Tax Type
Retail Sales and Use Tax
Description
Nonprofit organizations, private schools, and churches; Counseling center
Topic
Taxability of Persons and Transactions
Date Issued
03-18-1994
March 18, 1994
Re: §58.1-1821 Application: Sales and Use Tax
Dear*************
This will reply to your letter of May 22, 1992, in which you submit an application for correction of sales and use tax assessed to ********* as the result of an audit. I apologize for the delay in responding to your correspondence.
FACTS
Your client is a Virginia nonstock corporation exempt from federal income tax under Internal Revenue Code §501 (c) (3), which was organized to operate two licensed nursing homes and a center to provide counseling to the families of patients suffering from Alzheimer's disease. The sales and use tax assessment in this case is solely with respect to the counseling center.
You note that the counseling center is an extension of the nursing homes operated by your client, as well as four nonprofit hospitals operated by a related nonstock, nonprofit corporation, and as such should be exempt from the tax under Va. Code §58.1-609.7 (4).
DETERMINATION
Va. Code §58.1-609.7 (4) provides an exemption from the sales and use tax for "[t]angible personal property for use or consumption by a nonprofit hospital or a nonprofit licensed nursing home." Under long-standing Virginia case law, exemptions from the tax are to be strictly construed, with any doubts resolved against the one claiming exemption.
In this case, the counseling center, in and of itself, is neither a hospital nor a licensed nursing home. Nonetheless, you argue that the center should be exempted as part of the nonprofit hospitals operated by a related corporation and the licensed nonprofit nursing homes operated by your client.
Although this type of situation is not directly addressed in Virginia Regulation 630-10-47 (which sets out the application of the tax to hospitals and nursing homes), I find the provisions of the regulation relating to "clinics" to be on point:
-
- Unless a clinic is an integral part of a hospital conducted not for profit or is itself licensed as a hospital ... and conducted not for profit, sales to such a clinic are taxable.
In this case, the fact that the counseling center is operated by a corporation organized separate and apart from the nonprofit hospitals indicates that the center is not an "integral" part of the hospitals. Furthermore, while the same corporation that owns the counseling center owns two licensed nonprofit nursing homes, the counseling center apparently is operated separate and apart from the nursing homes and as such was not an integral part of the homes.
Finally, you note that the counseling center is now operated by your client in conjunction with a local government. You argue that this relationship should now create an exemption under Va. Code §58.1-609.1 (4), which applies to tangible personal property purchased for use or consumption by political subdivisions of the Commonwealth. It is well established under Virginia case law and regulations (Virginia Regulations 630-10-27.J and 630-10-45.E) that the governmental exemption does not apply to contractors and other persons providing services for governmental entities. In this case, no evidence has been presented to show that your client operates as an agent for the local government and that its purchases are made with public funds. As such, I find no basis for exemption based on your client's relationship with the local government.
The balance of the assessment as of the date of your appeal was*************** if this amount is paid within 30 days, I will waive the interest that has accrued since the date of your appeal. Your client may submit its payment to ************* Office of Tax Policy, Department of Taxation, P. O. Box 1880, Richmond, Virginia 23282-1880.
Sincerely,
Danny M. Payne
Acting Tax Commissioner
OTP/6260A
Rulings of the Tax Commissioner