Vhs v. Ador


                                    IN THE
                                DIVISION ONE



     ARIZONA DEPARTMENT OF REVENUE, Defendant/Appellant.

                             No. 1 CA-TX 20-0007
                               FILED 5-4-2021

                   Appeal from the Arizona Tax Court
                           No. TX2018-000277
               The Honorable Christopher T. Whitten, Judge



Arizona Attorney General’s Office, Phoenix
By Benjamin H. Updike, Nancy K. Case
Counsel for Plaintiff/Appellee

Ryan Rapp Underwood & Pacheco, P.L.C., Phoenix
By Michael G. Galloway, Ian A. Macpherson
Counsel for Defendant/Appellee
                             VHS v. ADOR
                          Decision of the Court

                     MEMORANDUM DECISION

Presiding Judge Paul J. McMurdie delivered the Court’s decision, in which
Judge Cynthia J. Bailey and Judge Lawrence F. Winthrop joined.

M c M U R D I E, Judge:

¶1            The Arizona Department of Revenue (the “Department”)
seeks reversal of the Arizona Tax Court’s decision granting a refund to VHS
Acquisition Subsidiary Number 1, Inc. (“VHS”) for certain items under
A.R.S. § 42-5159(A)(17). For the following reasons, we affirm.


¶2            VHS, a medical provider, purchased various items from
out-of-state vendors. Then doing business as “Paradise Valley Hospital,”
VHS sought a refund of use tax paid for the items. The Department initially
granted the refund for some items but declined others. After an informal
conference, the Department gave more requested refunds, and VHS
withdrew some of the refund claims. The parties disputed the remainder of
the property before the Office of Administrative Hearings (“OAH”).

¶3            Before the OAH, VHS argued that the items were exempt
from the use tax under A.R.S. § 42-5159(A)(17) because they were prosthetic
appliances as defined by A.R.S. § 23-501(7). During the hearing, an expert
witness testified about the items’ functions. The hearing officer ruled in
favor of the Department concerning all but one item.

¶4            VHS appealed to the tax court under A.R.S. § 42-1254(C). VHS
moved for summary judgment, arguing that the items are exempt
prosthetic appliances under the statute. In a cross-motion, the Department
claimed that VHS relied on an overbroad reading of A.R.S. § 23-501(7). The
tax court agreed with VHS that the items are prosthetic appliances under
A.R.S. § 23-501(7), granted VHS’s motion, denied the Department’s
cross-motion, and awarded VHS the subject refund, attorney’s fees, and
costs. The Department appealed, and we have jurisdiction under A.R.S.
§§ 12-120.21(A)(1), -170(C), and 42-1254(D)(4).

                               VHS v. ADOR
                            Decision of the Court


¶5             We review the tax court’s grant of summary judgment de novo.
Rigel Corp. v. State, 

225 Ariz. 65

, 67, ¶ 11 (App. 2010). We review the facts in
a light most favorable to the losing party. Nelson v. Phx. Resort Corp., 

Ariz. 188

, 191 (App. 1994). A court should grant summary judgment only if
it finds no genuine issues of material fact and that one party is entitled to
judgment as a matter of law. Grain Dealers Mut. Ins. v. James, 

118 Ariz. 116

118 (1978). Summary judgment is inappropriate if the facts, even if
undisputed, would allow reasonable minds to differ. 

Nelson, 181 Ariz. at

. We strictly construe tax exemptions to further the policy that all
taxpayers must share the burden of taxation, but not so as to defeat the
legislative purpose. State ex rel. ADOR v. Cap. Castings, Inc., 

207 Ariz. 445

447, ¶ 10 (2004).

¶6           The use tax is “an excise tax on the storage, use or
consumption in this state of tangible personal property purchased from a
retailer or utility business[.]” A.R.S. § 42-5155(A). Tangible personal
property purchased and brought into this state is presumed to be
purchased for storage, use, or consumption. A.R.S. § 42-5152. The parties
do not dispute that the items are subject to Arizona’s use tax absent an
exemption. The only question before this court is whether VHS’s items are
prosthetic appliances as defined in A.R.S. § 23-501(7) and, therefore, exempt
under A.R.S. § 42-5159(A)(17).

