Case Title: Dental Service of Massachusetts, Inc. v. Commissioner of Revenue

Citation: 

Docket Number: SJC-12346

State: massachusetts

Court: Massachusetts Supreme Court

Date: 2018-04-13T00:00:00Z

Document:
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SJC-12346 
 
DENTAL SERVICE OF MASSACHUSETTS, INC.  vs.   
COMMISSIONER OF REVENUE. 
 
 
 
Suffolk.     December 5, 2017. - April 13, 2018. 
 
Present:  Gants, C.J., Gaziano, Lowy, Budd, & Cypher, JJ. 
 
 
Taxation, Abatement, Insurance company, Excise.  Practice, 
Civil, Abatement.  Insurance, Health and accident, Group, 
Coverage.  Statute, Construction.  Words, "Covered 
persons." 
 
 
 
 
Appeal from a decision of the Appellate Tax Board.  
 
 
The Supreme Judicial Court granted an application for 
direct appellate review.  
 
 
 
David C. Kravitz, Assistant State Solicitor, for 
Commissioner of Revenue. 
 
Daniel P. Ryan (David J. Nagle also present) for the 
taxpayer. 
 
James Roosevelt, Jr., & Rachel M. Wertheimer, for 
Massachusetts Association of Health Plans, amicus curiae, 
submitted a brief. 
 
 
2 
 
 
 
BUDD, J.  The taxpayer, Dental Service of Massachusetts, 
Inc.,1 is an insurer that provides dental coverage through 
preferred provider arrangements (PPAs).2  Pursuant to G. L. 
c. 176I, § 11, insurers operating PPAs are obligated to pay 
annually an excise tax equal to a specified percentage "of the 
gross premiums received during the preceding calendar year for 
coverage of covered persons residing in this [C]ommonwealth" 
(emphasis added).  The term "[c]overed person" is defined in the 
statute as "any policy holder or other person on whose behalf 
the organization is obligated to pay for or provide health care 
services."  G. L. c. 176I, § 1.   
                     
1 The taxpayer, Dental Service of Massachusetts, Inc., is an 
independent member of the Delta Dental Plans Association, an 
organization of thirty-nine independent dental companies that 
offers dental coverage throughout the United States. 
  
 
2 A preferred provider arrangement is a "form of health care 
delivery in which payers contract with a select group of [health 
care service providers] to provide care for enrollees through 
their health insurance or health benefits plans under conditions 
that give the payer some control over costs" (footnote omitted).  
E.S. Rolph, J.P. Rich, P.B. Ginsburg, S.D. Hosek, K.M. Keenan, & 
G.B. Gertler, State Laws and Regulations Governing Preferred 
Provider Organizations 1 (Aug. 1986).  The term "[p]referred 
provider arrangement" is defined in G. L. c. 176I, the statute 
at issue in this case, but the definition does not provide 
guidance as to the substance of the term.  See G. L. c. 176I, 
§ 1 ("'Preferred provider arrangement,' a contract between or on 
behalf of an organization and a preferred provider which 
complies with all of the requirements of this chapter").  The 
statute defines "[p]referred provider" as a health care provider 
or group of providers "who have contracted to provide specified 
covered services."  Id.  
 
3 
 
 
 
The taxpayer and the Commissioner of Revenue (commissioner) 
disagree regarding whether "covered persons" may sometimes refer 
to the employer-organizations that contract with insurers, or 
instead refers only to the individuals receiving health care 
services (in this case, dental care).3  That is, when an employer 
purchases group insurance on behalf of its employees, does the 
insurer owe tax on premiums paid by or on behalf of only those 
individuals who live in Massachusetts, as the taxpayer contends, 
or does the insurer owe tax on all premiums received from the 
Massachusetts-based employer regardless of where its individual 
employees reside, as the commissioner contends.  We agree with 
the Appellate Tax Board (board), and conclude that "covered 
persons" as used in G. L. c. 176I, § 11, refers solely to 
natural persons who, as employees, receive insurance coverage 
for health care services under a group insurance plan, rather 
than employer entities.4     
                     
 
3 The record indicates that the taxpayer contracts with 
Massachusetts-based employers, unions, and other Massachusetts 
groups to provide dental insurance for, respectively, individual 
employees, union members, and other group members (and their 
respective family members).  In this opinion, solely for ease of 
reference, we mention only contracting employers and their 
employees, but all that is stated applies equally to contracting 
unions or other groups and their members. 
 
