Did a faith-based nonprofit hospital qualify for Florida's religious-institution communications-services-tax exemption?

Plain-English summary

The Florida Department of Revenue concluded that a faith-based nonprofit hospital did not qualify for the communications-services-tax exemption for religious institutions.

The hospital was tax-exempt under section 501(c)(3), and about 2% of its square footage was devoted to public chapels staffed by hospital-employed chaplains. Those facts did not change the institution's primary function.

Reading the statutory definition as a whole and construing the exemption narrowly, the Department found that the taxpayer's essence and primary function was operating a medical facility, not a religious institution.

What this means for you

Faith-based nonprofits

Religious affiliation and on-site worship space do not by themselves establish this communications-tax exemption. Florida focused on the organization's primary function.

Hospitals and care facilities

Chapels and chaplain services were not enough where the organization principally operated as a hospital.

Accountants and tax professionals

Review the entire statutory definition and the organization's actual functions. Exemptions were construed narrowly in the ruling.

Common questions

Q: Was the hospital a section 501(c)(3) organization?
A: Yes.

Q: Did it operate chapels open to the public?
A: Yes.

Q: Did those facts qualify it for the exemption?
A: No.

Citations and references

• Fla. Stat. §§ 202.12, 202.125(4)(a), 202.26(3), and 213.22
• Fla. Admin. Code r. 12A-19.043

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 16A19-001

Original ruling text

Executive
Director
Leon M. Biegalski

QUESTION: DOES [TAXPAYER], “A FAITH BASED 501(C)(3), I.R.C., HOSPITAL”
QUALIFY FOR THE EXEMPTION FROM COMMUNICATIONS SERVICES TAX AS A
“RELIGIOUS INSTITUTION” AS DEFINED BY SECTION 202.125(4)(a), F.S.?
ANSWER: TAXPAYER DOES NOT QUALIFY FOR THE EXEMPTION. ALTHOUGH THE
TAXPAYER ASSERTS THAT IT IS A “RELIGIOUS INSTITUTION,” TAXPAYER’S
PRIMARY FUNCTION IS NOT LIKE THOSE LISTED IN SECTION 202.125(4)(a), F.S.
INSTEAD, TAXPAYER’S PRIMARY FUNCTION AS A NONPROFIT MEDICAL FACILITY,
ALBEIT A FAITH-BASED ONE. THEREFORE, TAXPAYER DOES NOT QUALIFY FOR
THE EXEMPTION IN SECTION 202.125(4), F.S.
November 9, 2016
RE: Technical Assistance Advisement 16A19-001
Communications Services Tax
Sections: 202.12, 202.125, and 202.26, Florida Statutes (F.S.)
Rules: 12A-19.043, Florida Administrative Code (F.A.C.)
XXXX
Dear XXXX:
This letter is in response to your request dated July 15, 2016, for issuance of a Technical
Assistance Advisement (“TAA”) pursuant to Section 213.22, F.S., and Rule Chapter 12-11,
F.A.C. An examination of your request has established that you complied with the statutory and
regulatory requirements for issuance of a TAA. Therefore, the Department is hereby granting
your request for a TAA.
Issue Presented
The issue is whether Taxpayer qualifies as a “religious institution” exempt from communications
services tax (CST), pursuant to section 202.125(4)(a), F.S.
Facts
From your letter dated July 15, 2016, our phone conversations, and your email dated October 6,
2016, the facts are understood to be as follows:

Child Support – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – Dr. Maurice Gogarty, Director  Information Services – Damu Kuttikrishnan, Director

http://dor.myflorida.com/dor/
Florida Department of Revenue
Tallahassee, Florida 32399-0100

Technical Assistance Advisement
Page 2

Taxpayer is a 501(c)(3), I.R.C., nonprofit hospital. Approximately two percent of hospital’s
square footage is devoted to the hospital’s chapels. Taxpayer states that the hospital’s chapels
offer religious services that are provided by two Seventh Day Adventist chaplains and their
administrative support staff who are all employed by the hospital. Additionally, the chaplains
will also meet with individuals to provide guidance upon request in the hospital’s chapels.
Taxpayer notes that the hospital’s chapels are open to the public.
Taxpayer states that it is currently being charged communications services tax on its
communications services bills. However, Taxpayer would like “… to avail itself of the
exemption for religious institutions provided in 202.125(4)(a), F.S. …”
Taxpayer’s Position
Your letter of July 15, 2016, provides, in part:

