Tax Type
Retail Sales and Use Tax
Description
Manufacturer and seller of biological soft tissue products.
Topic
Exemptions
Medicine and Drugs
Date Issued
05-18-2011
May 18, 2011
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****:
This will reply to your letter in which you request a ruling on the application of the Virginia retail sales and use tax to the sale of two products by ***** (the "Taxpayer"). I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is a manufacturer and seller of two biological soft tissue products. The Taxpayer sells the soft tissue products to hospitals and medical service providers used in the treatment of individual patients suffering from damaged soft tissue. The products are used in the repair or replacement of missing or permanently malfunctioning body parts.
The Taxpayer sells an allograft tissue that is an acellular dermal matrix derived from donated human skin. The allograft tissue is predominately used as a subcutaneous implant for the replacement of soft tissue in reconstructive surgical procedures in various areas of the body. The Federal Food and Drug Administration (FDA) classifies the allograft tissue as "banked human tissue" subject to the rules and regulations under the American Association of Tissue Banks. The Virginia Board of Pharmacy concurs with the FDA classification and deems the allograft tissue as a Schedule VI controlled substance under the Virginia Drug Control Act found in Va. Code Title 54.1, Chapter 34.
The Taxpayer also sells a xenograft product that is porcine dermis that has been processed to form an acellular tissue matrix. The xenograft product supports the repair of damaged tissue by allowing rapid revascularization and cell repopulation required for tissue regeneration. The FDA classifies the xenograft product as a medical device. The Virginia Board of Pharmacy concurs with the federal classification and deems the xenograft product as a Schedule VI medical device under the Virginia Drug Control Act found in Va. Code Title 54.1, Chapter 34.
The Taxpayer believes that the biological soft tissue products qualify for exemption under the provisions of Va. Code § 58.1-609.10 10 and Title 23 of the Virginia Administrative Code (VAC) 10-210-940 A.
RULING
Medicines and Drugs
Virginia Code § 58.1-609.10 9 provides an exemption from the retail sales and use tax for:
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- Medicines [and] drugs . . . dispensed by or sold on prescriptions or work orders of licensed physicians . . . [and] controlled drugs purchased for use by a licensed physician, optometrist, licensed nurse practitioner, or licensed physician assistant in his professional practice, regardless of whether such practice is organized as a sole proprietorship, partnership, or professional corporation, or any other type of corporation in which the shareholders and operators are all licensed physicians, optometrists, licensed nurse practitioners, or licensed physician assistants engaged in the practice of medicine, optometry, or nursing; medicines and drugs purchased for use or consumption by a licensed hospital, nursing home, clinic, or similar corporation not otherwise exempt under this section . . . . "
Based on the FDA classification of the allograft tissue, the allograft tissue is a Schedule VI controlled substance and not a medical device. Pursuant to Va. Code § 58.1-609.10 9, the Taxpayer may sell the allograft tissue exempt of the tax to a licensed physician, optometrist., licensed nurse practitioner, or licensed physician assistant for use in his professional practice. The Taxpayer may also sell the allograft tissue exempt of the tax to a licensed hospital, nursing home, clinic, or similar corporation not otherwise exempt under this section. In Public Documents (P.D.) 06-110 (10/10/06) and 08-78 (6/6/08), the Tax Commissioner ruled that the purchase documentation must include the licensed physician's name or the physician's federal Drug Enforcement Agency (DEA) number to support the exempt sale.
Medical Devices
Virginia Code § 58.1-609.10 10 provides an exemption for "prosthetic devices and . . . 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. [Emphasis added].
Title 23 VAC 10-210-940 G addresses purchases on behalf of an individual and states, "In order to be deemed a purchase on behalf of an individual, the item must be specifically bought for the individual. If items are purchased in bulk and then dispensed to individual patients, no exemption is applicable even if the item is modified or fitted for a specific individual."
The xenograft tissue is deemed a medical device. The Taxpayer may sell the xenograft product exempt of the tax when such product is purchased by or on behalf of an individual for use by such individual. Pursuant to P.D. 00-215 (12/7/00), a taxpayer's purchase documentation must include patient identification information at the time of purchase in order for the purchase to be deemed made on behalf of an individual.
Virginia Code § 58.1-609 11 provides a nonprofit exemption that includes the sale of tangible personal property to nonprofit hospitals, nonprofit clinics, and nonprofit nursing homes. These entities must provide the Taxpayer a Sales and Use Tax Certificate of Exemption letter issued by the Department. This letter verifies the entity's exempt status and includes the tax exempt number necessary for making tax exempt sales to such an entity.
This response is based on the facts provided as summarized above. Any change in facts or the introduction of new facts may lead to a different result.
The Code of Virginia sections, regulation and public documents cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions about this ruling, you may contact ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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Craig M. Burns
Tax Commissioner
AR/1-3207687887.T
Rulings of the Tax Commissioner