April 11, 2016
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****:
This is in response to your letter submitted on behalf of ***** (the "Taxpayer"), in which you request a ruling regarding the application of the retail sales and use tax to equipment and services provided to Virginia hospitals and nursing homes. I apologize for the delay in responding to your request.
FACTS
The Taxpayer provides monitoring equipment and services to hospitals and nursing homes located in Virginia. The Taxpayer installs boxes, similar to a television cable box, to existing hospital and nursing home room televisions, a room camera, and a monitor at the nurse's station. Remote controls and keyboards are also furnished to the hospitals. All property remains under the ownership of the Taxpayer. The video tape in the box remains the property of the hospital and can be viewed using over the counter software not provided by the Taxpayer. The equipment provided by the Taxpayer allows the nurses to monitor numerous patients through the monitors at the nurse's stations throughout the hospital. The Taxpayer also provides iPads that allow hospital employees to view patient rooms through the cameras installed by the Taxpayer.
In addition to patient monitoring, the Taxpayer's equipment provides the following services to the hospital patient or nursing home resident:
› On-demand movies through the hospital room television;
› Live video and text chat through the hospital room television;
› Medical education videos and pre/post care surgery information;
› Access to the Internet; and
› The ability to order meals through room service.
The Taxpayer monitors all of its equipment installed in hospitals and nursing homes to ensure the equipment is operating properly and to provide centralized administrative reports to hospital and nursing upper administration. With the exception of the on-demand movies, which are billed directly to the patient via personal credit card, all equipment and services are invoiced by the Taxpayer as separate line items to the hospital or nursing home. The Taxpayer requests a ruling on the application of the Virginia retail sales and use tax to its business operation.
RULING
Based on the information provided, the Taxpayer maintains that it is providing a service to hospitals and nursing homes, the charge for which would not be subject to sales tax. In order to determine the proper application of the tax to a transaction that involves both the provision of tangible personal property and also the provision of services, the Department looks to Title 23 Virginia Administrative Code (VAC) 10-2104040. Subsection D of this regulation addresses mixed transactions and provides the following:
In order to determine whether a particular transaction which involves both the rendering of a service and the provision of tangible personal property constitutes an exempt service or a taxable retail sale, the "true object" of the transaction must be examined. If the object of the transaction is to secure a service and the tangible personal property which is transferred to the customer is not critical to the transaction, then the transaction may constitute an exempt service. However, if the object of the transaction is to secure the property it produces, then the entire charge, including the charge for any services provided, is taxable.
The Department's position with respect to transactions that involve the sale of tangible personal property and the provision of services is best illustrated in Public Document (P.D.) 13-108 (6/19/13). This ruling addresses the application of the retail sales and use tax to monitored and non-monitored security systems. The true object of a monitored security system (monitored by the person selling and installing the actual tangible personal property) constitutes the provision of a service, the charge for which is exempt. Likewise, the true object of a security system that is non-monitored constitutes the sale of tangible personal property, a taxable transaction, unless the installer receives a valid exemption certificate that exempts the entire transaction.
In the present case, the Taxpayer installs equipment, i.e., boxes, cameras, monitors, etc., in hospitals and nursing homes in Virginia. The equipment is installed for the purpose of allowing hospital personnel to monitor multiple patients and nursing home residents from a central location, generally a nurse's station. The equipment installed by the Taxpayer also allows patients and nursing home resident's access to social media and provides two-way communication between the patient and hospital staff. While the Taxpayer is continuously monitoring the equipment from its out-of-state headquarters to ensure the equipment is working and properly functioning, the true object of the euipment is to allow hospital and nursing home personnel to monitor multiple patients and residences from a single location. This being the case, I find that the Taxpayer is providing a non-monitored system to hospitals and nursing homes and the true object of the transaction between the Taxpayer and its customers is to obtain the actual equipment, a taxable transaction. This decision is consistent with P.D. 13-108.
With regard to proper billing procedures, Title 23 VAC 10-210-4040 D provides that if the true object of the transaction is to obtain the tangible personal property (which has been established above), the entire charge is subject to the tax, including any services, whether separately stated or not. Nonprofit hospitals and nonprofit nursing homes may be tax exempt from paying tax on such charges, provided that the exempt Virginia sales are substantiated by an exemption certificate or exemption letter from the Virginia Department of Taxation. See Va. Code § 58.1-609.11.
This response is based on the facts provided as summarized above. Any change in facts or the introduction of new facts may lead to a different result.The statute, regulation and public document cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's web site. If you have any questions about this response, you may contact ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1-6003824837.P