Appeals decision may net hospital $100,000

A Washington state Court of Appeals’ recent decision could mean a sizable tax refund for Whidbey General Hospital, as well as have far-reaching implications for other hospitals in the state.

Three appellate judges unanimously sided with the hospital in a claim against the state Department of Revenue, reversing a trial court’s summary judgement in the state’s favor.

Joe Vessey, the new chief financial officer for Whidbey General Hospital, said the decision, unless reversed, means that the hospital would receive a refund of $102,723, plus interest, in business and occupation taxes that were paid from 1995 to 1999. In addition, the Appeals Court found that the hospital is entitled to legal costs from the state, to be determined by the trial court.

Yet the case may not be over.

Heidi A. Irvin, the assistant attorney general who represented the state, said she will file a motion for reconsideration with the Appeals Court. If that’s turned down, she said the state will consider filing a petition for review with the state Supreme Court.

The case has to do with income the hospital receives from military members and their dependents under the Civilian Health and Medical Program of the Uniformed Services, or CHAMPUS. The hospital argued that it shouldn’t have to pay B-and-O tax on CHAMPUS income.

Vessey pointed out that the state doesn’t tax income the hospital receives from Medicare and Medicaid.

“They don’t re-tax that,” he said. “It would seem kind of conflicting.”

Irvin said the main question in the case is whether CHAMPUS is an employee benefit program, with military members being the employees. If it is, the money from the program would not be tax deductible. She said three Supreme Court justices have agreed with the state’s contention in the past that CHAMPUS is an employee benefit program.

“We think we have a pretty decent argument,” she said.

Vessey said other hospitals have followed Whidbey General’s example in filing similar claims with the state.

“We’re the lead case and it should set a precedent for other hospitals,” he said.

The published opinion erroneously states that “there is no military medical facility on Whidbey Island.” Naval Hospital Oak Harbor is at the Whidbey Island Naval Air Station, but Vessey said the civilian hospital still sees a good number of military people and their dependents.

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