Tax Type
Retail Sales and Use Tax
Description
For-profit health care provider
Topic
Taxability of Persons and Transactions
Date Issued
05-18-2000
May 18, 2000
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This is in reply to your letter in which you seek correction of sales and use tax assessed to ****** (the "Taxpayer"), for the period July 1995 through March 1999.
FACTS
During the audit period, the Taxpayer operated as a Virginia for-profit general partnership and was created by six nonprofit regional hospitals. The Taxpayer was created to provide in-home health care services, which included medical equipment and supplies, medicines and drugs, and nursing services, to patients discharged from the partners' hospitals. The Taxpayer bills the respective insurance companies and the patients for its services.
As a result of the department's audit, the Taxpayer was deemed a provider of health care services and assessed tax on its purchases provided in the rendition of its medical services. The auditor cites Public Document (P.D.) 87-204 (8/26/87) to support the department's position.
The Taxpayer disputes the assessment of the tax and contends that the Taxpayer operated as a nonprofit hospital cooperative exempt from the sales tax under Code of Virginia § 58.1-609.12. Alternatively, the Taxpayer contends that the Taxpayer's purchases of medicines and drugs, durable medical equipment (DME), and hemodialysis and peritoneal dialysis equipment, supplies and drugs qualify for exemption under (Code of Virginia '§ 58.1-609.7(1), 58.1-609.7(2), and 58.1-609.7(3), respectively.
DETERMINATION
Exemption for Nonprofit Hospital Cooperative
Code of Virginia § 58.1-609.7(12) provides an exemption from the sales and use tax for tangible personal property purchased for use or consumption by any nonprofit hospital, cooperative or nonprofit hospital corporation organized and operated for the sole purpose of providing services exclusively to nonprofit hospitals. The exemption does not apply to any nonprofit hospital, cooperative or nonprofit hospital corporation providing services of any kind or to any extent to other than nonprofit hospitals.
In P.D. 87-204, the department addressed a set of facts similar to the facts in this case. The taxpayer in P.D. 87-204 was a general partnership created by a group of nonprofit hospitals to provide certain services to the hospitals. The Tax Commissioner determined that the taxpayer did not qualify as a nonprofit hospital cooperative or corporation because it did not meet the tests set out in the statutory language of the above exemption.
Based on the policy set forth in P.D. 87-204, the Taxpayer in this case does not meet the required tests. First, the Taxpayer is organized as a for-profit partnership, rather than a nonprofit hospital, cooperative or nonprofit hospital corporation. Second, the Taxpayer provided services to patients in their homes. Therefore, the Taxpayer did not provide services exclusively to the nonprofit hospitals that created it.
Other Medical-related Exemptions
In the alternative, the Taxpayer contends that its purchases of medicines and drugs, DME, and hemodialysis and peritoneal dialysis equipment, supplies and drugs qualify for exemption under Code of Virginia '§ 58.1-609.7(1), 58.1-609.7(2), and 58.1-609.7(3), respectively.
Code of Virginia § 58.1-609.7(1) provides an exemption for medicines and drugs dispensed by or sold on prescriptions or work orders of licensed physicians and other specified medical services personnel. The exemption also applies to the purchase of controlled drugs by a licensed physician for use in his practice. The medicines and drugs in this case were not dispensed or sold on prescriptions or work orders of licensed physicians or other medical personnel. In addition, the medicines and drugs were not purchased for use by a licensed physician in a medical practice. Instead, the medicines and drugs were purchased in bulk by the Taxpayer and dispensed on an as-needed basis. The Taxpayer's purchases of medicines and drugs do not qualify for exemption under this statute.
Similarly, the Taxpayer's purchases of DME do not qualify for the exemption under Code of Virginia § 58.1-609.7(2). The exemption applies to certain DME and related parts when purchased by or on behalf of an individual for use by such individual. See Title 23 of the Virginia Administrative Code (VAC) 10-210-940(G). The Taxpayer in this instance did not make purchases of DME on behalf of individuals. The purchases were made in bulk and used on an as-needed basis.
