Does a tax-exempt nonprofit hospital have to collect sales tax when it leases radiology equipment to a for-profit joint venture it forms with a group of radiologists?

Plain-English summary

A nonprofit hospital that qualifies as a tax-exempt organization under both federal law (IRC § 501(c)(3)) and New York's own exempt-organization rule (Tax Law § 1116(a)(4)) had purchased radiology equipment and wanted to lease it to a joint venture it was forming with a group of radiologists. The joint venture would operate on the hospital's own premises, use the equipment exclusively for its professional radiology practice, and would itself be a for-profit LLC with no exempt status of its own. The hospital would not sell or lease this (or similar) equipment to anyone else.

New York generally exempts sales and leases by tax-exempt organizations like this hospital. But there's a carve-out: retail sales made through a "shop or store" operated by the exempt organization stay taxable, because the state doesn't want tax-exempt entities gaining a pricing edge by running ordinary retail businesses tax-free. The question was whether leasing equipment to the joint venture crossed into that "shop or store" territory.

The Department said no. A single lease of specific equipment to a single joint venture, for that venture's own use, isn't the kind of regular, ongoing retail selling activity that the shop-or-store exception is aimed at. Because the hospital isn't operating anything resembling a store — it made one lease to one related venture, not a pattern of sales to the general public — its exemption stays intact, and it doesn't have to collect or remit sales tax on the lease payments. The Department did flag a limit: if the hospital started leasing this or similar equipment to more than one customer, that broader pattern could turn the activity into a taxable shop-or-store operation.

What this means for you

Nonprofit hospitals and other exempt organizations

A one-off equipment lease to a single related entity for that entity's own use generally stays within your organization's sales tax exemption. But if you start leasing the same kind of equipment to multiple outside parties, you risk crossing into "shop or store" territory, where those sales become taxable even though your organization is otherwise tax-exempt.

Physician joint ventures and management companies formed with hospitals

The joint venture itself gets no exemption here — it's a for-profit entity. The favorable tax result runs entirely through the hospital's exempt status on the lease transaction, not through anything about the joint venture's own tax profile.

Accountants and tax professionals

The key regulatory hook is 20 NYCRR § 529.7(i)'s "shop or store" definition — a place where goods are sold "with a degree of regularity, frequency and continuity." A single lease to a single customer doesn't meet that bar; a pattern of leases to unrelated customers likely would, per the Department's own caution in this opinion and its prior Point-O-Woods Historical Society ruling.

Common questions

Q: Do tax-exempt hospitals ever have to collect sales tax?
A: Yes — if the hospital operates a retail shop or store, sales through that shop or store are taxable even though the hospital itself is otherwise exempt. This ruling is about the narrower question of whether a single equipment lease counts as that kind of shop-or-store activity; here it didn't.

Q: Would the answer change if the hospital leased equipment to several different joint ventures or outside groups?
A: Possibly. The Department specifically noted that leasing to more than one customer could turn the activity into a taxable shop-or-store operation, so this exact favorable result doesn't automatically extend to a broader leasing program.

Q: Does the for-profit status of the joint venture matter to the sales tax analysis?
A: Not directly — the exemption comes from the hospital's own status as the lessor, not from the joint venture's tax status as the lessee.

Q: Can another hospital rely on this ruling for its own equipment leases?
A: No. This advisory opinion binds the Department only for the petitioner's hospital and the specific facts described, and the Department itself warned that different facts (like leasing to multiple parties) could produce a different result.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(4)(i) (definition of "retail sale")
• Tax Law § 1101(b)(5) (definition of "sale, selling or purchase," including leases)
• Tax Law § 1105(a) (tax on retail sales of tangible personal property)
• Tax Law § 1116(a)(4) (exemption for religious, charitable, scientific, etc. organizations)
• Tax Law § 1116(b)(1) (shop-or-store exception to the exempt-organization exemption)
• 20 NYCRR § 529.7(i) (sales by exempt organizations; shop-or-store definition)

Prior rulings referenced:

• Point-O-Woods Historical Society, Adv Op Comm T&F, June 25, 1997, TSB-A-97(36)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2000.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a00_46s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-00(46)S
Sales Tax
October 19, 2000

