Tax Type
Retail Sales and Use Tax
Description
Nonprofit organizations, private schools, and churches; Provider of billing services to hospitals
Topic
Taxability of Persons and Transactions
Date Issued
05-16-1994
May 16, 1994
Re: §58.1-1821 Appeal: Sales and Use Tax
Dear ***************
This will reply to your letter of April 24, 1992 in which you, on behalf of your client ***********(the "Taxpayer"), seek correction of the sales and use tax audit assessment for the period of October, 1988 through August, 1991.
FACTS
The Taxpayer is a Virginia stock corporation exempt from federal taxation under §501(c)(3) of the Internal Revenue Code. The Taxpayer is organized for the purpose of providing billing services for professional services provided by **********Hospitals (the "Hospitals" which is composed of a group of four nonprofit hospitals), and contract physicians who have contracted with the Corporation to perform services integral to the hospital operations such as radiology, anesthesiology, pathology, emergency room, etc. In addition to providing billing services, the Taxpayer also purchases accounts receivables of certain contract physicians at a discount and collects such accounts for their own funding. The Taxpayer also owns 50% of the stock of Outpatient Intravenous Therapy, Inc. (OIT), a Virginia stock corporation which provides outpatient services for licensed physicians of the Hospitals. OIT is in a separate location from the Hospitals and does not utilize the funds, assets, or facilities of the Hospitals.
The Taxpayer was audited and held liable for the tax on tangible personal property used in carrying out their billing function. The Taxpayer feels they qualify as an exempt nonprofit hospital under Va. Code §58.1-609(7)(4) and, in addition, they feel they also qualify as an exempt hospital corporation under Va. Code §58.1-609(7)(12). The Taxpayer also relied on a letter from the department to a sister corporation which incorrectly granted the exemption. The Taxpayer is requesting the audit assessment be revised accordingly.
DETERMINATION
Va. Code §58.1-609(7)(4) provides a sales and use tax exemption for nonprofit hospitals and nonprofit nursing homes. I feel based on the information provided, the Taxpayer clearly is not a nonprofit hospital. While I realize the functions performed by the Taxpayer are administrative functions previously performed by the Hospitals, the above exemption is clearly limited to functions performed by an actual licensed nonprofit hospital. For this reason, I must deny the exemption based on Va. Code §58.1-609(7)(4).
Va. Code §58.1-609(7)(12) provides a sales and use tax exemption for nonprofit hospital cooperatives and corporations and states the following:
-
- Tangible personal property purchased for use or consumption by any nonprofit hospital cooperative or nonprofit hospital corporation organized and operated for the sole purpose of providing services exclusively to nonprofit hospitals. This exemption shall not apply to any nonprofit hospital, cooperative or nonprofit hospital corporation providing services of any kind or to any extent to other than nonprofit hospitals. (Emphasis added).
The department's policy with respect to exemption from the sales and use tax is dictated by the rule of strict construction established by the Virginia courts. The Virginia Supreme Court has consistently held that "exemption from taxation is the exception, and where there is any doubt, the doubt is resolved against the one claiming exemption." Golden Skillet Corp. v. Commonwealth, 214 Va. 276, 199 S.E.2d 511 (1973).
The wording in the statute was intended to limit the application of this exemption and is clarified further in the second sentence which specifies that the exemption does not apply when services of any kind or to any extent are provided to other than nonprofit hospitals. As provided in your letter, the Taxpayer not only provides services to the Hospitals, but also provides services to physicians who have contracted with the Hospitals, including the purchase of receivables of those physicians at a discount for collection on its own account. It is also noted that the Taxpayer shares fixed assets with two other corporations, one of which is a for profit taxable entity. Keeping in mind the rule of strict construction, the services provided by the Taxpayer and the intermingling of fixed assets with a taxable entity, would clearly serve to deny the exemption set forth in Va. Code §58.1-609(7)(12) based on the "exclusive" nature of such exemption.
I also cannot agree that relief is justified based on a 1987 letter addressed to the Taxpayer's sister corporation. The letter in question was issued based on the facts presented by the sister corporation and as such the exemption granted applied only to the sister corporation. This is supported by a comparison of the Articles of Incorporation of the two entities. The entity which received the 1987 letter was organized for the purpose of "the collection of bills rendered to their patients by... (the "Association") and the hospitals or other health care facilities owned or operated by the Association." By contrast, the Taxpayer was organized "for the billing of professional charges... by physicians who hold contracts to perform hospital based physician services." The 1987 letter from the department clearly stated that the exemption was limited to nonprofit hospital corporations that render services exclusively to nonprofit hospitals; as the Taxpayer was clearly organized to provide services to physicians, reliance on the 1987 letter was not appropriate.
Based on the above, I find no basis for revision of the audit assessment. The balance of the assessment as of the date of your appeal was *****(tax of **** and interest of **** If this amount is paid within 30 days, I will waive the interest that has accrued since the date of your appeal. Your client may submit its payment to ******* Office of Tax Policy, Department of Taxation, P.O. Box 1880, Richmond, Virginia 23282-1880.
Sincerely,
Danny M. Payne
Acting Tax Commissioner
OTP/624OK
Rulings of the Tax Commissioner