Court Opinion

ID: 4164184
Source: CourtListenerOpinion
Date Created: 2017-04-28 01:12:11.16814+00
Date Added: 2024-06-11T14:21:12.670086
License: Public Domain

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                                   2005-SC-000789-DG

KING DRUGS, INC. ;
KING HOME CARE, INC.                                                       APPELLANTS

                       ON REVIEW FROM COURT OF APPEALS
V.                         CASE NUMBER 2004-CA-002019
                      FRANKLIN CIRCUIT COURT NO . 03-CI-00550

COMMONWEALTH OF KENTUCKY,
REVENUE CABINET; AND KENTUCKY
BOARD OF TAX APPEALS                                                        APPELANTS

                 OPINION OF THE COURT BY JUSTICE ABRAMSON

                             REVERSING AND REMANDING

       A 1986 amendment to former KRS 139 .472, a statute exempting "prosthetic

devices and physical aids" from Kentucky sales and use tax, is the focal point of the

case before us . The Kentucky Board of Tax Appeals adopted the construction of the

statute advanced by the taxpayers, King Drugs, Inc., and King Home Care, Inc., while

the trial court and Court of Appeals construed the statute in the manner advanced by

the Kentucky Revenue Cabinet. Having granted discretionary review in order to resolve

the statutory dispute, we reverse the courts below and remand the case to the trial court

for entry of an order affirming the order of the Board of Tax Appeals .
                RELEVANT FACTS AND PROCEDURAL BACKGROUND

       KRS 139 .200 imposes a sales tax on gross receipts derived from "[r]etail sales,

regardless of the method of delivery, made within this Commonwealth ." Pursuant to

that statute, in early 2001, the Revenue Cabinet assessed sales taxes against King

Drugs, Inc., and King Home Care, Inc., (collectively "King") of $75,342.09 and

$13,253.86, respectively, for sales between April 1997 and January 2001 of medical

items such as C-Pap supplies, TENS units, heating pads, humidifiers, ventilators,

catheters, and bandages. Maintaining that these sales were exempt from sales tax

under KRS 139 .472, which at the time provided an exemption for "prosthetic devices

and physical aids," King sought review of the Cabinet's assessments before the Board

of Tax Appeals . The Board agreed with King that the statute exempted the sales of all

such items when prescribed by a physician, and, because it was undisputed that

virtually all the sales at issue involved items that had been prescribed, the Board

granted King's request for relief. The Cabinet then sought judicial review, and both the

Franklin Circuit Court and the Court of Appeals rejected the Board's reading of KRS

139 .472. Those courts ruled instead that the statutory exemption applied only to sales

of prosthetic devices and physical aids "prescribed . . . solely for the use of a particular

crippled person so as to become a brace, support, supplement, correction or substitute

for the bodily structure including the extremities of the individual ." Because King's

sales had not been limited to the identified items to be used by "crippled persons," the

court below held that King was not entitled to the exemption and so ordered that the

Cabinet's sales-tax assessments be reinstated . This Court granted King's petition for

discretionary review.
                                        ANALYSIS

       Prior to 1986, KRS 139 .472, a sales and use tax exemption statute, provided in

pertinent part that the following items would be exempt :

              (2) "Prosthetic devices and physical aids" for the purpose of
              this section shall mean and include artificial devices
              individually designed, constructed or altered solely for the
              use of a particular crippled person so as to become a brace,
              support, supplement, correction or substitute for the bodily
              structure including the extremities of the individual ; . . .

This statute clearly provided a narrow sales-tax exemption limited to devices or aids in

some manner customized for a particular "crippled person."

       In 1986, the General Assembly amended this subsection as follows:

              (2) "Prosthetic devices and physical aids" for the purposes of
              this section shall mean and include artificial devices
              prescribed by a licensed physician, or individually
              designed, constructed or altered solely for the use of a
              particular crippled person so as to become a brace, support,
              supplement, correction or substitute for the bodily structure
              including the extremities of the individual ; artificial limbs,
              artificial eyes, hearing aids prescribed by a licensed
              physician, or individually designed, constructed or altered
              solely for the use of a particular disabled person ; crutches,
              walkers, hospital beds, wheelchairs and wheelchair lifting
              devices for the use of invalids and crippled persons ;
              colostomy supplies, insulin and diabetic supplies, such as
              hypodermic syringes and needles, and sugar (urine and
              blood) testing materials purchased for use by diabetics .
              (Emphasis supplied) .

This 1986 amendment is the genesis of the controversy before us. Did the General

Assembly intend to add an exemption for all sales of "artificial devices prescribed by a

licensed physician," or did it intend only to expand somewhat the prior exemption for

sales to crippled persons by including not only devices designed and altered for them

but also devices prescribed for their particular use as braces, supports, or similar
 purposes? The Tax Board adopted the former reading and the courts below the latter.

        As the parties correctly note, our goal in construing a statute is to give effect to

 the intent of the General Assembly, and we derive that intent, if at all possible, from the

 plain meaning of the language the General Assembly chose . Osborne v.

 Commonwealth , 185 S.W.3d 645 (Ky. 2006). We presume, of course, that the General

 Assembly intended for the statute to be construed as a whole and for all of its parts to

 have meaning. Lewis v. Jackson Energy Cooperative Corporation , 189 S.W.3d 87 (Ky.

2005). We also presume that the General Assembly did not intend an absurd statute or

an unconstitutional one. Layne v. Newbeg, 841 S .W.2d 181 (Ky. 1992) . Only if the

statute is ambiguous, however, or otherwise frustrates a plain reading, do we resort to

the canons or rules of construction, such as the rule that tax exemption statutes are to

be narrowly construed against the exemption. Stephenson v. Woodward , 182 S.W.3d
162 (Ky. 2005). On the contrary, if a plain reading of the statute yields a reasonable

legislative intent, then that reading is decisive and must be given effect regardless of the

canons and regardless of our estimate of the statute's wisdom . Osborne v.

