February 4, 2015
Re: Request for Advisory Opinion
Business Tangible Personal Property Tax
Dear *****:
This is in response to your letter in which ***** (the "County") requests an advisory opinion regarding whether the real and tangible personal property of a hospital owned and operated in the ***** (the "Taxpayer") is exempt from local real property and business tangible personal property (BTPP) tax.
The BTPP tax is imposed and administered by local officials. Virginia Code § 58.1-3983.1 J 2 authorizes the Department to issue advisory opinions on local business tax matters.
The following opinion has been issued subject to the facts presented to the Department summarized below. Any change in facts or the introduction of new facts may lead to a different result.
The Code of Virginia sections, Attorney General opinion, and public document cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's web site.
FACTS
The Taxpayer, a health care system exempt from federal income taxation under Internal Revenue Code (IRC) § 501(c)(3), owns and operates a hospital in the County. The Taxpayer does not have a religious affiliation. The County requests a ruling whether the hospital's real and tangible personal property is exempt from local real property and BTPP tax pursuant to Va. Code § 58.1-3606 A 5.
OPINION
Article X, § 4 of the Constitution of Virginia provides that all real and tangible personal property shall be segregated for local taxation in such a manner as the General Assembly provides by law. Article X, § 6 (7)(f) of the Constitution of Virginia states that exemptions of property from taxation as authorized under § 6 must be strictly construed. This provision has been consistently enforced in Virginia Supreme Court decisions. See, for example, Department of Taxation v. Wellmore Coal Corp., 228 Va. 149, 320 S.E.2d 509 (1984).
As authorized by the Constitution of Virginia, the General Assembly established a number of exemptions from real and personal property taxes. Specifically, Va. Code § 58.1-3606 A 5 exempts:
Property belonging to and actually and exclusively occupied and used by the Young Men's Christian Associations and similar religious associations, including religious mission boards and associations, orphan or other asylums, reformatories, hospitals and nunneries, conducted not for profit but exclusively as charities (which shall include hospitals operated by nonstock corporations not organized or conducted for profit but which may charge persons able to pay in whole or in part for their care and treatment).
The County asserts that because the Taxpayer does not have a religious affiliation, the hospital's real and tangible personal property would not be exempt pursuant to Va. Code § 58.1-3606(A)(5). Although the Department does not have authority to issue opinions on local real property tax matters, it appears that the same exemption statute would apply to both the real and tangible personal property of the Taxpayer's hospital.
Neither the Supreme Court of Virginia nor the Attorney General of Virginia has interpreted the statute to mean that a hospital must have a religious affiliation to qualify for the exemption. See Smyth County Community Hospital v. Town of Marion, 259 Va. 328, 527 S.E.2d 401 (2000); Op. Va. Att'y Gen. 13-041, 2013 WL 4039923 (August 2, 2013). According to the Attorney General, a taxpayer seeking the hospital exemption under Va. Code § 58.1-3606 A 5 must satisfy three requirements: (1) the facility at issue must be a hospital; (2) the property at issue must belong to and be actually and exclusively occupied and used by the hospital; and (3) the hospital must operate on a not-for-profit basis and exclusively as a charity. To establish that its operations are not-for-profit and charitable, the hospital must satisfy the "dominant purpose test." This test determines whether or not the property in question promotes the purpose of the group seeking an exemption. The property is entitled to the exemption regardless of any revenue created on the land, so long as the dominant purpose of the revenue generating property is not to obtain revenue or profit, but to promote the purposes for which the charity was established and is incidental thereto. Each requirement is a question of fact and, therefore, the determination of property tax exemption is reserved for the local commissioner of the revenue or other appropriate taxing official.
If you have any questions regarding this opinion, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1-5849481883.M