Tax Type
Retail Sales and Use Tax
Description
Medical, dental, and optical supplies and drugs; In vitro fertilization drugs
Topic
Taxability of Persons and Transactions
Date Issued
02-22-1993
February 22, 1993
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear*************
This will reply to your correspondence dated August 31, 1992 in which you seek correction of sales and use tax assessed to your client,********* (the Institute), resulting from an audit for the period June, 1985 through April, 1991.
FACTS
The Institute provides an in vitro fertilization program which assists women having difficulty establishing pregnancy through natural methods. The Institute provides certain controlled medicines and drugs which are integral to the process of development and maturation of eggs in the woman's ovaries. The Institute asserts that due to the uniqueness of its fertility operation, it provides certain controlled medicines and drugs on a doctor's prescription order for sale to its clients, and as such these purchases are entitled to the resale exemption. The auditor assessed use tax upon the bulk purchase of the drugs as tangible personal property consumed and used in the provision of medical services.
DETERMINATION
Virginia Regulation (VR) 630-10-83(B) provides the following:
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- Physicians, surgeons and other "practitioners of the healing arts" are the consumers of all tangible personal property used in performing their professional services. They must pay the tax to their suppliers at the time of purchase. If the supplier fails to collect the tax, the practitioner must pay the tax on a Consumer's Use Tax Return.
While you contrast the instant case to the discussion and decision rendered in Commonwealth v. Bluefield Sanitarium, 216 Va. 686, 222 S.E.2d 526, (1976), I cannot agree that the opinion set forth in that case is not applicable to the Institute. In Bluefield Sanitarium, a hospital maintained its own pharmacy and purchased bulk quantities of controlled medicines and drugs for dispensation to its patients on an as needed basis. The court concluded that the hospital exercised a taxable use over such medicines as they were dispensed in the course of the provision of hospital services. However, in Northern Virginia Doctors Hospital v. Department, 213 Va. 504, 193 S.E. 2d 684 (1973) a hospital obtained controlled medicines and drugs from an independent pharmacy for dispensation to its patients. The court opined that this procedure constituted the exempt sale of medicines and drugs when prescribed by a licensed physician.
The Institute's procedure for dispensing controlled medicines and drugs does not constitute a retail pharmacy operation in that the Taxpayer stores its controlled medicines and drugs in bulk supply for use by the staff on an as needed basis. By contrast, a traditional retail pharmacy generally stores its controlled medicines and drugs utilizing an inventory method for sale to retail traffic. Therefore, I must conclude that the Taxpayer's purpose in supplying certain medications is directly related to the provision of its fertility services, as opposed to serving the needs of the general public.
Based on the facts presented, the Institute is deemed to provide a nontaxable service to its clients and thus is considered the user and consumer of all drugs purchased and provided in the rendition of its medical services. Purchases of controlled medicines and drugs by the Institute do not qualify as exempt purchases for resale for purposes of the sales and use tax and as such, the Institute is required to pay the tax to its suppliers when making purchases of bulk quantities of controlled medicines and drugs or remit the use tax directly to the department based on the cost price of such items.
I have enclosed PD 92-172 (9/10/92) which further illustrates our position concerning the application of the use tax to purchases of controlled medicines and drugs in conjunction with the provision of medical services. Additionally, PD 92-97 (6/5/92) addresses the
dispensation of drugs by licensed physicians through non-traditional pharmacy operations.
Accordingly, I find no basis for adjustment of the audit assessment. 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/6403J
Rulings of the Tax Commissioner