Lafayette General Medical Center,inc. v. Kimberly Robinson, Secretary, Louisiana Department of Revenue

STATE OF LOUISIANA
COURT OF APPEAL, THIRD CIRCUIT

18-879

LAFAYETTE GENERAL MEDICAL CENTER, INC.

VERSUS

KIMBERLY ROBINSON, SECRETARY, LOUISIANA
DEPARTMENT OF REVENUE

************
APPEAL FROM THE
LOUISIANA BOARD OF TAX APPEALS
DOCKET NO. 10437D
HONORABLE TONY GRAPHIA; CADE R. COLE, FRANCES “JAY”
LOBRANO, BOARD MEMBERS, PRESIDING

************
SYLVIA R. COOKS
JUDGE
************

Court composed of Sylvia R. Cooks, Shannon J. Gremillion, and D. Kent Savoie,
Judges.

REVERSED AND RENDERED.

Jesse R. Adams, III
Andre B. Burvant
Matthew A. Mantle
Jones Walker, LLP
201 St. Charles Ave., Suite 5100
New Orleans, LA 70170-5100
(504) 582-8364
COUNSEL FOR APPELLANT:
Lafayette General Medical Center, Inc.

Russell J. Stutes, Jr.
Stutes & Lavergne, LLC
600 Broad Street
Lake Charles, LA 70601
(337) 433-0022
COUNSEL FOR APPELLEE:
Louisiana Department of Revenue

COOKS, Judge.

Appellant, Lafayette General Medical Center, Inc. (hereafter LGMC), appeals

the judgment of the Louisiana Board of Tax Appeals granting summary judgment in

favor of Kimberly Lewis Robinson, in her official capacity as Secretary of the

Department of Revenue, State of Louisiana (hereafter Department). For the

following reasons, we reverse the grant of summary judgment in favor of the

Department and grant summary judgment in favor of LGMC.

FACTS AND PROCEDURAL HISTORY

As LGMC notes, the issue in this appeal concerns whether, during the

November 2016 sales tax period, the Louisiana Constitution’s prohibition against

state general sales and use taxes on “prescription drugs” set forth in La.Const. Art.

VII § 2.2(B)(3) prohibits the imposition of those taxes on purchases by LGMC of

medical devices, such as pacemakers, stents, artificial limbs, etc., used in the

treatment of patients.

The Louisiana Legislature in the 1st Extraordinary Session of 2016 passed

Acts 25 and 26, both of which went into effect April 1, 2016, and were to expire on

June 30, 2018. The Acts suspended nearly all exclusions and exemptions from two

pennies of Louisiana sales and use tax and added an additional penny, which was

imposed with a similarly reduced set of exemptions and exclusions. The exemption

of medical devices does not specifically appear anywhere in the list of preserved

exemptions. There was an exemption for “prescription drugs” expressly listed in

Acts 25 and 26. The list in both Acts 25 and 26 contains the following statement in

the list of preserved exemptions:

Prescription drugs, as provided in Article VII, § 2.2 of the Constitution
of Louisiana.

Article VII, § 2.2 of the Louisiana Constitution provides in pertinent part:

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(B) Effective July 1, 2003 the sales and use tax imposed by the state of
Louisiana or by a political subdivision whose boundaries are
coterminous with those of the state shall not apply to sales or purchases
of the following items:

...

(3) Prescription drugs.

LGMC maintained the phrase “prescription drugs” found in Section 2.2 extended to

“medical devices.” LGMC argued it was the goal and intent of the constitutional

prohibition to permanently cement into the Louisiana Constitution the statutory

exemption for “drugs prescribed by a physician or dentist” in La.R.S.

47:305(D)(1)(j), which had previously included pharmaceuticals and medical

devices, and not allow it to be suspended or otherwise affected based simply on

revenue needs. LGMC’s argument was largely based on La.R.S. 47:301(20), which

provides in pertinent part:

301. Definitions
As used in this Chapter the following words, terms, and phrases have
the meanings ascribed to them in this section, unless the context clearly
indicates a different meaning. . . .