¶7             The Department maintains that (1) VHS’s items are not
prosthetic appliances because they are surgical supplies, which fall under a
different statutory category; (2) the integrated process analysis announced
in RenalWest L.C. v. ADOR, 

189 Ariz. 409

(App. 1997), does not apply to the
items and thus cannot support a conclusion that they are prosthetic
appliances; and (3) the tax court’s interpretation of A.R.S. § 23-501(7)
conflicts with the legislature’s policy of providing a broad exemption for
the purchases of such materials only to non-profit hospitals. We address
each argument in turn.

A.     Under the Plain Meaning of A.R.S. § 23-501(7), Adhesive Skin
       Closures, Liquid Skin Adhesives, Absorbatacks, Bone Wax,
       Surgical Clips, Ligature Loops, Staples, and Sutures Are Prosthetic

¶8           The Department claims the definition of “prosthetic
appliance” in A.R.S. § 23-501(7) must, for context, be read in accordance
with the definition of “physical restoration” contained in A.R.S.

                              VHS v. ADOR
                           Decision of the Court

§ 23-501(6).1 The definition of physical restoration lists separately “medical
and surgical supplies” and “prosthetic appliances.”

Id. The Department

that courts must read statutes to avoid superfluous language,
claiming that we must infer that “medical and surgical supplies” differs
from “prosthetic appliances.”

¶9           VHS argues that we need not consider the Department’s
argument regarding A.R.S. § 23-501(6) because the court in RenalWest
interpreted and applied “prosthetic appliance” under A.R.S. § 23-501(7)
without consulting other definitions listed in A.R.S. § 23-501. Because we
conclude the plain language of A.R.S. § 23-501(7) is not ambiguous, we
examine A.R.S. § 42-5159(A)(17)’s incorporation of A.R.S. § 23-501(7)
without resort to other statutory interpretation methods.2

¶10           When construing a tax statute, we give words their plain and
ordinary meaning. Wilderness World, Inc. v. ADOR, 

182 Ariz. 196

, 198 (1995).
If the statute is unambiguous, we apply it as written without further

1      A.R.S. § 23-501 provides:
              In this article, unless the context otherwise requires:
                               *      *      *
              6.     “Physical restoration” means medical, surgical
       or therapeutic treatment necessary to correct or reduce the
       employment disadvantage of a person with a disability and
       includes medical, psychiatric, dental and surgical treatment,
       nursing service, hospital care not to exceed ninety days,
       convalescent home care, drugs, medical and surgical supplies
       and prosthetic appliances and other related services as
       defined in the vocational rehabilitation act, as amended.
             7.      “Prosthetic appliance” means an artificial
       device necessary to support or take the place of a part of the
       body, or to increase the acuity of a sense organ.

2      VHS also argues that we should not consider the Department’s
argument regarding A.R.S. § 23-501(6) because it should have been raised
below and is insufficiently related to A.R.S. § 42-5159(A)(17) to inform its
construction. Because we reject the Department’s statutory construction on
the grounds that the plain language of A.R.S. § 42-5159(A)(17) and A.R.S.
§ 23-501(7) are unambiguous, we do not address these alternative

                                VHS v. ADOR
                             Decision of the Court

analysis. City of Phoenix v. Orbitz Worldwide Inc., 

247 Ariz. 234

, 238, ¶ 10
(2019). We construe a statutory provision as a part of the whole statute and
may find guidance in statutes that are “of the same subject or general
purpose.” Stambaugh v. Killian, 

242 Ariz. 508

, 509, ¶ 7 (2017). We give effect
to all provisions involved.

Id. But “[o]ur primary

goal is to effectuate the
legislature’s intent.”

Id. (quoting Wade v.

Ariz. St. Ret. Sys., 241 Ariz 559, 561,
¶ 10 (2017)). Thus, if there is only one reasonable interpretation, “we apply
it without further analysis.” Id.; City of Mesa v. Killingsworth, 

96 Ariz. 290

294 (1964) (“[O]nly where the statute is ambiguous are courts at liberty to
construe the language used.”).

