                                                                                                 Filed
                                                                                           Washington State
                                                                                           Court of Appeals
                                                                                            Division Two

                                                                                           October 16, 2018

    IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

                                          DIVISION II
 AVENTIS PHARMACEUTICAL, INC., and                                    No. 50641-6-II
 SANOFI-AVENTIS US, LLC,

                                Appellants,

         v.

 STATE OF WASHINGTON DEPARTMENT                                   PUBLISHED OPINION
 OF REVENUE,

                                Respondent.

       MELNICK, J. — Aventis Pharmaceuticals, Inc. (Aventis) and Sanofi-Aventis US, LLC

(Sanofi) appeal from the trial court’s order granting summary judgment to the Department of

Revenue (DOR). They contend that the trial court erred by interpreting the preferential business

and occupation (B&O) tax on warehousing and reselling prescription drugs to apply only to

wholesalers that sell either to retailers or health care providers, and not to wholesalers that sell to

other wholesalers. They also argue that DOR’s interpretation of the tax is unconstitutional and

that their buyers met the requirements of the statute.

       We conclude that the prescription drug wholesaler B&O tax rate applies only to

wholesalers who sell either to retailers that hold a pharmacy license or to health care providers and

that the plaintiffs’ buyers did not fall into either of these categories. We affirm.
50641-6-II


                                              FACTS

       Aventis, a Delaware corporation registered to do business in Washington since 1968,

closed its tax account in 2006 and transferred all its business activities and employees to Sanofi, a

Delaware limited liability company registered to do business in Washington since 2005. Aventis

and Sanofi both engaged in the business of purchasing, warehousing, and selling prescription

drugs. Both were registered with the United States Federal Drug Enforcement Administration

(DEA) and licensed as pharmacy wholesalers by the Washington State Pharmacy Quality

Assurance Commission (PQAC).

       Aventis sought a refund for B&O taxes it paid from January 2002 through December 2005

and Sanofi sought a refund for B&O taxes it paid from December 2006 through June 2012. Both

corporations claimed that the preferential B&O tax rate of .138 percent for warehousing and

reselling prescription drugs should apply to their sales rather than the general B&O tax rate of .484

percent that they had paid. Because identical issues apply to both plaintiffs, we refer to them

collectively as “Sanofi” for simplicity.

       After Sanofi filed its refund request, DOR issued Excise Tax Advisory 3180.2013 (ETA

3180), which laid out specific requirements sellers and buyers of prescription drugs needed to meet

to claim the preferential rate. DOR determined that Sanofi met the seller requirements but that the

majority of its buyers, other drug wholesalers, failed to meet the buyer requirements. Accordingly,

DOR denied the majority of Sanofi’s refund request.

       At issue in this case are Sanofi’s sales to three buyers: AmerisourceBergen Drug

Corporation, McKesson Corporation, and Cardinal Health Corporation. The prescription drug tax

and ETA 3180 both distinguish between sales from prescription drug wholesalers to other




                                                 2
50641-6-II


wholesalers and sales from wholesalers to retailers. Accordingly, whether Sanofi’s buyers were

wholesalers or retailers is an important issue in this case.

          All three of Sanofi’s buyers had licenses issued by the DEA and PQAC as pharmaceutical

wholesalers, but none held a pharmacy license. They all distributed prescription drugs to both

retailers and hospitals. Two of them also filed B&O tax returns for “retailing” during the relevant

period.

          Sanofi appealed DOR’s denial of its refund request to the superior court on grounds that

its activities fell within the purview of the preferential prescription drug tax. Both parties moved

for summary judgment, and the superior court granted DOR’s motion. Sanofi appeals.

                                            ANALYSIS

I.        LEGAL PRINCIPLES

          We review summary judgment orders de novo, performing the same inquiry as the trial

court. Aba Sheikh v. Choe, 156 Wn.2d 441, 447, 128 P.3d 574 (2006). “Summary judgment is

appropriate only if the pleadings, affidavits, depositions, and admissions on file demonstrate the

absence of any genuine issues of material fact and that the moving party is entitled to judgment as

a matter of law.” Sheehan v. Cent. Puget Sound Reg’l Transit Auth., 155 Wn.2d 790, 797, 123

P.3d 88 (2005).

