The Maryland Court of Special Appeals ("Court") recently denied a company's refund request for sales tax paid on cleaning supplies used to service nonprofit hospitals. Housekeeping functions at the hospitals were performed by hospital employees. The company supervised, evaluated, and trained the hospitals' employees. The company also provided cleaning supplies.
Maryland exempts sales to nonprofit hospitals and its agents. To determine whether a principal-agent relationship existed, the Court reviewed the following: (1) the agent's power to alter the legal relations of the principal, (2) the agent's duty to act primarily for the benefit of the principal, and (3) the principal's right to control the agent. The Court concluded that the company was not the hospitals' agent. The hospitals did not control which chemicals the company bought. The hospitals were not liable for the cleaning supplies purchases. Also, the company did not have a duty to place the hospitals' interests above its own interests. So, the company was not the hospitals' agent. This meant that the nonprofit hospitals' exemption did not apply to the company's purchases.