and we now affirm.
(F) For purposes of this subsection:
(i) The term “support” includes, but is not limited to:
. . . .
(II) Gross receipts from fundraisers which
include receipts from admissions, sales of
merchandise, performance of services or
furnishing of facilities in any activity which is not
an unrelated trade or business within the meaning
of Section 513 of the Internal Revenue Code of
1986, as amended[.]
Davis Memorial argues that the Legislature plainly limited the foregoing definition of
support to “fundraisers,” and then provided four specific types of funds obtained from
“fundraisers,” namely: (1) admissions, (2) sales of merchandise, (3) performance of services,
or (4) furnishing of facilities, all of which must be done in connection with an activity that
is not an unrelated trade or business within the meaning of Section 513 of the Internal
Revenue Code of 1986, as amended. (See footnote 7) Because Davis Memorial's exempt purpose income
is not a fundraiser, it reasons, exempt purpose income cannot possibly be included in the
state-law support test.
To the contrary, the Tax Commissioner contends that the statute provides that
the term “support” includes, but is not limited to, the six enumerated categories that follow, i.e. those appearing in W. Va. Code § 11-15-9(a)(6)(F)(i)(I) through (VI), and that the “gross
receipts” specifically referred to in W. Va. Code § 11-15-9(a)(6)(F)(i)(II) include: (1)
Receipts from admissions in any activity that is not an unrelated trade or business; (2)
Receipts from sales of merchandise in any activity that is not an unrelated trade or business;
(3) Receipts from the performance of services in any activity that is not an unrelated trade
or business; and (4) Receipts from furnishing of facilities in any activity that is not an
unrelated trade or business. Under this interpretation, Davis Memorial's exempt purpose
income would be included within the meaning of support as receipts from the performance
of services in any activity that is not an unrelated trade or business.
In deciding the meaning of a statutory provision, “[w]e look first to the
statute's language. If the text, given its plain meaning, answers the interpretive question, the
language must prevail and further inquiry is foreclosed.” Appalachian Power Co. v. State
Tax Dep't, 195 W. Va. 573, 587, 466 S.E.2d 424, 438 (1995). See also Syl. pt. 2, Crockett
v. Andrews, 153 W. Va. 714, 172 S.E.2d 384 (1970) (“[w]here the language of a statute is
free from ambiguity, its plain meaning is to be accepted and applied without resort to
interpretation.); Syl. pt. 2, State v. Epperly, 135 W. Va. 877, 65 S.E.2d 488 (1951) (“[a]
statutory provision which is clear and unambiguous and plainly expresses the legislative
intent will not be interpreted by the courts but will be given full force and effect.”).
Indeed, this Court has held that “[a] statute is open to construction only where
the language used requires interpretation because of ambiguity which renders it susceptible
of two or more constructions or of such doubtful or obscure meaning that reasonable minds
might be uncertain or disagree as to its meaning.” Sizemore v. State Farm Gen. Ins. Co., 202
W. Va. 591, 596, 505 S.E.2d 654, 659 (1998) (internal quotations and citation omitted).
Both Davis Memorial and the Tax Commissioner contend that W. Va. Code
11-15-9(a)(6)(f)(i)(II) is a plainly worded statute. Therefore, they contend, its plain
provisions should be applied. We disagree. (See footnote 8) An examination of that section of the code
reveals that the “language used requires interpretation because of ambiguity which renders
it susceptible of two or more constructions” and that the provision is “of such doubtful or
obscure meaning that reasonable minds might be uncertain or disagree as to its meaning.” Sizemore, 202 W. Va. at 596, 505 S.E.2d at 659. Accordingly, we find that W. Va. Code 11-
15-9(a)(6)(f)(i)(II) is ambiguous. “A statute that is ambiguous must be construed before it
can be applied.” Syl. pt. 1, Farley v. Buckalew, 186 W. Va. 693, 414 S.E.2d 454 (1992). See
also United Bank, Inc. v. Stone Gate Homeowners Ass'n, Inc., 220 W. Va. 375, 379, 647
S.E.2d 811, 815 (2007) (“statutory language that is ambiguous must be construed before it
can be applied.”).
When endeavoring to construe the meaning of an ambiguous statute, we must
be mindful that “[t]he primary object in construing a statute is to ascertain and give effect to
the intent of the Legislature.” Syl. pt. 1, Smith v. State Workmen's Comp. Comm'r, 159
W. Va. 108, 219 S.E.2d 361 (1975). See also Syl. pt. 1, Ohio County Comm'n v. Manchin,
171 W. Va. 552, 301 S.E.2d 183 (1983) (“Judicial interpretation of a statute is warranted
only if the statute is ambiguous and the initial step in such interpretative inquiry is to
ascertain the legislative intent.”).
