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IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

ENVOLVE PHARMACY SOLUTIONS,

INC., 

Respondent,

v.

STATE OF WASHINGTON, 

DEPARTMENT OF REVENUE,

Appellant.

No. 83563-7-I

DIVISION ONE

PUBLISHED OPINION

MANN, J. — This case is about the insurance business exemption to 

Washington State’s Business and Occupation (B&O) tax, RCW 82.04.320 

(2020). During the 2012 to 2015 tax period at issues in this appeal, the 

insurance business exemption provided, in relevant part: 

Exemptions—Insurance business. This chapter shall not apply to any 

person in respect to insurance business upon which a tax based on gross 

premiums is paid to the state: PROVIDED, [t]hat the provisions of this 

section shall not exempt any person engaging in the business of 

representing any insurance company, whether as a general or local agent, 

or acting as broker for such companies.

RCW 82.04.320 (2020).1

 1 RCW 82.04.320 was amended in 2021. The amendment does not impact the issues raised on 

appeal. 

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After an audit, the Department of Revenue (Department) assessed Envolve 

Pharmacy Solutions, Inc. (Envolve) with unpaid B&O taxes and penalties. The 

Department’s assessment was affirmed by the Board of Tax Appeals (Board). Envolve 

petitioned the King County Superior Court for review of the Board’s decision arguing 

that its activities were “functionally related” to insurance business and therefore exempt 

from B&O tax. The superior court agreed and reversed the Board’s decision. The 

Department appeals. We agree with the trial court and conclude that Envolve’s 

activities were at least functionally related to insurance business on which a premiums 

tax had been paid. We affirm. 

I.

A.

Envolve2 is a subsidiary of Centene Corporation, a publicly traded multi-line 

healthcare enterprise. Centene operates two lines of business: managed care and 

specialty services. The managed care segment provides health plan coverage to 

individuals through government subsidized programs, including Medicaid, CHIP,

3 and 

other publicly funded health programs. 

In 2012, Coordinated Care Corporation (Coordinated Care), another subsidiary of 

Centene, contracted with the Washington State Health Care Authority (HCA) to provide 

services for the Basic Health and Healthy Options programs. Coordinated Care is 

licensed with the Washington Office of the Insurance Commissioner as a Health 

Maintenance Organization, and files and pays Washington’s “premiums and 

 2 Envolve was originally known as U.S. Scripts, Inc. It changed its name to Envolve Pharmacy 

Solutions, Inc. in 2016. 

3 Washington Children’s Health Insurance Program.

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prepayments” tax imposed under RCW 48.14.0201. Coordinated Care pays a 

premiums tax on the monthly premiums paid by enrollees. 

Under the HCA contract, Coordinated Care must maintain a network of 

pharmacies to provide pharmacy services and pharmacy benefits (PBM) services to 

enrollees. PBM services include, but are not limited to, processing and paying claims to 

pharmacies for drugs dispensed to enrollees, maintaining a list of prescription drugs 

covered under the pharmacy benefit, and conducting drug utilization reviews. 

Coordinated Care contracted with Envolve to fulfill its PBM services required by the 

HCA contract. Envolve’s PBM agreement with Coordinated Care requires Envolve to 

manage the availability and payment of enrollees’ pharmacy benefits on behalf of 

Coordinated Care. Coordinated Care relied on Envolve to provide the pharmacy 

benefits to Coordinated Care’s enrollees. The PBM services performed for Coordinated 

Care were Envolve’s only relevant business activity in Washington during the tax 

periods at issue. 

