“The management of an insurance company must operate in such a manner, and so conduct its business, as to reduce to a minimum the risk of loss to the policyholders.”
How later courts described this case
- “The management of an insurance company must operate in such a manner, and so conduct its business, as to reduce to a minimum the risk of loss to the policyholders.”
- recognizing the legislature’s desire to avoid double taxation
- “If the plain language is unambiguous, the court must give it effect” (citing State v. Armendariz, 160 Wn.2d 106, 110, 156 P.3d 201 (2007))
- passive voice indicates that what matters is “whether something happened—not how or why it happened” (citing Watson v. United States, 552 U.S. 74, 81, 128 S. Ct. 579, 169 L. Ed. 2d 472 (2007))
Written by the judges who cited it.
The opinion
FILE
THIS OPINION WAS FILED
FOR RECORD AT 8 A.M. ON
DECEMBER 12, 2024
IN CLERK’S OFFICE
SUPREME COURT, STATE OF WASHINGTON SARAH R. PENDLETON
DECEMBER 12, 2024 ACTING SUPREME COURT CLERK
IN THE SUPREME COURT OF THE STATE OF WASHINGTON
ENVOLVE PHARMACY SOLUTIONS,
INC., No. 101845-2
Respondent, EN BANC
v.
Filed: December 12, 2024
DEPARTMENT OF REVENUE,
Petitioner.
GORDON McCLOUD, J.—RCW 82.04.320 exempts certain Washington
businesses from the business and occupation (B&O) tax based on gross receipts
that most Washington businesses have to pay. It states in relevant part, “[The B&O
Tax Chapter] does not apply to any person in respect to insurance business upon
which a tax based on gross premiums is paid to the state . . . .” RCW 82.04.320.1
1
The legislature amended but did not substantively change the text of former
RCW 82.04.320 (1961) when it adopted RCW 82.04.320(1) (2021). Because these
amendments do not impact the statutory language relied on by this court, we refer to the
current applicable version of the statute.
Envolve Pharmacy Sols., Inc. v. Dep’t of Revenue, No. 101845-2
Centene Corporation’s two subsidiaries, Envolve Pharmacy Solutions 2 and
Coordinated Care, 3 administer health insurance benefits to people in Washington
under a contract with the State. Coordinated Care contracts directly with the State
and collects premium payments from consumers. Coordinated Care contracts with
Envolve to administer those health insurance benefits under the contract.
Coordinated Care forwards payment to Envolve in return for those services.
Coordinated Care pays the premiums tax referenced in RCW 82.04.320, above, in
lieu of B&O tax.
The question here is whether Coordinated Care’s payment of the premiums
tax exempts Envolve Pharmacy from paying the B&O tax under the exemption in
RCW 82.04.320.
We hold that Envolve qualifies for the exemption. The plain language of
RCW 82.04.320 states that if a tax “is paid to the [S]tate”—by any entity, the
statute does not limit who must make the payment—on “gross premiums” received
“in respect to insurance business,” then no other entity has to pay a B&O tax on
those same “gross premiums” “in respect to insurance business.” Coordinated Care
2
Envolve Pharmacy Solutions was formerly known as US Script, Inc. Clerk’s
Papers at 649 (Decl. of Tricia Dinkelman).
3
“Coordinated Care” refers to two corporate subsidiaries of Centene: (1)
Coordinated Care and (2) Coordinated Care of Washington, which took over Coordinated
Care’s insurance contract with the State in 2014. Envolve’s Suppl. Br. at 3 n.1.
2
Envolve Pharmacy Sols., Inc. v. Dep’t of Revenue, No. 101845-2
paid that tax on the gross premiums at issue here. Under the plain language of
RCW 82.04.320, Envolve does not separately owe B&O taxes on those same
“gross premiums” “in respect to insurance business.”
BACKGROUND
A. History of the B&O tax exemption in respect to insurance businesses
Business entities generally pay Washington’s B&O tax for the privilege of
conducting business in this state. RCW 82.04.220(1). The B&O tax is measured
by, among other things, gross receipts. Id.
But the legislature can direct businesses to pay other kinds of taxes in lieu of
that B&O tax. It has done just that with insurance businesses; it directs any person
conducting insurance business to pay a tax on “two percent of all premiums . . .
collected or received by the insurer . . . during the previous calendar year” instead
of paying the B&O tax. RCW 48.14.020(1)(a) (citing RCW 48.14.090); RCW
82.04.320 (the B&O tax “does not apply to any person in respect to insurance
business upon which a tax based on gross premiums is paid to the state”).4
4
The Department of Revenue appears to argue that Coordinated Care pays a tax
based on premiums under RCW 48.14.0201 (rather than under RCW 48.14.020(1)(a))
and, thus, that the exemption applicable here is the one contained in RCW 82.04.322,
rather than the one contained in RCW 82.04.320. We agree with the Court of Appeals
that .320 has been the subject of this litigation through all the tax and court appeals.
Envolve Pharmacy Sols., Inc. v. Dep’t of Revenue, 25 Wn. App. 2d 699, 710 n.5, 524
P.3d 1066 (2023). We further agree with the Court of Appeals that we need not address
this new argument to resolve this case. Id.
3
Envolve Pharmacy Sols., Inc. v. Dep’t of Revenue, No. 101845-2
B. The Department of Revenue has historically exempted a secondarily
contracted corporate affiliate (like Envolve) from the B&O tax as long as
the primary corporate affiliate pays the premiums tax
Since at least 1990, the Department of Revenue (Department) had
interpreted RCW 82.04.320—the tax exemption statute at issue in this case—to
allow “Corporate Affiliate A” to contract its insurance business out to “Corporate
Affiliate B” but to require only Affiliate A to pay the tax on gross premiums
received—as long as Affiliate B is a “member[] of a group of companies majority
owned or controlled by the same parent or owner.” Clerk’s Papers (CP) at 163
(Wash. Dep’t of Revenue, Final Determination No. 88-311A, 9 Wash. Tax Dec.