 
4 We acknowledge the amicus brief submitted by the 
Massachusetts Association of Health Plans.  
4 
 
 
 
Background.  The statute governing PPAs, G. L. c. 176I, was 
enacted in 1988.  St. 1988, c. 23, § 65.  Chapter 176I includes 
an assessment provision that requires "[e]very organization 
. . . operating a [PPA] . . . annually [to] pay an assessment 
equal to [2.28] per cent of the gross premiums received during 
the preceding calendar year for coverage of covered persons 
residing in this [C]ommonwealth."  G. L. c. 176I, § 11 (a).   
The taxpayer offers, through Massachusetts employers, dental 
insurance coverage to individual employees and members of their 
families using PPAs.  Although all of the employers with which 
the taxpayer contracted were headquartered in Massachusetts 
during the period in question, some employees did not reside in 
the Commonwealth.  The taxpayer paid the excise tax prescribed 
by G. L. c. 176I, § 11, on the total gross premiums received 
from Massachusetts employers in connection with its PPAs for the 
tax years 2006, 2007, and 2008.  Subsequently, based on its 
reading of § 11, between 2010 and 2012, the taxpayer filed 
applications with the commissioner requesting an abatement and 
refund for taxes it has paid for 2006 through 2008 on premiums 
received from those employers for coverage of employees who 
lived outside of the Commonwealth during those tax years.   
The commissioner denied the applications, finding that the 
taxes were properly assessed; the taxpayer appealed.  The board 
ruled in favor of the taxpayer and granted abatements for the 
5 
 
 
three tax years in question, concluding that the term "covered 
persons" as used in G. L. c. 176I, § 11, refers to the employees 
receiving health care coverage rather than the employer-
organization with which the taxpayer contracted.  The 
commissioner appealed from the board's decision, and we allowed 
his application for direct appellate review.   
 
Discussion.  "Decisions of the board are reviewed for 
errors of law."  Bridgewater State Univ. Found. v. Assessors of 
Bridgewater, 463 Mass. 154, 156 (2012).  "[Q]uestions of 
statutory construction are questions of law, to be reviewed de 
novo."  Id. 
"[O]ur analysis begins with the statutory language, 'the 
principal source of insight into [l]egislative purpose.'"  
Associated Subcontractors of Mass., Inc. v. University of Mass. 
Bldg. Auth., 442 Mass. 159, 164 (2004), quoting Commonwealth v. 
Lightfoot, 391 Mass. 718, 720 (1984).  Further, in interpreting 
§ 11, "[w]e adhere to the familiar principle that tax statutes 
are to be strictly construed; we will not read into a statute an 
authority to tax that it does not plainly confer."  Commissioner 
of Revenue v. Oliver, 436 Mass. 467, 470-471 (2002) (Oliver).  
"Any ambiguity is resolved in the taxpayer's favor."  Id. at 
471.   
In considering the meaning of the term "covered persons" as 
used in the assessment provision, we look first to the 
6 
 