¶11            A.R.S. § 42-5159(A)(17) exempts prosthetic appliances, “as
defined in A.R.S. § 23-501.” A.R.S. § 23-501(7) defines prosthetic appliances
as “an artificial device necessary to support . . . a part of the body.” This
court has previously defined a “device” as a “mechanism designed to serve
a special purpose or perform a special function,” then defined a
“mechanism” as a “process or technique for achieving a result.” 

189 Ariz. at 414

(quoting Webster’s Ninth New Collegiate Dictionary 347,
737 (1987)).

¶12           The items at issue here fit unambiguously within the
definition of A.R.S. § 23-501(7) as they support a part of the body.

¶13            Adhesive skin closures are adhesive strips of varying sizes.
They treat wounds by holding the skin shut while fitting its edges together.
By facilitating wound closure, they support the integumentary system of
the skin. They are necessary to restore the integrity of the skin because,
without them, the patient would lose more fluids and face a greater risk of

¶14            Liquid skin adhesives are waterproof sealants that hold skin
edges together. Like adhesive skin closures, they support the skin by
providing tensile strength between the edges of the skin wound and
thereby facilitate healing.

¶15            AbsorbaTacks and hernia mesh3 function as a unit. Hernias
are or result from splits in the fascia that can release the peritoneum and
abdominal contents. Hernia mesh replaces this facia, and AbsorbaTacks are
small bioabsorbable screws that fit through hernia mesh. AbsorbaTacks fix

3     The Department conceded that hernia mesh is a prosthetic

                              VHS v. ADOR
                           Decision of the Court

the hernia mesh to the skin and subcutaneous tissue while the body heals
and permanently positions the mesh. They are necessary to secure the mesh
in a minimally invasive way.

¶16            Bone wax is a material placed over damaged and exposed
bone to prevent bleeding and bone overgrowth. Unlike other types of
tissue, the blood vessels inside bone cannot contract, and the bone cannot
reduce bleeding on its own. As such, bone wax is a necessary application to
prevent blood loss. The wax supports the bone by preventing bleeding and
replacing the cortical bone.

¶17            Surgical clips vary in size but may be used to close parts of
the vascular system, the bowel, and other tissue to prevent bleeding or
leakage. They are often used in organ removal surgery. Clips support the
body by sealing tissue so that its contents do not leak. Clips are necessary
because they allow for a safe, quick, and minimally invasive method of
sealing off tissue.

¶18          Ligature loops are narrow, cannulated devices with suture
loops placed through laparoscopic portals to tie and thereby seal tissue
sections. They are like clips but encircle and tie the tissue rather than
clipping it.

¶19         Staples also function similarly to clips but are preferentially
used for specific procedures, including bariatric procedures and,
depending on the location and size of the wound, closure of skin.

¶20            Sutures facilitate healing by holding together various parts of
the body, including skin, subcutaneous tissue, tendons, ligaments, and
muscle. By holding damaged tissue together, they support the integrity of
the tissue and the healing process. They are essential to various types of
tissue repair.

¶21           Because the above items are necessary components of
particular processes that support the body, all of them fit within the
definition of prosthetic appliances under A.R.S. § 23-501(7) and are thus
exempt under A.R.S. § 42-5159(A)(17). The Department argues that if we
give the statute its plain reading, all surgical supplies would arguably
qualify as prosthetic appliances. However, it is a legislative function to
define terms and phrases if they have a specific meaning. See State v.

164 Ariz. 485

, 490 (1990) (“Our ability to interpret a statute’s
meaning or rectify statutory infirmities by construing the language to
achieve a perceived legislative goal, however, is limited by the
constitutionally decreed separation of powers that prohibits this Court

                               VHS v. ADOR
                            Decision of the Court

from enacting legislation or redrafting defective statutes.”). Here, the
legislature adopted a broad definition for prosthetic appliances. It is not the
court’s function to limit that definition by adding exclusions such as
“surgical supplies” to achieve the Department’s goals.

B.     Preloaded Mesh Fixation, Clip Appliers, Staplers, Suture Devices,
       Pens, and Ampules Are Prosthetic Appliances Because They Are
       Parts of the Same Integrated Processes as Other Prosthetic

¶22            The remaining disputed items, which are devices or other
equipment used to apply some of the above items, do not directly support
a part of the body. Thus, the issue is whether the remaining contested items
function as prosthetic appliances by taking part in the same processes and
consequently qualify for the statutory exemption.

