April 11, 2008
States Should Avoid Sales Taxes on Nonprofit Hospital Purchases
A new Tax Foundation Fiscal Fact, "States Should Avoid Sales Taxes on Nonprofit Hospital Purchases," provides a quick look at how each state taxes purchases made by nonprofit hospitals. While income tax exemptions for nonprofit hospitals may not be justified under the principles of sound tax policy, sales tax exemptions for the purchase of inputs are. Only seven states exempt inputs purchased by all hospitals, and six states do not exempt inputs purchased by nonprofit hospitals.
States seeking a neutral, transparent sales tax system should exempt all business-to-business transactions and impose sales tax only on final retail sales of goods and services. Because many states continue to impose sales tax on business-to-business inputs, examining the tax treatment of a variety of such transactions can provide insight into the neutrality and transparency of a state's overall tax system. For many states, exempting inputs from the sales tax should be a part of any tax reform effort.
Click here to read the Fiscal Fact. Click here for more on sales taxes.
