Tax Type
Retail Sales and Use Tax
Description
Durable Medical Equipment Criteria
Topic
Property Subject to Tax
Date Issued
10-31-2001
October 31, 2001
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****
This is in reply to your letter in which you seek correction of the sales and use tax assessment issued to ***** (the "Taxpayer"), for the period June 1996 through June 1999. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer operates as a physicians' practice offering obstetric and gynecological services. At issue is the tax assessed on the Taxpayer's purchases of intrauterine copper contraceptive devices (the "devices") provided by the Taxpayer in the provision of its services. The Taxpayer suggests the devices meet the criteria of durable medical equipment ("DME") and thus qualify for exemption from the tax.
In addition, the Taxpayer requests waiver of the penalty.
DETERMINATION
Intrauterine Copper Contraceptive Devices
Code of Virginia § 58.1-609.7(2) provides an exemption from the sales and use tax for "wheelchairs and parts therefor, braces, crutches, prosthetic devices, orthopedic appliances, catheters, urinary accessories, other durable medical equipment and devices, and related parts and supplies specifically designed for those products ...when such items or parts are purchased by or on behalf of an individual for use by such individual. Durable medical equipment is equipment which (i) can withstand repeated use, (ii) is primarily and customarily used to serve a medical purpose, (iii) generally is not useful to a person in the absence of illness or injury, and (iv) is appropriate for use in the home."
The Taxpayer maintains that the auditor agrees the devices meet the above DME criteria with the exception of (iii). In this regard, the Taxpayer contends that there are instances when pregnancy may threaten the health of a patient because of the presence of illness. In such instances the patient may not be able to use other forms of contraception or undergo sterilization. The Taxpayer contends that while the devices are used for contraception, they are also used to treat patients with medical conditions that necessitate such use.
The Taxpayer has not provided documentation to support that the medical community has extended the use of the devices for purposes other than contraception. While it may be true that certain medical conditions warrant the avoidance of pregnancy, the devices are designed for contraceptive use and not to treat illness or injury. This is supported by the brochure information which indicates that the devices are "indicated for intrauterine contraception." The brochure goes on to explain that the devices are highly effective in controlling the incidence of pregnancy.
Based on the information provided and the fact that the devices do not meet all of the above criteria, the Taxpayer's devices are not considered exempt DME. In addition, there is no evidence that the devices were purchased on behalf of individual patients. The auditor's report indicates that the devices were purchased from the vendor in bulk quantities.
Penalty
The Taxpayer maintains that it has been led to believe that an audit is an acceptable method of paying taxes to the state and that it has never been supplied with the proper forms to file the sales and use tax. Because of this, the Taxpayer requests waiver of the penalty.
Title 23 of the Virginia Administrative Code 10-210-2032, copy enclosed, provides that the application of penalty to audit deficiencies is mandatory and that the penalty will not be waived on second and subsequent audits for other than exceptional mitigating circumstances. The Taxpayer has not presented evidence that exceptional circumstances existed during the audit period that contributed to its failure to comply.
The Taxpayer has been previously audited by the department and informed of the application of the tax to its business operation. It is the responsibility of the Taxpayer to contact the department (or the auditor) to secure the necessary forms and instructions for compliance with the law. The Taxpayer asserts it was led to believe the tax should be paid at the time of audit. However, the Taxpayer does not provide evidence to support its assertion. In accordance with the regulation, the penalty was properly assessed and there is no basis to waive the penalty.
If you have any questions regarding the determinations in this letter, please contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
AR/24654J
Rulings of the Tax Commissioner