 
definition provided in the statute.  See Bulger v. Contributory 
Retirement Appeal Bd., 447 Mass. 651, 660 (2006), quoting Perez 
v. Bay State Ambulance & Hosp. Rental Serv., Inc., 413 Mass. 
670, 675 (1992) ("[A] definition [that] declares what a term 
means . . . excludes any meaning that is not stated").  As 
mentioned supra, G. L. c. 176I, § 1, defines "[c]overed person" 
as "any policy holder or other person on whose behalf the 
organization is obligated to pay for or provide health care 
services."  As the commissioner points out, in the insurance 
industry, where an employer purchases a group health (or dental)5 
insurance plan on behalf of its employees, the employer is 
considered to be the policy holder.  See Foster v. Group Health 
Inc., 444 Mass. 668, 668 n.2 (2005).  The commissioner argues 
that because the definition in § 1 includes the term "policy 
holder" it should be read broadly to include both employer-
organizations when they are policy holders as well as natural 
persons, depending on the context in which the term is being 
used.  However, the commissioner's interpretation disregards 
both the syntax and the context of the statute's definition of 
"covered person."  See Commonwealth v. Brooks, 366 Mass. 423, 
                     
 
5 The statute defines "[h]ealth care services" as including 
"hospital, medical, surgical, dental, vision, and pharmaceutical 
services or products."  G. L. c. 178I, § 1.  Although this case 
involves dental insurance, we will refer generally to health 
care services throughout the rest of the opinion.  
  
7 
 
 
428 (1974) ("words in a statute must be considered in light of 
the other words surrounding them").6   
The fact that "policy holder" is coupled with "or other 
person" implies that both categories are intended to be persons 
"on whose behalf the organization [i.e., the insurer] is 
obligated to pay for or provide health care services."  The use 
of the word "other" to modify "person" would not otherwise be 
necessary or, for that matter, make sense.  Phillips v. Equity 
Residential Mgt., L.L.C., 478 Mass. 251, 258 (2017), quoting 
Adamowicz v. Ipswich, 395 Mass. 757, 760 (1985) ("so long as it 
yields a 'logical and sensible result,' we do not interpret a 
statute so as to render any portion of it meaningless").  Thus, 
the words "policy holder" can be interpreted only as an 
individual, natural person, because a corporate or other 
organizational employer cannot be provided with health care 
services.7   
                     
 
6 As for the argument of the Commissioner of Revenue 
(commissioner) that, in the group insurance context, it is the 
employer "on whose behalf the [insurer] is obligated to pay for 
. . . health care services," G. L. c. 176I, § 1, it is 
recipients of the "services rendered or products sold by a 
health care provider" that the insurer typically "pays for;" 
there is nothing to suggest that they are made on the employer's 
behalf.   
 
 
7 To bolster their arguments about the meaning of words 
"covered person," the parties refer to the differences between 
G. L. c. 176I and the Preferred Provider Arrangements Model Act 
(1987), drafted by the National Association of Insurance 
Commissioners (Model Act).  The commissioner uses the fact that,  
8 
 
 
The commissioner asks us to interpret "covered persons 
residing in this [C]ommonwealth" in § 11 as applying to either 
employers or individuals, depending on who the "policy holder" 
is, pointing out that, in other statutes, employer-organizations 
as well as natural persons can be said to "reside" in a 
particular location.  See, e.g., G. L. c. 4, § 13 (a) (newspaper 
subscribers); G. L. c. 59, § 18, Sixth & Seventh (partnerships); 
G. L. c. 110C, § 7 (stockholders); G. L. c. 110E, § 1 (e) 
(same); G. L. c. 110F, § 2 (e) (same).  However, where the 
Legislature uses the word "reside" in reference to both natural 
persons and artificial entities, typically it includes 
additional terms describing how to apply the statute to the 
latter category.  See, e.g., G. L. c. 149, § 6F½ (a) (action for 
injunction or restraining order brought in county in which "such 
person, firm, corporation, or other entity resides or has its 
principal place of business"); G. L. c. 203A, § 1 (requiring 
common trust fund to be administered in accordance with written 
instrument filed "in the county in which such individual, 
                     
