Dental Service of Massachusetts, Inc. v. Commissioner of Revenue (Lawyers Weekly No. 10-059-18)

NOTICE:  All slip opinions and orders are subject to formal revision and are superseded by the advance sheets and bound volumes of the Official Reports.  If you find a typographical error or other formal error, please notify the Reporter of Decisions, Supreme Judicial Court, John Adams Courthouse, 1 Pemberton Square, Suite 2500, Boston, MA, 02108-1750; (617) 557-1030; SJCReporter@sjc.state.ma.us   SJC-12346   DENTAL SERVICE OF MASSACHUSETTS, INC.  vs. COMMISSIONER OF REVENUE.       Suffolk.     December 5, 2017. – April 13, 2018.   Present:  Gants, C.J., Gaziano, Lowy, Budd, & Cypher, JJ.     Taxation, Abatement, Insurance company, Excise.  Practice, Civil, Abatement.  Insurance, Health and accident, Group, Coverage.  Statute, Construction.  Words, “Covered persons.”       Appeal from a decision of the Appellate Tax Board.   The Supreme Judicial Court granted an application for direct appellate review.     David C. Kravitz, Assistant State Solicitor, for Commissioner of Revenue. Daniel P. Ryan (David J. Nagle also present) for the taxpayer. James Roosevelt, Jr., & Rachel M. Wertheimer, for Massachusetts Association of Health Plans, amicus curiae, submitted a brief.          BUDD, J.  The taxpayer, Dental Service of Massachusetts, Inc.,[1] is an insurer that provides dental coverage through preferred provider arrangements (PPAs).[2]  Pursuant to G. L. c. 176I, § 11, insurers operating PPAs are obligated to pay annually an excise tax equal to a specified percentage “of the gross premiums received during the preceding calendar year for coverage of covered persons residing in this [C]ommonwealth” (emphasis added).  The term “[c]overed person” is defined in the statute as “any policy holder or other person on whose behalf the organization is obligated to pay for or provide health care services.”  G. L. c. 176I, § 1. The taxpayer and the Commissioner of Revenue (commissioner) disagree regarding whether “covered persons” may sometimes refer to the employer-organizations that contract with insurers, or instead refers only to the individuals receiving health care services (in this case, dental care).[3]  That is, when an employer purchases group insurance on behalf of its employees, does the insurer owe tax on premiums paid by or on behalf of only those individuals who live in Massachusetts, as the taxpayer contends, or does the insurer owe tax on all premiums received from the Massachusetts-based employer regardless of where its individual employees reside, as the commissioner contends.  We agree with the Appellate Tax Board (board), and conclude that “covered persons” as used in G. L. c. 176I, § 11, refers solely to natural persons who, as employees, receive insurance coverage for health care services under a group insurance plan, rather than employer entities.[4] Background.  The statute governing PPAs, G. L. c. 176I, was enacted in 1988.  St. 1988, c. 23, § 65.  Chapter 176I includes an assessment provision that requires “[e]very organization . . . […]

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