Holiday Closing - The Department of Revenue Services will be closed on Monday, May 27th, a state holiday.

Declaratory Ruling No. 1992-1

Sales and Use Taxes


  1. Connecticut Health System, Inc. (hereinafter, "CHS") is a corporation formed in 1986 under the Nonstock Corporation Act, Conn. Gen. Stat. §33-419 et seq.
  2. CHS’s certificate of incorporation provides that it is to:

Operate exclusively for the benefit of Meriden-Wallingford Hospital [now Veterans Memorial Medical Center], Hartford Hospital and other hospitals and their nonprofit medical centers, health care centers, nursing centers, laboratories, clinics and other medical, surgical or dental facilities, in the conduct of their charitable, educational or scientific functions.

The purpose of CHS as stated in its certificate of incorporation is to further public health care and welfare through education and research in medicine, surgery and nursing, provided that the corporation shall not engage in the practice of medicine.

  1. The primary function of CHS as presented in its Declaratory Ruling request is to act as a facilitator for its constituent hospitals in planning and implementing a coordinated and integrated health care delivery system through cooperative ventures among the hospitals and their affiliates, as well as assisting in the development of new alternative health care delivery arrangements. The by-laws of CHS describe its services as planning a joint venture to generate revenues and reduce operating costs for affiliates who deliver health care, reviewing decisions of the hospitals’ boards "for consistency with the objectives of an integrated and financially viable system" and maintaining long-term financial strength.
  2. CHS performs no direct medical services. It has provided some examples of its activities, including the following: (1) it has coordinated consultations at one hospital by specialists from another hospital; (2) it has worked with the medical staffs of two hospitals to plan, coordinate and implement a program in which physicians at one hospital are given access to a specialized laboratory at the other hospital, thereby avoiding the necessity of duplicating facilities; (3) it has promoted a program in which one hospital provides clinical laboratory services to a department of another hospital; (4) it conducts an annual medical staff retreat for the staffs of its constituent hospitals, to facilitate the growth of cooperative clinical and educational relationships among the participating physicians; (5) it has implemented a formal coordination of human resources among its constituent hospitals; (6) it sponsors regular inter-hospital administrator meetings at which chief executive officers of the constituent hospitals discuss common problems and issues; and (7) it oversees a system-wide risk management program, with counterparts at each constituent hospital, which is designed to improve the quality of care at each of the hospitals.
  3. CHS’s operating revenue is provided entirely through funding from its constituent hospitals, characterized by CHS as "contributions." CHS does not receive, nor does it plan to seek, funding from third-party private donations.
  4. CHS has been determined by the Internal Revenue Service to be an organization described in 26 U.S.C. §501(c)(3), and to be exempt from federal income tax.
  5. CHS’s tangible personal property has been exempted from property tax by the City of Hartford.


Whether CHS qualifies for the exemption from sales and use taxes as a charitable organization.


Conn. Gen. Stat. §12-412(8) provides an exemption for sales of tangible personal property or services to charitable organizations. Conn. Agencies Regs. §12-426-15 defines such organizations to be "any organization established exclusively for charitable, religious, scientific, educational, literary, historical or cemetery purposes . . ."

In Yale University v. New Haven, 71 Conn. 316, 332, 42 A.2d 87 (1899), the Connecticut Supreme Court described the rationale behind granting a tax exemption to charitable organizations:

Exemptions are made, and can be made lawfully, only in recognition of a public service performed by the beneficiary of the exemption; . . . they are granted in aid of the accomplishment of a public benefit and for the advancement of the public interest. It is in recognition of their position as an agency in the doing of things which the public, in the performance of its governmental duties, would otherwise be called upon to do at its own expense, or which ought to be done in the public interest and without private intervention would remain undone.

The identification of a charitable purpose, however, does not end the inquiry in deciding whether an entity is due an exemption from Connecticut sales and use taxes. The Connecticut Supreme Court in Camp Isabella Freedman of Connecticut, Inc. v. Canaan, 147 Conn. 510, 563, 162 A.2d 700 (1960), noted that the "requirement that the exempt organization’s income be based to some measureable extent on ‘sums coming from private sources which are spent for the public weal’ remains" (quoting Connecticut Junior Republic Association, Inc. v. Litchfield, 92 Conn. 99, 107, 101 A.2d 834 (1917)). The Connecticut Supreme Court expounded further upon this requirement in 1976, stating that

[t]he existence of a purpose that can be characterized as charitable, however, does not in itself render a corporation charitable and tax-exempt. An institution must be exclusively charitable, not only in the purposes for which it is formed, but also in the manner and means it adopts for the accomplishment of those purposes. Connecticut law for over 150 years has recognized that an essential characteristic of a charitable organization, besides a charitable purpose, is that is achieve its purpose ‘through the means of funds, derived from the gratuities of the benevolent’.

Waterbury First Church Housing, Inc. v. Brown, 170 Conn. 556, 562, 367 A.2d 1386 (1976), citing American Asylum v. Phoenix Bank, 4 Conn. 172, 177 (1822). See also United Church of Christ v. Town of West Hartford, 206 Conn. 711, 539 A.2d 573 (1988) and Bannon v. Wise, 41 Conn. Sup. 469, 586 A.2d 639 (1991), aff’d, 217 Conn. 457, 586 A.2d 596 (191).

In evaluating CHS’s request for an exemption from Connecticut Sales and Use Taxes, the Department must be mindful of the canons of statutory construction. "’It is a settled rule of law that statutes which exempt from taxation are to be strictly construed against the party claiming an exemption.’" Crescent Beach Assn. v. East Lyme, 170 Conn. 66, 71, 363 A.2d 1045 (1976). Exemptions "embrace only what is strictly within their terms." Hartford v. Hartford Theological Seminary, 66 Conn. 475, 482-3, 34 A.2d 483 (1895).

Applying the facts of the present case to both the terms of the exemption statute and its consistent judicial construction, it does not appear that CHS has met the requirements for the exemption, since it has failed to show that it "relies to any extent on the receipt of gratuitous transfers of real or personal property to help defray its costs." Waterbury First Church Housing, supra, at 558. Because CHS’s sole source of revenue is payments from its constituent hospitals, and because CHS renders services only to them, the funds provided by the constituent hospitals appear not to be gratuitous transfers, but consideration for services rendered by CHS. In effect, the constituent hospitals pay for CHS’s overall services to them and their affiliates. This conclusion must be reached notwithstanding CHS’s characterization of these payments as "contributions."

It is significant that the Internal Revenue Code contains no requirement like that enunciated in Connecticut case law, namely, that a charitable entity "achieve its purpose ‘through the means of funds, derived from the gratuities of the benevolent.’" Waterbury First Church Housing, supra, at 562. It should be noted that Waterbury First Church Housing, Inc. also enjoyed a federal exemption under 26 U.S.C. §501(c)(3), as well as qualifying for municipal property tax abatement. Id., 558-9. But as that case demonstrates, exemption from federal and local taxation does not automatically lead to an exemption from sales and use taxes under Connecticut law.


CHS does not qualify for the charitable organization exemption from sales and use taxes under Conn. Gen. Stat. §12-412(8) and Conn. Agencies Regs. §12-426-15 because it does not satisfy the Connecticut case law requirement that it not only be formed for a charitable purpose but that it also achieve its purpose through funds derived from private charitable donations, since it operates solely on funds provided by its constituent hospitals in consideration for services rendered.

Allan A. Crystal 
Commissioner of Revenue Services
March 31, 1992