In looking at existing guidance from the Florida Department of Revenue, FL TAA

12A19-001, dated April 6, 2012[,] contains another taxpayer whose circumstances are

nearly identical to that of [Taxpayer]. In that TAA, it was determined that the entity in
question did not qualify for the religious institution exemption in section 202.125(4)(a),
F.S. We believe that there was a misinterpretation of [section] 202.125(4)(a), F.S., in
TAA #12A19- 001. We believe the misinterpretation occurs in the following statement
near the conclusion of the TAA (emphasis supplied):
"In fact, all of the functions described in section 202.125(4)(a), F.S., list specific
qualifiers, such as “sole or primary purpose” or “primary activities,” in order to be
considered religious institutions." (Emphasis in original)
Following this quote, you state:
Section 202.125(4)(a), F.S. provides a detailed, lengthy definition that includes six
separate and distinct descriptions of entities that meet the definition of "religious
institution." One of these six descriptions does not include a specific qualifier.

lf one goes back and looks carefully at the Statute quoted above, one will see that there
are six (6) separate and distinct descriptions provided for entities that qualify as
"religious institutions." To make it more apparent, I have broken out and labeled each
of the six descriptions given in [section] 202.125(4)(a), F.S.: (Emphasis in original)
First. An organization owning and operating [an] established physical place for
worship at which nonprofit religious services and activities are regularly
conducted.
Child Support – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – Dr. Maurice Gogarty, Director  Information Services – Damu Kuttikrishnan, Director

http://dor.myflorida.com/dor/
Florida Department of Revenue
Tallahassee, Florida 32399-0100

Technical Assistance Advisement
Page 3

We are claiming that the description labeled “First” above accurately describes an entity
which it is appropriate to designate as a "religious institution" per the definition provided
in [section] 202.125(4)(a), F.S. In this first description, there is no requirement for
what the Taxpayer's "sole or primary purpose" or "primary function" must be.
This is in clear contradiction to the reasoning provided by the Department in TAA
12A19-001. (Emphasis in original)
Again, each of the six descriptions provided in the definition are complete, stand-alone
descriptions that are independent and distinct from one another. Each description
provides separate, identifiable characteristics of the types of entities that the Legislature
has designated as qualifying "religious institutions." An entity fitting any one of those
descriptions is a "religious institution" based on this section of the Florida Statutes.
The key phrase in the definition that tells us that a listing of additional descriptions of
entities that will qualify as "religious institutions" are about to follow is, "[t]he term also
includes." This language means that the five examples provided after that phrase are
additional descriptions or examples of entities that will qualify, not additional
criteria an entity must meet in order to qualify. As such, each of the five subsequent
descriptions provided after the primary description intends to include other types of
entities that may not have an established physical place for worship at which nonprofit
religious services and activities are regularly conducted. These additional descriptions are
intended to broaden the scope of the definition, not to restrict it. (Emphasis in original)
As further support to the position that there are six separate and distinct descriptions of
entities that qualify as "religious institutions" in the definition provided in [section]
202.125(4)(a), F.S., one needs to look no further than the Rule that was promulgated and
adopted by the Department in relation to this specific Section of the Florida Statutes. In
Fla. Admin. Code Ann. 12A-19.043(3)(b) the six separate and distinct descriptions are
the same as those in the Statutes, however they are more clearly enumerated than in the
Statutes. ln Fla. Admin. Code Ann. 12A-19.043(3)(b) each description is assigned a
different number. ….

Applicable Law
Section 202.12, F.S., provides, in part:
Sales of communications services. —The Legislature finds that every person who
engages in the business of selling communications services at retail in this state is
exercising a taxable privilege….

Child Support – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – Dr. Maurice Gogarty, Director  Information Services – Damu Kuttikrishnan, Director

http://dor.myflorida.com/dor/
Florida Department of Revenue
Tallahassee, Florida 32399-0100

Technical Assistance Advisement
Page 4

Section 202.125, F.S., provides, in part:
(4) The sale of communications services to a home for the aged, religious institution or
educational institution that is exempt from federal income tax under s. 501(c)(3) of the
Internal Revenue Code, or by a religious institution that is exempt from federal income
tax under s. 501(c)(3) of the Internal Revenue Code having an established physical place
for worship at which nonprofit religious services and activities are regularly conducted
and carried on, is exempt from the taxes imposed or administered pursuant to ss. 202.12
and 202.19. As used in this subsection, the term:
(a) "Religious institution" means an organization owning and operating an established
physical place for worship at which nonprofit religious services and activities are
regularly conducted. The term also includes:

