The Maryland Court of Appeals held that a for-profit company’s purchases for non-profit hospitals were subject to Maryland’s sales and use tax because there was no agency relationship between the company and the hospitals, and even if an agency relationship existed, that alone would not entitle the for-profit company to an exemption.
Johns Hopkins Health System (JHHS), a group of non-profit tax-exempt hospitals, contracted with Broadway Services (Broadway), a for-profit business, for Broadway to provide housekeeping services to the hospitals, including purchasing and providing cleaning supplies for use by the hospitals’ janitorial staffs. Broadway paid sales and use tax on the purchases then requested a refund of the taxes it paid to cleaning supply vendors, asserting that it was reselling the supplies and therefore its purchases were exempt from sales and use tax. The Comptroller of Maryland denied Broadway’s request for refund.
Broadway appealed the Comptroller’s denial to the Maryland Tax Court which held that Broadway was not a reseller, but nevertheless was entitled to a refund because it acted as the non-profit hospitals’ agent. The Court of Appeals reversed the Tax Court’s decision, holding that Broadway was not JHHS’s agent because there was no evidence that Broadway had the power to alter JHHS’s legal relations or had a duty to act primarily for the benefit of the hospitals and because JHHS did not exercise sufficient control over Broadway. Importantly, the Court emphasized that an agency relationship alone is insufficient for an agent to claim the principal’s tax-exempt status. Rather, the agent still must fit within an exemption set forth in Maryland’s Tax Code and the parties must comply with applicable procedures for claiming a tax exemption.