          We review questions of statutory interpretation de novo. Jametsky v. Olsen, 179 Wn.2d

756, 761, 317 P.3d 1003 (2014). In interpreting statutes, our goal is to “ascertain and carry out the

legislature’s intent.” Jametsky, 179 Wn.2d at 762. We give effect to the plain meaning of the

statute as “derived from the context of the entire act as well as any ‘related statutes which disclose

legislative intent about the provision in question.’” Jametsky, 179 Wn.2d at 762 (quoting Dep’t of

Ecology v. Campbell & Gwinn, LLC, 146 Wn.2d 1, 11, 43 P.3d 4 (2002)).



                                                  3
50641-6-II


       If a statute’s meaning is plain on its face, we give effect to that meaning as an expression

of legislative intent. Blomstrom v. Tripp, 189 Wn.2d 379, 390, 402 P.3d 831 (2017). However, if

“after this inquiry, the statute remains ambiguous or unclear, it is appropriate to resort to canons

of construction and legislative history.” Blomstrom, 189 Wn.2d at 390. If the statute “uses plain

language and defines essential terms, the statute is not ambiguous.” Regence Blueshield v. Office

of the Ins. Comm’r, 131 Wn. App. 639, 646, 128 P.3d 640 (2006). “A statute is ambiguous if

‘susceptible to two or more reasonable interpretations,’ but ‘a statute is not ambiguous merely

because different interpretations are conceivable.’” HomeStreet Inc. v. Dep’t of Revenue, 166

Wn.2d 444, 452, 210 P.3d 297 (2009) (quoting State v. Hahn, 83 Wn. App. 825, 831, 924 P.2d

392 (1996)).

       “Any doubts as to the meaning of a statute under which a tax is sought to be imposed will

be ‘construed against the taxing power.’”1 Weyerhaeuser Co. v. Dep’t of Revenue, 106 Wn.2d

557, 566, 723 P.2d 1141 (1986) (quoting Duwamish Warehouse Co. v. Hoppe, 102 Wn.2d 249,

254, 684 P.2d 703 (1984)).

II.    STATUTORY REQUIREMENTS

       Sanofi contends that its sales to wholesalers qualify its activities as “warehousing and

reselling drugs for human use pursuant to a prescription” under the prescription drug tax, RCW

82.04.272. It claims that the statute includes sales from wholesaler to wholesaler so long as the


1
  DOR contends that we should interpret the prescription drug tax strictly against the taxpayer, as
a preferential rate is equivalent to an exemption or deduction. See N. Cent. Wash. Respiratory
Care Servs., Inc. v. Dep’t of Revenue, 165 Wn. App. 616, 625, 268 P.3d 972 (2011). However,
Agrilink Foods, Inc. v. Department of Revenue, 153 Wn.2d 392, 396-97, 103 P.3d 1226 (2005)
(quoting Ski Acres, Inc. v. Kittitas County, 118 Wn.2d 852, 857, 827 P.2d 1000 (1992)), held that,
in the context of a preferential tax rate for a specific industry, “‘[i]f any doubt exists as to the
meaning of a taxation statute, the statute must be construed most strongly against the taxing power
and in favor of the taxpayer.’” Because the prescription drug tax statute involves a preferential
rate and not an exemption or deduction, we construe it against DOR.


                                                 4
50641-6-II


chain of sales culminates in a sale to a person selling at retail or to a health care provider. We

disagree.

        A.      STATUTORY LANGUAGE
        Sanofi maintains that sales of drugs between wholesalers meet the statutory requirements

for the preferential rate as long as the chain of sales culminates in a sale to a retailer or health care

provider. It contends that the prescription drug tax expressly contemplates these sales by including

buying of drugs “from a manufacturer or another wholesaler.” We disagree.

        RCW 82.04.272(1) provides: “Upon every person engaging within this state in the business

of warehousing and reselling drugs for human use pursuant to a prescription; as to such persons,

the amount of the tax shall be equal to the gross income of the business multiplied by the rate of

0.138 percent.”

        The statute defines “[w]arehousing and reselling drugs for human use pursuant to a

prescription” to mean:

        [T]he buying of drugs for human use pursuant to a prescription from a manufacturer
        or another wholesaler, and reselling of the drugs to persons selling at retail[2] or to
        hospitals, clinics, health care providers, or other providers of health care services,[3]
        by a wholesaler or retailer who is registered with the federal drug enforcement
        administration and licensed by the pharmacy quality assurance commission.

RCW 82.04.272(2)(b).       The prescription drug tax rate is a preferential rate to the general

wholesaler tax rate of 0.484 percent. RCW 82.04.270.




2
   The B&O tax section defines “sale at retail” to mean “every sale of tangible personal property .
. . to all persons irrespective of the nature of their business” excluding “[p]urchases for the purpose
of resale as tangible personal property in the regular course of business without intervening use by
such person.” RCW 82.04.050(1)(a).
3
 We use “health care providers” as shorthand for “hospitals, clinics, health care providers, or other
providers of health care services” throughout this opinion.


                                                   5
50641-6-II


          Per the statutory definition, to obtain the preferential rate Sanofi must (1) buy drugs for

human use pursuant to a prescription, (2) from a manufacturer or another wholesaler, (3) resell to

persons selling at retail or to health care providers,4 (4) be a wholesaler or retailer, (5) be registered

with the DEA, and (6) be licensed by the PQAC. RCW 82.04.272(2)(b). The only requirement at

issue in this case is number three: whether the statute required Sanofi to have sold to persons

selling at retail or health care providers and, if so, whether it did so.

          We interpret statutes so as to give effect to all the language used without rendering any

portion meaningless or superfluous. G-P Gypsum Corp. v. Dep’t of Revenue, 169 Wn.2d 304, 309,

237 P.3d 256 (2010). We do not simply ignore express statutory terms. Ralph v. Dep’t of Nat.

Res., 182 Wn.2d 242, 248, 343 P.3d 342 (2014). We read statutes so as to not render any portion

superfluous. Stroh Brewery Co. v. Dep’t of Revenue, 104 Wn. App. 235, 239-40, 15 P.3d 692

(2001).

          The prescription drug tax at issue in this case defines warehousing and reselling of

prescription drugs as the “buying of drugs . . . from a manufacturer or another wholesaler, and

reselling of the drugs to persons selling at retail or to [health care providers], by a wholesaler or

retailer” who is registered with the DEA and licensed by the PQAC. RCW 82.04.272(2)(b). It

then applies a preferential rate to persons engaging in the business of warehousing and reselling

prescription drugs. RCW 82.04.272(1). Sanofi’s proposed interpretation of the statute would omit

from the definition the requirement that the drugs be resold “to persons selling at retail or [to health

care providers].”



4
  We note that a potential ambiguity exists in the statute as to whether it requires Sanofi to sell to
either (1) persons selling at retail or (2) to health care providers, or whether it requires Sanofi to
sell to persons selling (1) at retail or (2) to health care providers. Both parties agree that the first
interpretation is the proper reading of the statute, and so do we.


                                                    6
50641-6-II


       Sanofi’s claim that the chain of sale must merely culminate in a sale to a retailer or health

care provider is unpersuasive.      The majority of drugs sold “for human use pursuant to a

prescription” will ultimately be the subject of a retail sale. We do not interpret statutes to contain

meaningless or superfluous language. G-P Gypsum Corp, 169 Wn.2d at 309.

       Sanofi additionally argues that the prescription drug tax applies to “persons” rather than

transactions such that Sanofi, as a “person” engaged in the warehousing and reselling of

prescription drugs, should benefit from the preferential rate regardless of the status of individual

transactions it makes. This argument reads the entire definition of “warehousing and reselling” of

prescription drugs out of the statute and we do not find it persuasive. Although the tax states that

it applies to “persons” engaged in the business of “warehousing and reselling drugs for human use

pursuant to a prescription,” the meaning of that defined term is precisely the issue the parties

dispute in this case. Focusing on “person” does not change the analysis of this term.

       B.      ETA 3180

       DOR adopted ETA 3180, an excise tax advisory specifying particular requirements for

both the seller and buyer in a given prescription drug transaction for the preferential rate to apply.

Sanofi argues that ETA 3180 is invalid because it adds a new requirement to the statute that

qualified buyers must have a pharmacy license.

       DOR contends that we should apply the requirements it laid out in ETA 3180. DOR claims

that, under ETA 3180, Sanofi’s buyers must hold a pharmacy license from the Department of

Health in order for Sanofi to qualify for the preferential rate. We agree with DOR.

       Excise tax advisories are interpretive statements authorized by RCW 34.05.230. DOR has

authority to adopt interpretive regulations; however, they are not binding on reviewing courts.

Ass’n of Wash. Bus. v. Dep’t of Revenue, 155 Wn.2d 430, 445, 447, 120 P.3d 46 (2005). Unlike



                                                  7
50641-6-II


legislative rules, interpretive rules “are afforded no deference other than the power of persuasion.”

Ass’n of Wash. Bus., 155 Wn.2d at 447. “[I]nterpretive rules are not binding on the public. They

serve merely as advance notice of the agency’s position should a dispute arise and the matter result

in litigation.” Ass’n of Wash. Bus., 155 Wn.2d at 447. “If the public violates an interpretive rule

that accurately reflects the underlying statute, the public may be sanctioned and punished, not by

authority of the rule, but by authority of the statute.” Ass’n of Wash. Bus., 155 Wn.2d at 447.

       In order for a seller to qualify for the preferential rate under ETA 3180, it must (1) purchase

prescription drugs from a manufacturer or wholesaler; (2) warehouse and resell the prescription

drugs; (3) be registered with the DEA; and (4) be licensed by the PQAC (as either a wholesaler or

a retailer). The buyer of the drugs must be either (1) a retailer with a pharmacy facility license or

non-residential pharmacy license issued by the Department of Health or (2) a hospital, clinic,

health care provider, or other provider of health care services.

       We consider whether ETA 3180’s buyer requirements explain the prescription drug tax or

add additional requirements not present in the statute.            We conclude ETA 3180’s buyer

requirements are explanatory and that Sanofi has not met them because none of its buyers held a

pharmacy license.

       It is unlawful to “practice pharmacy” in Washington without a pharmacy license. RCW

18.64.020.    The “practice of pharmacy” includes “compounding, dispensing, labeling,

administering, and distributing” prescription drugs. RCW 18.64.011(28). Persons licensed as

prescription drug manufacturers or wholesalers may “practice pharmacy” to the extent they act

within the scope of their licenses. RCW 18.64.020.

       Wholesale prescription drug distribution is defined by regulation as distribution of drugs

to persons “other than a consumer or patient” and expressly does not include drug sales “pursuant



                                                 8
50641-6-II


to a prescription.” WAC 246-879-010(10). A wholesale license allows distributors to sell to

licensed pharmacies and to “other legally licensed or authorized person[s].” WAC 246-879-

010(1). Regulations do not clarify who other legally licensed or authorized persons might be.

       Although pharmaceutical regulations do not use the term “retail sale,” general tax statutes

define “sale at retail” as “every sale of tangible personal property” except, as relevant here, “for

the purpose of resale . . . in the regular course of business without intervening use.” RCW

82.04.050(1)(a).

       Reading these statutes and regulations together, a legal retail sale of drugs without a

pharmacy license requires a holder of a wholesaler license to sell to a “legally licensed or

authorized person” “other than a consumer or patient” and the sale must not be for purpose of

resale in the regular course of business. The only sales that could fall into this narrow category

are sales to healthcare providers.5 Any retail sale of prescription drugs that is neither to a health

care provider, nor made by a holder of a pharmacy license, would be unlawful pursuant to RCW

18.64.020. Accordingly, ETA 3180 does not add additional requirements to RCW 82.04.272; it

merely explains what is necessarily required.

       We conclude that ETA 3180 is explanatory, persuasive, and consistent with applicable

statutes and rules. We choose to apply it in this case. Because none of Sanofi’s buyers held

pharmacy licenses or were health care providers, Sanofi may not claim the preferential rate offered

by the prescription drug tax.




5
 We discuss the status of sales to health care providers below, where we consider whether Sanofi’s
buyers’ sales to hospitals were “retail” sales.


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50641-6-II


       C.         STATUTORY CONTEXT

       Sanofi contends that other similar B&O tax statutes support its interpretation. Specifically,

Sanofi points to the B&O taxes for manufacturing and selling commercial airplanes and airplane

parts, perishable meat products, and newspapers, claiming they all create single classes,

encompassing wholesale and retail sales, “as a single, taxable class of activity.” 6 Reply Br. of

Appellant at 8.

       In deriving the plain meaning of the statute, we look to “the context of the entire act as well

as any ‘related statutes which disclose legislative intent about the provision in question.’”

Jametsky, 179 Wn.2d at 762 (quoting Campbell & Gwinn, LLC, 146 Wn.2d at 11).

       RCW 82.04.2607 provided various B&O tax rates for numerous specific businesses in

Washington. For example, RCW 82.04.260(11) set the B&O tax rate for Washington persons “in

the business of manufacturing commercial airplanes, or components of such airplanes, or making

sales, at retail or wholesale, of commercial airplanes or components of such airplanes,

manufactured by the seller.” RCW 82.04.260(4) provided the B&O tax rate for those “in the

business of slaughtering, breaking and/or processing perishable meat products and/or selling the

same at wholesale only and not at retail.” RCW 82.04.260(12)(c) set a B&O tax rate for persons

“in the business of selling at wholesale” various types of timber products.




6
  Sanofi first raises this argument in its reply brief. Generally, we do “not consider arguments
raised for the first time in a reply brief.” Kittitas County v. Allphin, 190 Wn.2d 691, 707 n.10, 416
P.3d 1232, (2018). However, we choose to address these arguments because they are interwoven
with Sanofi’s other arguments.
7
  The legislature has amended RCW 82.04.260 since the time period relevant to this case. See,
e.g., LAWS OF 2018, ch. 164 § 3. Our analysis is not changed by any of the amendments. We cite
to the current version of the statute.


                                                 10
50641-6-II


        A survey of these various B&O tax schemes shows that the legislature frequently words

different B&O tax statutes differently for different types of businesses, intending different

interpretations. In the commercial airplane business, it specifically applies the special rate to both

wholesalers and retailers, whereas in the perishable meat product business, it specifically applies

the special rate to only wholesalers and not retailers. As to timber, it applies the special rate to

wholesalers and does not mention retail.

        Given the many different examples of B&O tax schemes the legislature has created, no

specific one helps us to understand the meaning of the prescription drug tax. The commercial

airplane statute is clear that retail sales are to be included, while the perishable meat products

statute is clear that they are not.

        The prescription drug tax clearly applies only to wholesalers, but the parties dispute

whether it applies to all wholesalers or only to a subset that sell to retailers and health care

providers. Contrary to Sanofi’s characterization, the other B&O tax schemes do not treat all

participants in each business as a “single, taxable class.” Reply Br. of Appellant at 8. Rather, the

other statutes make a number of policy-based distinctions between types of sales in various

industries. The other B&O tax statutes cited by Sanofi do not help to interpret the prescription

drug tax. We apply the statute’s plain meaning, as discussed above.

        The plain meaning of the prescription drug tax unambiguously requires buyers to be either

retail sellers or health care providers. Accordingly, we do not consider the statute’s legislative

history.




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III.   CONSTITUTIONAL ARGUMENTS

       A.      DUE PROCESS

       Sanofi next contends that an interpretation that makes its tax liability contingent on

subsequent transfers outside its control, such as sales made by its customers, would violate the due

process clauses of the United States and Washington Constitutions. We disagree.

       DOR contends that Sanofi raises its due process arguments for the first time on appeal and

does not amount to a claim of manifest error affecting a constitutional right.

       RAP 2.5(a) states that we “may refuse to review any claim of error which was not raised in

the trial court.” However, this rule “allows an appellant to raise for the first time a ‘manifest error

affecting a constitutional right.’” State v. Lazcano, 188 Wn. App. 338, 356, 354 P.3d 233 (2015)

(quoting RAP 2.5(a)(3)). An error “is manifest if either it results in actual prejudice, . . . or the

party makes a plausible showing that the error had practical and identifiable consequences to the

trial.” In re Det. of Monroe, 198 Wn. App. 196, 201, 392 P.3d 1088 (2017). This provision permits

constitutional issues to be raised for the first time on appeal, provided the record is adequate to

permit review. In re Marriage of Akon, 160 Wn. App. 48, 59, 248 P.3d 94 (2011). In order to

make a determination if the claim constitutes manifest constitutional error, we must review the

merits of the claim.

       Sanofi contends that it is unconstitutional for DOR to make its tax liability contingent on

actions of those over whom it has no control, i.e. its buyers. It relies principally on Dot Foods,

Inc. v. Department of Revenue. 166 Wn.2d 912, 215 P.3d 185 (2009). We disagree.

       In Dot Foods, Dot was exempt from paying Washington B&O tax as an out-of-state

corporation making all sales to or through its direct seller’s representative. 166 Wn.2d at 916-17.

DOR then issued a regulation interpreting the exemption Dot had relied upon, requiring that out-



                                                  12
50641-6-II


of-state sellers “could never sell any consumer products that anyone will eventually sell in a

permanent retail establishment anywhere in the chain of distribution.” Dot Foods, 166 Wn.2d at

917. Because grocery stores and other retail establishments ultimately sold some of Dot’s

products, DOR assessed B&O tax against Dot. Dot Foods, 166 Wn.2d at 917. Dot argued that it

had no control over the downstream sales of its products, so its tax-exempt status should not be

contingent on the actions of its purchasers. Dot Foods, 166 Wn.2d at 922-23.

       The court ruled that “[t]he tax or tax exemption under the terms of the statute focuses on

the seller’s transaction with the seller’s product, not on what some purchaser opts to do with the

product after the transaction with Dot is completed.” Dot Foods, 166 Wn.2d at 923. Contrary to

Sanofi’s characterization of Dot Foods, the Supreme Court’s based its reasoning on statutory

interpretation, not the due process clause. 166 Wn.2d at 923-25. Although the court expressed its

agreement with an amicus brief that made constitutional arguments, it phrased its holding as: “the

express language of [the statute] does not require downstream sales to be restricted from permanent

retail establishments.” Dot Foods, 166 Wn.2d at 924, 926.

       In Stroh Brewery, the company produced alcoholic beverages out-of-state, and sold them

to Washington distributors. 104 Wn. App. at 237. Stroh claimed, like Dot, that it qualified for a

tax exemption as an out-of-state business that sold only to or through a direct seller’s

representative. Stroh Brewery, 104 Wn. App. at 237-38. The statute at issue required that for

Stroh to qualify for the exemption, neither Stroh’s representative “‘[n]or any other person’” sell

Stroh’s products in a permanent retail establishment. Stroh Brewery, 104 Wn. App. at 238 (quoting

RCW 82.04.423(2)).

       Stroh argued that the statute only prohibited its representative from selling in its own retail

establishment because it could not be expected to track each product unit and ensure it is never



                                                 13
50641-6-II


sold in any retail establishment. Stroh Brewery, 104 Wn. App. at 241. The court ruled, however,

that this interpretation would render the phrase “or any other person” superfluous and denied Stroh

the tax exemption. Stroh Brewery, 104 Wn. App. at 241.

       In Dot Foods, DOR argued that Stroh Brewery should control because, like in that case,

permitting the tax exemption despite “downstream” retail sales would ignore statutory language

prohibiting “any other person” from selling in a permanent retail establishment. 166 Wn.2d at

924-25. Rather than invalidating Stroh Brewery, the court distinguished it on the basis that Stroh

had made wholesale sales “to” its representative, who had then resold the goods, while Dot had

made retail sales “through” its representative directly to distributors. Dot Foods, 166 Wn.2d at

925-26.

       Both Dot Foods and Stroh Brewery addressed the direct seller’s representative tax

exemption and came out opposite ways, distinguished by whether the business made retail or

wholesale sales into Washington. This case concerns a different statute that distinguishes between

drug sales to wholesalers and sales to retailers. Neither Dot Foods nor Stroh Brewery suggests

that such a distinction violates the due process clause of the constitution.

       Sanofi fails to show a manifest error affecting a constitutional right and cannot raise this

argument for the first time on appeal.




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50641-6-II


       B.      EQUAL PROTECTION AND PRIVILEGES AND IMMUNITIES CLAUSES

       Sanofi contends that DOR’s interpretation of the prescription drug tax would violate the

equal protection clause of the constitution.8 It argues that the prescription drug tax and ETA 3180

create a single class of taxpayers in the business of warehousing and reselling prescription drugs

and that DOR’s interpretation creates an unconstitutional differential treatment of individuals

within that class.9 Sanofi relies primarily on Associated Grocers, Inc. v. State, 114 Wn.2d 182,

787 P.2d 22 (1990).

       The equal protection clause mandates that “‘all persons similarly situated should be treated

alike.’” Am. Legion Post No. 149 v. Dep’t of Health, 164 Wn.2d 570, 608, 192 P.3d 306 (2008)

(quoting O’Hartigan v. Dep’t of Pers., 118 Wn.2d 111, 121, 821 P.2d 44 (1991)). “[T]he right to

equal protection guaranteed under the Fourteenth Amendment and by the privileges and

immunities clause of the Washington Constitution are ‘substantially identical and considered by

this court as one issue.’” State v. Lewis, 194 Wn. App. 709, 715-16, 379 P.3d 129 (quoting State

v. Smith, 117 Wn.2d 263, 281, 814 P.2d 652 (1991)), review denied, 186 Wn.2d 1025 (2016). The

appropriate level of scrutiny under the equal protection clause “depends on the nature of the

classification or rights involved.” Am. Legion Post. #149, 164 Wn.2d at 608. In this case, the



8
  Sanofi does not specify whether it means the United States or Washington Constitution.
However, the primary case it relies on, Associated Grocers, Inc. v. State, discusses the equal
protection clause of the United States Constitution and the privileges and immunities clause of the
Washington Constitution. 114 Wn.2d 182, 188, 787 P.2d 22 (1990).
9
  DOR contends that we should not consider this argument because Sanofi raised it for the first
time in its summary judgment briefing. In summary judgment proceedings, “it is incumbent upon
the moving party to determine what issues are susceptible to resolution by summary judgment, and
to clearly state in its opening papers those issues upon which summary judgment is sought.” White
v. Kent Med. Ctr., Inc., 61 Wn. App. 163, 169, 810 P.2d 4 (1991). Here, Sanofi raised its equal
protection claim in its summary judgment memorandum of law and we consider the argument on
the merits.


                                                15
50641-6-II


parties agree that rational basis is the correct level of scrutiny. We agree that rational basis is the

appropriate standard.

       “The rational basis test is the ‘most relaxed form of judicial scrutiny.’” Dot Foods, Inc. v.

Dep’t of Revenue, 185 Wn.2d 239, 249, 372 P.3d 747 (2016) (quoting Amunrud v. Bd. of Appeals,

158 Wn.2d 208, 223, 143 P.3d 571 (2006)). Further, the legislature has “very broad discretion in

establishing classifications for economic and social legislation” and this discretion is “even

broader” when “making classifications for purposes of taxation.” Forbes v. City of Seattle, 113

Wn.2d 929, 944, 785 P.2d 431 (1990).

       In Associated Grocers, a grocery wholesaler sold merchandise to independently owned

grocery retailers. 114 Wn.2d at 184-85. It competed with another grocery business that owned

the entire chain of distribution, such that it “perform[ed] wholesaling functions” but without

making any wholesale sales. Associated Grocers, 114 Wn.2d at 185. The applicable B&O tax

applied to both wholesale grocery sales and also to “distributors” “who perform functions

equivalent to wholesaling functions” so as to capture both types of businesses. Associated

Grocers, 114 Wn.2d at 185. The tax contained an exemption for “distributors” who distributed

merchandise on which the tax had already been paid, but contained no equivalent exemption for

wholesalers in the same situation. Associated Grocers, 114 Wn.2d at 185. Associated Grocers

challenged the B&O tax, claiming the tax scheme denied it equal protection under the laws by

arbitrarily treating it differently from its vertically-integrated competition. Associated Grocers,

114 Wn.2d at 185.

       To determine whether the tax exemption violated equal protection, the court applied

“minimal scrutiny” or the “rational basis” test to make three inquiries: “(1) whether the

classification applies alike to all members within the designated class; (2) whether some basis in



                                                  16
50641-6-II


reality exists for reasonably distinguishing between those within and without the class; and, (3)

whether the challenged classification bears any rational relation to the purposes of the challenged

statute.” Associated Grocers, 114 Wn.2d at 187. The court determined that distributors and

wholesalers were within the same “class,” which caused the statute to fail the first part of the test

because members of the class were treated differently. Associated Grocers, 114 Wn.2d at 187-88.

Accordingly, it concluded the exemption was unconstitutional without reaching the latter two

inquiries of the test.10 Associated Grocers, 114 Wn.2d at 188.

       This case is distinguishable from Associated Grocers because the prescription drug tax

does not create a single “class” and treat its members differently. The statute in Associated

Grocers was titled “[t]ax on wholesalers, distributors,” different subsections laid out identical tax

schemes for wholesalers and distributors, and the statute stated that its intent was to “assure that

the tax [was] identical for both subclasses within the class.” 114 Wn.2d at 187.

       The prescription drug tax imposes a “[t]ax on warehousing and reselling prescription

drugs” and it creates a class of persons “engaging within this state in the business of warehousing

and reselling drugs for human use pursuant to a prescription.” RCW 82.04.272(1). This class does

not include persons that do not engage in this business as defined by RCW 82.04.272(2)(b). As

discussed above, prescription drug wholesalers who sell to other wholesalers do not meet this

definition. Accordingly, they are not members of any class created by RCW 82.04.272 and are

taxed as general wholesalers under RCW 82.04.270. Associated Grocers does not control the

present case because RCW 82.04.272 does not create a single class and differentiate between its




10
   Sanofi contends that, like the statute in Associated Grocers, the prescription drug tax fails the
first prong of the test. Sanofi does not argue the other two prongs of the test so we do not reach
them.


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members. Therefore, the prescription drug tax does not violate the equal protection or privileges

and immunities clause.

IV.     SANOFI’S BUYERS

        Sanofi contends that, even if we adopt DOR’s interpretation of the prescription drug tax

relating to buyer requirements, its buyers meet those requirements. It contends that its three buyers

sold prescription drugs “at retail,” to health care providers. Because hospitals use drugs in the

treatment of patients without reselling them, Sanofi claims they are “retail” purchasers.

Accordingly, Sanofi claims that the prescription drug tax applies to it because it sold drugs to

retailers.

        “Sale at retail” and “sale at wholesale” are defined terms in Washington’s B&O tax

scheme. “Sale at retail” means “every sale of tangible personal property . . . to all persons

irrespective of the nature of their business . . . other than a sale to a person who: (i) Purchases for

the purpose of resale as tangible personal property in the regular course of business without

intervening use by such person.” RCW 82.04.050(1)(a). “Sale at wholesale” means “[a]ny sale,

which is not a sale at retail.” RCW 82.04.060(1).

        DOR regulations specifically designate that retailing B&O tax and retail sales tax do not

apply to charges to patients “for tangible personal property used in providing medical services to

the patient, even if separately billed.” WAC 458-20-168(7)(a). Charges for “drugs physically

administered by the hospital staff” are subject to the hospital B&O tax, while charges for drugs

“sold to persons or their caregivers, either for self-administration or administration by a caregiver

other than the seller” are subject to retailing B&O tax and retail sales tax. WAC 458-20-168(7)(a).

Regulations also specify that “[s]ales of medical products to consumers such as doctors, hospitals,




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or patients are subject to retailing business and occupation (B&O) tax and the retail sales tax.”

WAC 458-20-18801(302).

        Both parties agree that sales from Sanofi’s buyers to health care providers are sometimes

sales “at retail.” However, DOR contends that health care providers are treated differently for the

purposes of the prescription drug wholesaling B&O tax.

        When interpreting statutes, “[a] general statutory provision must yield to a more specific

statutory provision.” Ass’n of Wash. Spirits & Wine Distribs. v. Liquor Control Bd., 182 Wn.2d

342, 356, 340 P.3d 849 (2015). Additionally, we give effect to all language of a statute without

rendering any portion meaningless or superfluous. G-P Gypsum Corp., 169 Wn.2d at 309.

        The definition of “sale at retail” and the regulations outlining the taxation scheme for sales

to and by hospitals are general statements that outline the proper classification for those types of

sales. RCW 82.04.272(2)(b), the specific statute at issue in this case, provides that the preferential

rate applies to sales to “persons selling at retail or to hospitals, clinics, health care providers, or

other providers of health care services.” If all sales to health care providers are sales “at retail”

under this statute, the clause providing for sales to different types of health care providers is

superfluous and unnecessary.

        However, as both parties state, only some sales to health care providers are “at retail,” since

many health care providers resell prescription drugs to patients. It makes sense, then, that the

legislature intended the specific statute to alleviate the confusion caused by the general statutes

and regulations by overriding them with a specific provision for health care providers. It spelled

out that sales to retailers or to health care providers both allow wholesalers to claim the preferential

rate, but sales to buyers who resell to health care providers do not.




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       We read the specific statute at issue in this case to override the general classifications of

sales to health providers as “retail” sales and not to contain surplus language. Accordingly,

Sanofi’s buyers’ sales to health care providers may be “retail sales” for many statutory and

regulatory purposes, but the buyers are not “persons selling at retail” for purposes of RCW

82.04.272 and do not qualify Sanofi for the preferential tax rate.

V.     CONCLUSION

       Because Sanofi has not met the requirements of the prescription drug tax, the trial court

did not err by granting summary judgment to DOR. We affirm its decision.




                                                             Melnick, J.

We concur:




       Bjorgen, J.




       Lee, A.C.J.




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