...

(20) “Drugs” includes all pharmaceuticals and medical devices which
are prescribed for use in the treatment of any medical disease. . . .

The Department countered that the plain meaning of “prescription drugs” does not

include medical devices such as an artificial hip or pacemaker and the plain meaning

of a prescription drug is a substance used as a medication or in the preparation of

medication.

On December 20, 2016, LGMC submitted a payment under protest of

$145,719 to the Department for the November 2016 tax period with respect to the

purchases of medical devices. Thereafter, on January 18, 2017, LGMC filed a

petition with the Louisiana Board of Tax Appeals claiming its purchases of medical

devices were excluded from sales tax under La.Const. Art. VII § 2.2(B)(3), which

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applies to “prescription drugs.” LGMC also Asserted in its petition that certain

medical devices were exempt from sales tax because they were purchased by or

under the provisions of Medicare, and, alternatively, that some medical devices were

exempt under La.R.S. 47:305(D)(1)(k) and La.R.S. 47:305(D)(1)(l).

Asserting there were no material facts in dispute, both the Department and

LGMC filed cross-motions for summary judgment with the Tax Board to address

the legal issue of whether the prohibition in La.Const. Art. VII, § 2.2(B)(3) prohibits

the imposition of sales taxes on the purchases of medical devices. The parties jointly

requested that the cross-motions be decided on briefs.

On July 11, 2018, the Board rendered and signed a Judgment in favor of the

Department and against LGMC, finding that Article VII, § 2.2 of the Louisiana

Constitution does not exempt medical devices from sales and use taxes. The Board

concluded Acts 25 and 26 of the 1st Extraordinary Session of 2016 specifically

preserved only the exemption set forth in Article VII, § 2.2 and did not preserve the

exemption for medical devices. The following reasoning was given by the Board:

In La.Const. Art. VII, § 2.2(B)(1) the Legislature and the people
directed that no sales tax should be applied to “Food for home
consumption, as defined in R.S. 47:305(D)(1)(n) through (r) on January
1, 2003.” However, in Paragraph (3) of that same Subsection, the
Legislature and the people did not import any statutory definition, but
merely directed that “[p]rescription drugs” be excluded from state sales
and use tax. The Board is required to follow the Supreme Court’s
directive that “[u]nequivocal constitutional provisions are not subject
to judicial construction and should be applied by giving words their
generally understood meaning.” Ocean Energy [Inc. v. Plaquemines
Parish Government], 04-0066, p.7 [La. 7/6/04), 880 So.2d 1], at 6-7.

The Board finds that the legislative history also fails to support
the Taxpayer’s argument that the Legislature and the voters intended to
import a technical meaning into the Constitution. The underlying
statutory exemptions are broader in scope than the constitutional
exemption. In 2016, the Legislature decided to suspend these two
statutory exemptions, but in Act 426 of 2017 the Legislature reversed
course and reinstated the statutory medical device exemption by adding
it to the Retained Exemptions List effective July 1, 2017. When the
Legislature changes the wording of a statute, it is presumed to have
intended a change in the law. There would have been no need for act
426 under the Taxpayer’s reading of the 2016 enactments.

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The Board finds that the phrase Prescription drugs is clear and
unambiguous. Considering the definitions offered and the common and
ordinary understanding of the meaning of “prescription drugs,” the
Board finds that there is no basis for including Medical devices within
the scope of the constitutional exemption. The Taxpayer’s Motion for
Partial Summary Judgment requesting that the Board rule that the
constitutional provision under consideration included Medical devices
and to order the return of the $145,719.00 paid under protest on that
basis, is denied. The [Department’s] Motion for Summary Judgment is
granted on the same issue.

A final, appealable judgment was entered, wherein the Department’s motion

for summary judgment was granted and LGMC’s petition was dismissed in its

entirety. This appeal followed, wherein LGMC asserts the following assignments

of error:

1. Considering that for over 32 years the Sales Tax exemption for
prescription drugs has covered medical devices and that the legislature
intended to cement that exemption in the constitution, the Board erred
in ruling that the legislative history fails to support the position that the
constitutional prohibition on imposing Sales Tax on prescription drugs
applies to medical devices.