Commonwealth, supra. We agree with the Board of Tax Appeals that the 1986 version

of KRS 139.472 is neither ambiguous nor absurd and that it provides an exemption,

parallel to the exemption for sales of prescription medicine, for all sales of "artificial

devices prescribed by a licensed physician ."

       This result follows from a couple of grammatical observations . First, modifiers,

such as the statute's adverbial phrases "solely for the use of a particular crippled

person" and "so as to become a brace," generally modify the nearest suitable word or

phrase, which in this case is the immediately preceding compound participle "designed,

      1 Since 2000 this subsection has been the object of much legislative attention.
None of the post-1986 amendments is presently before us .
                                          4
 constructed or altered ." See Popplewell's Alligator Dock No. 1, Inc. v. Revenue

 Cabinet , 133 S .W.3d 456, 464, n . 33 (Ky. 2004) (discussing the so-called last-

 antecedent rule). It would be unusual for the adverbial phrases to refer back even

 further to the participle "prescribed ." Indeed, the phrase "so as to become a brace . . ."

 does not meaningfully modify "prescribed," so it is difficult to conclude that the General

 Assembly intended it to do so . Furthermore, the comma after "prescribed by a licensed

 physician" and before the "or," serves to emphasize the separation between the

 alternatives and so reinforces the impression that the following adverbial phrases were

 not intended to reach back across the comma and modify "prescribed ." It is reasonably

 clear, in sum, that the General Assembly intended an exemption for sales of "artificial

devices prescribed by a licensed physician," and the courts below erred by reading into

that exemption limitations not supported by the statutory language .

       Hoping to avoid this result, the Revenue Cabinet argues that, grammar

notwithstanding, a broad exemption for sales of all devices prescribed by a physician is

an absurd reading of the statute because it renders other provisions of KRS 139.472(2)

redundant and because it affects a sharp departure from prior law. With respect to the

latter contention, the Cabinet notes, for example, that sales of prescription eyeglasses

have always been subject to sales tax, but that under the 1986 statute as construed by

the Board of Tax Appeals those sales would be exempt, as would be, the Cabinet

laments, prescription sales of "air conditioners, hot tubs and swimming pools." Without

speculating about the validity of the Cabinet's concerns, the answer to this contention is,

simply, that within constitutional constraints the General Assembly is free to alter the tax

laws as it sees fit, and its changes may not be disregarded, or inferred out of existence,

just because a court or the Revenue Cabinet happens to disagree with them.
       The Cabinet also contends that a broad exemption for all prescription sales

 renders specifically enumerated exemptions for "colostomy supplies, insulin and

diabetic supplies," KRS 139.472(2),2 redundant because most of these supplies require

a prescription . If the General Assembly had intended a broad exemption for all

prescription sales, the Cabinet argues, it would have had no need, and would not have

bothered, to list these particular prescription exemptions . The Cabinet is correct, of

course, that statutes are to be read as a whole and all of their parts given effect. Lewis

v. Jackson Energ Cooperative Corporation , supra . We are not persuaded, however,

that the enumeration of these particular exemptions, even if they overlap with the

general exemption for prescription sales, amounts to such a redundancy as to

overcome the statute's plain exemption for "artificial devices prescribed by a licensed

physician ." The overlap is not necessarily complete, after all, for the specific

enumeration makes clear that even non-prescription articles included among the listed

supplies are exempt, and in addition the General Assembly may well have wished to

underscore, for the benefit of patients and pharmacists alike, the enumerated supplies'

total exemption from sales tax .

       In sum, a plain reading of the 1986 version of KRS 139.472(2) discloses the

General Assembly's intent to exempt from the sales tax sales of "artificial devices

prescribed by a licensed physician ." The statute is neither ambiguous, calling for the

application of rules of construction, nor absurd, necessitating this Court's consideration

of tax policy. The Circuit Court and the Court of Appeals erred by reading into the

exemption limitations which the General Assembly did not impose. Accordingly, we

reverse both the September 2, 2005 Opinion of the Court of Appeals and the

       2 In 2000, the General Assembly added "urostomy supplies and ileostomy
supplies" to the list.
 September 9, 2004 Opinion and Order of the Franklin Circuit Court and remand to the

 Circuit Court for entry of an order affirming Order No. K-18927 of the Kentucky Board of

 Tax Appeals .

        Lambert, C.J., Cunningham, Noble, Scott, J.J ., Addington and Moore, Special

Justices, concur. Minton and Schroder, J .J., not sitting.

COUNSEL FOR APPELLANTS:

A . V. Conway, II
Conway & Keown
124 West Union Street
P.O. Box 25
Hartford, KY 42347

COUNSEL FOR APPELLEE,
COMMONWEALTH OF KENTUCKY,
REVENUE CABINET

Laura M. Ferguson
Department of Revenue
Office of Legal Services
P.O. Box 423
Frankfort, KY 40602-0423

COUNSEL FOR APPELLEE,
KENTUCKY BOARD OF TAX APPEALS :

Jon W. Ackerson
128 Brighton Park Blvd .
Frankfort, KY 40601

COUNSEL FOR AMICUS CURIAE,
THE KENTUCKY MEDICAL EQUIPMENT
SUPPLIERS ASSOCIATION,
INCORPORATED:

Erica L. Horn
Bruce F. Clark
Stites & Harbison, PLLC
421 West Main Street
P .O . Box 634
Frankfort, KY 40602-0634