Tax Type
Retail Sales and Use Tax
Description
Medical, dental, and optical supplies, and drugs; Medicaid reimbursed supply sales (prior law)
Topic
Taxability of Persons and Transactions
Date Issued
07-12-1995
July 12, 1995
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear*****************:
This will reply to your letter of February 15, 1995 in which you seek correction of a sales and use tax assessment to your company,*********** (the "Taxpayer"), for the period December 1991 through November 1994.
FACTS
The Taxpayer, a medical supply retail business dealing in both durable medical equipment and disposable supplies, contests a portion of a recent sales tax assessment relating to reimbursements for sales of medical supplies to Medicaid recipients. You maintain that federal guidelines preclude assessing the tax on welfare recipients and thus that portion of the assessment is incorrect.
DETERMINATION
The department traditionally has held that the tax status of transactions in which an item is sold to an individual but billed to a third party payor (e.g., Medicaid or an insurance company) for payment is determined as of the time of sale to the individual and does not depend upon the availability or source of reimbursement for the item sold. See P.D. 91-43 (3/19/91), copy enclosed. However, the tax is due not on the total charge submitted for reimbursement, but is based upon the actual amount reimbursed. The amount reimbursed is allocated to the sales price, sales tax, and other nontaxable charges based on the percentages that those charges represent to the total charge originally submitted for reimbursement.
While the department is aware that durable medical equipment dealers are prohibited by their provider agreements with the Department of Medical Assistance Services (DMAS) from collecting or seeking to collect any additional amounts (including tax) from the purchasers, it is bound by the doctrine of strict construction in interpreting sales tax exemptions and no exemptions were specifically provided for the medical supplies at issue. Accordingly, the assessment as issued is correct.
However, you should note that legislation was passed by the 1995 General Assembly that, effective April 6, 1995, exempted from the sales and use tax medical products and supplies such as bandages, gauze dressings, incontinence products and wound care products, when purchased by a Medicaid recipient through a DMAS provider agreement. Thus, an exemption now exists for sales of any type of medical product or supply, incontinence or wound care product provided payment for such is made by DMAS. While this new legislation is not helpful to you with respect to the audit assessment, it will rectify this situation for you in the future. I am enclosing a copy of the legislation and the legislative impact statement prepared by the department on this legislation which explains both the exemption and the department's prior policy in more detail.
A revised Notice of Assessment with accrued interest will be mailed to the Taxpayer shortly. Should you have any questions about this matter, please contact ********************** in my Office of Tax Policy at****************.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/9386H
Rulings of the Tax Commissioner