2. The Board erred in failing to address the Department’s own policy
documents and publications, which confirm the Department’s
understanding that the constitutional prohibition in La.Const. Art. VII
§ 2.2(B)(3) applies to medical devices.

3. Considering the Department’s long-standing contemporaneous
construction that the constitutional prohibition in La.Const. Art. VII §
2.2(B)(3) applies to medical devices, the Board erred in failing to give
the Department’s long-standing interpretation substantial and decisive
weight in this case.

4. Considering all of the facts that distinguish the present case from Ocean
energy, such as the legislative history and the Department’s long-
standing interpretation in [LGMC’s] favor, the Board’s reliance on
Ocean Energy is misplaced and the Board erred in misapplying the
Supreme Court’s legal analysis in Ocean Energy.

5. Considering the ambiguity in La.Const. Art. VII § 2.2(B)(3), perhaps
evidenced best by the Department’s own change in interpretation, the
Board erred in failing to consider that constitutional prohibitions from
the imposition of tax are interpreted liberally in favor of taxpayers and
against taxation.

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6. The Board erred in dismissing [LGMC’s] petition in its entirety,
considering the parties only moved for summary judgment on the
constitutional prohibition in La.Const. Art. VII § 2.2(B)(3), the parties
did not seek a ruling on other claims [LGMC] asserted in its Petition,
and the Board did not rule on the other claims asserted in [LGMC’s]
Petition.

7. The Board erred in granting the Department’s Motion for Summary
Judgment and in denying [LGMC’s] Motion for Partial Summary
Judgment.

ANALYSIS

Below and on appeal, the Department has noted La.R.S. 47:305(D)(1)(j) has

different wording than Art. VII, § 2.2, exempting from state sales and use tax “drugs

prescribed from a physician or dentist.” It contrasts that with Art. VII, § 2.2, which

provides that the state sales and use tax shall not apply to “Prescription drugs.”

However, we find this is a distinction without any real difference, as La.R.S.

47:305(D)(1)(j) specifically references “drugs prescribed.” Clearly, this is the same

as “Prescription drugs” as set forth in Art. VII, § 2.2.

The Board relied on the Louisiana Supreme Court case of Ocean Energy, Inc.

v. Plaquemines Parish Government, 04-66, p. 7 (La.7/6/04), 880 So.2d 1, 7, to find

that “[u]nequivocal constitutional provisions are not subject to judicial construction

and should be applied by giving words their generally understood meaning.” LGMC

does not dispute this but does contend that the constitutional provision at issue here

is far from unequivocal. The Ocean Energy court set forth the law pertaining to the

interpretation of constitutional provisions:

The starting point in the interpretation of constitutional
provisions is the language of the constitution itself. East Baton Rouge
Sch. Bd. v. Foster, 02-2799, p. 15 (La.6/6/03), 851 So.2d 985, 996.
When a constitutional provision is plain and unambiguous and its
application does not lead to absurd consequences, its language must be
given effect. Id. Unequivocal constitutional provisions are not subject
to judicial construction and should be applied by giving words their
generally understood meaning. Cajun Elec. Power Co-op. v. Louisiana
Pub. Serv. Com’n, 544 So.2d 362, 363 (La.1989) (on rehearing).