1. Any nonprofit corporation the sole purpose of which is to provide free transportation
   services to religious institution members, their families, and other religious institution
   attendees.
2. Any nonprofit state, district, or other governing or administrative office the function
   of which is to assist or regulate the customary activities of religious institutions.
3. Any nonprofit corporation that owns and operates a television station in this state of
   which at least 90 percent of the programming consists of programs of a religious
   nature and the financial support for which, exclusive of receipts for broadcasting from
   other nonprofit organizations, is predominantly from contributions from the public.
4. Any nonprofit corporation the primary activity of which is making and distributing
   audio recordings of religious scriptures and teachings to blind or visually impaired persons
   at no charge.
5. Any nonprofit corporation the sole or primary purpose of which is to provide, upon
   invitation, nonprofit religious services, evangelistic services, religious education,
   administrative assistance, or missionary assistance for a religious institution, or
   established physical place of worship at which nonprofit religious services and activities
   are regularly, conducted. (Emphasis supplied)
   Section 202.26(3), F.S., gives the Department authority to adopt rules relating to the
   interpretation or definition of any exemptions or exclusions from taxation. Section
   202.26(3), F.S., provides, in part:
   To administer the tax imposed by this chapter, the department may adopt rules relating
   to:

Child Support – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – Dr. Maurice Gogarty, Director  Information Services – Damu Kuttikrishnan, Director

http://dor.myflorida.com/dor/
Florida Department of Revenue
Tallahassee, Florida 32399-0100

Technical Assistance Advisement
Page 5

(c) The interpretation or definition of any exemptions or exclusions from taxation
granted by law.

Rule 12A-19.043, F.A.C, interprets, in part, section 202.125(4), F.S.
Discussion and Conclusion
Taxpayer argues that it falls within the definition of a “religious institution” found in section
202.125(4)(a), F.S. The section begins with a general definition of “religious institution,”
requiring that the organization own and operate “… an established physical place for worship at
which nonprofit religious services and activities are regularly conducted.” (Emphasis supplied)
To support its position, Taxpayer indicates that the hospital contains chapels. However, it is
important to note that exemptions must be narrowly construed. In State ex rel. Szabo Food
Services. Inc. v. Dickinson, 286 So.2d 529, 530 (Fla. 1973), the Florida Supreme Court held that:
"Exemptions to taxing statutes are special favors granted by the Legislature and are to be strictly
construed against the taxpayer." The Court further held that the taxpayer who claimed that his
transactions were exempt "must clearly show that" they fell "within the exemption, with any
doubt being resolved in favor of the State." In the instant case, this narrow construction excludes
Taxpayer from qualifying for the general definition of “religious institution,” because, when read
in its entirety, subsection 202.125(4), F.S., in all of the paragraphs require a taxpayer claiming
the exemption to be in fact a religious institution. As your letter noted, in addition to the portion
defining “religious institution” to mean “an organization owning and operating an established
physical place for worship,” section 202.125(4), F.S., also specifically provides types of
organizations meant to be included in the term "religious institution." All of the functions
described in section 202.125(4)(a), F.S., however, list specific qualifiers that are similar in nature
and that are required in order for a taxpayer to be considered a religious institution, such as
“owning and operating,” "sole or primary purpose," “the function of which is,” “at least 90
percent of the programming consists of” or "primary activities.” Every portion of the definition,
indicates that the organization must be in essence a religious institution and not simply have a
percentage devoted to religious activities. Here, Taxpayer’s essence is a hospital, a medical
facility. Taxpayer does not function as a “religious institution.” Therefore, Taxpayer does not
qualify for the exemption provided in section 202.125(4), F.S., granted to a "religious
institution."
This response constitutes a Technical Assistance Advisement under section 213.22, F.S., which
is binding on the Department only under the facts and circumstances described in the request for
this advice, as specified in section 213.22, F.S. Our response is predicated on those facts and the
specific situation summarized above. You are advised that subsequent statutory or administrative
rule changes or judicial interpretations of the statutes or rules upon which this advice is based
may subject similar future transactions to a different treatment than expressed in this response.

Child Support – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – Dr. Maurice Gogarty, Director  Information Services – Damu Kuttikrishnan, Director

http://dor.myflorida.com/dor/
Florida Department of Revenue
Tallahassee, Florida 32399-0100

Technical Assistance Advisement
Page 6

You are further advised that this response, your request and related backup documents are public
records under Chapter 119, F.S., and are subject to disclosure to the public under the conditions
of section 213.22, F.S. Confidential information must be deleted before public disclosure. In an
effort to protect confidentiality, we request that you provide the undersigned with an edited copy
of your request for Technical Assistance Advisement, the backup material and this response,
deleting names, addresses and any other details which might lead to identification of the
Taxpayer. Your response should be received by the Department within 15 days of the date of this
letter.

Sincerely,

Timothy Surface
Senior Attorney
Technical Assistance and Dispute Resolution
(850) 717-7312
Record ID 211470

Child Support – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – Dr. Maurice Gogarty, Director  Information Services – Damu Kuttikrishnan, Director

http://dor.myflorida.com/dor/
Florida Department of Revenue
Tallahassee, Florida 32399-0100