293 (1990) (1990 Determination)). 5 The Department’s 1990 Determination did not
allow Affiliate B to escape B&O tax liability completely. Id. at 163-64. Instead, it
limited the insurance-business-related exemption to activities or services
performed by Affiliate B that “functionally related” to Affiliate A’s insurance
business. Id. “Functionally related,” according to the Department, meant
“incidental to accomplishing the insurance function.” Id. at 163. And whether
something is functionally related to insurance business “is a question of fact”
determined “on a case by case basis.” Id.
5
The Department withdrew the 1990 Determination with its functionally related
test in October 2019 and disqualified many of these administrative activities from the
RCW 82.04.320 exemption. CP at 170-71 (“Interim guidance statement regarding the
application of the insurance business exemption”).
4
Envolve Pharmacy Sols., Inc. v. Dep’t of Revenue, No. 101845-2
The Department also imposed limits on which activities were so functionally
related that they qualify for this exemption. Those limits are based on (1) the
relationship between the contracting entities, (2) the character of the service or
activity performed, and (3) whether the activity is “independent[ly]
entrepreneurial.” Id. at 163-64.
First, with regard to the relationship between the contracting entities, the
Department’s 1990 Determination stated that the business seeking this statutory
exemption must be a corporate affiliate of the business paying the premiums tax in
lieu of B&O tax:
Services provided by a corporation to an affiliate may be considered
functionally related to the insurance business while the same services
provided to an unrelated entity may not. Where the taxpayer performs
services for an unrelated entity and receives payment, other than
premiums paid under a contract of insurance, the activity will not be
considered functionally related to the insurance business.
Id. at 163.
Second, with regard to the character of the activity performed, that 1990
Determination limited “functionally related” services to those “rendered in the
regular course of the taxpayer’s insurance business and relate exclusively to the
affiliate’s insurance business.” Id. These include administrative services “such as
accounting, personnel and data processing” as well as “[l]egal services provided to
an affiliate that relate to its insurance business . . . .” Id. The Department provided
5
Envolve Pharmacy Sols., Inc. v. Dep’t of Revenue, No. 101845-2
examples of nonfunctionally related services to which the exemption would not
apply:
If the affiliate is engaged in one or more business activities not related
to the insurance business, services rendered to the affiliate are taxable
to the extent they relate to other business activities. For example,
accounting and data processing services provided to an affiliate whose
sole activity is providing financial counseling to individuals would not
be considered functionally related to the insurance business.
Id. at 163-64.
Third, the Department’s 1990 Determination excluded “independent
entrepreneurial activities” from the definition of functionally related activities. Id.
at 164. Independent entrepreneurial activities “involve the active and direct
conduct of a trade or business and result in sales of services to unrelated parties.”
Id. The Department specifically disqualified “services rendered to employees”
from the functionally related test because of their entrepreneurial nature:
[T]he operation of a company sponsored cafeteria where meals are
purchased by employees is an activity not functionally related to the
insurance business. Charges for legal services provided to employees
of either the taxpayer or an affiliate for advice on matters of a
personal nature are also not functionally related to the insurance
business. Whether an activity is operated at a profit is irrelevant.
Id.
The Department concluded its 1990 Determination by applying the
functionally related test to insurance-business-related exemptions claimed by a
parent corporation and its affiliates. Id. It found that the Department had wrongly
6
Envolve Pharmacy Sols., Inc. v. Dep’t of Revenue, No. 101845-2
assessed B&O taxes on the work of affiliates that was functionally related to the
parent corporation’s insurance business:
The assessment in question involves expense allocations to affiliates
for services performed by the taxpayer's home and divisional offices.
These services include data processing, accounting, legal, personnel,
education and administration rendered to the taxpayer's affiliates in
the course of its insurance business. Each of the taxpayer's affiliates is
engaged in the insurance business to which these services are
functionally related. . . . The assessment of B&O tax on expense
allocations to affiliates is reversed.
Id.
Thus, the Department has historically exempted a secondarily contracted
corporate affiliate from the B&O tax as long as the primary corporate affiliate pays
the premiums tax. In this case, Envolve is the secondarily contracted corporate
affiliate seeking to benefit from the Department’s historical policy.
C. The State contracts with private entities (like Coordinated Care) to
deliver statutorily required health insurance benefits
The legislature requires the State to offer health insurance to people in
Washington and delegated the power to administer state-sponsored health
insurance programs to the Washington State Health Care Authority (HCA). RCW
70.47.002, .005, .010. The HCA may contract with private entities to administer
these health insurance benefits. CP at 375 (managed care contract (HCA Contract))
(“This Contract is between [HCA] and the Contractor . . . and is governed by
chapter 70.47; 74.09; and [Title] WAC 182.”)). The contracted entities must in turn
7
Envolve Pharmacy Sols., Inc. v. Dep’t of Revenue, No. 101845-2
administer health insurance that complies with Washington’s health insurance
regulations promulgated by the Office of the Insurance Commissioner. Chs. 284-
43, -170 WAC.
According to the Association of Washington Healthcare Plans, this type of
corporate-affiliate contracting described in the 1990 Determination is common in
the health insurance industry in Washington because of how Washington taxes
insurance premiums:
[C]ompanies in the insurance industry . . . have relied on [the 1990
Determination] in the management of their businesses. Efficiency is
an imperative in insurance, because premium income is subject to
state regulation and at the same time must be set to provide an
actuarially sound basis, together with the company’s capital, for
meeting expected claims.
Insurance businesses typically offer coverage in multiple states,
and often do so via a separate insurance entity in each state because
the states regulate insurance independently. In this context, the only
feasible way for an insurance business to share common expenses
(e.g., claims processing, customer support, actuarial services, provider
network management, investments, etc.) is to house them in a non-
insurance entity that contracts with all of its insurance plan entities.
Amicus Curiae Br. of Ass’n of Wash. Healthcare Plans at 12-13.
Thus, the State contracts with private entities to deliver statutorily required
health insurance benefits. The private entity with which the State contracted in this
case is Coordinated Care.
