April 13, 2016

Kentucky Circuit Court Denies Hospital Provider Tax Refunds

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The Franklin Circuit Court recently held Saint Joseph Health System, Inc. (“Saint Joseph”), a Kentucky corporation operating several hospitals in the state, is not entitled to refunds of Kentucky’s hospital provider tax. The hospital provider tax, imposed pursuant to KRS § 142.303, is a 2.5% tax on the gross revenues received by a provider for the provision of hospital services. 

Saint Joseph argued federal law expressly prohibits application of Kentucky’s hospital provider tax to gross revenues received with respect to payments from the Federal Employees Health Benefits (“FEHB”) Fund, CHAMPUS/TRICARE, and Medicare Advantage.  Federal statute provides no state may impose, either directly or indirectly, taxes, fees or other monetary payments on federal carriers with respect to any payment from the FEHB Fund. Pursuant to federal regulations, any state tax on receipts from TRICARE and Medicare Advantage also is prohibited.

The Franklin Circuit Court, however, upheld the Department of Revenue’s denial of Saint Joseph’s refund claims.  The court held federal law does not prohibit taxation of Saint Joseph’s receipts because Saint Joseph is a healthcare provider, not an insurance carrier, and the mere possibility that Saint Joseph may pass the costs of the provider tax on to federal carriers was insufficient to preempt application of Kentucky’s provider tax to Saint Joseph’s receipts. 

This case is final.

 


[1] Saint Joseph Health Sys., Inc. v. Commonwealth of Kentucky, Finance and Admin. Cabinet, Dep’t of Revenue, Civ. Action No. 15-CI-00583 (Franklin Circuit Court Mar. 15, 2016).

[2] 5 U.S.C. § 8909(f)(1).

[3] 32 C.F.R. §199.17(a)(7)(ii) and (iii) and 42 C.F.R § 422.404.