In ascertaining the legislative intent behind W. Va. Code 11-15-9(a)(6)(f)(i)(II),
we first consider what the Legislature has stated its intent to be with respect to the general
law of which this provision is a part:
“[a] statute should be so read and applied as to make it
accord with the spirit, purposes, and objects of the general
system of law of which it is intended to form a part; it being
presumed that the legislators who drafted and passed it were
familiar with all existing law applicable to the subject-matter,
whether constitutional, statutory, or common, and intended the
statute to harmonize completely with the same and aid in the
effectuation of the general purpose and design thereof, if its
terms are consistent therewith.” Syllabus Point 5, State v.
Snyder, 64 W. Va. 659, 63 S.E. 385 (1908).
Syl. pt. 3, Buda v. Town of Masontown, 217 W. Va. 284 , 617 S.E.2d 831 (2005). Thus, we
find it pertinent that, in W. Va. Code § 11-15-1 (1939) (Repl. Vol. 2005), the Legislature has
expressly stated that “[t]he purpose of this article is to impose a general consumers sales and
service tax.” (Emphasis added). Furthermore, the Legislature has stated that “[t]o prevent
evasion, it shall be presumed that all sales and services are subject to the tax until the
contrary is clearly established.” W. Va. Code § 11-15-6 (1987) (Repl. Vol. 2002) (emphasis
added). (See footnote 9) We believe the foregoing provisions clearly reflect the legislative intent that
presumptions are to be made in favor of taxability, and exemptions must be clearly
established. See, e.g., Wooddell v. Dailey, 160 W. Va. 65, 66-67, 230 S.E.2d 466, 468 (1976)
(“W. Va. Code, 11-15-6, provides that all sales and services are presumed to be subject to
the tax until the contrary is clearly established. In the face of such a presumption, the
taxpayer has the burden of establishing that she is not subject to the tax.”). Therefore,
examining the specific language of W. Va. Code § 11-15-9(a)(6)(F)(i)(II) in light of the
statutory scheme of which it is a part, we believe the Legislature intended the term “support”
to have a broad meaning so that the organizations who could qualify as exempt by virtue of
the § 11-15-9(a)(6)(C) support test would be limited.
Our conclusion is supported by the rule that “'[w]here a person claims an
exemption from a law imposing a license or tax, such law is strictly construed against the
person claiming the exemption' Syllabus Point 4, Shawnee Bank, Inc. v. Paige, 200 W. Va.
20, 488 S.E.2d 20 (1997) (citations omitted).” Syl. pt. 1, RGIS Inventory Specialists v.
Palmer, 209 W. Va. 152, 544 S.E.2d 79 (2001). Accord Syl. pt. 5, CB&T Operations Co.,
Inc. v. Tax Comm'r of State, 211 W. Va. 198, 564 S.E.2d 408 (2002); Syl. pt. 2, Tony P.
Sellitti Constr. Co. v. Caryl, 185 W. Va. 584, 408 S.E.2d 336 (1991); Syl. pt. 5, Pennsylvania
& West Virginia Supply Corp. v. Rose, 179 W. Va. 317, 368 S.E.2d 101 (1988); Syl. pt. 2, State ex rel. Lambert v. Carman, State Tax Comm'r, 145 W. Va. 635, 116 S.E.2d 265 (1960).
The legislative intent to assign a broad meaning to the term “support,” and to
thereby limit those charitable organizations who are able to claim the related exemption is
further demonstrated by the express language of W. Va. Code § 11-15-9(a)(6)(F)(i) stating:
“[t]he term 'support' includes, but is not limited to.” In this regard, this Court has recognized
that “[t]he term 'includ[es]' in a statute is to be dealt with as a word of enlargement and this
is especially so where . . . such word is followed by 'but not limited to' the illustrations
given.” State Human Rights Comm'n v. Pauley, 158 W. Va. 495, 501, 212 S.E.2d 77, 80
(1975) (citations omitted). Davis Memorial argues that, under the doctrines of ejusdem
generis (See footnote 10) and noscitur a sociis, (See footnote 11) the phrase “includes, but is not limited to” as used in W. Va.
Code § 11-15-9(a)(6)(F)(i) must be read in connection with the list that follows and therefore
W. Va. Code § 11-15-9(a)(6)(F)(i)(II) must be read to mean “includes but is not limited to”
additional types of fundraisers not expressly listed. We reject this analysis. The phrase
“includes, but is not limited to” appears in subsection W. Va. Code § 11-15-9(a)(6)(F)(i) and
applies broadly to all those types of support listed thereunder in subsections (I) through (VI),
which include items, such as “[n]et income from unrelated business activities” (See footnote 12) and “[g]ross
investment income,” (See footnote 13) that plainly do not refer to fundraisers.