All of the PBM services provided by Envolve under the PBM agreement were 

required under the HCA contract between Coordinated Care and the HCA. The PBM 

services Envolve must provide on behalf of Coordinated Care include:

• Administering and determining the eligibility of persons enrolled in 

Coordinated Care’s health plan (“enrollees”);

• Coordination of benefits; verification of coverage; and record keeping;

• Maintaining a network of pharmacies (“Network Pharmacies”) that 

agree to provide pharmacy services to enrollees under the terms of 

Envolve’s claims process;

• Auditing and credentialing Network Pharmacies to ensure compliance 

with the HCA Contract and federal, state, and local laws; 

• Selecting Network Pharmacies at locations and in sufficient number to 

ensure reasonable access for enrollees;

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No. 83563-7-I/4

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• Processing claims from Network Pharmacies, which includes applying 

Envolve’s concurrent drug utilization review services;

• Managing a prescription drug formulary (list of preferred prescription 

drugs) and collecting rebates from pharmaceutical supplies on behalf 

of Coordinated Care; and

• Providing a 24-hour a day, 7 day a week toll-free telephone line for 

inquiries regarding the PBM Services provided by Envolve. 

Envolve is not a licensed pharmacy in Washington. Envolve does not provide 

pharmacy services or mail-order pharmacy services to Coordinated Care. HCA 

enrollees fulfill prescription drug orders at network pharmacies, not through Envolve. 

The network pharmacies then compound or purchase prescription drugs and deliver the 

prescription drugs directly to enrollees. Envolve does not purchase prescription drugs 

from network pharmacies or deliver prescription drugs to enrollees. The network 

pharmacies file a claim for services and prescription drugs provided to enrollees, which 

Envolve then processes and arranges for payment on Coordinated Care’s behalf. 

Envolve’s payment structure is in the PBM agreement and is based on a percentage of 

collected amounts or set fees. 

B.

Envolve filed Washington excise tax returns beginning with the 3rd quarter 2012 

reporting period. Envolve reported and paid B&O tax under the “service and other” 

reporting category. 

In December 2012, a tax representative for Centene submitted a letter ruling 

request to the Department. The request asked whether Medicaid receipts received by 

Coordinated Care and passed on to its affiliates, including Envolve, were subject to 

B&O tax, or exempt from tax under RCW 82.04.320—the insurance business 

exemption.

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No. 83563-7-I/5

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In October 2013, the Department issued a letter ruling explaining that the 

affiliates could qualify for the B&O exemption only if they were providing services that 

were “functionally related” to Coordinated Care’s insurance business. The letter 

explained: 

Because the affiliates do not pay a premiums tax, they can qualify for the 

B&O exemption only if they are providing services that are functionally 

related to Coordinated Care’s insurance business. Functionally related 

services are those activities incidental to accomplishing the insurance 

function. Services performed are considered functionally related if they 

relate exclusively to the insurance business that pays the premium taxes.

Thus, if an affiliate is providing administrative, legal, or other services 

functionally related to Coordinated Care’s insurance business, the 

amounts the affiliate receives from Coordinated Care for those services 

will be exempt from B&O tax to the extent that Coordinated Care paid the 

premiums tax to Washington State. 

After receiving the letter ruling, Envolve filed amended B&O tax returns, 

requesting a refund of $73,263 for July 1, 2012, through September 30, 2013. Envolve 

claimed that all the services provided to Coordinated Care were functionally related to 

Coordinated Care’s insurance business. Envolve requested a refund of all B&O taxes 

paid because Coordinated Care had paid the premiums tax on those receipts. 

The Department denied the requested refund. Expanding on its October 2013 

letter ruling, the Department explained that some services provided by Envolve were 

functionally related to Coordinated Care’s insurance function, and some services which 

were not.

Functionally related services are those activities incidental to 

accomplishing the insurance function. Services performed are considered 

functionally related if they relate exclusively to the insurance business that 

pays the premium taxes.

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No. 83563-7-I/6

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Administrative services are generally considered functionally related. 

Thus, an affiliate doing administrative services (i.e., HR, claims processing 

and adjusting) will be exempt from paying B&O taxes on the amounts that 

it receives from [Coordinated Care], to the extent that [Coordinated Care]

paid premiums tax to Washington.

The function of insurance is to help pay for and cover the costs of health 

care services. Thus, the provision of health care services is not incidental 

to accomplishing this function. Providing health care services is 

independent from providing health insurance.

[Envolve] provides some administrative services (claims processing, 

adjudicating, etc.) to [Coordinated Care] as a pharmacy benefit manager. 

Any amounts received for these services are exempt from B&O tax. 

These services include: claims processing, determining eligibility of 

recipients, coverage verification, prior authorization, maintaining the list of 

covered drugs, providing a customer service phone line to answer 

questions about the foregoing services and other similar services. 

However, to the extent [Envolve] provides additional services (such as 

maintaining a network of pharmacies, providing mail order pharmacy 

services, selecting network pharmacies, etc.) the amount it receives for 

these services must be included in gross income.

(Emphasis added.) The refund request denial did not explain how or why the 

Department considered some of Envolve’s activities functionally equivalent and 

some not. 

Following the denial of Envolve’s refund request, the Department audited 

Envolve for the period January 2010 through June 2015. The audits led to two 

assessments totaling over $3.5 million. The audits asserted tax on amounts Envolve 

had received from Coordinated Care and paid to third-party pharmacies. The audits 

noted that Envolve might be able to exclude some of the payments it received under the 

“functionally related” criteria, but needed to prove which funds were for which purposes:

Therefore, [Envolve] may be able to exclude some amounts it retains as 

an administrative services fee for the administrative services it performs. 

To the extent that [Coordinated Care] is paying the fee for services that 

are functionally related to its insurance business, [Envolve] can exclude 

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No. 83563-7-I/7

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the amounts under the B&O exemption for premiums so long as 

[Coordinated Care] pays premiums tax to Washington State for those 

amounts. However, it is the burden of [Envolve] to show which amounts 

are received for providing functionally related services and which are 

received for other services. Additionally, [Envolve] may not exclude any of 

the fees it receives or retains from providing pharmacy benefit 

management services to unrelated third parties. 

Envolve responded by providing documentation related to administrative services 

it provided to Coordinated Care. The Department then revised the assessments, 

explaining:

[Envolve] was able to provide documentation and information relating to 

employees that provide administrative services (claims processing, 

adjudicating, etc.) to Coordinated Care as a pharmacy benefit manager. 

The amounts received for those services are exempt from B&O tax. 

Pursuant to the audit, [Envolve] provided documentation to substantiate 

employee counts in the administrative services function as well as total 

employee counts. A ratio was then calculated (administrative employees 

divided by total employees) and applied against the total administrative 

services fee to compute the amount subject to Service and Other B&O 

tax. However, the payments to the pharmacies (for ingredient costs and 

dispensing fees) are not excludable from B&O tax under WAC 458-20-111 

as discussed above and those amounts which were erroneously deducted 

to arrive at the tax base on the excise tax returns have been assessed in 

full. 

After the revision, the audits assessed $3,203,762 in unpaid B&O tax, plus 

interest, and 5 percent assessment penalty. 

Envolve sought administrative review of the denial of its refund claim and the 

assessments of underreported B&O tax with the Department’s Administrative Review 

and Hearings Division (ARHD). The ARHD upheld the assessments. ARHD agreed 

with the Department that Envolve was engaged in some activities that were functionally 

related to insurance and some that were not:

[I]t appears that [Envolve] is engaged in certain “general administrative 

services” like “accounting personnel and data processing” that are 

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No. 83563-7-I/8

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functionally related to Affiliate MCO’s insurance business. . . . In particular, 

Taxpayer’s administration of eligibility management services, claim 

processing, claims adjudication, benefit coordination, coverage 

verification, and recordkeeping services are all “general administrative 

services” that are similar to the “functionally related” services in Det. 88-

311A, 2 WTD 293.

However, [Envolve] is also engaged in a number of activities that do not 

appear to be “functionally related” to Affiliate MCO’s “insurance business,” 

in that they are not “activities incidental to accomplishing the insurance 

function.” The activities that are not “functionally related” include: 

maintaining a network of pharmacy contacts; credentialing of network 

pharmacies; selecting network pharmacies; drug utilization review 

services; quality improvement; managing the prescription drug formulary; 

collecting rebates from pharmaceutical manufacturers; and maintaining 

information data systems. 

Envolve appealed the ARHD decision to the Board. Envolve argued that the 

amounts it received were functionally related to Coordinated Care’s insurance business 

under both the 2013 Letter Ruling and the Department’s published Revenue

Determination 88-311A, 9 Wash. Tax. Dec. 293 (1990).4

After cross motions for summary judgment, the Board agreed with the 

Department and concluded that Envolve failed to establish that it was entitled to avoid 

B&O tax on all its PBM services income. The Board found that Envolve was entitled to 

rely on the Department’s precedent and that any activities that were “functionally 

related” to insurance qualified as “insurance business” activities exempt from B&O tax 

 4 RCW 82.32.170 allows taxpayers to petition for determining whether a refund request was 

properly denied. WAC 458.20.100 sets out the Department’s rules for informal administrative reviews, 

including determinations. Under the rule, “[t]he department will make such determination and resolve 

matters as may appear to the department to be just and lawful under its statutory authority.” WAC 458-

20-100. The Department may publish a determination when: (1) the decision is a well-reasoned 

application of the law to a specific set of facts, (2) the decision addresses only the law and facts 

necessary to resolve the case, (3) the decision is needed to provide guidance on a previously 

unaddressed area of the law, articulate the Department’s current policy, apply the law to a significantly 

different set of facts, overrule a published determination, or provide a better or more current articulation 

on how the law should be interpreted, and (4) the decision can be effectively sanitized, or the taxpayer 

will grant a waiver of the secrecy clause. 

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No. 83563-7-I/9

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under RCW 82.04.320. But the Board found that Envolve provides “pharmacy 

services,” which the Board asserted are ”healthcare services” outside the definition of 

insurance and not covered by the functionally related test. Envolve unsuccessfully 

moved for reconsideration. 

Envolve petitioned for judicial review of the Board’s final order with the King 

County Superior Court. The superior court reversed the Board’s order, holding that the 

Department’s prior administration of the statute was consistent with the statutory 

language, and that Envolve’s activities were insurance business activities exempt under 

RCW 82.04.320. The court also held that Envolve was entitled to rely on the 

Department’s letter ruling under RCW 82.32A.020. The trial court’s order required the 

Department to refund the B&O tax Envolve paid on its PBM services income. 

The Department appeals.

II.

A.

The Administrative Procedure Act (APA), ch. 34.05 RCW, governs judicial review 

of the Board’s decision. RCW 82.03.180; RCW 34.05.510. PeaceHealth St. Joseph 

Med. Ctr. v. Dep’t of Revenue, 9 Wn. App. 2d 775, 779, 449 P.3d 676 (2019), aff’d, 196 

Wn.2d 1, 468 P.3d 1056 (2020). This court sits in the same position as the superior 

court, directly reviewing the Board’s decision. Dep’t of Revenue v. Bi-Mor, Inc., 171 

Wn. App. 197, 202, 286 P.3d 417 (2012). The burden of demonstrating the invalidity of 

agency action is on the party challenging the agency order—in this case Envolve. RCW 

34.05.570(1)(a).

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We may reverse the Board’s decision if, among other reasons, the agency 

erroneously interpreted or applied the law, the agency’s order is not supported by 

substantial evidence, the order is outside the agency’s statutory authority, or the order is 

arbitrary and capricious. RCW 34.05.570(3). We review issues of law de novo under 

the APA error of law standard which allows us to substitute our view of the law for that 

of the Board. Bi-Mor, 171 Wn. App. at 202.

The meaning of a statute is a question of law that we review de novo. Durant v. 

