Tax Type
Retail Sales and Use Tax
Description
Nonprofit hospital that operates a dietary department
Topic
Exemptions
Date Issued
10-08-2004
October 8, 2004
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****:
This is in reply to your letter in which you seek a ruling on the application of the retail sales and use tax to food dispensed to certain departments of ******* (the "Taxpayer"). I apologize for the Department's delay in responding to your letter.
FACTS
The Taxpayer is a nonprofit hospital that operates a dietary department. Through its dietary department, the Taxpayer purchases raw food and food products that are prepared and dispensed to various departments throughout the hospital for purposes other than patient meals. The Taxpayer tracks the value of the food dispensed to each department using journal entries known as dietary transfers and remits the use tax to the Department based on these entries.
The Taxpayer questions whether the food dispensed to its departments is exempt in accordance with the Virginia Supreme Court (the "Court") opinion in Chesapeake General Hospital v. Commonwealth of Virginia, Department of Taxation, 262 Va. 551, 554 S.E.2d 55 (2001). The Taxpayer sets out a number of scenarios in which it provides food to its departments for consideration. In the event that the Court's ruling exempts the Taxpayer's dietary transfers, the Taxpayer inquires about its eligibility for a refund of prior taxes paid.
RULING
In Chesapeake General Hospital, the Court addresses a nonprofit hospital that is entitled to make purchases of tangible personal property for its use and consumption exempt of the sales and use tax in accordance with the nonprofit hospital exemption in Va. Code § 58.1-609.7(4) (now contained in § 58.1-609.11). In addition, Chesapeake General Hospital (the "hospital") operates as a governmental authority and is also entitled to make exempt purchases of tangible personal property for its use and consumption in accordance with the government exemption in Va. Code § 58.1-609.1(4).
The issue before the Court centered on the application of the use tax to the hospital's dietary transfers in light of the exemptions available to the hospital. The question in this case was whether the provision of food by the hospital for consumption by persons other than patients is inconsistent with the hospital's purpose and, therefore, outside of the scope of the exemptions. Specifically addressed by the Court were the dietary transfers of food for consumption by physicians, staff, volunteers and hospital authority members.
The Court addressed the issue of whether the dietary transfers are "used and consumed" by the hospital. The Court concluded that the dietary transfers at issue were provided to functions essential to the Hospital's ability to carry out its primary mission of providing quality health care. Based on the evidence presented and the lower court record, the Court found that the dietary transfers provided to entities such as physicians on duty, volunteers at selected functions, and the Hospital Authority members are provided with the intent, and the result, to promote better efficiency of those groups promoting health. The Court determined that the hospital makes an exempt "use" of the dietary transfers and granted exemption in accordance with the government exemption.
Although, the Court held the dietary transfers exempt from the use tax based on the government exemption, the similar language of the nonprofit hospital exemption would allow the Court's decision to extend, as well, to dietary transfers of food by nonprofit hospitals that do not operate as governmental entities.
The Taxpayer provides prepared food and food products for events such as hospital committee and medical staff meetings, new employee orientation classes, volunteer breakfasts and public education sessions. In addition, the Taxpayer provides food to medical staff during high patient occupancy and to employees during the workday. The Taxpayer's dietary transfers are provided with the intent, and the result, to promote better efficiency of those groups promoting health. In accordance with the standard established by the Court in Chesapeake General Hospital, the dietary transfers are for the use and consumption of the Taxpayer in providing quality health care and would qualify for the exemption for nonprofit hospitals now contained in Va. Code § 58.1-609.11.
Refund Procedures
The Taxpayer may be entitled to a refund of the tax paid with respect to exempt dietary transfers. Virginia Code § 58.1-1824 provides that "any person who has paid an assessment of taxes administered by the Department of Taxation may preserve his judicial remedies by filing a claim for refund with the Tax Commissioner . . . within three years of the date such tax was assessed." [Emphasis added.] Under Va. Code § 58.1-1820(2), an assessment includes "self-assessments made by a taxpayer upon the filing of a return."
The Taxpayer may request a refund for the tax paid back to November 2, 2001, the date of the issuance of the Court's opinion. The refund request will also be subject to the three year statute of limitations, if applicable, at the time the refund request is submitted. The Taxpayer may submit a refund request to: Virginia Department of Taxation, Office of Customer Relations, P.O. Box 1115, Richmond, Virginia 23218-1115. The request should clearly set out the requested refund amounts and include proof of payment of the tax.
This ruling is based on the facts presented in your letter as summarized above. Any change in facts or the introduction of new facts may lead to a different result.
The Code of Virginia sections cited are available on-line in the Tax Policy Library section of the Department's website, located at www.tax.state.va.us. If you have further questions, you may contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings, at *****.
-
-
-
-
-
-
-
-
-
- Sincerely,
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Kenneth W. Thorson
Tax Commissioner
-
-
-
-
-
-
-
-
AR/47040J
Rulings of the Tax Commissioner