Document Number
08-48
Tax Type
Retail Sales and Use Tax
Description
Unlicensed nursing home will be eligible for exemption provided it meets the criteria required under Va. Code § 58.1-609.11
Topic
Exemptions
Tangible Personal Property
Date Issued
04-02-2008


April 2, 2008



Dear *****:

This is in response to your request for a formal advisory ruling pertaining to the change in Virginia law concerning the sales and use tax exemption previously available to licensed nursing home facilities.

FACTS


You represent the Taxpayer, an entity that is exempt from federal income taxation under Internal Revenue Code § 501(c)(3). The Taxpayer operates a continuing care retirement community for senior citizens in Virginia. The Taxpayer offers three levels of services to its residents, including assisted living, nursing care, and independent living in both apartments and cottages. While the assisted living, nursing care, and independent living apartments are licensed by the Virginia Department of Social Services, the independent living cottages have not been licensed. The Taxpayer currently receives the sales and use tax exemption granted to nonprofit licensed nursing homes under Va. Code § 58.1-609.7(4), for the assisted living, nursing care, and independent living apartments that are licensed.

Among the services enjoyed by each resident are weekly housekeeping, on-site security, and meals. When the Taxpayer purchases food to be prepared as meals to its residents and their guests from wholesalers, the Taxpayer does not pay sales tax to the wholesaler. Under its current exemption, the Taxpayer may purchase tangible personal property to be used in the assisted living, nursing care, and independent living apartments exempt of the retail sales and use tax. The Taxpayer must remit use tax on any tangible personal property purchased for use by the unlicensed independent living cottages. Use tax is remitted based on the percentage of residences that represent the independent cottages.

You request a ruling that the Taxpayer will continue to be exempt under the new nonprofit sales and use tax exemption offered under Va. Code § 58.1-609.11, and will enjoy a broader exemption on all of the tangible personal property it uses and consumes, including that property purchased for use by the unlicensed independent cottages, which is not eligible for the exemption available under Va. Code § 58.1­609.7(4). You question whether the Company will continue to be required to pay use tax on its purchases of food and supplies purchased for use by the independent living cottages in the same manner in which it currently pays use tax, based on the percentage of unlicensed residences. Finally, you present a scenario in which the Taxpayer allows its assisted living license to expire on the independent living apartments that are currently licensed by Virginia Department of Social Services, and question whether this loss of license will hinder the Taxpayer's ability to receive the new nonprofit sales and use tax exemption under Va. Code § 58.1-609.11 for these purchases.

DETERMINATION


Prior to the 2003 General Assembly Session, there was no general exemption from Virginia's Retail Sales and Use Tax for nonprofit organizations. Virginia's Retail Sales and Use Tax exemptions were generally tailored for specific nonprofit organizations, and obtained through the Virginia General Assembly. An organization seeking an exemption could acquire one in two ways. If the organization met the statutory language of an existing exemption by classification, it could apply directly to TAX for an exemption by providing evidence that it met the statutory classification. If the organization did not meet the criteria of an existing classification, the organization had to acquire one by designation through the enactment of a new exemption or the amendment of an existing exemption.

Va. Code § 58.1-609.7(4), which offered an exemption for "tangible personal property for use or consumption by a nonprofit hospital or nonprofit licensed nursing home" was just one of the specific nonprofit exemptions available prior to the 2003 General Assembly. This exemption was set to expire on July 1, 2004.

Effective July 1, 2004, pursuant to Acts of Assembly 2003, cc. 757 and 758, a new process was introduced for nonprofit entities to obtain exemptions from the retail sales and use tax, codified at Va. Code § 58.1-609.11. Under the new exemption process, an exemption is available for purchases of tangible personal property for use or consumption by any nonprofit entity that follows the procedures and meets the criteria enumerated in the statute. Additionally, under the terms of this new provision, the exemption available under Va. Code § 58.1-609.7(4) was extended until July 1, 2008. In order to enjoy an exemption after July 1, 2008, however, the entity would be required to apply for exemption under the new process for nonprofit organizations.

Va. Code § 58.1-609.11 provides a sales and use tax exemption for purchases of tangible personal property for use or consumption by any nonprofit entity that: 1) files an appropriate application with the Department of Taxation ("TAX"); 2) meets the applicable criteria, and 3) is issued a certificate of exemption from TAX for the period of time covered by the certificate.

In addition to applying for exemption under the new process, a nonprofit organization must also meet certain criteria in order to be eligible for exemption from the retail sales and use tax on its purchases. The organization must: 1) be exempt under either § 501(c)(3) or § 501(c)(4) of the Internal Revenue Code; or 2) have annual gross receipts of less than $5,000. In addition, the organization must: 3) comply with applicable state solicitation laws; 4) maintain annual general administrative costs that do not exceed 40%; and 5) conduct a full financial audit if the organization's gross annual revenue was $1 million or more in the previous year. If the entity's gross annual revenues fell between $750,000 and $1 million in the previous year, the entity may choose between a full financial audit and a financial review, both of which must be performed by an independent certified public accountant.

Provided the nonprofit organization meets the criteria and follows the process set forth above, it will be entitled to an exemption from the retail sales and use tax on purchases of tangible personal property for its use or consumption. The exemption is not limited to specifically enumerated types of tangible personal property, nor is its application limited in this case to only licensed nursing homes. Thus, if the Taxpayer satisfies the criteria enumerated above, and follows the process of applying for and obtaining a certificate of exemption from TAX, the Taxpayer may purchase all items for the nonprofit entity exempt of the retail sales and use tax.

As the facts indicate, pursuant to Va. Code § 58.1-709.(4), which will expire on July 1, 2008, when the Taxpayer purchases food to be prepared and served to its residents and their guests from wholesalers, it pays use tax to Virginia on the purchased food based on the percentage of the residences that represent the independent cottages. As unlicensed nursing homes are ineligible for exemption under § 58.1­609.7(4), the Taxpayer is required to remit use tax in this fashion. Under the new exemption process, an unlicensed nursing home will be eligible for exemption from the retail sales and use tax on all purchases for that entity's use or consumption, provided it meets the criteria required under Va. Code § 58.1-609.11, and regardless of its license status. Thus, the Taxpayer will no longer be required to pay use tax on its purchases of food for its unlicensed residences, as those purchases will now be covered under the new exemption. Furthermore, if the Taxpayer allows its assisted living license to expire on the independent living apartments that qualify for exemption under Va. Code § 58.1­609.7(4), this will have no bearing on the availability of the exemption under the new process.

The Taxpayer may continue with its exemption pursuant to Va. Code § 58.1­609.7(4), until that exemption expires on July 1, 2008, but the Taxpayer must continue to pay sales tax on purchases made for its unlicensed independent living cottages, or remit use tax based on the portion of food and supplies used by the unlicensed living cottages. The Taxpayer may also apply for exemption under the new nonprofit exemption process. Provided the Taxpayer meets all the requirements enumerated under Va. Code § 58.1-609.11, it will receive the broader exemption available to all nonprofit entities that meet the enumerated criteria, without regard to what license the nonprofit entity holds. As long as, the Taxpayer retains its status as a nonprofit organization for federal income tax purposes and otherwise qualifies for the new nonprofit sales and use tax exemption, purchases of tangible personal property for its use or consumption may be made exempt of the retail sales and use tax.

I hope this advisory ruling has addressed all of your questions. If you should have additional questions, please contact ***** at *****.
                • Sincerely,

                • Janie E. Bowen
                  Tax Commissioner

Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46