Tax Type
Retail Sales and Use Tax
Description
Dietary food supplements; Hospital outpatient weight loss program
Topic
Exemptions
Date Issued
04-12-1990
April 12, 1990
Re: Request for Ruling/ Sales and Use Tax
Dear*****************
This will reply to your letter of December 14, 1988 seeking a ruling on the applicability of the sales and use tax to charges by weight-loss nutrition/treatment centers for certain dietary food supplements. We regret the delay in providing you with a response to your inquiry.
Facts
You ("the Taxpayer") participate in a medically supervised, hospital/clinic affiliated, outpatient treatment program (The ************** Program) for persons suffering from massive obesity. The program combines medical supervision, a supplemented fast, behavioral modification, nutrition education, group sessions, and exercise.
Essential nutrients are provided by the****supplement, a powder formula which can be mixed with any non-caloric beverage. This supplement is an integral part of the*********program since the program participants limit their food intake to the supplement during a phase of the program. The supplement cannot be purchased in drug stores, is available only through the treatment centers to participants of the**********. Program and must be provided as a part of the program. Charges for the supplement represent approximately forty per cent of the total charge for the*********. Program services.
The Taxpayer requests a ruling whether the supplement qualifies as a prescribed medicine and whether charges to the program participants for the supplement are subject to the sales tax.
Ruling
§58.1-608(7)(a) of the Virginia Code provides an exemption from the sales and use tax for "[m]edicines (and) drugs...dispensed by or sold on prescriptions or work orders of licensed physicians..."
The terms "medicines" and "drugs" are not defined for purposes of the Virginia Retail Sales and Use Tax Act. However, the Virginia Drug Control Act defines the term "proprietary medicine" as "a completely compounded nonprescription drug in its unbroken, original package..." and under both the Virginia Drug Control Act and the Federal Food, Drug, and Cosmetic Act, the definition of the term "drug" specifically excludes "food". (Emphasis added).
In interpreting statutory sales and use tax exemptions, the Virginia Supreme Court has consistently held that "exemption from taxation is the exception, and where there is any doubt, the doubt is resolved against the one claiming exemption." Golden Skillet Corp. v. Commonwealth, 214 Va. 276, 199 S.E.2nd 511 (1973). Based on the information before me, the***********supplement is a special dietary food. Accordingly, adhering to the strict construction doctrine, I find that the supplement does not constitute a medicine or drug within the meaning of Virginia Code §58.1-608(7)(a) and does not qualify for the exemption.
However, Virginia Code §58.1-608(5)(a) provides that the sales and use tax does not apply to "[p]rofessional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate charges are made." In this case, the weight loss nutrition/treatment center is primarily engaged in rendering services and the supplement provided to its*********program participants is incidental to the rendition of these services. Accordingly, the entire charge for such services, including charges for the required supplement provided by the treatment center to the program participants would qualify for exemption from the tax. However, whenever the Taxpayer purchases supplements or other materials apart from the purchase of the program services, such items will be subject to the tax at the time of purchase.
The treatment center is considered the user and consumer of all items purchased for use in providing the weight management services, including any required supplements, and unless it is a nonprofit hospital must either pay the tax to its suppliers at the time of making such purchases or remit the use tax directly to the department based on the cost price of such items. The center will not pass the sales or use tax paid for any of its purchases on to program participants as a tax. Rather, the center will take the tax into consideration when setting its fees to the program participants for the provision of its services.
However, for those optional items purchased for resale to the program participants apart from the provision of the program services, the center is deemed to be a retailer thereof and must purchase such items exempt of the tax pursuant to a resale certificate of exemption and then collect the tax from the program participants at the time of resale based on the sales price of such items.
I trust this will answer the questions posed in your letter; however, please contact the department if you have additional questions or if we may be of any further assistance.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner