Court Opinion

ID: 5166094
Source: CourtListenerOpinion
Date Created: 2022-01-02 03:35:59.522752+00
Date Added: 2024-06-11T13:57:19.708085
License: Public Domain

[29] The Court's opinion does not really identify the nature of the dispute, and is contrary to both Kay Electric Cooperative v.Oklahoma Tax Commission, 815 P.2d 175 (Okla. 1991), and PioneerTelephone Co-op. v. Tax Commission, 832 P.2d 848 (Okla. 1992). First, let me try to articulate the nature of the dispute.
[30] The seller sold an oxygen concentrator for $304.50, with $18.27 added as tax for a total of $322.77. Medicare allowed $294.93 for the item and sent the seller a check for $235.94 (80% of $294.93). The sum of $58.99 (20% of $294.93) was to be paid by the individual buyer or secondary insurance. The seller paid a sales tax on this sale based upon a sale of $322.77 instead of $294.93. The seller has had numerous such sales, and seeks a refund from the Tax Commission.
[31] The seller/taxpayer argues that the difference between $322.77 and $294.93 is a bad debt. That is incorrect, as no obligation to pay this difference was incurred by the buyer. See U.S.I.F.Norman Corp. v. Oklahoma Tax Commission, 534 P.2d 1298, 1300 (Okla. 1974) where the court defined indebtedness. The definition of a "bad debt" as defined by the federal regulations for Medicare is also contrary to seller's argument.1 *Page 255 
[32] What this case is about is the includability of "discounts" within "gross proceeds" for the calculation of sales tax due. For this sale the difference between $322.77 and $294.93 is a discount, specifically, a "third-party payment discount".Weymouth Township v. Memorial Park Family Practice Center,Inc., 7 N.J. Tax 589, 601 (1985). See also Chisago HealthServices v. Commissioner of Revenue, 462 N.W.2d 386 (Minn. 1990), where that court explained that in accepting Medicare and Medicaid payments a seller "discounts its market fees", and the difference between the market fee and the payment accepted was not a gift or charity. Id. 462 N.W.2d at 391. In explaining Medicare and Medicaid discounts the court further stated that "there is little conceptual difference between these discounts and the business discounts negotiated by HMO's and health insurers on behalf of their insureds with both public and private clinics and hospitals." Id. Cf. Borland v. Bayonne Hospital,122 N.J. Super. 387, 300 A.2d 584, 594 (1973), (noting Blue Cross discounts); Griffin Hospital v. Commission on Hospitals andHealth Care, 196 Conn. 451, 493 A.2d 229, 235 (1985), (same).
[33] The majority holds that the amount representing the discount is not taxable: "It is the Medicare approved amount which . . . would be the total consideration exchanged for the transaction." This is likely incorrect under the relevant taxing statute. In Oklahoma a sales tax is imposed upon "gross receipts" or "gross proceeds". Pioneer Telephone Cooperative Inc. v. Oklahoma TaxCommission, 832 P.2d 848, 851 (Okla. 1992). The audit period in this case is December 1, 1984 through November 30, 1987, and during those years the gross proceeds for a sales tax included a discount allowed by the vendor.
 (F) "Gross receipts" or "gross proceeds" means the total amount of consideration for the sale of any tangible personal property or service taxable under this article, whether the consideration is in money or otherwise. "Gross receipts" or "gross proceeds" shall include, but not be limited to:
 (1) Cash paid, and
 (2) Any amount for which payment is charged, deferred, or otherwise to be made in the future, regardless of the time or manner of payment, and
 (3) Any amount for which credit or a discount is allowed by the vendor, and. . . .
[34] 12 O.S.Supp. 1987 § 1352[12-1352], (emphasis added and eff. July 1, 1987).2 This taxpayer/seller is no different than any other vendor, and must under the plain language of § 1352(F) remit a sales tax based upon the gross proceeds, including the discount given to Medicare customers, unless excused from doing so by some other authority. Cf. Medic House, Inc. v. Director of Revenue,799 S.W.2d 80, 83 (Mo. 1990), (en banc), (vendor of oxygen must remit sales tax on sales to Medicare customers although Medicare does not pay sales tax to vendor); Akron Home Medical Services,Inc. v. Lindley, 25 Ohio St.3d 107, 495 N.E.2d 417 (1986), (vendor of oxygen must remit sales tax on sales to Medicare customers).
[35] The discount amount is taxable under § 1352, unless made non-taxable by some other provision of law. That other provision could be a Rule of the Oklahoma Tax Commission. The seller/taxpayer also argued before the Commission that it had given a "trade discount" to its Medicare customers. The Commission apparently has a Rule which classifies different types of discounts, and allows subtraction of a "trade discount" from the gross proceeds when the discount is agreed upon at the time of contracting. Oklahoma Administrative Code 710:65-1-9.3 *Page 256 
I construe this language to mean that the amount of a non-taxable discount must be agreed at the time of the sale. Any other view would be inconsistent with § 1352 and Pioneer Telephone Co-op.v. Tax Commission, supra. Since the majority opinion appears to state that the extent of the discounts were unknown at the time of sale the discounts would appear to be taxable under the current Rule. But the majority opinion finds the discounts to be not taxable.
