RESEARCH STAFF

DALLAS G. GOLD

LEGISLATIVE INTERN

DENISSE GEE

LEGISLATIVE RESEARCH ANALYST

FINANCE COMMITTEE

Telephone: (602) 542-3171

Facsimile: (602) 542-7833

TO: MEMBERS OF THE SENATE

DATE: March 1, 2001

SUBJECT: Strike Everything Amendment to S.B.1259

Purpose

Exempts nonprofit health care entities from transaction privilege taxation for expenditures related to leasing, purchasing or constructing nonprofit health care facilities and expands the definition of a “qualifying health care organization.”

Background

In 1993, the legislature adopted a transaction privilege tax (TPT) exemption for purchases made by nonprofit health care facilities. To be eligible for this exemption, nonprofit health care facilities apply to the Department of Revenue (DOR) for an exemption letter, conditional upon its possession of a license issued by the Department of Health Services (DHS). One of the requirements for licensure from DHS is a fully constructed facility. Consequently, purchases made by a nonprofit health care facility during and related to the construction of its facilities are not included under this tax exemption. The strike everything amendment to S.B. 1259 exempts nonprofit entities from the TPT on purchases made for the development and construction of health care facilities that upon completion will be operated as a nonprofit health care facility.

Currently, the definition of qualifying health care organization includes organizations that use at least 80 percent of their total receipts on health and medically related education and charitable services. The strike everything amendment to S.B. 1259 includes under the definition those health care organizations that save or invest 80 percent of their receipts for health and medical related education and charitable services, and allows funds used, saved or invested in order to lease, purchase or construct a facility that will be used for these services to be applied toward the 80 percent requirement. Additionally, the strike everything amendment to S.B. 1259 includes under the definition of a qualifying hospital those hospitals, institutions or facilities not yet constructed that will be used for the purposes of a qualifying hospital upon completion of construction.

Provisions

1. Includes a center not yet constructed, but one that upon completion of construction will become a qualifying health care center, under the definition of a “qualifying community health center.”

2. Includes, under the definition of “qualifying health care organization,” recognized (under IRS code, section 501(c) nonprofit entities that save or invest at least 80 percent of all monies received from all sources each year for future health and medical related educational and charitable services.

3. Specifies under the definition of “qualifying health care organization” that monies used, saved or invested to lease, purchase or construct a facility that will be used for the specified purposes be applied to the 80 percent requirement.

4. Includes, under the definition of “qualifying hospital,” a hospital, institution or facility not yet constructed, but that upon completion of construction, will be a qualifying hospital.

5. Specifies that if a seller claims a deduction based on a contingent exemption letter from a purchaser, DOR may require the purchaser to establish the satisfaction of the contingent event within a reasonable time.

6. Requires a purchaser that is not able to establish the satisfaction of the contingent event within a reasonable time to pay an amount equal to any tax, penalty, and interest which the seller would have been required to pay without the contingent exemption letter

7. Provides for a general effective date.

Amendments Adopted by Committee

Adopted the strike everything amendment.

Senate Action

FIN 3/5/01 DPA/SE 7-1-0-0

DGG/DG/ac