in contrast to G. L. c. 176I, the definition of "covered person" 
in the Model Act refers only to an individual and not to a 
"policy holder" receiving health care services.  See Model Act, 
supra at § 3B.  Assuming that the Legislature relied on the 
Model Act, the argument that the Legislature added "policy 
holder" to the definition of "covered person" in order to expand 
the scope of taxable entities under § 11 is undermined by the 
use of the word "other" before "person" as discussed supra.  See 
G. L. c. 176I, § 1. 
9 
 
 
corporation or association resides or has his or its principal 
place of business").  See also Mass. R. Civ. P. 4 (d), as 
amended, 370 Mass. 918 (1976) (describing service of process 
requirements with rules for individuals different from those for 
artificial entities).  Cf. 28 U.S.C. § 1391 (setting forth 
standards for Federal courts to establish residency for natural 
person different from those for artificial entities).  Here, the 
Legislature's choice of the word "residing" connotes the 
behavior of natural persons, not entities like employer-
organizations.  See RJR Nabisco Holdings, Corps. v. Dunn, 657 
N.E.2d 1220, 1223 (Ind. 1995) (noting that statute's use of word 
"reside" indicates natural person, not organization).   
The use of the term "covered person" in other parts of the 
statute is consistent with this view.  See Casseus v. Eastern 
Bus Co., Inc., 478 Mass. 786, 795 (2018), quoting Leary v. 
Contributory Retirement Appeal Bd., 421 Mass. 344, 347 (1995) 
("When the meaning of any particular section or clause of a 
statute is questioned, it is proper, no doubt, to look into the 
other parts of the statute:  otherwise the different sections of 
the same statute might be so construed as to be repugnant, and 
the intention of the [L]egislature might be defeated").  
Throughout G. L. c. 176I, the term "covered person" appears in 
connection with an individual or natural person's health or the 
provision of health care services.  For example, the definition 
10 
 
 
of "[e]mergency care" refers to medical services provided to, 
and the health of, covered persons.8  General Laws c. 176I, § 2, 
requires organizations operating PPAs to submit a variety of 
information to the commissioner for approval, including "a 
description of the health services and any other benefits to 
which the covered person is entitled."  General Laws c. 176I, 
§ 3 (b), refers to covered persons receiving emergency care and 
dialing 911.9  Obviously employer-organizations do not receive 
health care services or dial 911.  Therefore, the use of 
"covered person" in the above-referenced sections is consistent 
with meaning a natural person, and inconsistent with meaning an 
                     
 
8 General Laws c. 176I, § 1, defines "[e]mergency care" as   
 
"services provided in or by a hospital emergency facility 
to a covered person after the development of a medical 
condition, . . . manifesting itself by symptoms of 
sufficient severity that the absence of prompt medical 
attention could reasonably be expected . . . to result in 
placing the covered person's or another person's health in 
serious jeopardy, serious impairment to body function, or 
serious dysfunction of any body organ or part . . . ."   
 
 
9 Section 3 (b) provides, in relevant part:  
  
 
"If a covered person receives emergency care and 
cannot reasonably reach a preferred provider, payment for 
care related to the emergency shall be made . . . as if the 
covered person had been treated by a preferred provider; 
whenever a covered person is confronted with a need for 
emergency care, . . . no covered person shall in any way be 
discouraged from using the . . . medical service system, 
[or] the 911 telephone number, . . . or be denied coverage 
for medical and transportation expenses incurred as a 
result of such use of emergency care."  
 
11 
 
 
employer-organization.  Manning v. Boston Redev. Auth., 400 
Mass. 444, 453 (1987) ("A statute . . . should not be construed 
in a way that produces absurd or unreasonable results when a 
sensible construction is readily available").  The term is not 
used anywhere in the statute in a manner suggesting that it must 
apply to entities other than natural persons.   
It is true that use of the term throughout the chapter to 
refer to natural persons is not necessarily inconsistent with 
the commissioner's interpretation, that is, defining "covered 
persons" as either a policy holder entity that is not a natural 
person, or as a natural person, depending on the context used.  
Additionally, there are perhaps some strong policy reasons that 
favor the commissioner's interpretation.10  However, consistent 
with the principles of statutory construction on which we rely 
in interpreting tax statutes, and which were respected by the 
board in this case, we construe the use of "covered persons" in 
§ 11 "strictly against the taxing authority" if the statute is 
                     