8
Envolve Pharmacy Sols., Inc. v. Dep’t of Revenue, No. 101845-2
D. In 2012, Centene Corporation, parent company to Coordinated Care and
Envolve, sought the Department’s guidance on whether Coordinated
Care could contract out its obligation under the HCA Contract to Envolve
without Envolve incurring additional tax liability
As explained above, Coordinated Care, a subsidiary of Centene, has
contracted with the HCA to administer health insurance benefits in Washington.
CP at 375. It did so in March 2012. Id. at 375-492 (HCA Contract). Coordinated
Care operates as Centene’s contracting entity in the State of Washington and has
no employees or infrastructure of its own to administer health insurance benefits.
Id. at 341 (2013 letter ruling).
In May 2012, Coordinated Care contracted with Envolve, another Centene
subsidiary, to administer the health insurance benefits required by the HCA
Contract—including pharmacy benefit management services (PBM services). Id. at
586-636 (PBM Agreement). Coordinated Care would collect any insurance
premiums and forward a percentage of the premiums to Envolve as payment for its
services. Id. at 598. Coordinated Care pays the annual premiums tax. Id. at 637-48
(Coordinated Care’s State of Washington e-tax forms).
The PBM Agreement required Envolve to provide a mixture of
administrative and PBM services—required by state regulation of insurance
businesses—such as
• Establish and maintain provider networks “in a manner that is sufficient in
numbers and types of providers and facilities to assure that … all health plan
9
Envolve Pharmacy Sols., Inc. v. Dep’t of Revenue, No. 101845-2
services provided to enrollees will be accessible in a timely manner
appropriate for the enrollee’s condition,” WAC 284-170-200(1);
• Credential participating providers, WAC 284-170-411;
• Process claims from providers, WAC 284-170-431, -470;
• Reimburse healthcare providers for valid claims in a timely manner, WAC
284-170-431, -470;
• Comply with requirements related to the establishment and maintenance of a
formulary, WAC XXX-XX-XXXX to 5110, -5640(6)(f);
• Develop and maintain a drug utilization review program, WAC 284-43-
2020;
• Charge premiums based on estimates of prudently incurred expenses, WAC
XXX-XX-XXXX(2)(b).
Envolve’s Suppl. Br. at 27 (citing CP at 586-636, 653-54).
Envolve initially started paying B&O taxes under the “service and other”
reporting category in 2012. CP at 23.6 But in December 2012, Centene sought a
letter ruling from the Department on whether any of the subsidiaries with which
Coordinated Care affiliated for insurance business could benefit from Coordinated
Care’s payment of the insurance premiums tax by accessing the exemption in
RCW 82.04.320. Id. at 340.
The Department responded in October 2013 and—relying on its 1990
Determination—ruled that the answer was yes: Coordinated Care’s affiliates do not
have to pay the premiums tax or the B&O tax on any activity that was
6
Envolve filed and paid the following in B&O taxes: $46,680 in 2012, $28,751 in
2013, $130,873 in 2014, and $85,052 in 2015. CP at 1007-1010 (annual excise tax detail
by line code).
10
Envolve Pharmacy Sols., Inc. v. Dep’t of Revenue, No. 101845-2
“functionally related” to Coordinated Care’s insurance business as long as
Coordinated Care paid its premiums tax. Id. at 336 (2013 letter ruling). But the
contracted affiliate would have to pay B&O taxes on any activity not functionally
related to Coordinated Care’s insurance business. Id. at 338.
E. Based on the Department’s 2013 letter ruling, Envolve sought a refund—
but the Department denied it, audited Envolve, and assessed over $3
million in back taxes dating back to 2010 against Envolve
Based on the 2013 letter ruling, Envolve filed amended B&O tax returns
requesting about a year’s worth of refunds totaling $73,263. CP at 24.7 It claimed
that all the services it provided to Coordinated Care were functionally related to
Coordinated Care’s insurance business and that Coordinated Care had paid the
premiums tax on those receipts. Id.
The Department denied Envolve’s request. It explained that Envolve’s
administrative services were functionally related to Coordinated Care’s insurance
function, but that its other services (which the Department seems to characterize as
nonadministrative)—like maintaining a network of pharmacies, providing mail-
order pharmacy services, and selecting network pharmacies—were not functionally
related. Id.
7
Between 2012 and 2013, Envolve paid $75,431 in B&O taxes in the “service &
other” category. Id. at 1007-1008.
11
Envolve Pharmacy Sols., Inc. v. Dep’t of Revenue, No. 101845-2
After denying Envolve’s refund, the Department audited Envolve for the
period January 2010 through June 2015 and made two assessments of unpaid taxes
“on amounts [Envolve] had received from Coordinated Care and paid out to third
party pharmacies.” Id. The assessment totaled “$3,203,762 in unpaid B&O taxes,
plus interest, and a 5 percent assessment penalty.” Id. The audits noted that
Envolve might be able to exclude some of those payments it received under the
“functionally related” criteria, but it needed to prove which funds were for which
purposes. Id. at 23-24.
Specifically, the audits asserted tax liability on amounts Envolve had
received from Coordinated Care and paid to third-party pharmacies because
“‘amounts received by an affiliate for providing actual health care services are not
exempt because they are not incidental to accomplishing Coordinated Care's
insurance business activities.’” Id. at 23 (emphasis added) (citing 2013 letter
ruling). The Department made this assertion despite the fact that state regulations
actually require insurance companies to perform quality assurance, risk control,
and other services that are part of the insurance business, but certainly have a
positive impact on actual health care services. E.g., WAC 284-170-411 (requiring
insurers to credential providers to ensure medical care quality), -470 (requiring
insurers to process “pharmacy [billing] claims . . . in a timely manner”).
12
Envolve Pharmacy Sols., Inc. v. Dep’t of Revenue, No. 101845-2
PROCEDURAL HISTORY
Envolve sought review by the Department’s Administrative Review and
Hearings Division. CP at 295 (Determination No. 17-0048). The division upheld
the assessments, agreeing with the Department that Envolve was engaged in some
activities that were functionally related to insurance and some that were not. Id. at
304.
