Tax Type
Retail Sales and Use Tax
Description
Administrative division of nonprofit corporation that operates hospitals
Topic
Exemptions
Property Subject to Tax
Taxability of Persons and Transactions
Date Issued
05-15-2001
May 15, 2001
Re: Request for Ruling: Retail Sales and Use Tax
Dear ****
This is in reply to your letter of April 18, 2001, in which you request a ruling on the application of the sales and use tax to the ***** division of ***** (the "Taxpayer").
FACTS
The Taxpayer is a nonprofit corporation that operates three nonprofit hospitals and is part of a healthcare system comprised of nonprofit and for-profit entities. The hospitals are unincorporated divisions of the Taxpayer and qualify for the exemption provided in Code of Virginia § 58.1-609.7(4).
The Taxpayer also operates a division (Division A) that provides administrative and management services primarily to the hospitals. Division A also provides services to the other nonprofit and for-profit entities in the healthcare system. The Taxpayer believes that the provision of services by Division A is integral to the functioning of the hospitals. Therefore, the Taxpayer requests a ruling that purchases in connection with the provision of services by Division A qualify for the nonprofit hospital exemption. The Taxpayer cites a number of prior department rulings to support its position.
RULING
Code of Virginia § 58.1-609.7(4) provides an exemption from the sales and use tax for tangible personal property for use or consumption by a nonprofit hospital or a nonprofit licensed nursing home.
Title 23 of the Virginia Administrative Code (VAC) 10-210-720 discusses the application of the exemption and provides that the tax does not apply to sales of tangible personal property to nonprofit hospitals or licensed nursing homes for their use and consumption and paid for out of their funds.
According to the Taxpayer's letter, Division A was established to consolidate the administrative functions of the hospitals. These are functions previously carried out by the individual hospitals. The Taxpayer emphasizes that Division A functions like a department within the hospitals, as evidenced by the inter-departmental charges to the hospitals similar to the charges between other departments within the hospitals. Because Division A was established to support the hospitals, the Taxpayer believes that Division A is integral to the hospitals and should qualify for the exemption currently enjoyed by the hospitals.
The Taxpayer's position is not persuasive. Title 23 VAC 10-210-720(D) discusses the meaning of "integral" with respect to a clinic that is an integral part of a nonprofit hospital. The Taxpayer readily admits that Division A is not a clinic, and the regulation does not address other entities or divisions that may be considered "integral." Unlike a clinic, as envisioned in the regulation, Division A does not deliver medical services and is not considered an integral part of the hospitals in this case.
To support its position, the Taxpayer cites a number of department rulings. Public Document (P.D.) 96-259 (9/26/96) addressed, in part, a nonprofit corporation that consisted exclusively of two nonprofit hospitals. The taxpayer purchased equipment that it used and shared with affiliated entities. The equipment qualified for the exemption because the taxpayer was a licensed hospital. This is clearly different from the instant case in that neither the Taxpayer nor Division A is a licensed nonprofit hospital.
In P.D. 94-74 (3/18/94), the taxpayer, a holding company for a group of nonprofit hospitals and other nonprofit health care-related organizations, was separately incorporated from the hospitals and deemed not to be an integral part of the hospitals. Likewise in P.D. 94-75 (3/18/94), a counseling center operated by a corporation organized separately from a group of nonprofit hospitals was deemed not to be an integral part of the hospitals. The Taxpayer raises the point that the taxpayers in both cases were separate legal entities from the nonprofit hospitals. While Division A may not be separately incorporated from the hospitals, it is not an integral part of the hospitals as discussed above.
The Taxpayer contends that Division A was created to increase the efficiency of the hospitals. To deny the exemption would be unfair given that Division A's activities, if conducted as part of the hospitals, would be exempt. While I understand the Taxpayer's concerns, I must note that Division A is not a part of the nonprofit hospitals, but is a division of the Taxpayer, which is not itself a licensed hospital. As the cited exemption is clearly limited to the functions performed by a licensed nonprofit hospital, the exemption is not available to Division A.
In the alternative, the Taxpayer suggests that the tax should be allocated to services provided by Division A to taxable entities, consistent with P.D. 96-51 (4/19/96). The ruling addressed, in part, a taxpayer that became a division of a nonprofit hospital. The taxpayer provided data processing services to the nonprofit hospital and to for-profit affiliates. The tax was prorated based on the percentage of services provided to the for-profit entities.
The ruling is not applicable in this instance. The taxpayer in the ruling was actually a part of a nonprofit hospital and entitled to the exemption. Because the exemption is limited to purchases for use and consumption by a nonprofit hospital, the tax was prorated to apply to services provided to entities other than the nonprofit hospital. No such proration is warranted in this case, as all purchases in connection with the provision of services by Division A are taxable.
The Virginia Supreme Court has established the doctrine of strict construction with respect to exemptions from taxation. Under this doctrine, exemption from taxation is the exception, and where there is any doubt, the doubt is resolved against the one claiming exemption. Golden Skillet Corporation v. Commonwealth, 214 Va. 276, 199 S.E.2d 511 (1973).
I have thoroughly reviewed the facts of this case, the Taxpayer's position, and the applicable law and policy. Based on the law and policies set forth in the department's regulations and rulings, and consistent with the doctrine of strict construction, there is no basis to grant an exemption for the purchases made by Division A.