State Farm Mut. Auto. Ins. Co., 191 Wn.2d 1, 8, 419 P.3d 400 (2018). Our 

“fundamental objective in determining what a statute means is to ascertain and carry out 

the legislature’s intent.” Durant, 191 Wn.2d at 8. “If the statute’s meaning is plain on its 

face, then courts must give effect to its plain meaning as an expression of what the 

legislature intended.” Durant, 191 Wn.2d at 8. To discern a statute’s plain meaning, we 

consider the text of the provision in question, considering the statutory scheme as a 

whole. Dep’t of Ecology v. Campbell & Gwinn, L.L.C., 146 Wn.2d 1, 11, 43 P.3d 4 

(2002). “We may use a dictionary to discern the plain meaning of an undefined 

statutory term.” Nissen v. Pierce County, 183 Wn.2d 863, 881, 357 P.3d 45 (2015). 

B.

Envolve argues that the Board erred by concluding that it did not qualify for an 

exemption from B&O tax under the insurance business exemption, RCW 82.04.320.5 

We agree. 

 5 The Department appears to argue on appeal that because Coordinated Care is an HMO it does 

not pay a “premiums” tax under RCW 48.14.020, but pays a premiums and prepayment tax under RCW 

48.14.0201. While the Department is technically correct that Coordinated Care is an HMO and pays a 

premiums and prepayment tax under RCW 48.14.0201, it is a distinction without importance. RCW 

82.04.320 creates an exemption from B&O tax where a tax based on gross premiums has been paid. 

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The B&O tax is imposed “for the act or privilege of engaging in business 

activities” and is measured by the “value of products, gross proceeds of sales, or gross 

income of the business, as the case may be.” RCW 82.04.220(1). The tax is intended 

to reach “virtually all business activities carried on within the state” and “applies unless a 

specific exemption exists.” Avnet, Inc. v. Dep’t of Revenue, 187 Wn.2d 44, 66, 384 

P.3d 571 (2016); Dot Foods, Inc. v. Dep’t of Revenue, 185 Wn.2d 239, 245, 372 P.3d 

747 (2016). One such exemption is the “insurance business” exemption in RCW 

82.04.320. The exemption provides that “any person in respect to insurance business 

upon which a tax based on gross premiums is paid to the state” is exempt from paying 

the B&O tax. 

The Department first argues that RCW 82.04.320 does not apply as a matter of 

law because Envolve itself did not pay the premiums tax. This view, however, 

contradicts the plain language of the statute. The exemption in RCW 82.04.320 applies 

to “any person in respect to insurance business upon which a tax based on gross 

premiums is paid to the state.” (Emphasis added.) The statute does not require that 

the entity claiming the exemption must be the same entity that paid the premiums tax. 

Instead, the question is whether Envolve was performing “insurance business” on which 

a premiums tax was paid. 

The term “insurance business” is not defined in the state tax code. See ch. 48.01 

RCW; ch. 48.05 RCW. The Department argues, and the Board appeared to agree, that 

Envolve provided “heathcare services” and not insurance benefits. This is based on the 

 The Department does not contest that Coordinated Care paid such a premium tax. The argument also 

appears new on appeal. The Department’s audits, the ARHD determination, and the Board’s decision, all 

addressed RCW 82.04.320 and RCW 48.14.020. 

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Department’s contention that insurance business is limited to only administrative duties 

such as issuing contracts and collecting premiums. Envolve, on the other hand, argues 

that insurance business should be read broadly enough to include the business of 

carrying out the PBM services required under the HCA contract.6 We agree with 

Envolve. 

A fair reading of “insurance business” in RCW 82.04.320 includes more than the 

administrative tasks of issuing contracts and collecting premiums. It includes the 

activities necessary or incidental to fulfilling the requirements of the insurance contract. 

Indeed, since at least 1990, the Department has applied a “functionally related” test to 

interpret the extent of “insurance business”:

For purposes of RCW 82.04.320, the insurance business includes not only 

those activities specifically regulated under Title 48 RCW, but those which 

are functionally related as well. . . . Revenue generating activities which 

are considered functionally related to a taxpayer’s insurance business are 

those activities incidental to accomplishing the insurance function. 

