Tax Type
Retail Sales and Use Tax
Description
Medical, dental, and optical supplies and drugs; Orthodontic study models
Topic
Taxability of Persons and Transactions
Date Issued
06-06-1994
June 6, 1994
Re: Sec. 58.1-1821 Application: Retail Sales and Use Tax
Dear***********
This will reply to your letter of September 23, 1993 in which you seek correction of a sales and use tax assessment for ************* ( the "Taxpayer") for the period from September 1987 through June 1993.
FACTS
An audit by the department revealed that the Taxpayer, an orthodontic lab, was not charging tax on its sales of orthodontic study models to orthodontists. The study models are plaster casts of patients' teeth, used by orthodontists in deciding what course of treatment to pursue.
The Taxpayer protests the application of the tax to sales of the models, claiming they are purchases "on behalf of the patient for the sole purpose of orthodontic treatment."
DETERMINATION
Va. Code Sec. 58.1-603 imposes the sales tax upon "each item or article of tangible personal property ... sold at retail ... in this Commonwealth." Under Va. Code Sec. 58.1-623, all sales are subject to the tax until the contrary is established.
The Taxpayer relies on Virginia Regulation (VR) 630-10-33(A)(2) to support its position that the sales of plaster study models to orthodontists are exempt from the tax. The cited regulation interprets Va. Code S 58.1-609.7(2), which exempts from the tax,
among other things, braces, crutches and prosthetic devices purchased by or on behalf of an individual for use by individual. Under long-standing Virginia case law, exemptions from the tax are to be strictly construed, with any doubts resolved against the one claiming exemption.
VR 630-10-33(A)(2) clarifies that the statutory exemption cited above extends to dentures, plates, braces and other similar prosthetic devices or component parts thereof purchased by dentists on behalf of a specific patient. In this case, the study models are not braces, dentures, plates, prosthetic devices, or similar items. Furthermore, the study models are not purchased for use by the patient, required by the statute; they are used by the orthodontist in determining the course of treatment. The models do not fall within the scope of the exemption provided under Va. Code S 58.1-609.7(2).
VR 630-10-33(B) describes the application of the tax to dental laboratories and is applicable to the Taxpayer's situation. The regulation that "[d]ental making of tangible personal property to dentists must collect and pay the tax on all charges for such property without deduction for labor and other expenses." The study models are clearly tangible personal property and are sold to orthodontists for use in their practice. As service providers, orthodontists are deemed to be the consumers of all tangible personal property purchased for use in their practice and must pay the tax on their purchases.
The Taxpayer satisfies the requirements set forth in Va. Code 58.1-612(B)(3) and (C)(1) and must register and collect tax on sales to its Virginia customers. Accordingly, the auditor properly assessed the tax on sales of the study models to orthodontists located in Virginia.
However, based upon the circumstances outlined in your letter, the assessment will be revised to cover only a three year period (July 1990 through June 1993). The tax and interest due on sales for the period from September 1987 through June 1990 will be abated. remit a check for tax plus********* interest through May 31, 1994) to the department's Office of Compliance, Audit Review Unit, P.O. Box 615, Richmond, Virginia 23205-0615, within 30 days.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/7394F
Rulings of the Tax Commissioner