Envolve appealed to the Board of Tax Appeals, arguing that nearly all the
amounts it received were functionally related to Coordinated Care’s insurance
business under both the 2013 letter ruling and the 1990 Determination. Id. at 11, 16
(Board’s Corrected Final Decision). The Department and Envolve filed cross
motions for summary judgment. Id. at 11.
The Board ruled that Envolve was not entitled to avoid B&O tax on all its
PBM services income. Id. It determined 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 under
RCW 82.04.320. Id. at 25-26. But the Board found that Envolve also provides
“pharmacy services” that it treated as “health care services” outside the definition
of insurance and not covered by the functionally related test. Id. at 26.
Envolve petitioned for review in King County Superior Court. Id. at 1-7. The
Superior Court reversed the Board’s order. Id. at 1435-42 (Ord. Reversing Bd. of
13
Envolve Pharmacy Sols., Inc. v. Dep’t of Revenue, No. 101845-2
Tax Appeals’ Corrected Final Decision). It ruled that the Department’s prior
administration of the statute—using the functionally related test—was consistent
with the statutory language and that Envolve’s activities constituted insurance
business activities exempt under RCW 82.04.320. Id. at 1439-41. That court
ordered the Department to refund the B&O tax Envolve paid on its PBM services
income. Id. at 1441.
The Department appealed, and the Court of Appeals affirmed. Envolve, 25
Wn. App. 2d 699. Relying on RCW 82.04.320’s plain language, the appellate court
held that because all of Envolve’s PBM services “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.” Id. at 713. Accordingly, Envolve
owed no B&O taxes and was entitled to a full refund. Id. at 716.
The Department petitioned for review of the Court of Appeals’ decision,
which we granted. Envolve Pharmacy Sols., Inc. v. Dep’t of Revenue, 1 Wn.3d
1018 (2023).
14
Envolve Pharmacy Sols., Inc. v. Dep’t of Revenue, No. 101845-2
ANALYSIS
I. RCW 82.04.320’s plain language exempts Envolve from B&O
taxation because Coordinated Care paid the premiums tax on
Envolve’s work “in respect to” insurance business—and that’s all that
.320 requires
The key issue before this court is whether RCW 82.04.320’s tax exemption
applies to “insurance business” performed by one corporate affiliate for another
corporate affiliate, where the other corporate affiliate pays the full premiums tax on
that book of business.
This requires interpreting the statute, which 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) (citing State v. J.M., 144 Wn.2d 472, 480, 28 P.3d 720 (2001)).
We begin our statutory interpretation process—with the goal of figuring out the
legislature’s intent—by starting with the plain language of the statute, in context.
Dep’t of Ecology v. Campbell & Gwinn, LLC, 146 Wn.2d 1, 9-10, 43 P.3d 4
(2002).8
8
The Department argues that Envolve should pay taxes because it is a business
(thus subject to the B&O tax) and it is a separately taxable entity from Coordinated Care.
Dep’t’s Suppl. Br. at 13-14 (citing Armstrong v. State, 61 Wn.2d 116, 120, 377 P.2d 409
(1962), 16-18 (citing Rena-Ware Distribs., Inc. v. State, 77 Wn.2d 514, 463 P.2d 622
(1970)). To be sure, it is generally true that no business should remain untaxed and that
creative corporate organization does not necessarily avoid applicable taxes. But that
general principle must give way to the plain language of a statute that explicitly exempts
a particular entity from a particular tax. See State v. James-Buhl, 190 Wn.2d 470, 474,
415 P.3d 234 (2018) (“If the plain language is unambiguous, the court must give it
effect” (citing State v. Armendariz, 160 Wn.2d 106, 110, 156 P.3d 201 (2007))).
15
Envolve Pharmacy Sols., Inc. v. Dep’t of Revenue, No. 101845-2
We derive “legislative intent solely from the plain language of the statute,
considering the text of the provision, the context of the statute, related provisions,
amendments, and the statutory scheme as a whole.” PeaceHealth St. Joseph Med.
Ctr. v. Dep’t of Revenue, 196 Wn.2d 1, 7-8, 468 P.3d 1056 (2020) (citing First
Student, Inc. v. Dep’t of Revenue, 194 Wn.2d 707, 710, 451 P.3d 1094 (2019)). We
use traditional rules of grammar when discerning a statute’s plain language. State
v. Bunker, 169 Wn.2d 571, 578, 238 P.3d 487 (2010) (citing In re Forfeiture of
One 1970 Chevrolet Chevelle, 166 Wn.2d 834, 838-39, 215 P.3d 166 (2009)).
When a statute’s plain language is unambiguous—meaning it is subject to only one
reasonable interpretation—we will not resort to other interpretive tools such as
legislative history. Spokane County v. Dep’t of Fish & Wildlife, 192 Wn.2d 453,
458, 430 P.3d 655 (2018) (citing State v. Velasquez, 176 Wn.2d 333, 336, 292 P.3d
92 (2013)).
A. RCW 82.04.320’s text applies broadly to “any person,” engaged in
any work “in respect to” “insurance business,” and it exempts such
person from B&O tax if its business is business “upon which a tax
based on gross premiums is paid”
The statute at issue, RCW 82.04.320, exempts from B&O taxation “any
person in respect to insurance business upon which a tax based on gross premiums
is paid to the state.” We begin with this plain language.
16
Envolve Pharmacy Sols., Inc. v. Dep’t of Revenue, No. 101845-2
Let’s start with the phrase “any person.” The word “person” is very broad:
the legislature has defined “person” to include “corporations,” the types of entities
at issue here. RCW 82.04.030; Simpson Inv. Co. v. Dep’t of Revenue, 141 Wn.2d
139, 149 n.7, 3 P.3d 741 (2000). The word “any” modifies the word “person.” The
use of the word “any” enlarges, rather than restricts, the category of “persons” to
which the exemption applies. See State v. Westling, 145 Wn.2d 607, 611-12, 40
P.3d 669 (2002) (granting word “any” a broad construction meaning “every” and
“all” (citing State v. Smith, 117 Wn.2d 263, 271, 814 P.2d 652 (1991))).
