Tax Type
Retail Sales and Use Tax
Description
Nonprofit organizations, private schools, and churches; Hospital holding company
Topic
Taxability of Persons and Transactions
Date Issued
03-18-1994
March 18, 1994
Re: §58.1-1821 Application: Sales and Use Tax
Dear*********
This will reply to your letter of May 22, 1992, in which you submit an application for correction of sales and use tax assessed to **********as the result of an audit. I apologize for the delay in responding to your correspondence.
FACTS
Your client is a Virginia nonstock corporation exempt from federal income tax under Internal Revenue Code §501 (c) (3), which is now organized as the controlling affiliate for a group of nonprofit hospitals and to be the sole member of various other nonprofit health care-related organizations, including one organization that operates licensed nonprofit nursing homes.
As it is the controlling affiliate for a group of hospitals, you argue that your client should enjoy the exemption for nonprofit hospitals provided under Va. Code §58.1-609.7 (4) or the exemption for nonprofit hospital corporations and cooperatives provided under Va. Code §58.1-609.7 (12).
DETERMINATION
Va. Code §58.1-609.7 (4) provides an exemption from the sales and use tax for "[t]angible personal property for use or consumption by a nonprofit hospital or a nonprofit licensed nursing home." Va. Code §58.1-609.7 (12) provides a similar exemption for property purchased by "any nonprofit hospital cooperative or nonprofit hospital corporation organized and operated for the sole purpose of providing services exclusively to nonprofit hospitals." The latter statute also states that the 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." Under long-standing Virginia case law, exemptions from the tax are to be strictly construed, with any doubts resolved against the one claiming exemption.
In this case, your client effectively serves as the holding company for a group of nonprofit hospitals and other nonprofit health care-related organizations. Although it serves as the sole member of the corporation owning the hospitals, it is separately incorporated from that affiliate and is not itself a licensed hospital. The fact alone that your client is separately incorporated from the hospitals indicates that it is not an "integral" part of the hospitals. As such, the exemption under Va. Code §58.1-609.7 (4) is not applicable.
In addition, your client engages in activities that go beyond the ownership and support of nonprofit hospitals. As such, it could not enjoy the exemption provided in Va. Code §58.1-609 (12), where the statute addresses only those nonprofit hospital cooperatives and corporations that provide services "exclusively" to nonprofit hospitals. You argue that the exemption was crafted to help ensure that nonprofit hospital cooperatives and corporations would not render services to for-profit hospitals and that the provision of services to other nonprofit health care entities should not jeopardize the exemption. However, the clear and unambiguous wording of the statute supports a more expansive reading of the exclusivity language.
Based upon the foregoing, I do not find basis for changing the assessment. The balance of the assessment as of the date of your appeal was ********** 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/6726A
Rulings of the Tax Commissioner