Tax Type
BPOL Tax
Description
Classification of for-profit, structured 24-hour residential licensed medical care facility
Topic
Basis of Tax
Local Power to Tax
Date Issued
12-28-2004
December 28, 2004
Re: Appeal of Assessment: Final Local Determination
Taxpayer: *****
Locality Assessing Tax: *****
Business, Professional and Occupational License (BPOL) Tax
Dear *****:
This final state determination is issued upon the application for correction filed by you on behalf of ******************* (the "Taxpayer") with the Department of Taxation. You appeal a final local determination by ************** (the "County") classifying the Taxpayer's business as a professional service business for license tax year 2001.
The following determination is based on the facts presented to the Department, as summarized below. The Code of Virginia and regulation sections cited are available on-line in the Tax Policy Library section of the Department of Taxation's web site, located at www.policylibrary.tax.virginia.gov.
FACTS
The Taxpayer is a for-profit, structured 24-hour residential licensed medical care facility for persons suffering from alcohol and other substance abuse. The patients are supervised by a staff of full-time and part-time employees, two of whom are licensed physicians. A full-time executive director who is not a physician supervises the facility. The residents are restricted to the facility, are constantly monitored and participate in a mandatory, highly structured recovery program supervised by the staff. The Taxpayer also states there are approximately 20-25 licensed physicians who are not in the employ of the Taxpayer, who see their individual patients as necessary.
The Taxpayer is licensed by the Commonwealth of Virginia's Department of Mental Health, Mental Retardation and Substance Abuse Services (DMHMRSAS) as a "residential facility operating a thirty bed treatment center." The Taxpayer is licensed to operate three different programs for adults: (i) a residential service providing a substance abuse and medical detoxification program for adults; (ii) a residential service providing a substance abuse supervised living program for adults; and (iii) a day-support service, partial hospitalization program for adults.1
The Taxpayer represents itself as being an "intermediate care facility," which for insurance purposes is defined as "a licensed, residential public or private facility that is not a hospital and that is operated primarily for the purpose of providing a continuous, structured twenty-four-hour per day, state-approved program of inpatient substance abuse services." See Va. Code § 38.2-3412.1 A.
The Taxpayer has been granted a "Certificate of Public Need," which is granted to "psychiatric hospitals and intermediate care facilities established primarily for the medical, psychiatric or psychological treatment and rehabilitation of alcoholics or drug addicts." This certificate is required for these institutions to operate. See Va. Code § 32.1-102.1 8.
The County classified the Taxpayer as a business service for purposes of BPOL taxation from 1987 until 2001, when it performed an audit of the Taxpayer. After the audit, the County changed the Taxpayer's classification to that of a provider of "professional services," finding that the Taxpayer's business is that of a "practitioner of the healing arts." The Taxpayer contends that it should be classified as a "personal services business," as defined in the 2000 BPOL Guidelines.
ANALYSIS
Substance Abuse and Mental Health Facilities
Under Va. Code § 37.1-179 et seq., which provides for "Licensing Persons, Establishing, Operating, Etc., Facilities and Institutions," the Commissioner of DMHMRSAS is authorized to license "any suitable provider to establish, maintain and operate, or to have charge of any service as defined in § 37.1-179." See Va. Code § 37.1-179.1. These providers are defined as:
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any person, entity or organization, excluding an agency of the federal government by whatever name or designation, that provides services to persons with . . . substance addiction or abuse including the detoxification, treatment or rehabilitation of drug addicts through the use of the controlled drug methadone . . . . Such person, entity or organization shall include a hospital as defined in § 32.1-123, community services board as defined in § 37.1-194.1, behavioral health authority as defined in § 37.1-243, private provider, and any other similar or related person, entity or organization. It shall not include any individual practitioner who holds a license issued by a health regulatory board of the Department of Health Professions. Va. Code § 37.1-179.1 [Emphasis added.]
