Tax Type
Retail Sales and Use Tax
Description
Nonprofit organizations, private schools, and churches
Topic
Taxability of Persons and Transactions
Date Issued
10-19-1994
October 19, 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 collection services for medical services rendered to patients of ******* Hospitals (the "Hospital" which is composed of a group of four nonprofit hospitals). The earnings of the Taxpayer are held, administered and distributed solely on behalf of the Hospital.
The Taxpayer was audited and held liable for the tax on tangible personal property used in carrying out their collection services. 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 was also advised by letter dated January 7, 1987 from the Technical Services Section of the Department of Taxation that they qualified as a nonprofit hospital corporation and were therefore exempt from the sales and use tax. 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. Based upon the information provided, the Taxpayer is not a nonprofit hospital. While 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, the exemption provided in Va. Code §58.1-609(7)(4) does not apply.
Va. Code §58.1-609(7)(12) provides a sales and use tax exemption for nonprofit hospital cooperatives and corporations:
-
- 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).
- 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 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 understood by this office, the Taxpayer shares fixed assets with two other corporations, one of which is a for profit taxable entity. It is not clear whether services per se are rendered to these corporations; however, the Taxpayer's articles of incorporation specifically refer to the performance of services for health care facilities other than licensed nonprofit hospitals. Keeping in mind the rule of strict construction, the services provided by the Taxpayer would serve to deny the exemption set forth in Va. Code § 58.1-609(7)(12) based on the "exclusive" nature of such exemption.
However, due to the fact the Taxpayer relied solely on the January 7,1987 letter from the department, I will allow for this audit only the proration of the tax reflecting usage by the Taxpayer to total usage by the three corporations. In the future, however, the Taxpayer is required to pay the sales and use tax on all purchases of tangible personal property used in carrying out their collection activities. A representative from the department will contact the Taxpayer to make the appropriate adjustments.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/6253K
Rulings of the Tax Commissioner