Q&A with the Pennsylvania Department of Revenue

Scenario: A §501(c)(3) non-profit tax exempt organization forms a separate LLC

Sep 25, 2014
Scenario:

ABC hospital, a §501(c)(3) non-profit tax exempt organization that qualifies as an institution of purely public charity for PA tax purposes, holds a valid certificate of sales tax exemption with the DOR and has been in good standing with respect to that exemption for several years. In the current year, ABC carries out the following transaction:

ABC forms a separate LLC to operate an ambulatory center that is directly related to ABC’s charitable function and mission. The ambulatory center lie of business activity was placed in a separate LLC solely for legal liability and other operational reasons and ABC owns 100% of LLC. The LLC’s purchases are all related to the charitable function and mission as stated.

Q:

Can the LLC use ABC’s sales tax exemption to purchase tangible goods and services tax free or must the LLC apply for and be approved for its own separate sales tax exemption?

A:

LLC would not be able to use ABC’s exemption. Every entity must qualify an Institution of purely public charity on it own.

Q:
 
Would different answers result whether the LLC elects C corporation status, partnership status, or elect to be a federal disregarded entity of ABC?

A:

Sales tax does not recognize the concept of a disregarded entity.

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These documents provide a summary of the answers provided by the Department of Revenue to the PICPA Committee on State Taxation at its annual question and answer session. These documents are classified as revenue information issued for informational purposes only for the convenience of PICPA members. Pursuant to 61 Pa. Code Section 3.4, these documents should not be relied upon for any purpose or used in tax appeals. Taxpayers requiring a binding opinion on their specific fact situation may request a written letter ruling under 61 Pa. Code Section 3.3.