Tax Type
Retail Sales and Use Tax
Description
Medicaid benefits; medical products purchased by Medicaid recipients
Topic
Exemptions
Date Issued
02-14-2003
February 14, 2003
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****:
This is in reply to your letter of November 19, 2002, in which you seek confirmation that the Department of Medical Assistance Services' ("DMAS") contractual arrangement for administering Medicaid benefits is consistent with the exemption from the retail sales and use tax for certain medical products purchased by Medicaid recipients.
Medicaid benefits are administered by DMAS to eligible recipients in Virginia under the *****. In administering these benefits, DMAS contracts (or enters into provider agreements) with the following ***** managed care organizations ("MCOs"): which includes *****. These MCOs enter into provider agreements with vendors to provide products and medical services to Medicaid recipients. The vendors also have the option of entering into an agreement directly with DMAS. Upon making sales of a service or product to a recipient, the vendor submits a claim and is reimbursed by the MCO. You believe that this contractual arrangement is consistent with the exemption provided in Va. Code § 58.1-609.7(20).
Va. Code § 58.1-609.7(20) provides an exemption from the sales and use tax for "medical products and supplies, which are otherwise taxable, such as bandages, gauze dressings, incontinence products and would-care products, when purchased by a Medicaid recipient through a Department of Medical Assistance Services provider agreement."
This exemption sets out three criteria that must be considered in order for the exemption to apply: (1) the items purchased must fall within the specified category of medical products and supplies, (2) such items must be purchased by a Medicaid recipient, and (3) the items must be purchased through a DMAS provider agreement. The purchase of the stated items from a vendor by a Medicaid recipient in accordance with DMAS' contractual arrangements with the MCOs is consistent with satisfying the criteria of the exemption.
The exemption applies provided the vendors maintain sufficient documentation to verify that the purchase transaction meets the criteria of the exemption. When auditing vendors, particularly durable medical equipment dealers, the Department's auditors must be provided documentation (preferably sales invoices) that (1) identifies the item sold, (2) identifies that the purchaser is a Medicaid recipient, and (3) verifies that the transaction is billed to an MCO in accordance with a DMAS provider agreement. These documentation requirements will insure that the Department applies the exemption consistently to vendors who make sales to Medicaid recipients through a DMAS provider agreement.
I hope this responds to your inquiry. Should you need to provide updated information to the Department regarding contracted providers, please send it to ***** in the Office of Policy and Administration, Appeals and Rulings, P.O. Box 1880, Richmond, Virginia 23218-1880. ***** may be reached at ***** or at *****@tax.state.va.us. If you have additional questions, please feel free to contact me at *****.
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- Sincerely,
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- Kenneth W. Thorson
Tax Commissioner
- Kenneth W. Thorson
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AR/44383J
Rulings of the Tax Commissioner