Whether the State's imposition upon resident health care facilities of a gross receipts tax on all revenues except those generated from Medicaid patients violates the equal protection rights of the facilities under the Fourteen Amendment.

No. There are rational bases for which the State could have created this system of taxation, and a court need only hypothesize these bases for a system of taxation to survive an equal protection challenge. Thus, the statute is constitutional.

Plaintiffs, 21 for-profit residential health care facilities (RHCFs), challenged the constitutional validity of a system of taxation enacted by the State of New York. This system imposed a tax of 1.2% and 3.8% on gross receipts of all RHCFs under Public Health Law § 2807-d[10][b], while reimbursing those taxes paid on receipts from Medicaid patients as a recoverable expense of care. Plaintiff claimed that these taxes violate their equal protection rights under the Fourteenth Amendment by discriminating against those RHCFs whose non-Medicaid patient population exceeds the statewide average. The Supreme Court granted Plaintiff's motion for summary judgment on the ground that the State's interest in raising revenue was an inadequate justification for the tax. The Appellate Division affirmed on similar grounds.

The Court laid out three well-established principles governing equal protection review in this case. First, any classification regarding different taxation of nursing homes is strongly presumed to be constitutional. Plaintiffs can only overcome this presumption by raising a reasonable doubt. Second, the assessments are subject to a standard inquiring whether there is a rational basis to support the legislative choices. Finally, rational basis review is especially deferential as applied to a system of taxation. The Court held that Plaintiffs failed to meet the burden of establishing an equal protection violation.

As noted in Trump v. Chu, 65 N.Y. 2d 20, the equal protection clause does not prevent the State from treating groups of entities differently for purposes of taxation unless the system of taxation is palpably arbitrary or amounts to an invidious discrimination. In addition, when considering an equal protection challenge to a system of taxation, following Nordlinger v. Hahn, 505 U.S. 1, a court must review the tax using an especially deferential rational basis standard. The taxation system will pass muster if the court can hypothesize any rational basis for the system of taxation from any reasonably conceived state of facts; a court need not consider the State's purposes referred to in the legislative history. In this case, the gross receipts tax with Medicaid reimbursements provides incentive for RHCFs to care for more Medicaid patients, thus contributing towards the meeting the medical needs of indigent persons in the State. The Court held that this purpose is sufficient to defeat Plaintiffs' constitutional challenge to the gross receipts tax because it serves as a rational basis for such a tax.

Furthermore, the Court held that a prior U.S. Supreme Court case, Stewart Dry Goods Co. v. Lewis, 294 U.S. 550, relied on by Plaintiff is not determinative here since that case dealt with a gross receipts tax that provided for different rates of taxation for the same, not different, goods. In the instant case, the different tax treatment is not applied toward the same goods since there is a distinction drawn between receipts from Medicaid patients and receipts from non-Medicaid patients.