Thus, the phrase “any person” indicates that as long as a qualified entity
performs activity “in respect to insurance business,” that entity can qualify for the
exemption. RCW 82.04.320 (emphasis added). It seems irrefutable that Envolve
fits into the category of “any person.” RCW 82.04.030.
Next, the prepositional phrase “in respect to” clarifies that “any person”
qualifies for the exemption for its activities respecting or regarding “insurance
business.” RCW 82.04.320. Webster’s Dictionary defines “in respect to” as “in
relation to : with regard to : as respects.” WEBSTER’S THIRD NEW INTERNATIONAL
DICTIONARY 1934 (2002); see also id. at 1916 (defining “relation” as “REFERENCE”
or “RESPECT” “used esp[ecially] in the phrase in relation to”).
17
Envolve Pharmacy Sols., Inc. v. Dep’t of Revenue, No. 101845-2
In short, the phrase “any person in respect to insurance business” means that
an entity must perform activities that relate to “insurance business” to qualify for
the exemption.
Envolve clearly fits into that category of performing activities in respect to,
or in regard to, “insurance business.” That’s what the list above shows. See supra
at 9-10. That’s what the HCA’s contract with Coordinated Care shows. E.g., CP at
416 (“HCA shall pay a monthly premium for each enrollee in full consideration of
the work to be performed by [Coordinated Care] under this Contract.”). That’s
what Coordinated Care’s contract with Envolve shows. E.g., CP at 589 (requiring
Envolve to do eligibility and claims processing). And that’s how the Department
always used to interpret this phrase, before this case. E.g., CP at 183-84 (citing
Factory Mut. Eng’g Ass’n v. Dep’t of Revenue, noted at 70 Wn. App. 1057, slip op.
at 11-12 (1993)).9
The remaining question is whether the facts that Coordinated Care paid a
premiums tax on this business that it forwarded to Envolve and that Envolve did
9
GR 14.1(a) allows parties to cite unpublished opinions filed on or after March 1,
2013. GR 14.1(c) says that appellate courts “should not, unless necessary for a reasoned
decision, cite or discuss unpublished opinions in their opinions.” (Emphasis added.) This
particular decision, however, was made part of the record in this case at the trial court
level and has been part of that record since. CP at 183-84.
18
Envolve Pharmacy Sols., Inc. v. Dep’t of Revenue, No. 101845-2
not pay a separate premiums tax on this insurance-related business itself changes
the result.
Under the plain language of the statute, the answer must be no. The
legislature did not say that the insurance business doing the insurance-related work
at issue must itself pay a premiums tax on that business to qualify for that
exemption. Instead, the legislature used the passive voice to say that a premiums
tax must have been paid on this business—without describing by whom—for the
tax exemption to kick in. Dean v. United States, 556 U.S. 568, 572, 129 S. Ct.
1849, 173 L. Ed. 2d 785 (2009) (passive voice indicates that what matters is
“whether something happened—not how or why it happened” (citing Watson v.
United States, 552 U.S. 74, 81, 128 S. Ct. 579, 169 L. Ed. 2d 472 (2007))). The
statute does not specify that each entity engaged in a given amount of “insurance
business” must pay the premiums tax, it states only that an entity must pay it. And
the statute refers to the premiums tax that some entity must pay as “a tax,” not
multiple taxes.
The only question left is what qualifies as “insurance business.” In its 1990
Determination, the Department defined insurance business very broadly as
“specific business activity undertaken by insurers,” “those activities specifically
regulated under Title 48 RCW [insurance statutes],” and any “functionally related”
work as well. CP at 162-63. An applicable statute provides an even broader
19
Envolve Pharmacy Sols., Inc. v. Dep’t of Revenue, No. 101845-2
definition. Under RCW 82.04.140, the statute providing definitions applicable to
the B&O tax chapter, “business” includes “all activities engaged in with the object
of gain, benefit, or advantage to the taxpayer or to another person or class, directly
or indirectly.”
Thus, a straightforward reading of the plain language of RCW 82.04.320
shows that it exempts from B&O taxation any amount of “insurance business” on
which an entity paid “a” premiums tax. Textually, that means any entity—the
statute contains no language limiting it to only the discrete entity that paid the
premiums tax.
In this case, Coordinated Care paid that RCW 82.04.320 premiums tax in
lieu of B&O tax. Under the plain language of that statute, Envolve doesn’t have to
pay it again.
B. Amendments to RCW 82.04.320 support this broad reading
As discussed above, we begin with the plain language of the statute in
context. Part of examining the “context” of a statute is looking at that statute’s
development over the years. Associated Gen. Contractors v. State, 2 Wn.3d 846,
857, 544 P.3d 486 (2024) (quoting Columbia Riverkeeper v. Port of Vancouver
USA, 188 Wn.2d 421, 440, 395 P.3d 1031 (2017)).
RCW 82.04.320’s development over the years supports the interpretation
described above. In 1933, the legislature enacted the occupation tax, [t]he
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Envolve Pharmacy Sols., Inc. v. Dep’t of Revenue, No. 101845-2
forerunner to the B&O tax. The legislature explicitly exempted from that tax “[t]he
following persons . . . [i]nsurance companies which pay to the State of Washington
a tax upon gross premiums.” LAWS OF 1933, ch. 191, § 4(2), at 879 (emphasis
added). This old statute’s use of plain language exempting “[i]nsurance
companies” from B&O taxation shows that the legislature knows how to exempt
only such companies if it wants to.
But in 1935, the legislature replaced the occupation tax with the B&O tax
and amended RCW 82.04.320. Most notably, the legislature changed its language
from exempting only “insurance companies” to language exempting “[a]ny person
in respect to insurance business upon which a tax based on gross premiums is paid
to the State of Washington . . . .” LAWS OF 1935, ch. 180, § 11(c) at 718. In other
words, the legislature intentionally changed its narrow exemption for “insurance
companies” to the current, broader, passive voiced, far-reaching exemption
applicable to “any person” for work on “insurance business upon which a tax
based on gross premiums is paid . . . .” RCW 82.04.320 (emphasis added).
