Tax Type
Retail Sales and Use Tax
Description
Nonprofit organizations, private schools, and churches; Nonprofit hospital corporation
Topic
Taxability of Persons and Transactions
Date Issued
10-04-1996
October 4, 1996
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear*************
This is in reply to the letter from ************* requesting correction of sales and use tax assessed to *********(the "Taxpayer"), for the period January 1992 through October 1994. I apologize for the delay in responding to the letter.
FACTS
The Taxpayer is a nonprofit charitable foundation created to provide financial assistance to a nonprofit hospital and its subsidiaries. As a result of the audit, the Taxpayer was assessed tax on its purchases. The Taxpayer protests the tax on the basis of its nonprofit status and the fact that it was formed to support the nonprofit hospital. The Taxpayer believes that it qualifies as an exempt nonprofit hospital corporation pursuant to Virginia Regulation (VR) 630-10--74(A)(5).
DETERMINATION
Code of Virginia § 58.1-609.7(12) provides an exemption for purchases of tangible personal property used and consumed by a nonprofit hospital cooperative or nonprofit hospital corporation organized and operated for the sole purpose of providing services exclusively to nonprofit hospitals. The statute provides that the exemption shall not apply when services of any kind or to any extent are provided to other than nonprofit hospitals. VR 630-10-74(A)(5) also explains the exemption.
The Taxpayer's Amended and Restated Articles of Incorporation provide that the Taxpayer was formed for "religious, educational, scientific, and charitable purposes." The Articles of Incorporation go on to state additional functions of the Taxpayer; however, it is not clear whether the Taxpayer is organized as a nonprofit hospital cooperative or a nonprofit hospital corporation. It is apparent that the Taxpayer was formed to provide financial assistance to any and all organizations which are subsidiary or directly related to the nonprofit hospital.
While the Taxpayer was formed to support the nonprofit hospital, it is evident that the Taxpayer also provides services to entities other than nonprofit hospitals.
The restrictive language of the hospital corporation exemption stipulates that an organization seeking qualification for the exemption cannot provide services of any type or to any degree (despite that such activity may be de minimus in nature) to other than nonprofit hospitals. It is my understanding that a member of my staff has on several occasions requested additional information regarding the organization and operation of the Taxpayer and its activities as they relate to the nonprofit hospital. To date this information has not been received. Based on the available information, the Taxpayer's provision of services to entities other than the nonprofit hospital negates its qualification for the exemption.
The department's policy in this area has been applied consistently and is well established based on prior Commissioner's rulings (P.D. 94-74 (3/18/94), P.D. 91-139 (7/30/91), P.D. 90-227 (12/19/90), P.D. 87-204 (8/26/87), and P.D. 87-291 (12/10/87)). In each case, the taxpayers were providing services to both nonprofit hospitals and other than nonprofit hospitals. I am also enclosing an excerpt from the Virginia Sales and Use Tax Expenditure Study, Vol 1, No.4, which further discusses the application of the nonprofit hospital corporation exemption.
In accordance with the determination in this case, the Taxpayer will receive an updated bill with interest accrued through the date of the letter of protest. If you have questions regarding the decision in this letter, please contact ********* at*************.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/9827J
Rulings of the Tax Commissioner