I trust that the foregoing responds to your inquiry. If you have questions regarding the policy set forth in this ruling, please contact **** in the Office of Tax Policy at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/33752J
Re: Request for Ruling: Retail Sales and Use Tax
Dear ****
This is in reply to your letter of April 18, 2001, in which you request a ruling on the application of the sales and use tax to the ***** division of ***** (the "Taxpayer").
FACTS
The Taxpayer is a nonprofit corporation that operates three nonprofit hospitals and is part of a healthcare system comprised of nonprofit and for-profit entities. The hospitals are unincorporated divisions of the Taxpayer and qualify for the exemption provided in Code of Virginia § 58.1-609.7(4).
The Taxpayer also operates a division (Division A) that provides administrative and management services primarily to the hospitals. Division A also provides services to the other nonprofit and for-profit entities in the healthcare system. The Taxpayer believes that the provision of services by Division A is integral to the functioning of the hospitals. Therefore, the Taxpayer requests a ruling that purchases in connection with the provision of services by Division A qualify for the nonprofit hospital exemption. The Taxpayer cites a number of prior department rulings to support its position.
RULING
Code of Virginia § 58.1-609.7(4) provides an exemption from the sales and use tax for tangible personal property for use or consumption by a nonprofit hospital or a nonprofit licensed nursing home.
Title 23 of the Virginia Administrative Code (VAC) 10-210-720 discusses the application of the exemption and provides that the tax does not apply to sales of tangible personal property to nonprofit hospitals or licensed nursing homes for their use and consumption and paid for out of their funds.
According to the Taxpayer's letter, Division A was established to consolidate the administrative functions of the hospitals. These are functions previously carried out by the individual hospitals. The Taxpayer emphasizes that Division A functions like a department within the hospitals, as evidenced by the inter-departmental charges to the hospitals similar to the charges between other departments within the hospitals. Because Division A was established to support the hospitals, the Taxpayer believes that Division A is integral to the hospitals and should qualify for the exemption currently enjoyed by the hospitals.
The Taxpayer's position is not persuasive. Title 23 VAC 10-210-720(D) discusses the meaning of "integral" with respect to a clinic that is an integral part of a nonprofit hospital. The Taxpayer readily admits that Division A is not a clinic, and the regulation does not address other entities or divisions that may be considered "integral." Unlike a clinic, as envisioned in the regulation, Division A does not deliver medical services and is not considered an integral part of the hospitals in this case.
To support its position, the Taxpayer cites a number of department rulings. Public Document (P.D.) 96-259 (9/26/96) addressed, in part, a nonprofit corporation that consisted exclusively of two nonprofit hospitals. The taxpayer purchased equipment that it used and shared with affiliated entities. The equipment qualified for the exemption because the taxpayer was a licensed hospital. This is clearly different from the instant case in that neither the Taxpayer nor Division A is a licensed nonprofit hospital.
In P.D. 94-74 (3/18/94), the taxpayer, a holding company for a group of nonprofit hospitals and other nonprofit health care-related organizations, was separately incorporated from the hospitals and deemed not to be an integral part of the hospitals. Likewise in P.D. 94-75 (3/18/94), a counseling center operated by a corporation organized separately from a group of nonprofit hospitals was deemed not to be an integral part of the hospitals. The Taxpayer raises the point that the taxpayers in both cases were separate legal entities from the nonprofit hospitals. While Division A may not be separately incorporated from the hospitals, it is not an integral part of the hospitals as discussed above.
The Taxpayer contends that Division A was created to increase the efficiency of the hospitals. To deny the exemption would be unfair given that Division A's activities, if conducted as part of the hospitals, would be exempt. While I understand the Taxpayer's concerns, I must note that Division A is not a part of the nonprofit hospitals, but is a division of the Taxpayer, which is not itself a licensed hospital. As the cited exemption is clearly limited to the functions performed by a licensed nonprofit hospital, the exemption is not available to Division A.
In the alternative, the Taxpayer suggests that the tax should be allocated to services provided by Division A to taxable entities, consistent with P.D. 96-51 (4/19/96). The ruling addressed, in part, a taxpayer that became a division of a nonprofit hospital. The taxpayer provided data processing services to the nonprofit hospital and to for-profit affiliates. The tax was prorated based on the percentage of services provided to the for-profit entities.
The ruling is not applicable in this instance. The taxpayer in the ruling was actually a part of a nonprofit hospital and entitled to the exemption. Because the exemption is limited to purchases for use and consumption by a nonprofit hospital, the tax was prorated to apply to services provided to entities other than the nonprofit hospital. No such proration is warranted in this case, as all purchases in connection with the provision of services by Division A are taxable.
The Virginia Supreme Court has established the doctrine of strict construction with respect to exemptions from taxation. Under this doctrine, exemption from taxation is the exception, and where there is any doubt, the doubt is resolved against the one claiming exemption. Golden Skillet Corporation v. Commonwealth, 214 Va. 276, 199 S.E.2d 511 (1973).
I have thoroughly reviewed the facts of this case, the Taxpayer's position, and the applicable law and policy. Based on the law and policies set forth in the department's regulations and rulings, and consistent with the doctrine of strict construction, there is no basis to grant an exemption for the purchases made by Division A.
I trust that the foregoing responds to your inquiry. If you have questions regarding the policy set forth in this ruling, please contact **** in the Office of Tax Policy at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/33752J
Rulings of the Tax Commissioner