When a nonprofit hospital operates through a 50/50 limited partnership with a for-profit entity, whose charity care counts toward the partnership's sales tax exemption under the Sec. 151.310(e) charity-care requirement — the partnership's own charity care, or charity care provided separately by the individual partners?

Plain-English summary

A hospital operator posed a hypothetical to the Comptroller: a limited partnership "P" operates nonprofit hospitals, with two equal partners — a tax-exempt entity "A" and a for-profit entity "B." Assuming P pays $400 in sales tax during a tax year, and the tax-exempt partner A owns 50% of P, the exemption would theoretically equal 50% of $400 ($200) — but only within the limits of Tax Code § 151.310(e)'s charity-care requirement. The operator asked how each of five different charity-care scenarios would affect the actual exemption amount.

The Comptroller's consistent theme across all five scenarios: the hospital partnership itself must provide the charity care — charity care given separately by a partner, outside the partnership, doesn't count.

• Situation 1 (A gives $150 charity care separately; P itself gives $50; B gives none): P may claim a $50 exemption — exactly equal to what the partnership itself provided, not what partner A gave separately.
• Situation 2 (A and B together give $150 separately; P gives none): P may claim no exemption, because the partnership itself provided no charity care.
• Situation 3 (B gives $100 separately; A and P give none): No exemption — same reasoning.
• Situation 4 (A gives $300 separately; P and B give none): No exemption — even a large amount of charity care from the exempt partner doesn't help if the partnership itself gave none.
• Situation 5 (P itself gives $200; A gives none; B gives $100 separately): P may claim a $200 exemption — again, exactly matching what the partnership itself provided.

What this means for you

Hospitals structured as joint ventures with for-profit partners

If your hospital operates through a partnership or joint venture with a for-profit entity, the sales tax exemption under § 151.310(e) tracks charity care given by the partnership entity itself — charity care your individual partners provide through their own separate operations, no matter how large, does not flow through to support the partnership's exemption. Structure and document charity care at the partnership level if you want it to count.

Accountants and tax professionals

This letter is a clear, numbers-based illustration of § 151.310(e)'s entity-level charity-care requirement in the joint-venture context — useful for advising any nonprofit/for-profit hospital partnership on how to structure and account for charity care to maximize the sales tax exemption.

Common questions

Q: Does charity care given by our tax-exempt hospital partner (separately from the partnership) count toward the partnership's sales tax exemption?
A: No — only charity care provided by the partnership itself counts, regardless of how much either individual partner gives on its own.

Q: How much exemption can our hospital partnership claim?
A: An amount equal to the dollar value of charity care the partnership itself directly provides — not a percentage tied to the tax-exempt partner's ownership share, and not charity care given by partners separately.

Q: What if neither the partnership nor its exempt partner give any charity care, but the for-profit partner does?
A: No exemption for the partnership — the for-profit partner's separate charity care doesn't count either.

Citations and references

Statute:

• Tex. Tax Code § 151.310(e) (charity-care limitation on hospital sales tax exemption)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9909714L

Original ruling text

September 27, 1999

Dear **:

Thank you for your recent letter which is restated in part with response below.

Assume a limited partnership, "P", operates non-profit hospitals. P has two
equal partners. One is a tax-exempt entity called "A". The other is a taxable
entity, "B". Further, assume that the total sales tax paid by P is $400 in the
relevant tax year. Based on the attached responses and without taking into
account any limitations under Section 150.310(e) of the Tax Code, the sales tax
exemption would equal 50% (the percentage interest owned by the tax-exempt
partner, A) of the $400 of sales tax paid or $200. For each fact scenario below
we would like to know the limit on the sales tax exemption under Section
151.310(e) of the Tax Code.

Situation 1: A provides $150 of charity care separate and apart from P. P
provides $50 of charity care. B provides no charity care.

Response 1: The hospital or hospital system must provide the charity care.
Therefore, Limited partnership "P" may claim a sales tax exemption of $50.
This is an amount equal to the charity care provided by the partnership, not
the partners.

Situation 2: A and B provide $150 of charity care separate and apart from P. P
provides no charity care.

Response 2: Limited partnership "P" may not claim a sales tax exemption on
purchases of taxable items in this situation.

Situation 3: B provides $100 of charity care separate and apart from P. A
provides no charity care. P does not provide any charity care.

Response 3: Limited partnership "P" may not claim a sales tax exemption on
purchases of taxable items in this situation.

Situation 4: A provides $300 of charity care separate and apart from P. P and
B provide no charity care.

Response 4: Limited partnership "P" may not claim a sales tax exemption on
purchases of taxable items in this situation.

Situation 5: P provides $200 of charity care. A provides no charity care. B
provides $100 of charity care.

Response 5: Limited partnership "P" may claim a sales tax exemption of $200 in
this situation.

This opinion is rendered based on the facts presented. If there are additional
or different facts, the opinion may change.

You may call me toll free at 1-800-531-5441, ext. 3-4680. The direct line is
512/463-4680. You may also write to Tax Policy, Comptroller of Public
Accounts. The email address is .

Sincerely,

Al Van Allen
Tax Policy Division