December 13, 2017
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in response to your letter in which you seek correction of retail sales and use tax assessments issued to your client, ***** (the “Taxpayer”), for the period February 2009 through January 2015. This letter also acknowledges the Department's receipt of additional information provided by the Taxpayer. I apologize for the delay in responding to your correspondence.
FACTS
The Taxpayer operates a dental practice in Virginia. As a result of the Department's audit, an assessment was issued for untaxed purchases. The Taxpayer takes issue with the tax assessed on purchases of dental implants. The Taxpayer claims that it does not stock implants and only makes purchases of such items on behalf of a specific patient. The Taxpayer maintains that implants ordered and sent directly to a dental laboratory for preparation is evidence that the item is purchased for a specific patient. Further, the Taxpayer argues that the tax should not be assessed on purchases from two suppliers because both are registered for the collection and remittance of the Virginia sales tax. In addition, the Taxpayer claims that purchase invoices from the suppliers that could not be matched to credit card payments are listed in the audit exceptions and may include the sales tax.
DETERMINATION
Title 23 on the Virginia Administrative Code (VAC) 10-210-500 A states:
The tax applies to sales to a dentist by a dental laboratory or supplier of dentures, plates, braces and similar prosthetic devices, or the component parts thereof, unless such dentures, braces, etc. are purchased on behalf of a specific patient. If such items are purchased in bulk and then dispensed to a particular patient, the original purchase will be subject to the tax even if the items withdrawn from the bulk inventory are modified for a specific patient. [Emphasis added.]
Virginia Code § 58.1-609.10 10 provides an exemption from the retail sales and use tax 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.”
In this instance, the auditor assessed the tax on purchases from dental supply companies and credit card purchases that lacked documentation to support the exemption or show that the sales tax was properly paid. A majority of the contested purchases are from two dental suppliers that were paid by credit card. Credit card purchases for which the auditor could not match the invoice against the credit card statement were held taxable because the auditor was not able to determine whether the purchase qualified for exemption as a prosthetic device purchased for a specific patient. The auditor did not list any invoices in the audit if there was a reference to a specific patient or if the sales tax was properly charged on the invoice.
Further, the fact that the two suppliers may be registered for the collection and remittance of the Virginia sales tax does not support the Taxpayer's argument that the suppliers properly applied the sales tax on all purchases held in the audit because the auditor found taxable purchases from the suppliers that were untaxed. I also do not agree with the Taxpayer's argument that items purchased and shipped directly to a laboratory is proof that the items are purchased for specific patients because the documentation lacks patient identification linking the purchase to a specific patient. Lacking the documentation to show that the tax was properly paid or that the contested items qualify for the exemption, the auditor was correct in holding these transactions taxable in the audit.
The Taxpayer later provided additional documentation that lists the patient's name handwritten on the invoice as evidence that the items purchased are for specific patients and not inventory supplies. The documentation will need further examination by the audit staff to determine if the purchases can be matched to a physician work order, prescription or other information to support the exemption in Va. Code § 58.1-609.10 10.
CONCLUSION
The case will be referred to the appropriate field audit staff for further review of the Taxpayers' documentation and to make the necessary adjustments, if any, to the audit. A member of the audit staff will contact the Taxpayer to facilitate this review. After the Department's review is complete, the Taxpayer will be issued an updated bill, with interest accrued to date.
The Code of Virginia and regulation sections cited are available on-line at www.tax.virginia.gov in the Laws, Rulings and Decisions section of the Department's website. If you have any question regarding this determination, please contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/701.T