Tax Type
Retail Sales and Use Tax
Description
Medical-related exemptions, spas in this instance do not meet criteria
Topic
Appropriateness of Audit Methodology
Collection of Delinquent Tax
Exemptions
Date Issued
04-09-2003
April 9, 2003
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 retail sales and use assessment issued to ***** (the "Taxpayer"), for the period July 1998 through April 2001. I apologize for the Department's delay in responding to your letter.
FACTS
The Taxpayer makes retail sales of spas (or hot tubs). A number of sales are made to customers for use in the treatment of chronic arthritis, fibromyalgia and other medical conditions. The Taxpayer sells the spas exempt of the tax because they are prescribed by licensed physicians on written prescription orders.
During the Department's audit, the auditor concluded that an exemption was not applicable to the Taxpayer's sale of spas pursuant to a physician's prescription. As a result, the auditor assessed the tax on the sales. The Taxpayer disputes the tax and contends that it followed the practice of the previous owners and other dealers and acted in good faith.
DETERMINATION
Va. Code § 58.1-609.7 provides a number of medical-related exemptions that require certain criteria be met in order to qualify for the exemptions. The fact that a product is prescribed on a physician's prescription order is not by itself dispositive of its exempt status.
Va. Code § 58.1-609.7(2) provides an exemption for "[w]heelchairs 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 service 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 spas in this instance do not meet criteria (ii) and (iii) because they are sold primarily as leisure products and are useful in instances when illness or injury are not present. While the spas may be useful in treating a number of medical conditions, they do not meet the mandatory requirements set out in the statute. Absent the statutory authority, I am unable to grant an exemption in this instance. As such, the auditor properly assessed the tax on the Taxpayer's sale of the spas.
I understand that the Taxpayer submitted its application for appeal to one of the Department's district offices in May 2001. The application was lost in the mail and a copy was received in the Appeals and Rulings Unit in August 2002. Because of this delay, I will waive the interest charges accrued while the appeal is pending. The Taxpayer should remit payment of the assessment in the amount of ***** within 30 days from the date of this letter. If payment is not received within the time allowed, additional interest charges will apply.
The Code of Virginia sections cited, along with other reference documents, are available online in the Tax Policy Library section of the Department of Taxation's web site, located at www.tax.state.va.us. If you have additional questions regarding this matter, please contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.
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- Sincerely,
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- Kenneth W. Thorson
Tax Commissioner
- Kenneth W. Thorson
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AR/42024J
Rulings of the Tax Commissioner