Tax Type
Retail Sales and Use Tax
Description
Exempt purchases for a nonprofit hospital.
Topic
Appropriateness of Audit Methodology
Exemptions
Penalties and Interest
Property Subject to Tax
Date Issued
02-25-2002
February 25, 2002
Re: 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in reply to your letter in which you seek correction of the retail sales and use tax assessment issued to ***** (the "Taxpayer"), for the period May 1995 through April 1998. I apologize for the delay in responding to your letter.
The Taxpayer is a food service management company that contracted with a Virginia nonprofit hospital to manage the hospital's food service department and vending service. As a result of the department's audit, the Taxpayer was assessed tax on cleaning supplies purchased in connection with the food services provided to the nonprofit hospital. The hospital enjoys an exemption from the sales and use tax under Virginia law. The Taxpayer disagrees with the assessment of the tax and believes that it is entitled to make exempt purchases as an authorized agent for the nonprofit hospital.
The Taxpayer's contract requires that the Taxpayer furnish a number of services and goods in order to manage and operate the food service department of the nonprofit hospital. The Taxpayer prepares and serves meals to hospital patients, staff, employees and authorized visitors. The contract language designates the Taxpayer as an authorized agent and the Taxpayer purchases all food and supplies exempt of the tax by providing a copy of the hospital's exemption certificate to suppliers. The Taxpayer is reimbursed by the nonprofit hospital for its purchases and title to the food and supplies rests with the nonprofit hospital.
Code of Virginia § 58.1-609.7(4) provides an exemption from the sales and use for tangible personal property for use and consumption by a nonprofit hospital or a nonprofit licensed nursing home.
Title 23 VAC 10-210-720(B) provides that the tax does not apply to sales of tangible personal property to hospitals and licensed nursing homes conducted not for profit, for use and consumption by them, and paid for out of their own funds.
In addition, United States v. Forst, 442 F. Supp. 920 (W.D. Va. 1977), affd., 569 F. 2d 811 (4th Cir. 1978) requires that one must be designated as its client's purchasing agent and authorized to bind the credit of its client in order to take advantage of any exemption that applies to such client.
In order to take advantage of the nonprofit hospital exemption, the Taxpayer must meet the requirements prescribed by United States v. Forst and payment for purchases must be made from the nonprofit hospital's funds as required in the regulation. That is not the case here. The contract does not state that the Taxpayer is authorized to bind the credit of the nonprofit hospital or make purchases from the nonprofit hospital's funds. As such, the nonprofit hospital exemption is not available to purchases made by the Taxpayer in the performance of its contract.
This conclusion is supported by Public Document (P.D.) 97-152 (3/28/97), which addresses, in part, a similar set of facts. In that case, a taxpayer contracted with certain nonprofit entities to manage and operate the food service facilities of its clients. The taxpayer acted as an agent for its clients and made purchases exempt of the tax by providing its clients' sales tax registration numbers to suppliers. Citing the above regulation and case law, the Tax Commissioner determined that the taxpayer was not authorized to bind the credit of its clients or make purchases from its clients funds. Therefore, the exemptions applicable to the taxpayer's clients were not available to purchases made by the taxpayer.
Based on the foregoing, the auditor properly assessed the tax on the Taxpayer's purchases of cleaning supplies. Enclosed you will find copies of the cited statute, regulation, case law, and P.D. 97-152 for your information.
The Taxpayer will shortly receive an updated bill including accrued interest. The bill must be paid within 30 days of the bill date to avoid the accrual of additional interest charges. If you have questions concerning this letter, you may contact ***** in the department's Office of Policy and Administration, Appeals and Rulings, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
AR/16795J
Re: 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in reply to your letter in which you seek correction of the retail sales and use tax assessment issued to ***** (the "Taxpayer"), for the period May 1995 through April 1998. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is a food service management company that contracted with a Virginia nonprofit hospital to manage the hospital's food service department and vending service. As a result of the department's audit, the Taxpayer was assessed tax on cleaning supplies purchased in connection with the food services provided to the nonprofit hospital. The hospital enjoys an exemption from the sales and use tax under Virginia law. The Taxpayer disagrees with the assessment of the tax and believes that it is entitled to make exempt purchases as an authorized agent for the nonprofit hospital.
DETERMINATION
The Taxpayer's contract requires that the Taxpayer furnish a number of services and goods in order to manage and operate the food service department of the nonprofit hospital. The Taxpayer prepares and serves meals to hospital patients, staff, employees and authorized visitors. The contract language designates the Taxpayer as an authorized agent and the Taxpayer purchases all food and supplies exempt of the tax by providing a copy of the hospital's exemption certificate to suppliers. The Taxpayer is reimbursed by the nonprofit hospital for its purchases and title to the food and supplies rests with the nonprofit hospital.
Code of Virginia § 58.1-609.7(4) provides an exemption from the sales and use for tangible personal property for use and consumption by a nonprofit hospital or a nonprofit licensed nursing home.
Title 23 VAC 10-210-720(B) provides that the tax does not apply to sales of tangible personal property to hospitals and licensed nursing homes conducted not for profit, for use and consumption by them, and paid for out of their own funds.
In addition, United States v. Forst, 442 F. Supp. 920 (W.D. Va. 1977), affd., 569 F. 2d 811 (4th Cir. 1978) requires that one must be designated as its client's purchasing agent and authorized to bind the credit of its client in order to take advantage of any exemption that applies to such client.
In order to take advantage of the nonprofit hospital exemption, the Taxpayer must meet the requirements prescribed by United States v. Forst and payment for purchases must be made from the nonprofit hospital's funds as required in the regulation. That is not the case here. The contract does not state that the Taxpayer is authorized to bind the credit of the nonprofit hospital or make purchases from the nonprofit hospital's funds. As such, the nonprofit hospital exemption is not available to purchases made by the Taxpayer in the performance of its contract.
This conclusion is supported by Public Document (P.D.) 97-152 (3/28/97), which addresses, in part, a similar set of facts. In that case, a taxpayer contracted with certain nonprofit entities to manage and operate the food service facilities of its clients. The taxpayer acted as an agent for its clients and made purchases exempt of the tax by providing its clients' sales tax registration numbers to suppliers. Citing the above regulation and case law, the Tax Commissioner determined that the taxpayer was not authorized to bind the credit of its clients or make purchases from its clients funds. Therefore, the exemptions applicable to the taxpayer's clients were not available to purchases made by the taxpayer.
Based on the foregoing, the auditor properly assessed the tax on the Taxpayer's purchases of cleaning supplies. Enclosed you will find copies of the cited statute, regulation, case law, and P.D. 97-152 for your information.
The Taxpayer will shortly receive an updated bill including accrued interest. The bill must be paid within 30 days of the bill date to avoid the accrual of additional interest charges. If you have questions concerning this letter, you may contact ***** in the department's Office of Policy and Administration, Appeals and Rulings, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
AR/16795J
Rulings of the Tax Commissioner