87-291 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Nonprofit corporation procuring and operating magnetic resonance equipment; Exemption criteria

Topic

Exemptions

Taxability of Persons and Transactions

Date Issued

12-10-1987

December 10, 1987

Re: Request for Ruling/Sales and Use Tax

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

This will reply to your letter of September 21, 1987, in which you request a ruling on the application of the sales and use tax to *********************.

FACTS

**************** (Taxpayer) is a nonprofit corporation organized to procure and operate magnetic resonance equipment. The members of the corporation are four nonprofit health care systems. 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 corporations organized and operated for the sole purpose of providing services exclusively to nonprofit hospitals and shall not include any...nonprofit hospital...corporation providing services of any kind or to any extent to other than nonprofit hospitals. Emphasis added

Inasmuch as the taxpayer is deemed to be a nonprofit organization under §501 (c)(3) of the Internal Revenue Code and is organized as a corporation, the first test for exemption is met. However, it is not apparent whether the second test for exemption, provision of services exclusively to nonprofit hospitals, has been met in this instance. The statute requires that a corporation be organized for the sole purpose of providing services exclusively to nonprofit hospitals. Further, the statute specifically provides that the exemption does not apply when a corporation provides services of any kind or to any extent to other than nonprofit hospitals.

If the taxpayer can structure its operations to provide services exclusively to nonprofit hospitals, it would appear that the exemption will apply. For instance, this may require the taxpayer to make all billings for magnetic resonance imaging services directly to nonprofit hospitals, rather than to the individual patients served by the hospitals. It should further be noted that the exemption will not apply if services are provided to nonprofit health care organizations other than hospitals.

To assist you in your analysis of the taxpayer's operations, I have enclosed a recent ruling of the department on this issue. If you have any further questions or concerns, please feel free to contact the department.

Sincerely,

W. H. Forst
Tax Commissioner

Rulings of the Tax Commissioner