In other words, institutions, not professionals, are accredited and licensed by DMHMRSAS. Included among the services such institutions are licensed to provide are residential services providing substance abuse and detoxification programs for adults; day support services and partial hospitalization services for adults with substance abuse problems; and supervised living programs. See Va. Code 37.1-179. These are the programs the Taxpayer offers its clients. By definition, an entity licensed by DMHMRSAS does not include an individual practitioner licensed by the Department of Health Professions.
Professional Services
For purposes of BPOL taxation, professional services include certain enumerated professions, and no others. "Practitioners of the healing arts" are included as providers of professional services provided that they are rendering such services for a fee and not as employees of an organization. Section 5.4.4 of the 2000 BPOL Guidelines offers clarification to this distinction:
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- The BPOL tax applies to the rendering of professional services for a fee and does not apply to professional classifications, per se. For example, lawyers or accountants employed by a corporation and compensated in wages as employees are not subject to the BPOL tax as professionals.
BPOL Treatment of Medical Services
The treatment of professionals within the medical profession follows the same guidelines. Public Document 97-87 (2/20/97) addresses the classification of hospitals and other medical service providers for BPOL tax purposes. This ruling draws a distinction between medical clinics, nursing homes, and hospitals. It found that there was only one licensable privilege exercised at a medical clinic or doctor's office: the professional services rendered by the physician. Nursing, convalescent and rest homes, on the other hand, were found to be properly classified as personal services businesses:
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- Although physicians may visit these facilities on occasion, their visits do not transform the business into a professional service provider. Only a physician can render such services and only the physician, and not the nursing home, is subject to licensure with respect to these services.
The relationship between hospitals and physicians was found to be similar to that of the relationship of nursing homes and attending physicians.
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- In the traditional method of organization, physicians are independent professionals who work for the patient and have practice privileges at one or more hospitals. Under this arrangement, the hospital and the physician each generate separate bills for the services that they provide to the patient. Professional services rendered by the physician constitute the exercise of one licensable privilege and the personal services rendered by the hospital constitute the other. Id.
In summary, only in the case of limited professional practices or medical clinics, similar to that described in P.D. 03-18 (3/11/2003), is the entire entity subject to classification as a professional service. In the case of other medical facilities, depending upon the contractual relationship between the physicians and the facility, the physicians or other professionals could be subject to separate licensure.
The Taxpayer's facility is run by an executive director and only has two physicians on staff. Most of the patients are referred to the facility either by their own physicians or by their employers. The average stay generally is less than a month, depending upon the treatment. The Taxpayer states the majority of the patients are treated medically by physicians who are not affiliated with the facility. These professionals clearly would be subject to separate licensure under the professional service classification. In this case, however, the question is whether the Taxpayer should be classified as a personal service or a professional service.
Based on the facts presented, it is my determination that the Taxpayer's business is that of providing personal services, much like a hospital or a nursing home. The Taxpayer is not licensed by the Board of Health Professionals, but rather by DMHMRSAS. The business of the facility, not the profession of the business's employees, is subject to the BPOL tax. Similar to a hospital or nursing home, the Taxpayer provides personal services.
DETERMINATION
The Taxpayer is engaged in the business of operating an intermediate care facility for substance abusers as defined in Va. Code §§ 32.1-102.1 8 and 37.1-179. Pursuant to the provisions of Va. Code § 58.1-3703 and the 2000 BPOL Guidelines, § 5.5.2, it is my determination that the Taxpayer should be classified as a business service. I am remanding this to the County to make the appropriate adjustments in accordance with the provisions of Va. Code § 58.1-3703.1.
If you have any questions regarding this determination, you may contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings at *****.
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- Sincerely,
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Kenneth W. Thorson
Tax Commissioner
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AR/49123H
1The partial hospitalization day treatment program is defined for insurance purposes as including intensive outpatient programs for the treatment of alcohol or other drug dependence that provide treatment over a period of three or more continuous hours per day to individuals or groups of individuals who are not admitted as inpatients. See Va. Code § 38.2-3412.1.
Rulings of the Tax Commissioner