The Taxpayer's purchases of hemodialysis and peritoneal dialysis equipment, supplies and drugs qualify for exemption under Code of Virginia § 58.1-609.7(3).
Pursuant to VAC 10-210-940(E)(2), the exemption applies to drugs and supplies used in hemodialysis and peritoneal dialysis regardless of the nature of the purchaser. The audit will be revised to remove these items.
Taxpayer is a Service Provider
In prior rulings, the department has applied the "true object" test to providers of home health care services in determining the application of the sales and use tax to such providers. P.D. 92-172 (9/10/92) and P.D. 94-145 (5/2/94). The "true object" test as discussed in 23 VAC 10-210-4040 - Services regulation, is used to determine whether a transaction involving both the provision of a service and tangible personal property constitutes an exempt service or a taxable retail sale.
In this case, the "true object" desired by the Taxpayer's patients is the receipt of medical services enabling them to maintain a quality level of health care in their home. The Taxpayer's purpose in supplying medicines and drugs and DME is directly related to the provision of its home health care services.
In accordance with 23 VAC 10-210-4040, the auditor has properly determined that the Taxpayer provided a nontaxable service to its patients. Therefore, the Taxpayer is deemed the user and consumer of all tangible personal property purchased and provided in the provision of its home health care services. As previously discussed, the Taxpayer may purchase drugs and supplies used in hemodialysis and peritoneal dialysis exempt of the tax.
I have enclosed the cited department rulings and regulations for your review. The audit report will be returned to the auditor for revision to reflect the removal of the hemodialysis and peritoneal dialysis equipment and drugs. The Taxpayer will receive an adjusted assessment, which should be paid within 30 days. If payment is not received within the allotted time, additional interest will accrue to present.
The Taxpayer may send payment to ***** in the Office of Tax Policy at P. O. Box 1880, Richmond, Virginia 23218-1880. If you have any questions regarding this letter, you may contact ***** at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/26937J
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This is in reply to your letter in which you seek correction of sales and use tax assessed to ****** (the "Taxpayer"), for the period July 1995 through March 1999.
FACTS
During the audit period, the Taxpayer operated as a Virginia for-profit general partnership and was created by six nonprofit regional hospitals. The Taxpayer was created to provide in-home health care services, which included medical equipment and supplies, medicines and drugs, and nursing services, to patients discharged from the partners' hospitals. The Taxpayer bills the respective insurance companies and the patients for its services.
As a result of the department's audit, the Taxpayer was deemed a provider of health care services and assessed tax on its purchases provided in the rendition of its medical services. The auditor cites Public Document (P.D.) 87-204 (8/26/87) to support the department's position.
The Taxpayer disputes the assessment of the tax and contends that the Taxpayer operated as a nonprofit hospital cooperative exempt from the sales tax under Code of Virginia § 58.1-609.12. Alternatively, the Taxpayer contends that the Taxpayer's purchases of medicines and drugs, durable medical equipment (DME), and hemodialysis and peritoneal dialysis equipment, supplies and drugs qualify for exemption under (Code of Virginia '§ 58.1-609.7(1), 58.1-609.7(2), and 58.1-609.7(3), respectively.
DETERMINATION
Exemption for Nonprofit Hospital Cooperative
Code of Virginia § 58.1-609.7(12) provides an exemption from the sales and use tax for tangible personal property purchased for use or consumption by any nonprofit hospital, cooperative or nonprofit hospital corporation organized and operated for the sole purpose of providing services exclusively to nonprofit hospitals. The exemption does not apply to any nonprofit hospital, cooperative or nonprofit hospital corporation providing services of any kind or to any extent to other than nonprofit hospitals.
