Constitutional Law: Tax Assessments on Residential Health Care Facility's Gross Receipts for Medical Patient Care Declared Constitutional-Port Jefferson Health Care Facility V. Wing

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Constitutional Law: Tax Assessments on Residential Health Care Facility's Gross Receipts For Medicaid Patient Care Declared Constitutional-Port Jefferson Health Care Facility v. Wing1-The Court of Appeals of New York held that a statutory scheme that assessed taxes on the gross receipts of residential health care facilities (RHCFs), while only allowing for reimbursement on the RHCF's Medicaid receipts, did not violate the equal protection clause.2 Plaintiffs, twenty-one for-profit RHCFs located in various parts of New York, brought this action against the State alleging that their equal protection rights were violated by this statutory tax scheme. Specifically, they alleged that the State extended its original 0.6% assessment on gross receipts of all RHCFs by imposing an "additional assessment" of 1.2% in 1992,3 and a "further additional assessment" of 3.8% in 1995,4 but only reimbursed RHCFs for taxes paid on receipts for Medicaid patient care. Plaintiffs claimed that this statutory tax scheme unconstitutionally discriminates against ltHCFs whose non-Medicaid patient population is larger that the Statewide average of twenty percent.5

The Michigan Supreme Court, in granting plaintiffs' motion for summary judgment, concluded that the State's interest in raising revenue without any further policy justification was inadequate because the gross receipts tax imposed the burden of the assessments more heavily upon some RHCFs than others. The Appellate Division affirmed, finding a disparity of taxation under the assessment and reimbursement scheme with RHCFs with a large proportion of gross receipts from non-Medicaid sources shouldering the financial burden for RHCFs with larger Medicaid populations. The court found that this disparate treatment resulted in a denial of equal protection not justified by the State's interest in raising revenue. The Court of Appeals reversed, however, declaring the tax assessment and reimbursement scheme constitutional.6

In applying equal protection review, the Court of Appeals first found a strong presumption of constitutionality for taxation classifications that the Plaintiffs had to overcome beyond a reasonable doubt. The court found that such assessments were subject to rational basis review. Furthermore, the court found that the standard in this case was especially deferential because it was being applied to the complex system of taxation where an equal protection violation will only amount from a difference in treatment that is "palpably arbitrary" or amounts to an "invidious discrimination."7

Even assuming that the taxation scheme created a "discrete and objectively identifiable class" triggering equal protection review, the court concluded that the scheme was rationally related to the goal of providing medical care for needy persons through the Medicaid system. The court followed the principle that a classification must be upheld against an equal protection challenge if there is any reasonably conceivable state of facts that could provide a rational basis for the classification. The court followed the United States Supreme Court's reasoning in its rejection of the equal protection challenge to California's Proposition Thirteen in Nordlinger v. …