Current through Register Vol. 46, No. 12, March 20, 2024
Tax Law, § 1116(a)(7)
(a)
General.
(1) Not-for-profit corporations operating as
health maintenance organizations subject to the provisions of article 44 of the
New York State Public Health Law (hereinafter referred to as HMO's) meeting the
qualifications of subdivision (b) of this section are exempt from the sale and
use tax on purchases of tangible personal property, services, food and drink,
hotel occupancy or admissions and dues. (For application of tax to sales by
HMO's, see subdivision [h] of this section.)
(2) To confirm its exempt status, an HMO must
complete and file an application meeting all the requirements set forth in
subdivision (e) of this section and prove that it meets the statutory
requirements.
(3) HMO's qualifying
for exemption will be issued an exempt organization certificate as set forth in
subdivision (e) of this section.
(b)
Qualifications.
(1) To qualify for exemption, an HMO must:
(i) be formally organized as a not-for-profit
corporation with articles of incorporation defining its purposes and
activities;
(ii) have bylaws or
other codes of rules or regulations describing how it will function and select
the officers empowered to act for it; and
(iii) have actually selected, elected or
appointed such persons authorized to act on its behalf.
(2) In addition to the formal organizational
requirement, an HMO must prove that it is both organized and operated
exclusively as a health maintenance organization under article 44 of the New
York State Public Health Law and not for pecuniary profit or financial gain. If
the corporation fails to meet either the organizational test or the operational
test set forth in subdivisions (c) and (d) of this section, it is not
exempt.
(c)
Organizational test.
(1) A
not-for-profit corporation acting as a health maintenance organization will
satisfy the organizational test only if its articles of incorporation:
(i) contain a provision prohibiting the
distribution of its income and assets, in whole or part, to the benefit of any
director, officer, member or other private person;
(ii) limit the purposes of such corporation
to the provision of comprehensive health services to an enrolled population for
a basic advance or periodic charge; and
(iii) do not expressly empower the
corporation to participate, other than as an insubstantial part of its
activities, in activities which themselves are not in furtherance of such
purposes.
(2) However,
the not-for-profit corporation may:
(i) pay
reasonable compensation for services actually rendered; and
(ii) make reimbursements for expenses
reasonably and necessarily incurred in carrying out the purposes of a health
maintenance organization.
(d)
Operational test.
(1) Activities.
A not-fot-profit corporation will be regarded as operated
exclusively as a health maintenance organization only if almost all of its
activities accomplish the purpose of providing comprehensive health services to
an enrolled population for a basic advance or periodic charge.
(2) Certificate of authority.
A not-for-profit corporation will not be considered to be
operating exclusively as a health maintenance organization unless in accordance
with the Public Health Law it has received a certificate of authority from the
New York State Department of Health.
(3) Noninurement requirement.
An HMO is not exempt from sales tax if any part of its net
earnings, income, or assets inure in whole or part to the benefit of any
director, officer, member or other private person, except that the corporation
may pay reasonable compensation for services actually rendered and make
reimbursements for expenses reasonably and necessarily incurred in carrying out
the purpose of a health maintenance organization.
(e)
Applications for exempt
status.
(1) To establish its status as
an organization exempt from the sales and use tax, an HMO must submit to the
Taxpayer Assistance Bureau, W.A. Harriman Campus, Albany, NY 12227, an
application for the exemption, stating on the application form the basis for
its claimed exemption from the tax, as prescribed by the Department of Taxation
and Finance.
(2) The application
must be signed by a responsible officer of the corporation.
(3) The application will not be considered
complete unless the following documents, which will be retained as part of the
application for the exemption, are submitted:
(i) a copy of the articles of incorporation,
with any amendments thereto, and filing receipt(s) from an appropriate
governmental entity or entities;
(ii) a copy of the bylaws or other similar
code of regulations with a copy of any amendments;
(iii) a statement of activities which fully
describe the operations of the health maintenance organization, including
descriptions of the geographic area to be served, enrollment policy, services
provided to subscribers, location of its facilities, type and number of health
care personnel employed at the facilities, and a listing of the name, address
and service(s) of all providers of health services with whom the health
maintenance organization has contracted;
(iv) a copy of the certificate of authority
to operate a health maintenance organization issued to the HMO by the New York
State Department of Health;
(v) a
statement of receipts and expenditures (which should clearly reflect the nature
and amount of the receipts, and the purpose and amount of the expenditures) for
the most recent fiscal year of operation, or for the period which the
corporation has been in existence, if less than a year; and
(vi) a statement of assets and liabilities as
of the end of the most recent fiscal year of operation, or as of the date of
the filing of the application, if the organization was in existence for less
than a year.