In P.D. 87-204, the department addressed a set of facts similar to the facts in this case. The taxpayer in P.D. 87-204 was a general partnership created by a group of nonprofit hospitals to provide certain services to the hospitals. The Tax Commissioner determined that the taxpayer did not qualify as a nonprofit hospital cooperative or corporation because it did not meet the tests set out in the statutory language of the above exemption.
Based on the policy set forth in P.D. 87-204, the Taxpayer in this case does not meet the required tests. First, the Taxpayer is organized as a for-profit partnership, rather than a nonprofit hospital, cooperative or nonprofit hospital corporation. Second, the Taxpayer provided services to patients in their homes. Therefore, the Taxpayer did not provide services exclusively to the nonprofit hospitals that created it.
Other Medical-related Exemptions
In the alternative, the Taxpayer contends that its purchases of medicines and drugs, DME, and hemodialysis and peritoneal dialysis equipment, supplies and drugs qualify for exemption under Code of Virginia '§ 58.1-609.7(1), 58.1-609.7(2), and 58.1-609.7(3), respectively.
Code of Virginia § 58.1-609.7(1) provides an exemption for medicines and drugs dispensed by or sold on prescriptions or work orders of licensed physicians and other specified medical services personnel. The exemption also applies to the purchase of controlled drugs by a licensed physician for use in his practice. The medicines and drugs in this case were not dispensed or sold on prescriptions or work orders of licensed physicians or other medical personnel. In addition, the medicines and drugs were not purchased for use by a licensed physician in a medical practice. Instead, the medicines and drugs were purchased in bulk by the Taxpayer and dispensed on an as-needed basis. The Taxpayer's purchases of medicines and drugs do not qualify for exemption under this statute.
Similarly, the Taxpayer's purchases of DME do not qualify for the exemption under Code of Virginia § 58.1-609.7(2). The exemption applies to certain DME and related parts when purchased by or on behalf of an individual for use by such individual. See Title 23 of the Virginia Administrative Code (VAC) 10-210-940(G). The Taxpayer in this instance did not make purchases of DME on behalf of individuals. The purchases were made in bulk and used on an as-needed basis.
The Taxpayer's purchases of hemodialysis and peritoneal dialysis equipment, supplies and drugs qualify for exemption under Code of Virginia § 58.1-609.7(3).
Pursuant to VAC 10-210-940(E)(2), the exemption applies to drugs and supplies used in hemodialysis and peritoneal dialysis regardless of the nature of the purchaser. The audit will be revised to remove these items.
Taxpayer is a Service Provider
In prior rulings, the department has applied the "true object" test to providers of home health care services in determining the application of the sales and use tax to such providers. P.D. 92-172 (9/10/92) and P.D. 94-145 (5/2/94). The "true object" test as discussed in 23 VAC 10-210-4040 - Services regulation, is used to determine whether a transaction involving both the provision of a service and tangible personal property constitutes an exempt service or a taxable retail sale.
In this case, the "true object" desired by the Taxpayer's patients is the receipt of medical services enabling them to maintain a quality level of health care in their home. The Taxpayer's purpose in supplying medicines and drugs and DME is directly related to the provision of its home health care services.
In accordance with 23 VAC 10-210-4040, the auditor has properly determined that the Taxpayer provided a nontaxable service to its patients. Therefore, the Taxpayer is deemed the user and consumer of all tangible personal property purchased and provided in the provision of its home health care services. As previously discussed, the Taxpayer may purchase drugs and supplies used in hemodialysis and peritoneal dialysis exempt of the tax.
I have enclosed the cited department rulings and regulations for your review. The audit report will be returned to the auditor for revision to reflect the removal of the hemodialysis and peritoneal dialysis equipment and drugs. The Taxpayer will receive an adjusted assessment, which should be paid within 30 days. If payment is not received within the allotted time, additional interest will accrue to present.
The Taxpayer may send payment to ***** in the Office of Tax Policy at P. O. Box 1880, Richmond, Virginia 23218-1880. If you have any questions regarding this letter, you may contact ***** at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/26937J
Rulings of the Tax Commissioner