Tax Type
Retail Sales and Use Tax
Description
Medical, dental, and optical supplies and drugs; Purchases by nonprofit licensed nursing home
Topic
Taxability of Persons and Transactions
Date Issued
04-30-1993
April 30, 1993
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear***********
This will reply to your letter of March 17, 1993 on behalf of ********* (the Taxpayer) in which you seek correction of a sales and use tax assessment.
FACTS
The Taxpayer, a nonprofit licensed nursing home, was audited for the period November 1989 through September 1992 and assessed for its failure to collect the tax on sales of miscellaneous medical supplies to residents. These supplies, include sterile dressings, hospital soap, incontinent briefs, etc., are purchased by the Taxpayer in bulk and remain under its control until needed. Charges for the supplies are itemized and invoiced monthly to the residents, and payment is made to the Taxpayer primarily through medicare, medicaid or by the resident.
You contest the assessment and contend that the medical supplies are purchased for the Taxpayer's own use and consumption and are provided to residents in connection with the provision of a medical service.
DETERMINATION
Va. Code §58.1-608(A)(7)(d) exempts from the tax "tangible personal property for use or consumption by a nonprofit hospital or a nonprofit nursing home". Furthermore, pursuant to Va. Code §58.1-608(A)(5)(a), the tax does not apply to "professional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate charges are made."
The department has consistently maintained that hospitals, nursing homes, clinics and similar institutions primarily provide medical services. This position has been confirmed by the Virginia courts as noted, for example, in Commonwealth v. Bluefield Sanitarium, 216 Va. 686, 222 S.E. 2d 526 (1976). In that case the Virginia Supreme Court held that:
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- Irrespective of whether the hospital is providing beds, food or medicines, the hospital is the "consumer" in the tax sense because all property acquired by it is for use in the performance of its service to patients.
- Irrespective of whether the hospital is providing beds, food or medicines, the hospital is the "consumer" in the tax sense because all property acquired by it is for use in the performance of its service to patients.
Also, I note that this case is unlike that addressed in Public Document 91-43 (3/19/91), a determination which involved the sale of medical supplies by a nursing home pharmacy to residents of the nursing home. That pharmacy, which operated as a separate and distinct entity from the nursing home, was engaged in making retail sales and not in providing medical services. Thus, the pharmacy was required to collect the tax on sales to residents, unless such sales were otherwise exempt under the law.
Therefore, I agree that the medical supplies in the instant case are purchased for the Taxpayer's own use and consumption in providing medical services, and the furnishing of those supplies to residents is deemed a nontaxable transaction. Further, because of its nonprofit status, the Taxpayer's purchases of such supplies are also exempt from the tax.
Accordingly, the audit assessment will be revised to remove the contested items.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/6827I
Rulings of the Tax Commissioner