A company operates parking facilities in a large medical complex and sells monthly parking services to nearby tax-exempt organizations (like hospitals), which in turn let designated employees, physicians, nurses, volunteers, and directors use that parking for free while carrying out their work at the exempt organizations' facilities. The parking operator doesn't currently collect sales tax on these sales but does get exemption certificates from the exempt organizations. Is that correct?

Plain-English summary

A company operates parking facilities in a large medical complex, located near or adjacent to various tax-exempt organizations described in Tax Code Section 151.310(a) (a category that includes hospitals). Those exempt organizations buy monthly parking services from the company, then let designated employees, directors, volunteers, nurses, physicians, and others who work at the organizations' facilities use the parking free of charge, in connection with their activities there. When the exempt organizations pay the parking company each month, the company doesn't collect Texas sales tax on those charges — but it does obtain exemption certificates from the exempt organizations. The company asked the Comptroller to confirm that arrangement is correct.

The Comptroller confirmed it is: sales of parking services to an organization exempted under Tax Code Section 151.310(a) and Rule 3.322(f)(1) are exempt from tax, as long as the exempt organization (or its authorized agent) pays for the parking and provides the vendor a properly completed exemption certificate in the Comptroller's prescribed form. The fact that the exempt organization then lets designated individuals use that parking free of charge, in connection with their work at the organization's facilities, doesn't disturb the exemption on the original sale.

What this means for you

Parking facility operators serving hospitals and other exempt organizations

If your exempt-organization customer pays for the parking directly and gives you a properly completed exemption certificate, you don't need to collect sales tax on that sale — even though the exempt organization then provides the parking free to its own staff, physicians, or volunteers as part of their work.

Hospitals and similar exempt organizations providing free parking benefits to staff

Providing parking as a free benefit to designated employees, physicians, nurses, or volunteers doesn't jeopardize your exemption on the underlying parking purchase, as long as you're paying directly (or through an authorized agent) and providing a proper exemption certificate to the vendor.

Accountants and tax professionals

This letter confirms the straightforward application of the exempt-organization purchaser exemption (Section 151.310(a), Rule 3.322(f)(1)) to a parking-services context, and confirms that a downstream free benefit to individuals connected to the exempt organization's activities doesn't convert the purchase into a taxable transaction.

Common questions

Q: Does a hospital have to pay sales tax on parking services it buys for its staff and physicians?
A: No, if the hospital qualifies as an exempt organization under Tax Code Section 151.310(a), pays for the parking directly (or through an authorized agent), and gives the parking vendor a properly completed exemption certificate.

Q: Does it matter that the hospital then provides that parking free of charge to individual employees/physicians/volunteers?
A: No — the exemption is on the sale to the exempt organization; the organization's subsequent free provision to its staff doesn't affect that.

Q: What does the parking vendor need to keep on file to support the exemption?
A: A properly completed exemption certificate in the form prescribed by the Comptroller, from the exempt organization or its authorized agent.

Q: Can I rely on this letter for my own hospital/exempt-organization parking arrangement?
A: No. It's based on the facts presented, and the letter notes other facts, though similar, may provide a different result.

Citations and references

• Tex. Tax Code § 151.310(a) (exempt organizations)
• 34 Tex. Admin. Code Rule 3.322(f)(1) (exempt organization purchases)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9803186L

Original ruling text

March 3, 1998

Dear ***:

This is in response to your request for a ruling on behalf of your client
("Client") regarding the sale of motor vehicle parking services to tax-exempt
organizations. You are asking if the Texas sales and use tax applies to those
sales.

FACTS

Client, a tax-exempt organization operates facilities for parking motor
vehicles in a large medical complex. Client provides motor vehicle parking
services at those facilities. The parking facilities operated by Client are
located near or adjacent to the offices and facilities of certain other
organizations described in 151.310(a).

The Tax- Exempt Organizations purchase the parking services from Client. Those
Parking Services allow a motor vehicle to be parked, usually on a monthly
basis, at a designated parking facility operated by Client. In the
transactions at issue in this ruling request, the Tax-Exempt Organizations
allow designated employees, directors, volunteers, nurses, physicians and other
individuals who undertake activities at the offices of facilities of the
Tax-Exempt Organizations (the "Individuals") to use, in connection with those
activities and free of charge, the Parking Services purchased from Client.
When the Tax-Exempt Organizations pay Client for the Parking Services each
month, Client does not collect Texas sales tax from the Tax-Exempt
Organizations on the amounts charged the Tax-Exempt Organizations for the
Parking Services, but it does obtain exemption certificates from the Tax-Exempt
Organizations.

RULING REQUESTED

Client requests a ruling that under 151.310(a) and 34 Texas Administrative Code
Sec. 3.322(f)(1) no Texas sales or use tax must be collected by Client on the
Parking Services sold by client to the Tax-Exempt Organizations when those
Parking Services are purchased by the Tax-Exempt Organizations and provided to
the Individuals free of charge in connection with their activities at the
offices or facilities of the Tax-Exempt Organizations.

Response: Sale of parking services by Client to an organization exempted
under 151.310(a) and 34 Texas Administrative Code Sec. 3.322(f)(1) are exempt
from tax when the organization or an authorized agent of the organization pays
for the item and provides the vendor an exemption certificate in the form
prescribed by the comptroller.

This opinion is based on the facts presented. Other facts though similar may
provide a different result.

I hope this information answers your questions. If you need additional
information, please
call me toll-free at 1-800-531-5441, extension 3-4502. The direct line is
512/463-4502. You may also write to Tax Policy Division, Comptroller of Public
Accounts. You may also e-mail our tax help section at:

Sincerely,

Gilbert Zamora
Tax Policy Division