To determine the intent of the Legislature with respect to what income should
be included as “support” for purposes of calculating whether more than half of that amount
derives from “any combination of gifts, grants, direct or indirect charitable contributions or
membership fees,” W. Va. Code § 11-15-9(a)(6)(C), we think it is also useful to look at
earlier versions of the exemption section to see how such exemptions have been historically
addressed. See, e.g., Carter-Hubbard Pub. Co., Inc. v. WRMC Hosp. Operating Corp., 178
N.C. App. 621, 625, 633 S.E.2d 682, 685 (2006) (“'Other indicia considered by this Court
in determining legislative intent are the legislative history of an act and the circumstances
surrounding its adoption[.]'” (citations omitted)); Smith v. Com, 32 Va. App. 228, 235, 527
S.E.2d 456, 460 (2000) (“A statute should, if possible, be construed to '“effect rather than
defeat a legislative purpose evident from the history of the legislation.”'” (citations omitted)).
The consumer sales tax statute was first codified at Chapter 11, Article 15, in
1937. See Acts of the Legislature, Reg. Sess., ch. 108 (1937). That early version of the
statute did not contain any exemption for charitable organizations; although, it did contain
a section outlining certain sales that were not included. See Acts of the Legislature, Reg.
Sess., ch. 108, § 9, at 444 (1937). (See footnote 14) Thus, charitable organizations received no exemptions
by virtue of their status as charitable organizations, but rather were entitled to an exception
from consumer sales tax only to the extent that they engaged in certain types of sales
transactions. Thereafter, W. Va. Code § 11-15-9 was amended several times; (See footnote 15) and in 1955
an exclusion for charitable organizations was added. Acts of the Legislature, Reg. Sess., ch.
1169, § 9, at 506 (1955). However, the charitable organization exclusion, which appeared
at subsection 6, applied only to those organizations that made “no charge whatever for the
services they render.” Id. (See footnote 16) Accordingly, charitable organizations began to receive an
exclusion by virtue of their status as charitable organizations, but this exclusion applied only
to those charitable organizations that did not charge for the services they rendered. This
language remained in subsection 6 through amendments to § 11-15-9 that occurred in 1957, (See footnote 17)
1963, (See footnote 18) and 1969. (See footnote 19) In 1974, § 11-15-9 was once again substantively changed. In 1974, an
exemption for § 501(c)(3) organizations was granted, but such organizations were exempt
only if they made “casual and occasional sales not conducted in a repeated manner.” W. Va.
Code § 11-15-9 (6). (See footnote 20) The “casual and occasional sales not conducted in a repeated manner”
qualification remained in W. Va. Code § 11-15-9 (6) until 1989, when the Legislature again
re-wrote section 9, and first used the language we are asked to interpret in the case sub
judice.
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,
from allowing the exemption only to § 501(c)(3) organizations who made only “casual and
occasional sales not conducted in a repeated manner,” to allowing the exemption to be
claimed by a § 501(c)(3) organization that earned more than $64,000,000.00 in fees charged
to patients receiving health care services.
Furthermore, the Tax Department has persuasively explained that the tax
exemption at issue specifically states that the calculation for the term “support” must include
gross receipts from any activity which is not an unrelated trade or business income:
(II) Gross receipts from fundraisers which include
receipts from admissions, sales of merchandise, performance of
services or furnishing of facilities in any activity which is not an
unrelated trade or business within the meaning of Section 513
of the Internal Revenue Code of 1986, as amended;
(Emphasis added). Clearly then, the Tax Department submits, the Legislature intended that
gross receipts from business activities which are not unrelated business activities must be
included in the calculation of support. Davis Memorial's receipts from activities which are
“not an unrelated trade or business” necessarily refers to Davis Memorial's provision of
health care services. Thus, those funds must be included in the calculation of its “support.”
Notably, under Davis Memorial's interpretation of the statute as limiting “support” to
include only fundraising activities, the phrase “in any activity which is not an unrelated trade
or business . . . .” is essentially rendered meaningless. Such a result is contrary to our rules
of statutory interpretation. “A cardinal rule of statutory construction is that significance and
effect must, if possible, be given to every section, clause, word or part of the statute.”
Syllabus Point 3, Meadows v. Wal-Mart Stores, Inc., 207 W. Va. 203, 530 S.E.2d 676 (1999). See also State ex rel. Johnson v. Robinson, 162 W. Va. 579, 582, 251 S.E.2d 505, 508 (1979)
(“It is a well known rule of statutory construction that the Legislature is presumed to intend
that every word used in a statute has a specific purpose and meaning.”).