[36] The proceeding as it has been briefed shows that the taxpayer has not met its burden in showing a right to a refund. SeeEnterprise Management Consultants, Inc. v. State ex rel.Oklahoma Tax Commission, 768 P.2d 359, 362 (Okla. 1988) where we explained that a protesting taxpayer must sustain the burden of proving the tax assessment was erroneous. The majority opinion incorrectly holds otherwise by finding that a refund on the discount amounts is due, with a field audit needed to determine the exact amount due. I would instead require further briefing by the parties on the issue as to whether the discounts here are or are not taxable under the applicable statutes and rules.4
[37] The reasoning of the majority opinion is contrary to PioneerTelephone Co-op. v. Tax Commission, 832 P.2d 848 (Okla. 1992). In Pioneer the consumer bought telephone service from a telephone cooperative and paid pursuant to a rate set by the Corporation Commission. At the end of the year an accounting was performed by the cooperative, and if it showed a profit that amount was distributed to the customers by crediting their capital accounts administered by the cooperative. Id. 832 P.2d at 849. These amounts returned were deemed loaned to the cooperative as capital. Id. The cooperative argued that it should not be required to pay a sales tax on the amounts credited to its customers and then loaned back to the cooperative.
[38] In the present case the majority opinion will fix the amount of tax liability as determined at a field audit long after the time of the sale, because the field audit will take into account Medicare transactions that occurred after the date of the sale. This is contrary to Pioneer, supra, where the Court explained that a sales tax is based upon the nature of the transaction at the time of the sale, and not upon transactions occurring after the date of the sale. One of the majority's stated reasons for doing so is that the exact amount of tax liability could not be determined at the time of sale. The record does not show that the seller was unable to determine at the time of sale the amount Medicare would authorize for that type of sale.
[39] The opinion may also be contrary to Kay Electric Cooperativev. Oklahoma Tax Commission, 815 P.2d 175 (Okla. 1991). The effect of the majority opinion will be a refund to the seller/taxpayer of those amounts of sales taxes collected on the difference between the Medicare authorized amount and the amount of the sale. On certiorari the Tax Commission argues thatmunicipal sales taxes will be returned by the Commission if the tax protest is successful, and that this result is contrary toKay Electric Cooperative. Kay determined that a successful sales tax protest would not result in returning municipal sales taxes when the municipalities were not parties to the protest. I can concur on this point if Kay is no longer the law. See KayElectric Cooperative v. Oklahoma Tax Commission, 815 P.2d at 178-181, Summers, J., concurring in part and dissenting in part. But I must dissent from the unexplained departure from Kay, as it will needlessly confuse the Commission *Page 257 
and other taxpayers. See the application for leave to appear as amicus curiae filed in this case by the Oklahoma Municipal League, Inc. and the Commission's petition for certiorari.
[40] In sum, the majority does not analyze the transaction as a sale involving a third-party (Medicare) payment discount. Because of this the opinion does not discuss the extent to which discounts may or may not be subject to a sales tax. The opinion is contrary to Pioneer Telephone Co-op. v. Tax Commission, 832 P.2d 848
(Okla. 1992) in that it allows taxpayer transactions after the date of a sale to determine the amount of a sales tax. It is also an unexplained departure from Kay Electric Cooperative v.Oklahoma Tax Commission, 815 P.2d 175 (Okla. 1991). For these reasons I respectfully dissent.
[41] I am authorized to state that Justice SIMMS and Justice HARGRAVE join in these views.
1 For the purpose of Medicare a bad debt is related to a covered service and derived from deductible and coinsurance amounts. 42 C.F.R. § 413.80(e)(1) [formerly codified at42 C.F.R. § 405.420]. See also Palms of Pasadena Hospital v. Sullivan,
289 U.S.App.D.C. 366, 932 F.2d 982, 983 (D.C. Cir. 1991); EdenPark Health Services, Inc. v. Axelrod, 114 A.D.2d 721, 494 N.Y.S.2d 524, 527 (1985); Arnot Ogden Memorial Hospital v.Axelrod, 131 Misc.2d 779, 502 N.Y.S.2d 372, 374-375 (1986),reversed on other grounds, 129 A.D.2d 103, 516 N.Y.S.2d 972
(1987).
2 Identical language appears in 12 O.S.Supp. 1985 § 1352[12-1352](F). (eff. July 1, 1985); 12 O.S.Supp. 1984 § 1352[12-1352](F), (eff. Jan. 1, 1984).
3 The current Rule describes "early payment discounts" which are not deductible from "gross proceeds" and, "trade discounts" "used to reduce the selling price" at the time of sale, which are. I decline to address the propriety of such a Rule with respect to the language of § 1352(F) since the Rule is not at issue, and because the parties have not presented the Court with the Rule as it was in effect during the time of the audit period. In United States v. California Portland Cement Co., 413 F.2d 161, 172-174 (9th Cir. 1969) that court discussed trade discounts and cash discounts for federal tax purposes of determining "gross income from property" with the former used to induce a sale and the latter used to encourage prompt payment. See also R.J.Peacock Canning Co. v. Commodity Credit Corp., 88 U.S.App.D.C. 31, 185 F.2d 894, 896 (D.C. Cir. 1950), (explained cash discounts). The extent to which benefits to the participating Medicare supplier reflect trade or cash discounts, or non-taxable discounts under the Commission Rule in effect during the audit period is not briefed by the parties. See O.R. at 102-103 where the "incentives" given by Medicare to participating suppliers such as the taxpayer are listed.
4 The parties have briefed as to what to call the Medicare discounts, and the proper method of accounting by the taxpayer as a sales tax remitter, but they have not identified them as discounts. These issues have been present from the beginning of the case, and I would require particularized briefing on the nature of the accounting method available for timely remitting of sales taxes when a third-party payor discount is involved.