Tax Type
Retail Sales and Use Tax
Description
Medical, Dental, and Optical Supplies and Drugs; Home Therapy Pharmacy
Topic
Taxability of Persons and Transactions
Date Issued
09-10-1992
September 10, 1992
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear**********************
This will reply to your letter of September 9, 1991 in which you seek the correction of sales and use tax assessed to ******************(the Taxpayer) for the period June, 1988 through May, 1991.
FACTS
The Taxpayer is a home infusion therapy "pharmacy" which provides services to patients diagnosed with infectious diseases or cancer. These services consist of medical assessments which include cleaning and changing dressings for wounds and blood pressure checks. In addition, prescription medications are provided for intravenous usage by the patients and administered by the nursing staff employed by the Taxpayer. The prescription medications are not available to the general public and are provided only when a patient is in need of nursing services.
The Taxpayer is pharmacy board licensed and regulated and maintains that the provision of prescription medication is the true object of the transaction and thus, its purchases of bulk quantities of drugs is exempt from the tax under Va. Code §58.1-608(A)(7)(a). The auditor has assessed use tax upon the bulk purchase of drugs as tangible personal property consumed and used in the provision of home health care services.
DETERMINATION
Va. Code §58.1-608(A)(7)(a) provides, in pertinent part, an exemption from sales and use tax for:
-
- "[m]edicines, drugs, hypodermic syringes, artificial eyes, contact lenses, eyeglasses and hearing aids dispensed by or sold on prescriptions or work orders of licensed physicians, ..."
The exemption for medicines and drugs as it has been interpreted by the Virginia Supreme Court in Commonwealth v. Bluefield Sanitarium, 216 Va. 686, 222 S.E.2d 526 (1976), does not apply in this instance. In Bluefield Sanitarium, the hospital maintained its own pharmacy, which purchased bulk quantities of medicines and drugs. Medication was in turn dispensed by the pharmacy to patients on an as needed basis. Based on this distinction, the court concluded that the hospital exercised a taxable use over the medicines and drugs prior to their dispensation to patients on the prescription or work order of a licensed physician. This correlates to the instant case in that the Taxpayer dispenses drugs from its own "pharmacy" on an as needed basis to patients in the rendition of its nursing services. In further support of this opinion is the decision of the Circuit Court of the City of Richmond in Biomedical Applications of Roanoke v. Commonwealth, which specifically dealt with purchases of medicines and drugs by a clinic. (June 3, 1988) Copies of these opinions are enclosed for your review.
Furthermore, the "true object" test as discussed in Virginia Regulation (VR) 630-10-97.1(B)(2) is used to determine whether a transaction involving both the provision of a service and tangible personal property constitutes an exempt service or a taxable retail sale. The "true object" desired by the Taxpayer's patients is the receipt of medical services enabling them to maintain a quality level of health care in their home while infirmed due to the onset of certain diseases. The Taxpayer's argument that the prescription drugs provided are dispensed through a "retail pharmacy operation" is questionable in that the "pharmacy" does not satisfy the historical definition of pharmacy operations with regard to the application of the sales and use tax. The fact that a patient cannot purchase the drugs without contracting for the nursing services and that the "pharmacy" does not entertain retail traffic lends strong support to the conclusion that the Taxpayer is addressing the total health care needs of its patients in providing its nursing services.
While I do agree that the provision of prescription drug medication is necessary to the rendering of the nursing services, I find that the provision of prescription drugs by the Taxpayer is an extension of its home health care services. This is evidenced by comparison of the Taxpayer to providers of traditional nursing services who may purchase prescription medications under a physician's order for their patients from a retail pharmacy which has no affiliation with the nursing service operation. The distinction here is that the purchase of the drugs by a traditional nursing service is a separate retail transaction (exempt of the tax) from the subsequent provision of such medications to the patient; while, the provision of drugs and services by the Taxpayer is one transaction subject to the scrutiny of the true object test. Therefore, the Taxpayer is deemed to provide a nontaxable service to its patients and as such is considered the user and consumer of all drugs purchased and provided in the provision of its home health care services. The Taxpayer is required to pay the tax to its suppliers when making purchases of bulk quantities of drugs or remit the use tax directly to the department based on the cost price of such items.
Accordingly, the auditor's assessments are deemed proper. You will receive an updated Notice of Assessment under separate cover which should be paid within 30 days to avoid the accrual of additional interest charges.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/5583J
Rulings of the Tax Commissioner