This broader language remains in place to this day. Compare former RCW
82.04.320 (the 1935-2021 statute stating, “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”), with RCW 82.04.320(1) (current statute stating, “[T]his
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Envolve Pharmacy Sols., Inc. v. Dep’t of Revenue, No. 101845-2
chapter does not apply to any person in respect to insurance business upon which a
tax based on gross premiums is paid to the state”).
As the Court of Appeals noted in Factory Mutual Engineering Ass’n, “The
Legislature clearly knew how to limit the exemption to insurance companies; it did
so in 1933. It did not do so in 1935.” CP at 183-84 (citing Factory Mut. Eng’g, slip
op. at 11-12).
Once again, in this case, Coordinated Care paid that RCW 82.04.320
premiums tax in lieu of the B&O tax. Under the plain language and historical
context of that statute, Envolve doesn’t have to pay it again.
II. Envolve is entitled to a full exemption, not just the partial exemption
that the Department granted
The only remaining issue is how much of Envolve’s work is exempt from
the B&O tax. Under RCW 82.04.320, the answer must be based on whether
Envolve’s work was “in respect to” “insurance business.”
Starting with the “functionally related” test—which clearly applies in this
case10—“functionally related” means “incidental to accomplishing the insurance
10
As noted, the Department withdrew its 1990 Determination and its functionally
related test. But the test still applies here because “we will never defer to ad hoc agency
determinations adopted during the course of litigation on the very topic of that litigation.”
Alaska Airlines, Inc. v. Dep’t of Lab. & Indus., 1 Wn.3d 666, 683, 531 P.3d 252 (2023).
As the Court of Appeals correctly noted, “Envolve ha[s] the right to have its tax liability
determined using that standard for the tax periods at issue.” Envolve, 25 Wn. App. 2d at
712 n.7 (quoting RCW 82.32A.020(2)).
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Envolve Pharmacy Sols., Inc. v. Dep’t of Revenue, No. 101845-2
function.” CP at 163 (1990 Determination). As noted above, whether Envolve’s
activity is functionally related to Coordinated Care’s insurance function depends
on (1) the relationship between the contracting entities, (2) the character of the
service or activity performed, and (3) whether the activity is “independent[ly]
entrepreneurial.” See supra at 5-6. Functionally related activities include
administrative services “such as accounting, personnel and data processing.” CP at
163.
Here, Envolve performed all of its work pursuant to a contract with
Coordinated Care, and Coordinated Care contracted all of that work out to Envolve
because Coordinate Care had a contract with the State to administer health
insurance in Washington. And just about everything in the contracts between the
State and Coordinated Care, and between Coordinated Care and Envolve, were
activities that the State requires state health insurers to perform. E.g., WAC 284-
170-200(1), -411, -431, -470; WAC XXX-XX-XXXX to 5110, -5640(6)(f), -2020,
-6040(2)(b). In other words, Envolve’s work—like Coordinated Care’s work—is
the work that state statutes and regulations define as health insurance work. It
necessarily follows that Envolve qualifies for the same deduction for that health
insurance work as Coordinated Care does.
So the real question is whether Envolve performed any “actual healthcare
services”—because only insurance work is covered by the exemption, not actual
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Envolve Pharmacy Sols., Inc. v. Dep’t of Revenue, No. 101845-2
health care services. The Department characterizes Envolve’s work for
Coordinated Care as “health care services” to conclude that the exemption doesn’t
apply to Envolve. Dep’t’s Suppl. Br. at 22.
We disagree. Envolve did not perform any actual health care services. All of
Envolve’s activities involved quality assurance, benefit management, risk
management, claims processing, subscriber and provider reimbursement, and cost
control measures mandated by statute or regulation. These are all “administrative”
activities and certainly central to the insurance function.
The Department’s contrary assertion that these activities—such as quality
assurance and risk management work—constitute health care services rather than
insurance-related services reflects a misunderstanding of the health insurance
business. See RCW 70.47.010(2)(b)-(c) (purpose of state-assisted health insurance
is to expand coverage for health care services while lowering health care costs); cf.
Kueckelhan v. Fed. Old Line Ins. Co., 69 Wn.2d 392, 420, 418 P.2d 443 (1966)
(“The management of an insurance company must operate in such a manner, and
so conduct its business, as to reduce to a minimum the risk of loss to the
policyholders.”).
Further, Envolve does not provide actual health care services, under any
definition, counter to what the Department argues. Under RCW 48.44.010(10),
health care services include “medical, surgical, dental, chiropractic, hospital,
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Envolve Pharmacy Sols., Inc. v. Dep’t of Revenue, No. 101845-2
optometric, podiatric, pharmaceutical, ambulance, custodial, mental health, and
other therapeutic services.” Under RCW 48.46.020(4), “‘Comprehensive health
care services’ means basic consultative, diagnostic, and therapeutic services
rendered by licensed health professionals together with emergency and preventive
care, inpatient hospital, outpatient and physician care, at a minimum, and any
additional health care services offered by the health maintenance organization.”
Under RCW 70.02.010(15), “‘Health care’ means any care, service, or procedure
provided by a health care provider: (a) To diagnose, treat, or maintain a patient's
physical or mental condition; or (b) That affects the structure or any function of the
human body.”
None of Envolve’s activities meet any of these definitions. Envolve does not
treat any physical or mental health condition or dispense any drugs. It reimburses
providers for those services, monitors usage and efficacy, and explains benefits to
subscribers when necessary. This is insurance business, not health care services.
Accordingly, Envolve is exempt from the B&O tax under the Department’s
own “functionally related” test because Coordinated Care paid the premiums tax
on Envolve’s insurance-related business. Envolve was created to conduct
Coordinated Care’s insurance business for efficiency purposes. The Department
should not be surprised that everything Envolve does is functionally related to
Coordinated Care’s insurance business. That’s the reason Envolve exists.
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Envolve Pharmacy Sols., Inc. v. Dep’t of Revenue, No. 101845-2
This result is probably even clearer if we use the test demanded by the
language of the applicable statute, that is, whether Envolve’s work is done “in
respect to” “insurance business.” RCW 82.04.320. The statutory language does not
demand that the “insurance work” be in respect to non-risk-avoidance, or non-
quality-control, or non-PBM network set up and maintenance “insurance business”
work in order to be covered by the exemption. Certainly, the work that
Coordinated Care contracted with Envolve to perform—work that covers
Coordinated Care’s insurance duties as set forth in a long series of regulations—
must be considered in respect to, or in regard to, or in relation to, insurance. The
applicable state regulations place that work squarely within the duties required of
health insurers.