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When the constitutional language is subject to more than one
reasonable interpretation, it is necessary to determine the intent of the
provision. East Baton Rouge Parish Sch. Bd., 02-2799 at pp. 15-16,
851 So.2d at 996. In seeking to ascertain constitutional intent, the same
general rules used in interpreting laws and written instruments are
followed. East Baton Rouge Parish Sch. Bd., 02-2799 at p. 16, 851
So.2d at 996. When construing an ambiguous constitutional provision,
a court should ascertain and give effect to the intent of both the framers
of the provision and of the people who adopted it; however, in the case
of an apparent conflict, it is the intent of the voting population that
controls. Id.
In construing a constitutional provision, the courts may consider
the object sought to be accomplished by its adoption, and the evils
sought to be prevented or remedied, in light of the history of the times
and the conditions and circumstances under which the provision was
framed. Succession of Lauga, 624 So.2d 1156, 1160 (La.1993).
Additionally, if one constitutional provision addresses a subject in
general terms, and another addresses the same subject with more detail,
the two provisions should be harmonized if possible, but if there is any
conflict, the latter will prevail. Perschall v. State, 96-0322, p. 22
(La.7/1/97), 697 So.2d 240, 255. However, where the language of a
constitutional prohibition makes its aim evident and unequivocal,
courts need not consider the historical basis for the prohibition and may
not, by separately considering related constitutional provisions, arrive
at a construction that detracts from the effectiveness or manifest
meaning and purpose of the related provisions. Perschall, 96-0322 at
p. 22, 697 So.2d at 256.

Id. at 7.

LGMC points to the Ocean Energy court’s statement that “[w]hen the

constitutional language is subject to more than one reasonable interpretation, it is

necessary to determine the intent of the provision.” Id. It argues the Board and the

Department are focusing solely on the proffered dictionary definitions of the term

“drugs” and disregarding the legislative history and legislative intent behind the

constitutional prohibition in Art. VII, § 2.2. We agree with LGMC that the

Department erroneously argues there is “simply no plausible argument” that the term

“prescription drugs” can include medical devices. It is undisputed that since its

inception in 1985, La.R.S. 47:301(20) has defined the term “drugs” to include “all

pharmaceuticals and medical devices.” LGMC argues it is clear the term is

ambiguous, as the Department itself has given this same term two different

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meanings. We agree and find the constitutional language in question is subject to

more than one interpretation.

Finding that the term “prescription drugs” is subject to different

interpretations, Ocean Energy instructs it is then “necessary to determine the intent

of the provision.” Id. at p. 7. This is done by considering “the object sought to be

accomplished by its adoption, and the evils sought to be prevented or remedied, in

light of the history of the times and the conditions and circumstances under which

the provision was framed.” Id.

LGMC points out in 2002, the “Stelly Plan” was passed to eliminate the

ability of the legislature to place “temporary taxes” on certain statutory exemptions,

by placing into the Louisiana Constitution a prohibition against the imposition of

sales taxes on food for home consumption; natural gas, electricity and water for

residential use; and prescription drugs. In brief, LGMC provides the explanation

given to the house by the author of the Stelly Plan, Representative Victor T. Stelly,

who stated:

The first and foremost idea on this is to eliminate the temporary taxes.
Eliminate the temporary taxes. . . .

What we want to do, number one, with the constitutional amendment,
is to eliminate the sales tax on food for home consumption, prescription
drugs, and utilities at residences. Those three things. Now, that is not
in the constitution now. Why am I trying to take a tough, make the
tough issue even tougher [by] making it a constitutional amendment? .
. . The reason that I would like to put it in the constitution is because
when you talk to the people and you say “folks, we’re going to do away
with the temporary taxes.” And they say “yeah, until the next time you
need money. Just like you did away with the penny two years ago. And
you brought it right back.” I want to be able to say “no, we’re not. No
we’re not. It’s in the constitution.” . . .

So that’s all I want to do in the constitutional amendment. The people
will be voting to do away with sales tax on food, drugs, and utilities,
which we don’t tax drugs now. But we did at one time, and I want to
make it clear you [won’t] do this again.

LGMC argues this clearly shows the goal behind the constitutional prohibition

against sales tax on prescription drugs in La.Const. Art. VII, § 2.2(B)(3) was to

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transfer the longstanding sales tax exemption for prescription drugs, as provided in

the sales and use tax statutes, into the constitution as a prohibition that cannot be

suspended or altered at the whim of the legislature. Certainly, the fact that the

statutory exemption for prescription drugs had previously always included medical

devices, and no taxes for medical devices were paid prior to passage of Act 25 and

26 of the 2016 Extraordinary Session, lends credence to LGMC’s contention.

