Tax Type
Retail Sales and Use Tax
Description
Partnership of nonprofit hospitals
Topic
Taxability of Persons and Transactions
Date Issued
08-26-1987
August 26, 1987
Re: Request for Ruling/Sales and Use Tax
Dear ******************
This will reply to your letter of April 20, 1987, in which you request a ruling on the application of the sales and use tax to a general partnership created to purchase and operate magnetic resonance imaging equipment.
FACTS
********** (Taxpayer) is a general partnership created by ************* nonprofit hospitals in order to purchase and operate ******** equipment. The purpose for the taxpayer's formation is the provision of ********** services to the partner hospitals. In addition, a certain amount of time will be set aside for indigent care and biomedical research. Billings for ******* services will be made directly to the hospital to which a patient is admitted, except in the case of outpatient ********** services, which will be billed directly to the patient.
The taxpayer wishes to determine whether it is entitled to the statutory sales and use tax exemption for nonprofit 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 not conducted for profit." §58.1-602.11 of the Code of Virginia defines the term "nonprofit hospital" as including:
nonprofit hospital cooperatives or nonprofit hospital corporations organized and operated for the sole purpose of providing services exclusively to nonprofit hospitals and shall not include any nonprofit hospital cooperative or nonprofit hospital corporation providing services of any kind or to any extent to other than nonprofit hospitals. Emphasis added
Based on the information before me, the taxpayer was formed to provide services to nonprofit hospitals. However, the statute requires a more stringent test for exemption. First, the entity must be a nonprofit cooperative or a nonprofit corporation and second, the sole purpose of the cooperative or corporation must be to provide services exclusively to nonprofit hospitals. The statute directly states that the exemption does not apply when the cooperative or corporation furnishes services of any kind or to any extent to other than nonprofit hospitals.
In this instance, the taxpayer is organized as a partnership, rather than a cooperative association or a corporation. As such, the first test is not met.
In addition, the taxpayer will provide services on an outpatient basis for which the patients will be billed directly. As such, the taxpayer will not provide services exclusively to the nonprofit hospitals that created it. Thus, the exemption is inapplicable to the taxpayer.
I also do not find basis for exemption under the premise that the taxpayer takes on the same exempt status as the nonprofit hospitals that formed it. This concept was discussed in the opinion of the U. S. District Court for the Eastern District of Virginia in United States of America v. Commonwealth of Virginia (1980), a copy of which is enclosed for your review. The court rejected this argument in that case, which dealt with an institution created by a number of nonprofit colleges and universities in order to operate the National Radio Astronomy Observatory.
Based on the foregoing and the doctrine of strict construction applied by the Virginia courts in the interpretation of tax exemptions, I do not see basis for exemption in this instance. However, in the event that the taxpayer organizes itself in the form of a nonprofit cooperative association or a nonprofit corporation and is further able to structure its operations in order to provide services exclusively to nonprofit hospitals, the exemption would apply.
Sincerely,
W.H. Forst
Tax Commissioner
Rulings of the Tax Commissioner