Tax Type
Retail Sales and Use Tax
Description
Medical oxygen sales; Rental of oxygen equipment
Topic
Exemptions
Taxability of Persons and Transactions
Date Issued
08-24-1984
August 24, 1984
Re: §58-1118 Application/Sales and Use Tax
Dear ********
This will reply to your letter of May 21, 1984 in which you submit an application for relief of sales and use tax assessed to ***** as the result of an audit.
FACTS
***** (hereinafter *****) is engaged in the sale of medical oxygen as well as the sale and rental of related equipment and devices, including oxygen concentrators, IPPB machines, and cylinders. In addition, ***** engages in the sale and rental of other durable medical equipment and devices such as special use beds and chairs.
An audit of ***** revealed the failure to collect and remit the sales tax on such items sold or leased to others. ****** contests the assessment issued as the result of that audit on the basis that the items it sells and leases are exempt from the tax under the provisions of Virginia Code §§58-441.6(s) and (sl). In addition, ***** asserts that the department is stopped from issuing such assessment based upon a previously published ruling and that a portion of the assessment was issued outside of the three-year statute of limitations for the assessment of sales and use tax.
DETERMINATION
§ 58-441.6(s) of the Code of Virginia provides a sales and use tax exemption for the following items of tangible personal property:
Medicines, drugs, hypodermic syringes, artificial eyes, contact lenses, eyeglasses and hearing aids dispensed by or sold on prescriptions or work orders of licensed physicians, dentists, optometrists, ophthalmologists, opticians, audiologists, hearing aid dealers and fitters, and controlled drugs purchased by a licensed physician for use in his professional practice.
Additionally, Virginia Code § 58-441.6(sl) provides a similar exemption for the following items:
Wheelchairs and parts therefor, braces, crutches, prosthetic devices, orthopedic appliances, catheters, urinary accessories, insulin and insulin syringes, when purchased by or on behalf of an individual for use by such individual.
You assert that the items assessed in the department's audit of are exempt from the sales tax under the above statutes. Such items include oxygen concentrators, IPPB machines, oxygen cylinders, portable oxygen units, special use beds, commode chairs, geriatric chairs, and similar items, the use of which is prescribed by physicians. However, a review of the above two statutes and applicable case law reveals that the fact alone that such items are purchased or rented under a prescription does not exempt such items from the tax.
Virginia Code §§ 58-441.6(s) and (sl) clearly exempt from tax prescription "medicines" and "drugs" as well as many specific items. Traditionally, the department has deemed medical oxygen prescribed by a physician to be exempt from tax as a "medicine" or "drug"; however, oxygen equipment and cylinders have been deemed subject to tax when rented or sold separately from oxygen. This position is predicated upon the fact that such cylinders and equipment are not medicines or drugs, nor are they among the other items specifically exempted from tax. Similarly, items such as commode chairs and special use beds have been deemed taxable inasmuch a such items are not among those specifically exempted from tax under Virginia Code S§§58-441.6(s) and s(1).
This has been the consistent position of the department since the inception of the sales and use tax and is based upon two premises of case law. First, a statute that is plain upon its face should be taken at face value, 17 Mich Jur 316 and second, statutes granting tax exemptions are construed strictly against the taxpayer, Commonwealth v. Community Motor Bus Company, 214 Va. 155, 198 S.E. 2d 619 (1973).
While the items included in this audit likely would be exempted from tax under the 1984 legislative amendment to Virginia Code § 58-441.6(sl), such amendment is not necessarily indicative of prior legislative intent. The 1984 amendment exempts "durable medical equipment and devices" from the tax effective July 1, 1984. In addition, the Virginia Supreme Court has held that a change in the law is normally presumed when new provisions are added to an existing statute by amendatory act Boyd v. Commonwealth, 215 Va. 16 (1975). Furthermore, the Court held in City of Richmond v. Sutherland, 114 Va. 688 (1913) that "[i]t must be presumed...that in making the amendment the legislature acted with full knowledge of, and in reference to, the existing law upon the same subject and the construction placed upon it by the courts" (emphasis added). Inasmuch as the Court has adopted a rule of strict construction with respect to tax exemptions, it must therefore be presumed that the 1984 statutory change was needed to exempt durable medical equipment and devices from the sales tax.
As a secondary point, you assert that the department is estopped from assessing tax on the instant items as the result of a letter from a departmental employee in 1978. I would normally disagree inasmuch as the letter in question was not issued to your client but to a concern unassociated with *****. Furthermore, the letter did not represent a formal ruling and was not published by the department. Lastly, the letter dealt with devices known as "oxygen enrichers"; however, did not collect the tax on any sales during the audit period. The department's position with respect to oxygen concentrators has been published at least twice (see, attached letters dated March 22, 1982 and July 19, 1983) and its position with respect to other durable medical equipment has been published at least once (see attached letter dated August 24, 1982) since 1978. This case is somewhat different though in that the president of ***** was employed in a management position with the recipient of the department's 1978 letter. Therefore, I find basis for the relief of tax assessed on rentals of oxygen concentrators.
Lastly, you assert that a portion of the instant assessment is invalid because the audit period extended beyond the three year statute of limitations for the assessment of tax. A three year period of limitations is imposed by Virginia Code § 58-441.38; however, in the case of a failure to file a return, the period for the assessment of tax is expanded to six years. Inasmuch as ***** did not file sales tax returns during the audit period, the instant assessment is proper.
Therefore, based upon the foregoing, I find basis for the relief of sales tax assessed to ***** on its rentals of oxygen concentrators; however, the balance of the assessment shall remain due and payable.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner