Washington Court Rules that Taxes are Owed on Out-of-State Medicaid Payments

August 7, 2019

A Washington Court of Appeals has ruled that hospitals are not entitled to deduct business and occupation (B&O) taxes from Medicaid or Children’s Health Insurance Program (CHIP) payments made on behalf of out of state patients. The Court’s decision means that hospitals must pay B&O tax on Medicaid payments received from other states. This decision may have particular impact on hospitals operating near state borders or which provide specialty services to out of state patients. The decision comes from litigation by PeaceHealth St. Joseph Medical Center and St. John Medical Center seeking a tax refund on taxes paid for compensation received from Oregon Medicaid and CHIP programs. PeaceHealth has decided to petition the Washington Supreme Court to review the appeals court decision. WSHA is disappointed with the court’s decision and supports PeaceHealth’s position on this important issue.

For background, PeaceHealth originally sought a refund from the Washington Department of Revenue (DOR) under RCW 82.04.4311 on the basis that as a non-profit hospital, any revenue it receives from the Medicaid and CHIP programs are tax-exempt, regardless of where the programs are located. DOR denied the refund request on the basis that the tax deduction was limited to in-state programs. The issue was litigated in several venues over the last few years, culminating in the decision by the Court of Appeals in favor of DOR. The Court essentially ruled that the statutory language in RCW 82.04.4311 plainly limited the B&O tax deduction to compensation from in-state programs only, rejecting PeaceHealth’s arguments to the contrary. (Jaclyn Greenberg, jaclyng@wsha.org).


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