Tax Type
Retail Sales and Use Tax
Description
Taxpayer was assessed tax on its untaxed sales of Metamucil
Topic
Basis of Tax
Exemptions
Date Issued
08-10-2005
August 10, 2005
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in response to your letter in which you seek correction of the retail sales and use tax assessment issued to ***** (the "Taxpayer") for the audit period November 2001 through October 2004.
FACTS
The Taxpayer is engaged in the retail sale of prescription and nonprescription drugs and general merchandise. For the aforementioned audit period, the Taxpayer was assessed tax on its untaxed sales of Metamucil. The Taxpayer contests the Department's position that sales of Metamucil are subject to the retail sales and use tax.
DETERMINATION
Virginia Code § 58.1-609.10 14 a (former Virginia Code § 58.1-609.7 15) provides, in pertinent part, that the retail sales and use tax shall not apply to "(i) any nonprescription drugs and proprietary medicine purchased for the cure, mitigation, treatment, or prevention of disease in human beings." Virginia Tax Bulletin 98-4 (5/15/98) provides that nonprescription drugs include "any substances or mixture of substances containing medicines or drugs for which no prescription is required and which are generally sold for internal or topical use in the cure, mitigation, treatment, or prevention of disease in human beings." The Tax Bulletin defines "proprietary medicines" as "any nonprescription drug sold to the general public under the brand name or trade name of the manufacturer and which does not contain any controlled substance or marijuana."
In Public Document 99-32 (3/18/99), the Department set out three factors to determine if a product falls within the scope of the exemption: (1) whether the item is a nonprescription drug (i.e., is the product a substance or mixture of substances containing medicines or drugs for which no prescription is required); (2) whether the product is for topical or internal use; and (3) whether the product is for the cure, mitigation, treatment, or prevention of a disease in human beings. To determine if a product contains a nonprescription drug or medicine, the Department considers the Federal Food and Drug Administration's (FDA) guidelines in the classification of products for purposes of the exemption. Based on information from the FDA, dietary supplements are prohibited from making claims that the products diagnose, treat, cure, or prevent disease in human beings. Accordingly, any products that list "natural ingredients" and "herbal ingredients" as the active components will be taxable if they do not contain a nonprescription drug or proprietary medicine and claim to treat, cure, or prevent disease in humans.
You maintain that Metamucil is a laxative and as such, sales of Metamucil are exempt from the tax pursuant to Va. Code § 58.1-609.10 14 a. The fact that Metamucil is considered a laxative does not, by itself, mean it qualifies for exemption. The product must contain a substance or mixture of substances containing medicines or drugs for which no prescription is required. The ingredient label on Metamucil indicates that the active ingredient is psyllium husk, a natural, therapeutic fiber. Psyllium or psyllium seed is derived from a fleawort. A fleawort is any of three Old World plantains. See, www.merriam-webster.com. Psyllium is also defined as the seed of a plantain. A plantain is a type of tropical fruit or the tree on which they grow. See, www.medicaldictionary.com. Based on these definitions, Metamucil does not meet the first prong of the test in Public Document 99-32, in that it is a natural substance and not a substance that contains a medicine or drug. Accordingly, the exemption for nonprescription drugs and proprietary medicines does not apply to retail sales of Metamucil.
Based on this determination, the assessment is correct. A revised bill, with interest accrued to date, will be mailed shortly to the Taxpayer. No additional interest will accrue provided the outstanding assessment is paid within 30 days of the date of this letter.
I note that in your letter you request documentation relating to the audit regarding the assessment of tax on the contested sales. If this documentation is still required,
please contact the audit supervisor, ***** at *****.
The Code of Virginia section and public document cited, along with other reference documents, are available on-line in the Tax Policy Library section of the Department of Taxation's web site, located at www.policylibrary.tax.virginia.gov. If you have any questions about this determination, you may contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings, at *****.
-
-
-
-
-
-
-
- Sincerely,
-
-
-
-
-
-
-
-
-
-
-
-
-
Kenneth W. Thorson
Tax Commissioner
-
-
-
-
-
-
AR/55413P
Rulings of the Tax Commissioner