86-116 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Medical clinic organized as a joint venture by nonprofit hospitals; Exemption criteria

Topic

Exemptions

Date Issued

07-02-1986

July 2, 1986

Re: Request for Ruling/Sales and Use Tax

Dear *****************

This will reply to your letter of March 31, 1986 to ********** of the department's ********** District office, in which you request a ruling on the application of the sales and use tax to

FACTS

(Taxpayer) is engaged in the operation of a medical clinic. The taxpayer is exempt from federal income taxation by virtue of § 501 (c) (3) of the Internal Revenue Code. The taxpayer itself is not licensed as a hospital by the state Department of Health; however, the stock of the taxpayer is held exclusively by a non-stock, non-profit corporation organized as a joint venture by three licensed hospitals conducted not for profit. officials or appointees of those hospitals constitute six of the eight members of the taxpayer's board of directors.

The above hospitals provide the entire financial support of the taxpayer through loans and direct contributions, including the funding of any operating deficits incurred by the taxpayer. Also, the primary insurance coverage for the taxpayer is furnished under the hospitals' own insurance contracts. In the event that the taxpayer requires additional staff on a temporary basis, hospital personnel are called upon to provide support. In addition, industrial medicine contracts entered into by the hospitals generally provide for the treatment or examination of clients either at a hospital or the taxpayer's separate facility.

Based upon the foregoing, a ruling is requested as to the applicability to the taxpayer of the exemption found in § 58.1-608.23 of the Code of Virginia for tangible personal property used or consumed by non-profit hospitals.

RULING

§ 58.1-608.23 of the Code of Virginia provides an exemption from the sales and use tax for "[t]angible personal property for use or consumption by...a hospital...provided such...hospital...is conducted not for profit." Interpreting this statute with respect to clinics, § 630-10-47 of the Virginia Retail Sales and Use Tax Regulations specifically provides that:

- Unless a clinic is an integral part of a hospital conducted not for profit or is itself licensed as a hospital under the provisions of Virginia Code § 32.1-123 and conducted not for profit, sales to such a clinic are taxable.

As the taxpayer is not itself licensed as a hospital, the only means for exemption in this case is if the taxpayer constitutes an "integral" part of the licensed non-profit hospitals that organized its parent corporation. As the word "integral"- is not defined within the regulation, the word takes on its ordinary meaning, i.e., a constituent part or member of an entity or a whole. Furthermore, the doctrine of strict construction established by the Virginia Supreme Court with respect to exemptions from taxation must also be recognized in interpreting the statute and regulation. Under this doctrine, "[e]xemption from taxation is the exception, and where there is any doubt, the doubt is resolved against the one claiming exemption," Golden Skillet Corporation v. Commonwealth, 214 Va. 276, 199 S.E.2d 511 (1973).

It is readily apparent that the taxpayer and the hospitals in question enjoy a close and in some respects inseparable working relationship; however, this alone does not render the taxpayer an integral part of the hospitals. Nor does such a close relationship overcome the fact that the taxpayer and the hospitals are separate corporations. For this reason, I must conclude that the taxpayer is not an integral part of the non-profit hospitals and therefore is subject to the sales and use tax on tangible personal property that it uses or consumes .

Sincerely,

W. H. Forst
Tax Commissioner

Rulings of the Tax Commissioner