(4) In
addition to the information specifically called for by this section, the Tax
Department may require additional information which it deems necessary for a
proper determination of whether the corporation is exempt under section
1116(a)(7) of the Tax Law
and may prescribe the form in which the proof of such entitlement to exemption
is to be furnished.
(5) The
application, of which all supporting documents are a part, must contain or be
verified by written declaration that it is understood that any willfully false
representation made therein may be subject to the penalties prescribed by
section
1817(b) of the Tax Law and
section
210.45 of the Penal Law.
(6) Upon the approval of the application by
the taxpayer assistance bureau, the bureau will issue to the applicant a
numbered exempt organization certificate.
Cross-reference:
For applicable general regulations, including denials, see
section
529.1(j)
of this Part.
(f)
Amendments and revocations.
(1)
The exempt organization certificate must be returned to the Sales Tax Exempt
Organization Section, Taxpayer Assistance Bureau, W.A. Harriman Campus, Albany,
NY 12227, if the HMO changes its status as a not-for-profit corporation, or if
its certificate of authority to operate as a health maintenance organization is
revoked or annulled by the New York State Department of Health.
(2) The taxpayer assistance bureau must be
notified if the HMO changes its purposes or activities, or its certificate of
authority to operate as a health maintenance organization is limited by the New
York State Department of Health. Upon receipt of the applicable amended
organizing documents or statement of activities, a reappraisal of the HMO's
exempt status will be made by the department.
(3) When an HMO changes its structural form
(e.g., one not-for-profit corporation consolidating or merging
with another not-for-profit corporation), it must submit an application and
supporting documents for an exempt organization certificate in order to
establish the new entity's status for sales tax exemption.
(4) An exempt organization certificate may be
revoked if there is misuse of the exemption granted, or if it is discovered
that the HMO's application contained misleading or deceptive information, or if
the HMO fails to notify the taxpayer assistance bureau as provided by this
subdivision of any change in its purposes, activities, organizational structure
or of the revocation, limitation or annulment of its certificate of authority
to operate as a health maintenance organization. Where the Department of
Taxation and Finance determines it to be appropriate, such as circumstances
evidencing the intentional misuse and/or other similar misuse of the exemption
granted the revocation may be effective retroactively to the date of misuse.
Cross-reference:
For misuse and revocation, see section
529.1(j)
of this Part.
(g)
Sales to HMO's.
(1) Any sale or
amusement charge to or any use or occupancy by an HMO to which an exempt
organization certificate has been issued is not subject to the sales and use
tax.
(2) To exercise its right to
exemption, the HMO must be the direct purchaser, occupant or patron of record.
It must also be the direct payer of record and furnish its vendors with a
properly completed exempt organization certification. Direct purchaser,
occupant or patron as used in this paragraph, includes any agent or employee
authorized by the HMO to act on its behalf when making purchases, provided the
corporation and its agent or employee are both identified on any bill or
invoice. An HMO is the direct payer of record where direct payment is made by
the corporation or from the corporation's funds directly to the
vendor.
(3) An exempt organization
certification is deemed to be properly completed when it contains the:
(i) name and address of the vendor;
(ii) name and address of the HMO;
(iii) number assigned to the exempt
organization certificate;
(iv)
signature of a responsible officer of the exempt HMO; and
(v) date the certification was
executed.
(4) Sales to
any member, officer, or employee of an exempt HMO are subject to the sales and
use tax when the sales are for the personal use of the purchaser rather than
the corporation.
(h)
Sales by HMO's.
Sales of tangible personal property, services and food and
drink by HMO's exempt under section 1116(a)(7) of article 28 of the Tax Law are
not subject to the sales and use tax.
Cross-reference:
For application of tax on admissions, see section
527.10 of this
Title.