 
10 For example, it may be easier to administer the statute 
if insurers pay the assessment on the entire gross premiums 
received from contracts for group insurance with Massachusetts 
employers and other groups, rather than identifying the portion 
of those premiums attributable to individuals covered by the 
group insurance plan that actually reside in the Commonwealth.  
Additionally, the commissioner's interpretation is consistent 
with the policy of assessing insurers for the value of the 
franchise -- the benefit or value of being able to offer 
insurance in the Commonwealth. 
 
12 
 
 
ambiguous.  See Oliver, 436 Mass. at 472; Commissioner of 
Revenue v. Dupee, 423 Mass. 617, 622 (1996).   
Furthermore, our interpretation is supported by the 
administration of G. L. c. 176I by the Division of Insurance 
(division).11,12  The division likewise treats "covered persons" 
as meaning natural individual persons in administering reporting 
requirements for health benefit plans, which include PPAs.  
General Laws c. 176I, § 7, requires insurers operating PPAs to 
"file annually with the [C]ommissioner [of Insurance] . . . a 
report covering its prior fiscal year."  "The report shall 
include . . . the number of covered persons under health benefit 
plans . . . , which include preferred provider arrangements."  
                     
 
11 The Division of Insurance (division) is an agency tasked 
with the regulation of insurance products.  See generally, e.g., 
G. L. cc. 26, 175.  The division is responsible for the 
administration and enforcement of G. L. c. 176I, with the 
exception of § 11, which is administered by the Department of 
Revenue.  See G. L. c. 176I, §§ 8, 11.   
 
 
12 Even though § 11 is administered by the commissioner, 
because "covered person" is defined for use throughout the 
chapter in § 1, any deference due for an interpretation of that 
term would be to the division's interpretation because that 
agency administers the rest of the chapter.  See Goldberg v. 
Board of Health of Granby, 444 Mass. 627, 633 (2005), quoting 
Briggs v. Commonwealth, 429 Mass. 241, 253 (1999) (noting that, 
in interpreting regulations, our analysis requires substantial 
deference to expertise and statutory interpretation of agency 
charged with "primary responsibility" for administering 
statute).  Furthermore, the "specialized knowledge, technical 
competence, and experience" of the Commissioner of Insurance is 
more relevant than the Appellate Tax Board's in interpreting the 
disputed insurance term here.  Springfield v. Department of 
Telecomm. & Cable, 457 Mass. 562, 568 (2010).   
13 
 
 
Id.  See 211 Code Mass. Regs. § 51.06 (2016) (requiring PPA 
operator annual reports to include "summary of the number of 
[c]overed [p]ersons").  The division ensures compliance with the 
reporting requirement by requiring insurers to file "raw data on 
actual membership."  See Division of Insurance, 2015 Preferred 
Providers Information, http://www.mass.gov/ocabr/insurance 
/providers-and-producers/insurance-companies/group-products-and-
plans/insured-preferred-provider-membership/2015-preferred-
providers-information.html [https://perma.cc/M38K-58HL].  For 
the purposes of these reports "membership includes all 
subscribers and covered dependents of a subscriber . . . for 
whom the carrier has accepted the risk of financing necessary 
health services," not the number of employers who are group 
insurance policy holders.  Id.   
For all of these reasons, we conclude that the term 
"covered persons" in § 11 refers to the natural person receiving 
health care coverage under a PPA policy, including his or her 
spouse and additional dependents, not the employer-organization 
with whom the insurer contracts.   
 
 
 
 
 
 
 
Decision of the Appellate Tax 
 
 
 
 
 
 
 
  Board affirmed.