Revenue Determination No. 88-311A, 9 Wash. Tax. Dec. 293, 297-98 (1990). The 

Department’s 2013 letter ruling to Centene was consistent with Revenue Determination

No. 88-311A. 

We agree with the trial court that the “functionally related” test adopted in 

Revenue Determination No. 88-311A is a reasonable interpretation of the term 

“insurance business” within RCW 82.04.320, and consistent with the plain language of 

 6 The Department also argues that Envolve is not an “authorized insurer,” under RCW 

48.05.030(1) and if it were, it would have to pay a premiums tax under RCW 48.15.020. The 

Department’s argument misses the point—while Envolve may not be an “insurer,” Coordinated Care is, 

and Coordinated Care pays a premium tax based on fulling the duties under the HCA contract, including 

PBM services. Envolve, by contract, is carrying out Coordinated Care’s obligations under the HCA 

contract. 

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the statute.7 Consistent with Revenue Determination No. 88-311A, we hold that where 

activities are required to be performed under the insurance contract in exchange for 

premium payments, and a tax is paid on those premium payments, the activities are at 

least functionally related to “insurance business” under RCW 82.04.320.8 

There is no dispute that under the HCA contract, Coordinated Care must 

maintain a network of pharmacies to provide PBM services and benefits to enrollees. 

There is also no dispute that if Coordinated Care performed the PBM services required 

under the HCA contract, it would be exempt from B&O tax under RCW 82.04.320. And 

finally, there is no dispute that Coordinated Care contracted with Envolve to fulfill the 

PBM services required by the HCA contract. Requiring Envolve to pay a B&O tax for 

performing services required under the HCA contract, where Coordinated Care already 

paid a premium tax, would result double taxation—contrary to the intent of the 

exemption. Grp. Health Coop. v. Dep’t of Revenue, 8 Wn. App. 2d 210, 214-19, 438 

P.3d 158 (2019). 

Envolve performs PBM services—services required under the Coordinated 

Care’s HCA contract. Envolve was required to maintain a network of pharmacies, 

 7 The Department withdrew Revenue Determination No. 88-311A in 2019 stating it was wrongly 

decided. The Department now takes the position that, to be eligible for the exemption, the taxpayer itself 

must be subject to the insurance premiums tax. But neither party is arguing that the functionally related 

test in Revenue Determination No. 88-311A does not apply here. And the Board concluded that Envolve 

had the right to have its tax liability determined using that standard for the tax periods at issue. 

Washington’s Taxpayer Bill of Rights grants taxpayers the “right to rely on specific, official written advice 

and written tax reporting instructions from the department of revenue to that taxpayer, and to have 

interest, penalties, and in some instances, tax deficiency assessments waived where the taxpayer has so 

relied to their proven detriment.” RCW 82.32A.020(2). The Board correctly held that Envolve was 

entitled to rely on the letter ruling. The only question is thus whether the Board properly applied the 

functionally related test to those tax periods at issue. 

8 See also RCW 48.01.060 (3)-(4) (defining “insurance transaction” to include the “execution of an 

insurance contract” and “[t]ransaction of matters subsequent to execution of the contract and arising out 

of it.” 

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process claims from network pharmacies, audit pharmacies to ensure compliance with 

the HCA contract, and administer and determine eligibility of persons enrolled in 

Coordinated Care’s health plan. Because these activities are required under the HCA 

contract and, if performed by Coordinated Care, would be considered insurance 

business activities, it is unreasonable to claim these actions are not at least functionally 

related to the insurance business. 

C.

