Tax Type
Retail Sales and Use Tax
Description
Medical, dental, and optical supplies and drugs; Breast and chin implants
Topic
Taxability of Persons and Transactions
Date Issued
04-13-1994
April 13, 1994
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear***************
This will reply to your letter in which you seek correction of sales and use tax assessed to*****(the Taxpayer), as the result of an audit for the period July, 1985 through April, 1991
FACTS
The Taxpayer, as a licensed physician in the field of plastic surgery, purchases collagen and various drugs, in addition to breast and chin implants, for use in its practice. The Taxpayer protests the application of tax to these purchases on the basis that they are classified as controlled drugs and prosthetic devices under Schedule VI as prescribed by the Virginia Drug Control Act. As such, the Taxpayer contends that the purchases are exempt under Va. Code §58.1-609.7(1) and (2).
In addition, the Taxpayer asserts that its purchases of certain publications qualify for exemption under Va. Code §58.1-609.6(3). The Taxpayer also contests the application of tax to miscellaneous invoices where tax was either paid or not applicable.
DETERMINATION
Controlled Drugs
Va. Code §58.1-609.7(1) provides an exemption from the sales and use tax for controlled drugs purchased by a physician for use in his professional practice. The exemption applies to controlled drugs contained in Schedules I through VI of the Virginia Drug Control Act, but (as stated in Virginia Regulation (VR) 630-10-65 (B)(2)) not to devices.
The department has reviewed the list of drugs submitted by the Taxpayer and consulted with the Virginia Pharmacy Board. Those drugs administered by injection (generally dosages are quantified in amps) or tablet form are deemed Schedule VI controlled substances and therefore exempt. However, the topical ointments and creams do not qualify and as such are taxable.
The Taxpayer contends that collagen is a controlled drug by virtue of the fact that lidocaine (a controlled drug) is an integral component of collagen. The Taxpayer makes a comparison of collagen's potency to certain drugs exempted in the Commissioner's ruling dated May 24, 1984 (P.D. 84-63). However, the collagen product in this case is deemed a Group 3 medical device implant by the Federal Drug Administration. Therefore, I cannot agree that collagen is a controlled drug but rather qualifies under Schedule VI as a device.
Implant Devices
Va. Code §58.1-609.7(2) provides an exemption for "prosthetic devices....other durable medical equipment and devices....when such items or parts are purchased by or on behalf of an individual for use by such individual." VR 630-10-65(B)(1) defines prosthetic devices as devices "which replace a missing part or function of the body...." The taxable status of the collagen, breast and chin implants is governed by the above exemption which requires that these devices be purchased on behalf of an individual patient. Based on a review of the audit working papers I will agree that the breast and chin implants may have been purchased on behalf of individual patients. However, I cannot agree that the same is true where the collagen implants are concerned. It appears that they were purchased in bulk quantities for withdrawal on an as needed basis, and as such, do not qualify for exemption.
Publications
The Taxpayer contests the application of tax to various non-medical publications. Va. Code §58.1-609.6(3) provides an exemption for publications and VR 630-10-73 stipulates that a publication may qualify for exemption if it is issued daily or at average intervals not exceeding three months and must be a compilation of information available to the general public. Further, a publication does not include general reference materials and their periodic updates. The Taxpayer has submitted only two of the contested publications and upon review I must conclude that they are reference documents. As the other publications are similar in nature and content, I must further conclude that they are also reference materials and as such, do not qualify for the publications exemption.
Miscellaneous Invoices
The Taxpayer protests three specific invoices and provides documentation which indicates the appropriate tax has been charged and paid for each. Therefore I find basis for removal of the invoices from the audit.
Accordingly, the audit package will be referred to the Audit Review Unit for removal of the controlled drugs deemed exempt, the breast and chin implants and the miscellaneous invoices. Upon revision the Taxpayer will receive a revised audit report and "Notice of Assessment" reflecting the adjustments and the recomputation of interest accrued through the date of the letter of protest. The assessment should be paid within 30 days from the date of receipt of the revised notice to avoid the accrual of additional interest charges and collection activity.
Sincerely,
Danny M. Payne
Acting Tax Commissioner
OTP/5864J
Rulings of the Tax Commissioner