We note that Davis Memorial engages in an in depth grammatical analysis of
W. Va. Code § 11-15-9(a)(6)(F)(i)(II), arguing that it contains a restrictive clause, as
indicated, inter alia, by the use of the term “which” without a comma; (See footnote 21) that use of the plural
verb “include” in W. Va. Code § 11-15-9(a)(6)(F)(i)(II) indicates that it modifies the term
“fundraisers”; (See footnote 22) and that the list contained in W. Va. Code § 11-15-9(a)(6)(F)(i)(II) is joined
with the conjunctive “or,” which indicates a restrictive clause. We reject these arguments.
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. “In ascertaining the intent of the Legislature in the enactment of a statute and
determining whether it is unambiguous, the grammatical construction, while not controlling,
is an important aid.” Syl. pt. 4, Pond Creek Pocahontas Co. v. Alexander, 137 W. Va. 864,
74 S.E.2d 590 (1953) (emphasis added).
Finally, we note that Davis Memorial argues that, because W. Va. Code § 11-
15-9(a)(6)(F)(i)(II) is modeled after its federal counterpart (See footnote 23) but fails to use identical
language, it is presumed that the Legislature desired a standard different than that established
in the federal statute. (See footnote 24) One court has described the rule thusly:
We note initially that the federal courts' interpretations of a federal statute are not binding upon the Illinois courts or legislature although when the state legislature passes a state statute based upon a federal statute, the statute can presumably be interpreted in conformity with the decisions of the federal courts rendered prior to the adoption of the statute. Further, it may be presumed that the legislature adopted the language it did with knowledge of the construction previously enunciated in the federal courts. (See, Commonwealth Life & Accident Insurance Co. v. Bd. of Rev. of Dept. of Labor (1953), 414 Ill. 475, 481-82, 111 N.E.2d 345, 348; see also, 34 I.L.P. Statutes, § 135, p. 129 (1958).) However, the converse of these principles of statutory construction is also true. Since it may be presumed that the legislature had knowledge of the federal court's construction of the federal statute, the intent of the state legislature can be derived not only from the language actually adopted, but also from the language which was changed or not adopted. The fact that the state legislature specifically declined to adopt a certain section of the model federal statute, evidences an intent to achieve a result different from that announced by the decisions of the federal courts.
Laborer's Int'l Union of North America, Local 1280 v. State Labor Relations Bd., 154
Ill. App. 3d 1045, 1050, 507 N.E.2d 1200, 1204, 107 Ill. Dec. 831, 835 (1987).
This Court has not expressly embraced the foregoing doctrine in the context
of the Legislature's adoption of a modified version of another jurisdiction's statute. (See footnote 25)
Notably, though, the adoption of a modified version of another jurisdiction's statute merely
creates a presumption that a change was intended. Moreover, it appears that minor changes
to a statutory scheme do not carry the same weight as more significant changes:
“'where material and substantive changes are made by the
Legislature in adopting a federal statute the presumption that the
Legislature intended to accomplish the same purposes and
objectives as the Congress is no longer valid. Substantive
changes can easily, and probably do, indicate different purposes
and objectives than those intended by the Congress when it
initially enacted the law.'”
State v. Wells, 276 N.W.2d 679, 691 (N.D., 1979) (quoting State v. Wells, 265 N.W.2d 239, 247 (N.D.1978)). When comparing the language used in W. Va. Code § 11-15- 9(a)(6)(F)(i)(II) with its federal counterpart, we simply do not find the change in language to be “material and substantive.” Rather, given our determination that the Legislature intended the term “support” to have a broad meaning so that the organizations who could qualify as exempt by virtue of the § 11-15-9(a)(6)(C) support test would be limited, we conclude that the change merely reflected the Legislature's desire to clarify the federal statute and more specifically define what was meant by the term “admissions.”
Based upon the foregoing analysis, we now hold that the term “support,” as
defined in W. Va. Code § 11-15-9(a)(6)(F)(i)(II) (2007) (Supp. 2008), includes, but is not
limited to, gross receipts from: (1) fundraisers, which include receipts from admissions; (2)
sales of merchandise; (3) performance of services; or (4) furnishing of facilities, in any
activity which is not an unrelated trade or business within the meaning of Section 513 [26
USCS § 513] of the Internal Revenue Code of 1986, as amended. Applying this definition
of support, the $64,180,500.00 in exempt purpose income earned by Davis Memorial for the
year 2002 is included. Therefore, Davis Memorial received less than one half of its support
from gifts, grants, direct or indirect charitable contributions or membership fees during the
year 2002, and its claim for a refund was properly denied.