Further, what occurred with Act 25 and 26 in 2016 is the type of situation which the

Stelly Plan was designed to prevent, i.e., the suspension or alteration of exemptions

to create “temporary taxes.”

As our supreme court noted long ago, “[t]he members of the Legislature are

presumed to know the law.” State ex rel. Varnado v. Louisiana Highway

Commission, 177 La. 1, 147 So. 361, 362 (1933). Further, “[t]he legislature is

presumed to have acted with deliberation and to have enacted a statute in light of the

preceding statutes involving the same subject matter.” Holly & Smith Architects,

Inc. v. St. Helena Congregate Facility, Inc., 06-582, p. 10 (La. 11/29/06), 943 So.2d

1037, 1045. Therefore, the legislature is presumed to know the statutory sales tax

exemption for “drugs prescribed by physicians” has existed since 1973 and the

corresponding statutory definition of “drugs” (which specifically included medical

devices) has remained unchanged since 1985. There is no other definition of “drugs”

or “prescription drugs” found anywhere in Louisiana’s statutes.

LGMC maintains that Art. VII, § 2.2 bootstraps the definition of “drugs”

found in La.R.S. 47:301(20), which specifically defined “drugs” to include “all

pharmaceuticals and medical devices which are prescribed for use in the treatment

of any medical disease.” La.R.S. 47:301(20) was enacted in the 1985 Regular

Session of the legislature. The Department contends that when the legislature agreed

to suspend exemptions in 2016, it could have specifically incorporated the

exemption for drugs found in La.R.S. 47:305(D)(1)(j) and the corresponding

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definition for “drugs” found in La.R.S. 47:301(20). The Department notes the

Legislature did just that two paragraphs above in Article VII, § 2.2(B)(1) with regard

to the constitutional prohibition for “food for home consumption, as defined in R.S.

47:305(d)(1)(n) through (r) on January 1, 2003.” The Department argues the

Legislature did not do so, and only chose to exempt “prescription drugs, as provided

in Article VII, § 2.2(B) of the Constitution of Louisiana.” It argues this refutes

LGMC’s argument that Art. VII, § 2.2(B)(3) bootstrapped the exemption and/or

definition of “drugs” that includes medical devices. LGMC counters that the

constitutional prohibition for “food for home consumption” was much broader than

the statutory “food for home consumption” counterpart in La.R.S. 47:305(D)(1)(n),

which necessitated a statutory citation reference for clarity. LGMC asserts the

framers were attempting to use the short-formed phrase “food for home

consumption” to also “mean, include, and incorporate. . . six (6) separate statutory

exemptions: ‘food sold for preparation and consumption in the home including by

way of extension and not of limitation bakery products’ in La.R.S. 47:305(D)(1)(n);

‘dairy products’ in La.R.S. 47:305(D)(1)(o); ‘soft drinks’ in La.R.S.

47:305(D)(1)(p); ‘fresh fruits and vegetables’ in La.R.S. 47:305(D)(1)(q); and

‘package foods requiring further preparation by the purchaser’ in La.R.S.

47:305(D)(1)(r).” Thus, LGMC argues it was necessary for the Legislature to

specify that all six separate statutory exemptions were included. Contrast that with

the fact there is, and has always been, just the one statutory exemption for “drugs”

found in La.R.S. 47:305(D)(1)(j), and it can explain the Legislature’s action in not

specifically incorporating the statutory exemption for “drugs” in Art. VII, §

2.2(B)(3).

LGMC also notes that in Art. VII, § 2.2(B)(2), the constitutional prohibition

for “natural gas, electricity and water” was specifically limited, as compared to its

statutory counterpart, to natural gas, electricity and water which was “sold directly

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to the consumer for residential use.” Thus, the Legislature was aware how to draft

a constitutional prohibition with a limitation, but apparently chose not to do so with

regard to “prescription drugs” in Art. VII, § 2.2(B)(3). Clearly, if the intent of the

Legislature was to limit “prescription drugs” to just pharmaceuticals and remove

medical devices from its purview it could have specifically provided so, as it did

above in Art. VII, § 2.2(B)(2) with regard to natural gas, electricity and water.

