Just remember: States claim jurisdiction over most aspects of business

In my second year of law school, I learned two important and unexpected things. The first thing I learned was just how poor a job my high school had done at training me in rudimentary civics. The second thing I learned was that while I had taken a year-long course in New York history in the ninth grade, that class taught me more than I needed to know about Henry Hudson and next to nothing about where my tax money would go and who, as an adult, I would have to answer to in my own state's government.

For the uninitiated, the system seems deceptively simple. For example, most people live in a city or town, and that city or town is part of a county. If you happen to be a business owner, (such as a veterinary clinic proprietor), that seems simple enough. You probably pay property taxes to your county, sales tax to the state and if you park illegally in front of your office, the fine goes to your city.

But wait! Most of my property taxes go to a school district (who is that?) and the majority of my county property taxes go to paying state-mandated Medicaid services (even though I pay the funds to the county). When I bought real estate for my last practice, a problem turned up on a voluntary environmental survey I ordered. The state came to investigate, and the mitigation had to satisfy the U.S. Environmental Protection Agency.

DVM Newsbreak

Sound confusing? It probably is more so than it needs to be. Allow me to provide a few general guidelines on to how government is organized and how that organization tends to impact veterinary practitioners, particularly those with equity interest in their practices. (New York City readers, you are on your own: I can't even begin to deal with a city that comprises five counties; and by the way, what exactly is a Borough?)

As we all learned, the United States is a government that was brilliantly designed to leave all power in the hands of the states except those constitutionally granted to the federal government. Numerous Supreme Court rulings have expanded the federal role somewhat. (Never mind that the U.S. Constitution doesn't say anything about who would regulate bioengineered drugs or plutonium; somehow the feds just get to do it.) Simply remember that as a general rule, states control most of the aspects of our daily business life.

How does this work as a practical matter? States are the authority from which most or our day-to-day rights and responsibilities arise. State constitutions establish the powers of counties and are the final authority as to what local governments can and can't do. But just to make it interesting, many states have established a system of redundant jurisdiction. States, in other words, can give authority away and keep it at the same time. Therefore, your septic system may be defective and cause you to be fined by the county health department. If the problem is big enough, the state department of environmental conservation may get involved as well.

The confusing thing is to figure out what is regulated and by whom. This is especially difficult for veterinary practitioners leaving one state and opening a practice in another. As private practitioners, however, there are a few specific areas where we are likely to need to understand the interlocking jurisdictional system.

Obtaining licenses

Most states have practice acts that set forth the general guidelines for admission to practice a profession in the state. In order to craft these rules, state legislatures typically have allowed substantial input from those already practicing in the state. They also consult other states to see what they have done and how well it has worked.

However, simply because one has a license to practice veterinary medicine in a state does not necessarily mean that he or she has the right to establish a practice at any location in the state. In most locations, facilities licenses and/or zoning compliance certification are the responsibility of the town or city in which a doctor plans to practice. Just as in the relationship between the federal and state governments, counties or states often delegate jurisdiction for zoning and use compliance to local communities. Therefore, it is possible that a veterinarian might have to get a state license to practice, a county or city occupancy or use permit and a town or village zoning compliance certificate.

Controlled substances

As most of us are aware, a license to possess certain substances is mandated through the U.S. Drug Enforcement Administration. In some states, obtaining that license is sufficient to permit the purchasing, dispensing and prescribing of such products.

In other states, however, a state drug license is required to order and possess drugs of various types. While a veterinarian doesn't need to spend much time in a state to become aware of this regulation, problems can arise when a practice is being bought or sold or when a new partner is buying in. For example, if a practice has been ordering all of its controlled drugs under the owner's name and an associate comes on board or buys in, it might not be enough for only the majority owner to possess a state drug license.

In the process of purchasing an ownership stake in the practice, the new partner may be taking legal joint title to inventory and become obligated to have full licensing as of the date of the transfer of partial ownership.

It is also important to abide closely by drug transfer rules. When a practice and its inventory change hands, a true sale has occurred, in the same manner as when a veterinarian purchases supplies from a vendor. Keep in mind there may be state sales taxes due; there may be state drug inventory and transfer regulations to comply with. It is important to check with the state government, as well as U.S. Drug Enforcement Agency, when any bulk drug transaction occurs between two individuals or business entities.

Facilities oversight

States are all over the map on this one. In New York, for example, no one really checks to see if your practice facility is a chamber of horrors until someone sues you for malpractice. If you are serving food in my state, the health department routinely inspects facilities unannounced. If you operate a human hospital, the health department is omnipresent. If you are a veterinarian, the government pretty much leaves you alone as to the quality of your physical plant until some unhappy client raises a stink.

Some state governments, on the other hand, have aggressively enforced veterinary facilities rules. In such states, it is particularly important to make sure that the premises are clean, that the drugs are in date and that the sharps are properly disposed of. Some states routinely sanction non-complying veterinary facilities then publish the impropriety and the amount of the fine.

Environmental compliance

Every government you can think of is in on this one. (It's kind of like when my friend had a fender bender on County Line Road in Massapequa, N.Y. Squad cars came from Nassau County, Suffolk County and the New York State Police.) Everybody wants a piece of the pollution action, so learn the regulations. I try to remember it this way: Generally, sewers are city; septic systems are county. Spills are state, unless they are bad, then they are also federal. Burning and furnace emissions are regulated by the town or village unless someone thinks you are burning animal remains or animal waste. In this case, you are in trouble with everyone from the dog catcher to the American Society for the Prevention of Cruelty to Animals (which is only a semi-governmental agency, sort of like a school district, except that sometimes they carry guns.)

Finally, by far the most important jurisdictional tip of the month is this: Some states have now established a shotgun approach to assigning responsibility for land contamination with toxic substances. As a tenant, you and your practice are usually safe unless you are actually doing the polluting. However, as a property owner in the chain of title, some states will hold you liable for any environmental indiscretions that have occurred on the land since the Revolutionary War.

Never underestimate the potential liability associated with this emerging legislative policy. Never, ever buy property for your business without having a reputable environmental firm evaluate the premises. If you don't, your next jurisdictional quandary may be whether you end up living in a town, village, county, state or federal poor house.

Dr. Allen is a partner in Associates in Veterinary Law PC, a law practice specializing in business and legal counsel for veterinarians and their families. He can be reached at www.veterinary-law.com, or call (607) 648-6113.