CONCLUSION
The legislature previously enacted a statute that exempted from B&O
taxation all “[i]nsurance companies.” LAWS OF 1933, ch. 191, § 4(2), at 879. In
1935, the legislature replaced that with a statute that exempted from B&O taxation
not just “[i]nsurance companies,” but “any” company or “person” that performs
work in regard to—“in respect to”—insurance business, as long as someone has
paid “a tax” on that “insurance business[’s] … gross premiums.” RCW 82.04.320.
That language remains on the books to this day.
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Envolve Pharmacy Sols., Inc. v. Dep’t of Revenue, No. 101845-2
Under that statute’s plain language and historical context, (1) Envolve meets
the broad, inclusive, statutory definition of “any person,” (2) Envolve performed
work that was, by the clear terms of its contract, “in respect to [Coordinated
Care’s] insurance business,” and (3) Envolve’s work for Coordinated Care
constituted “business” upon which “a [premiums] tax” was fully paid (by the party
with which Envolve contracts, Coordinated Care).
That is all that the plain language of the applicable statute requires for
Envolve to gain the benefit of this statutory exemption. And the statutory
exemption covers all of Envolve’s work “in respect to insurance business,” not just
the very limited portions of that work carved out by the Department.
We affirm the Court of Appeals’ decision affirming the Superior Court’s
decision to reverse the Board of Tax Appeals. We remand for further proceedings
consistent with this opinion.
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Envolve Pharmacy Sols., Inc. v. Dep’t of Revenue, No. 101845-2
WE CONCUR:
28
No. 101845-2
GONZÁLEZ, C.J. (dissenting) — This case asks a simple question: Did the
legislature intend to exempt companies like Envolve Pharmacy Solutions from both
the business and occupation (B&O) tax typically imposed on businesses and the
premiums tax typically imposed on insurance companies? Given the advice that the
Department of Revenue gave the taxpayer’s parent company, I conclude that Envolve
is entitled to the exception for some of its work on behalf of an insurance company
during the taxing period at issue. Given the basic structure of our tax code, the
general rule that tax exceptions are construed narrowly, and the specific language of
the exception at issue, I conclude Envolve is not otherwise exempt from state taxes.
Accordingly, I respectfully dissent.
BACKGROUND
From our earliest days as a state, insurance companies have paid a tax on
premiums. Alfred Harsch, The Washington Tax System—How It Grew, 39 WASH. L.
REV. 944, 952-53 (1965) (citing LAWS OF 1889-90, ch. 18, § 47, at 547 (codified as
amended at RCW 48.14.020)). During the Great Depression, our state imposed a
business and occupation tax on “every person . . . engaging in business activities.”
LAWS OF 1935, ch. 180, § 4 (codified as amended at RCW 82.04.220). Perhaps
Envolve Pharmacy Sols., Inc. v. Dep’t of Revenue, No. 101845-2 (González, C.J.,
dissenting)
because insurance companies were already paying a state tax, the legislature exempted
“[a]ny person in respect to insurance business upon which a tax based on gross
premiums is paid to the State of Washington,” with some exceptions. LAWS OF 1935,
ch. 180, § 11(c).
Decades later, an insurance company that paid a premiums tax argued that it
was categorically exempted from the B&O tax for all of its income-generating
activity, including money received for performing services for its affiliates. Clerk’s
Papers (CP) at 159 (Wash. Dep’t of Revenue, Determination No. 88-311A, 9 Wash.
Tax Dec. 293 (1990), withdrawn by Excise Tax Advisory 3133.2019 (Oct. 2, 2019)).
The department disagreed, deciding that it was “unreasonable to conclude that the
legislature intended to allow an insurance company to escape taxation on business
which is unrelated to its insurance business.” Id. at 162. The company was, however,
allowed a limited exception for those “activities which are functionally related to the
taxpayer’s conduct of its insurance business [because those] are not subject to the
[B&O] tax.” Id. at 163.
The department later withdrew 9 WTD 293, stressing that the exemption in
RCW 82.04.320 applied only to entities that received premiums and paid a premiums
tax. Id. at 170-71. It also concluded that 9 WTD 293 had erred in adopting the
“functionally related” test. Id.
Meanwhile, a new type of business has arisen: pharmacy benefit managers.
Pharmacy benefit managers “serve as intermediaries between prescription-drug plans
2
Envolve Pharmacy Sols., Inc. v. Dep’t of Revenue, No. 101845-2 (González, C.J.,
dissenting)
and the pharmacies that beneficiaries use.” Rutledge v. Pharm. Care Mgmt. Ass’n, 592
U.S. 80, 83-84, 141 S. Ct. 474, 208 L. Ed. 2d 327 (2020); see also RCW
48.200.020(14)(a). Among other things, they work with pharmacies to determine
beneficiaries’ coverage and co-pay obligation, reimburse the pharmacy for the cost of
the drug, and in turn are reimbursed by beneficiaries’ prescription drug plans. Pharm.
Care, 592 U.S. at 84; RCW 48.200.020(14)(a). The amount a pharmacy benefit
management service “‘reimburses’ a pharmacy for a drug is not necessarily tied to
how much the pharmacy paid to purchase that drug from a wholesaler.” Pharm. Care,
592 U.S. at 84. Instead, the pharmacy benefit managers contract both with the
pharmacies for the amount it will reimburse the pharmacy and with the insurance plan
for the amount that will be reimbursed. Id. “That difference generates a profit.” Id.
Envolve Pharmacy Solutions and Coordinated Care of Washington are both
subsidiaries of the Centene Corporation, a multiline health care enterprise.
Coordinated Care is a health management organization that pays taxes on premiums.