¶23            In RenalWest, a taxpayer who provided kidney dialysis
treatment sought an exemption for a dialysis machine and related
equipment and supplies from the use tax under A.R.S. § 42-1409(A)(17)
(renumbered as A.R.S. § 

42-5159(A)(17)). 189 Ariz. at 411

. The tax court
exempted “dialysis machinery and equipment” but not “solutions, testing
equipment, and supplies used in the dialysis process.”

Id. at 414.

On appeal,
we considered whether the items were prosthetic appliances under A.R.S.
§ 23-501.

Id. These items included

clamps that controlled the bleeding and
promoted blood clots after the dialysis procedure, a filter used to clean
water that would contact the patient’s blood, and equipment used to
sterilize the machinery.

Id. at 414,

n.5. This court noted that dialysis is an
“integrated process” that substituted for the kidney by removing waste
from the patient’s blood.

Id. at 411, 414.

Because dialysis is an integrated
process and the equipment and supplies were necessary to perform it
safely, this court reversed the tax court. It held that the items constituted
prosthetic appliances.

Id. at 414.

¶24           RenalWest dealt with a “complicated, integrated process” of
kidney dialysis, so it relied by analogy on an application of the law used for

operations. 189 Ariz. at 414

(citing to Duval Sierrita Corp. v. ADOR,

116 Ariz. 200

, 206–07 (App. 1977) (determining whether machinery and
equipment were “used directly” under § 42-1409(B)(1), (2) (renumbered as
§ 42-5159(B)(1), (2)) in a mining operation, and inquiring, inter alia, whether
“the disputed item operate[s] harmoniously with the admittedly exempt
machinery to make an integrated synchronized system”)). But central to the
holding was that essential parts of a prosthetic process are prosthetic

RenalWest, 189 Ariz. at 414

(“Both an experienced nephrologist

                              VHS v. ADOR
                           Decision of the Court

and nurse testified that [the items] are essential to safe dialysis. As such,
they constitute devices. These devices are necessary substitutes for failed

¶25          Here, the items that are not by themselves prosthetic
appliances are necessary to the safe application of the appliances.

¶26          Preloaded mesh fixation devices apply AbsorbaTacks to the
mesh. They allow for a less invasive means of attaching the AbsorbaTacks
to the mesh while fixing the mesh in the proper position.

¶27           Clip appliers, not surprisingly, apply surgical clips, which
cannot be safely placed manually. Without clip appliers, surgeons would
need to resort to other, less effective methods of sealing tissue.

¶28          Staplers apply surgical-wound staples and close the tissue
where the staple attaches.

¶29           Suture devices apply sutures. Although there may be
different ways to use sutures, specific devices are necessary to maximize
the likelihood that they function as intended.

¶30           Liquid skin adhesives must be applied by ampules and can
also be employed by pens. Although liquid skin adhesives may be used
without pens so long as ampules are available, the pens facilitate an even
application of the adhesive.

¶31          Because each of the above items is necessary to apply
prosthetic appliances, they are also prosthetic appliances and are exempt
under A.R.S. § 42-5159(A)(17).

C.     A.R.S. § 42-5159(A)(17) Does Not Influence Our Reading of A.R.S.
       § 42-5159(A)(13)(a)–(f).

¶32           The Department argues that the tax court’s reading of A.R.S.
§ 42-5159(A)(17) is contrary to our legislature’s intent to create broad
exemptions only for certain qualifying institutions such as non-profit
hospitals under A.R.S. § 42-5159(A)(13)(a)–(f). But the legislature’s broad
exemptions for these institutions include various categories of tangible
personal property. See A.R.S. § 42-5159(A)(13). These exemptions
significantly exceed the bounds of A.R.S. § 42-5159(A)(17)’s requirement
that prosthetic appliances be proscribed or recommended by certain
licensed health professionals. Thus, comparing the two is not persuasive.

                      VHS v. ADOR
                   Decision of the Court


¶33   We affirm the tax court’s judgment.

                 AMY M. WOOD • Clerk of the Court
                 FILED: AA


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