LGMC also emphasizes it is not relying on what the legislature did or did not

do in 2016 with the passage of Acts 25 and 26. LGMC is relying on the

constitutional prohibition for “prescription drugs” in Art. VII, § 2.2(B)(3) of the

Louisiana Constitution, which was enacted in 2002. Thus, it maintains the

constitutional prohibition for prescription drugs was not impacted by Act 25 and 26

and remained fully in effect during the tax period in question.

We also find it erroneous that the Tax Board, in its written reasons for

judgment, relied on the fact that Act 426 of the 2017 Louisiana Legislature Regular

Session amended both Acts 25 and 26 of the 2016 1 st Extraordinary session to

specifically add “sales and purchases of medical devices used by patients under the

supervision of a physician, as provided in R.S. 47:305(D)(1)(s)” to the list of

preserved exemptions. The Board commented that “there would have been no need

for Act 426 under [LGMC]’s reading of the 2016 enactments.” The Department also

noted in its brief that Act 426 was a deliberate act by the Legislature to add “the very

exemption for medical devices that [LGMC] argues . . . was always within Acts 25

and 26.” LGMC and other interested parties should not be punished for pursuing an

obviously quicker remedy, while its legal challenges proceeded through the often

time-consuming judicial process. LGMC and other interested parties’ proactive

measures to create a legislative fix for what it perceived as improper taxation does

not mean that the applicable constitutional prohibition was unavailable during that

time period or that the medical devices exemption was suspended.

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Ultimately, the key to our resolution of this issue is the fact the Board’s and

Department’s interpretation of the meaning of “prescription drugs” in this case

results in an expansion of taxes on the general public and in favor of the taxing

authority. The law is well-settled that “[t]axing statutes must be strictly construed

against the taxing authority; where a tax statute is susceptible of more than one

reasonable interpretation, the construction favorable to the taxpayer is to be adopted.

Goudchaux/Maison Blanche, Inc. v. Broussard, 590 So.2d 1159, 1161 (La.1991).”

Cleco Evangeline, LLC v. Louisiana Tax Commission, 01-2162, p. 6 (La. 4/3/02),

813 So.2d 351, 356. Moreover, the Louisiana Supreme Court specifically stated,

“[u]nless the words imposing the tax are expressly in the statute, the tax cannot be

imposed. Hibernia Nat. Bank in New Orleans [v. Louisiana Tax Commission], 195

La. [43,] at 54, 196 So. [15,] at 18.” Cleco Evangeline, 813 So.2d at 355. The

confusion as to whether the term “prescription drugs” extended to “medical devices”

lends itself to more than one interpretation and requires we give the construction

favorable to the taxpayer. Louisiana law also mandates we are to “give harmonious

effect to all acts on a subject when reasonably possible.” Theriot v. Midland Risk

Ins. Co., 95-2895, p. 4 (La. 5/20/97), 694 So.2d 184, 186, citing State v. Piazza, 596

So.2d 817, 819 (La. 1992). In this case, the only statutory definition of “prescription

drugs” in Louisiana has always included medical devices within its meaning.

Without the Legislature expressly excluding medical devices from the purview of

“prescription drugs,” we find the expansion of taxes sought by the Department

cannot legally be imposed. Further, the legislative history cited by LGMC as to the

Stelly Plan showed a clear legislative intent to create a constitutional prohibition

against the institution of temporary taxes on “prescription drugs,” which historically

had always included medical devices. Thus, we conclude the constitutional

prohibition against taxation on “prescription drugs’ found in Art. VII, § 2.2(B)(3)

includes medical devices.

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DECREE

For the reasons expressed above, we find the Tax Board erred in granting the

Department’s Motion for Summary Judgment. We reverse that judgment and hereby

render judgment granting LGMC’s Partial Motion for Summary Judgment. All costs

of this appeal are assessed against the Department.

REVERSED AND RENDERED.

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