The Department relies on Rena-Ware Distribs., Inc. v. State, 77 Wn.2d 514, 518, 

463 P.2d 622 (1970), Armstrong v. State, 61 Wn.2d 116, 377 P.2d 409 (1962), and 

Express Scripts, Inc. v. Dep’t of Revenue, 8 Wn. App.2d 167, 437 P.3d 747 (2019), in 

support of its argument. Each case is either not applicable or distinguishable.

The Department relies on Rena-Ware, for the proposition that affiliated 

businesses, although owned by a common parent, remain separate entities for tax 

purposes. 77 Wn.2d at 518. Thus, the Department contends, Envolve cannot justify 

claiming an exemption because one of its sister companies can rightfully claim an 

exemption. But contrary to the Department’s representation, Envolve is not claiming the 

insurance business exemption because its corporate affiliate is exempt. Instead, 

Envolve claims that it is exempt under RCW 82.04.320 because its activities providing 

PBM services to Coordinated Care are at least functionally related to “insurance 

business upon which a tax based on gross premiums.” Envolve’s contract with 

Coordinated Care is not dependent on its corporate affiliation with Coordinated Care. 

The Department relies on Armstrong, for the proposition that the purpose of the 

insurance business exemption in RCW 82.04.320 is to prevent imposing a premium tax 

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and B&O tax on the same premium income, not to permit a person that pays no 

premium tax to avoid the B&O tax. Armstrong addressed the proviso in RCW 82.04.320

excepting those representing insurance companies, including agents and brokers, from 

the insurance business exception. The appellant challenged the proviso arguing that 

allowing the exemption for insurance company branch offices, but not independent 

agents or brokers violated equal protection.9 Armstrong, 61 Wn.2d at 117-18. As the 

court explained, its duty was to “sustain the classification adopted by the Legislature if 

there are substantial differences between the occupations separately classified.” 

Armstrong, 61 Wn.2d at 120. The court concluded that because independent agents 

were sufficiently different from insurance companies, the differential tax treatment was 

justified. 

This case does not concern the proviso—it concerns the exemption. The 

Armstrong court did not address, or hold, that applying the insurance business 

exemption to amounts received by a contractor performing activities required under the 

terms of the insurance contract would conflict with the intent of the exemption. 

Armstrong does not apply.

The Department relies on Express Scripts to argue that because Envolve is a 

PBM manager, it is subject to the B&O tax on its in-state service activities. Express 

Scripts concerned an out-of-state PBM manager (ESI) that had a variety of clients

 9 In 1962, RCW 82.04.320 provided:

Exemptions—Insurance business. This chapter shall not apply to any person in respect 

to insurance business upon which a tax based on gross premiums is paid to the state: 

Provided, That the provisions of this section shall not exempt any person engaging in the 

business of representing any insurance company, whether as general or local agent, or 

acting as a broker for such companies.

Armstrong, 61 Wn.2d at 117, n.2.

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including HMOs, health insurers, third-party administrators, employers, and government 

health care plans. At issue was whether ESI was subject to B&O tax for payments it 

received from clients for the value of prescription drugs. ESI argued that the payments 

from clients for the value of the prescription drugs or ingredients were “pass-through” 

funds moving from its clients, through ESI, to the pharmacies. Express Scripts, 8 Wn. 

App. 2d at 171-172. Division Two of this court disagreed, concluding that “ESI does not 

act as a mere ‘pass-through’ agent for its clients. Rather, the compensation ESI 

receives from its clients for the value of the prescription drugs is an integral part of ESI’s 

business model for its PBM services.” Express Scripts, 8 Wn. App. 2d at 174. While 

the court concluded that ESI owed B&O taxes for its PBM services, the court did not 

address, or discuss, the insurance business exemption in RCW 82.04.320. Express 

Scripts does not support the Department’s position. 

Envolve’s PBM activities under its contract with Coordinated Care are at least 

functionally related to “insurance business upon which a tax based on gross premiums 

[was] paid to the state.” RCW 82.04.320. We affirm the superior court’s order reversing 

the Board’s decision. 

Affirmed.

WE CONCUR:

For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.