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S000510B

On May 10, 2000, the Department of Taxation and Finance received a Petition for Advisory
Opinion from Mark S. Klein, Esq., One M & T Plaza, Suite 2000, Buffalo, NY 14203.
The issue raised by Petitioner, Mark S. Klein, Esq., is whether a hospital’s lease of radiology
equipment to a joint venture under the following set of facts is subject to State and local sales and
use taxes.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner represents a hospital (the “Hospital”) which has qualified as a nonprofit
corporation and an exempt organization under Section 501(c)(3) of the Internal Revenue Code and
Section 1116(a)(4) of the Tax Law. The Hospital has been issued an exempt organization certificate
by the New York State Department of Taxation and Finance. The Hospital has purchased radiology
equipment from an unrelated third party. The Hospital would like to begin leasing the equipment
to a joint venture consisting of the Hospital and a group of radiologists (the “Joint Venture”). The
Joint Venture is located on the Hospital premises. The Hospital will be leasing the equipment to the
Joint Venture for use in the Joint Venture’s professional radiology practice and will not be selling
or leasing this (or similar) equipment to any other parties. The Joint Venture will be a for-profit
limited liability company and will not constitute an exempt organization under the Internal Revenue
Code or the Tax Law.
Applicable Law and Regulations
Section 1101(b) of the Tax Law provides, in part:
When used in this article for the purposes of the taxes imposed by
subdivisions (a), (b), (c) and (d) of section eleven hundred five and by section eleven
hundred ten, the following terms shall mean:
*

*

*

(4) Retail sale. (i) A sale of tangible personal property to any person for any
purpose, other than (A) for resale as such or as a physical component part of tangible
personal property . . .

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Sales Tax
October 19, 2000

(5) Sale, selling or purchase. Any transfer of title or possession or both,
exchange or barter, rental, lease or license to use or consume . . . conditional or
otherwise, in any manner or by any means whatsoever for a consideration . . . .
Section 1105(a) of the Tax Law imposes tax upon:
The receipts from every retail sale of tangible personal property, except as
otherwise provided in this article.
Section 1116 of the Tax Law provides, in part:
Exempt organizations. (a) Except as otherwise provided in this section, any
sale or amusement charge by or to any of the following or any use or occupancy by
any of the following shall not be subject to the sales and compensating use taxes
imposed under this article:
*

*

*

(4) Any corporation, association, trust, or community chest, fund or
foundation, organized and operated exclusively for religious, charitable, scientific,
testing for public safety, literary or educational purposes, or to foster national or
international amateur sports competition . . .
*

*

*

(b) Nothing in this section shall exempt:
(1) retail sales of tangible personal property by any shop or store operated by
an organization described in paragraph (4), paragraph (5) or paragraph (6) of
subdivision (a) of this section. . . .
Section 529.7(i) of the Sales and Use Tax Regulations provides, in part:
Sales by exempt organizations. (1) Except as provided in paragraphs (2)
through (4) of this subdivision, sales of tangible personal property and services by
exempt organizations are exempt from the sales and use tax.
(2) Retail sales of tangible personal property made by any shop or store
operated by an exempt organization described in section 1116(a)(4), (5) or (6) are
subject to the sales and use tax. A shop or store as used in this section includes any
place or establishment where goods are sold from display with a degree of

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Sales Tax
October 19, 2000

regularity, frequency and continuity as well as any place where sales are made
through a temporary shop or store located on the same premises as persons required
to collect tax. Vending machines alone do not constitute a shop or store. However,
where vending machines are located in a defined area devoted to selling
tangible personal property, then sales from such vending machines constitute sales
from a shop or store.
Opinion
The Hospital is an exempt organization as described in Section 1116(a)(4) of the Tax Law.
Sales of tangible personal property by such exempt organizations are exempt unless made by a shop
or store operated by the organization. See Section 1116(b)(1) of the Tax Law. The Hospital will be
leasing radiology equipment to the Joint Venture for use in the Joint Venture’s professional
radiology practice and will not be selling or leasing this (or similar) equipment to any other parties.
The Hospital’s lease of radiology equipment to the Joint Venture will not constitute a sale
made by a shop or store operated by an exempt organization under Section 1116(b)(1) of the Tax
Law and Section 529.7(i) of the Sales and Use Tax Regulations. Accordingly, the Hospital is not
required to collect and remit sales tax on its lease of such equipment. See Point-O-Woods Historical
Society, Adv Op Comm T&F, June 25, 1997, TSB-A-97(36)S. This Advisory Opinion is limited
to the facts submitted by Petitioner. Under certain circumstances, for example if Petitioner entered
into equipment leases with more than one customer, Petitioner might be required to collect sales tax
on its lease transactions.

DATED: October 19, 2000

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist III
Technical Services Division

The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.