Envolve provides Coordinated Care pharmacy benefit management services such as
claims processing; eligibility management; benefits management; utilization
management; pharmacy network management; call center services; network pharmacy
license verification; quality improvement; and appeals, complaints, and claims
administration; among other things. In addition to the direct compensation Envolve
receives from Coordinated Care, Envolve keeps some of the rebates it gets from
pharmaceutical companies.
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Envolve Pharmacy Sols., Inc. v. Dep’t of Revenue, No. 101845-2 (González, C.J.,
dissenting)
The Department of Revenue concluded that under 9 WTD 293, Envolve was
entitled to a B&O tax exemption for “providing services that are functionally related
to Coordinated Care’s insurance business.” CP at 1020. The department ultimately
allowed Envolve to exempt the portion of its income it received from Coordinated
Care for “administration of eligibility management services, claim processing, claims
adjudication, benefit coordination, coverage verification, and recordkeeping services,”
but not for “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,” as these
services related to providing health care, not insurance. CP at 303.
ANALYSIS
As we noted long ago, “the legislature intended to impose the business and
occupation tax upon virtually all business activities carried on within the state.”
Time Oil Co. v. State, 79 Wn.2d 143, 146, 483 P.2d 628 (1971) (citing Reynolds
Metals Co. v. State, 65 Wn.2d 882, 885, 400 P.2d 310 (1965)); see also RCW
82.04.220(1) (“There is levied and collected from every person . . . a tax for the act or
privilege of engaging in business activities.”). When construing tax statutes,
“taxation is the rule and exemption is the exception, and where there is an
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Envolve Pharmacy Sols., Inc. v. Dep’t of Revenue, No. 101845-2 (González, C.J.,
dissenting)
exception, the intention to make one should be expressed in unambiguous terms.”
Columbia Irrig. Dist. v. Benton County, 149 Wash. 234, 240, 270 P. 813 (1928).
The B&O tax “does not apply to any person in respect to insurance business
upon which a tax based on gross premiums is paid to the state.” RCW
82.04.320(1); see also RCW 82.04.322 (applying a similar exemption to health
maintenance organizations and health care services contractors, such as
Coordinated Care, “in respect to premiums or prepayments that are taxable under
RCW 48.14.0201”).
The majority concludes that this exception applies because, in its view,
Envolve does business with an insurance business that pays a tax based on
premiums. Read in context of everything the legislature has said and in light of the
way these statutes were enacted, I disagree.
I conclude that the legislature simply intended to avoid taxing insurance
businesses twice on the same income. See LAWS OF 1935, ch. 180, §§ 4, 11(c)
(creating the modern B&O tax and establishing a limited exclusion from it for
insurance businesses that pay a tax based on premiums); LAWS OF 1993, ch. 492,
§§ 301, 303 (responding to the health care crisis by recognizing new types of
health care plans and establishing a limited exclusion from B&O tax for these
plans that pay a tax based on premiums); Armstrong v. State, 61 Wn.2d 116, 122,
377 P.2d 409 (1962) (recognizing the legislature’s desire to avoid double taxation).
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Envolve Pharmacy Sols., Inc. v. Dep’t of Revenue, No. 101845-2 (González, C.J.,
dissenting)
A taxpayer who pays the premiums tax under RCW 48.14.020 is not required to
pay B&O tax on those premiums under RCW 82.04.320. Similarly, a taxpayer
who pays the premiums and prepayments tax under RCW 48.14.0201 is not
required to pay B&O tax under RCW 82.04.322.
Nothing in the relevant statutes or the overarching statutory schemes
suggests the legislature intended to allow a taxpayer who did not pay a tax based
on premiums under chapter 48.14 RCW to avoid taxes under chapter 82.04 RCW
simply because it did business with an insurance company. That would be
inconsistent with the fundamental principle that “[t]here is levied and collected
from every person . . . a tax for the act or privilege of engaging in business
activities” in Washington. RCW 82.04.220(1).
I recognize that read in isolation, there is language in the now withdrawn
revenue determination that suggests an insurance company’s affiliate that does not
pay a premiums tax is entitled to the exception to the same extent that an insurer that
does pay the tax would be. CP at 163. But given the factual context that the question
was presented, I conclude that the determination properly applies only to taxpayers,
like the taxpayer at issue in the determination, who themselves paid a tax based on
premiums.
Under the letter ruling Centene received, Envolve is entitled to an exemption
for “providing services that are functionally related to Coordinated Care’s insurance
6
Envolve Pharmacy Sols., Inc. v. Dep’t of Revenue, No. 101845-2 (González, C.J.,
dissenting)
business.” CP at 1020. Envolve contends that everything it does under its contract
with Coordinated Care is functionally related, incidental to, and relates exclusively to
Coordinated Care’s insurance business. Again, I disagree.
Envolve’s approach violates the precept that tax exceptions are to be narrowly
construed. I also see no meaningful limiting principle to Envolve’s—or the
majority’s—approach. Under their approach, any activity necessary to the
performance of an insurance, health maintenance organization, or health care services
contractor contract would be exempt from B&O tax so long as some taxpayer
somewhere paid a tax based on premiums or prepayments. If the legislature had
meant that, it would have said so clearly.
Aside from Envolve’s broad argument that all of its relevant work is
functionally related to, incidental to, and relates exclusively to its work with
Coordinated Care, Envolve does not identify which activities should have been
excluded from the B&O tax under the letter ruling. No error is obvious to me.
I recognize that since these statutes were enacted, more and more health care is
being effectively provided by insurance companies. That does not turn health care
into insurance. Maintaining a network of pharmacy contacts, selecting and
credentialing network pharmacies, drug utilization review services, and managing the
prescription drug formulary appear to be substantive, consumer-oriented services that
are not functionally related or incidental to the insurance function. Similarly, quality
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Envolve Pharmacy Sols., Inc. v. Dep’t of Revenue, No. 101845-2 (González, C.J.,
dissenting)
improvement and collecting rebates from pharmaceutical manufacturers are not
obviously part of the insurance business unless all health care is.
In my view, Envolve is not entitled to the full exception it seeks. As the
majority concludes otherwise, I respectfully dissent.
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Rumbaugh, J.P.T.
8