Tax Type
Retail Sales and Use Tax
Description
Medical, dental, and optical supplies and drugs; Infusion pumps and related accessories
Topic
Taxability of Persons and Transactions
Date Issued
10-17-1995
October 17, 1995
Re: § 58.1-1821 Application: Sales and Use Tax
Dear****************:
This will reply to your September 30, 1994, letter seeking correction of the sales and use tax assessment issued to **************(the "Taxpayer") for the period of March 1991 through February 1994.
The Taxpayer is an out-of-state medical equipment supplier primarily engaged in manufacturing computerized ambulatory drug delivery devices, commonly known as "infusion pumps." An audit for the period of March 1991 through February 1994 resulted in an assessment for untaxed sales of ambulatory infusion pumps and medication cassettes to Virginia customers. The Taxpayer protests the tax assessed on the infusion pumps indicating that in each instance, the purchase was made on behalf of a specific individual and should therefore qualify for the durable medical equipment ("DME") exemption provided under Code of Virginia § 58.1-609.7(2).
Infusion Pumps: The department has previously ruled that infusion pumps qualify for tax exemption as durable medical equipment when purchased or leased by or on behalf of a specific individual: see P.D. 89-219 (8/4/89), copy enclosed. The fact that federal law prohibits distribution of infusion pumps without a physician's prescription is not dispositive of the pumps' exempt status. Also, while health care service providers may not maintain an inventory of infusion pumps because of the high costs of the pumps and the availability of overnight delivery, and thus may order only a few pumps at a time, this alone does not suggest that the purchases are on behalf of specific patients. Rather, the determinative factor is whether the Taxpayer's customers purchased these items on behalf of specific patients for use only by such individuals.
The auditor assessed tax on the infusion pumps since the Taxpayer lacked evidence at the time of audit to prove that the sale of these pumps qualified for an exemption from the tax, e.g., the sale of a pump to an organization which purchases it on behalf of a specific individual for sole use by such individual, a sale for resale, etc. Subsequent to the audit, the Taxpayer has provided valid exemption certificates showing that some sales qualified for exemption from the tax as a sale (i) for resale by registered sellers, (ii) for direct and exclusive use in an exempt research activity, or (iii) for use by a nonprofit community health center. We have reviewed these certificates and find that all of them are acceptable. Accordingly, sales made to these entities will be removed from the audit.
Based on information received from the Department of Health, we were able to determine that the audit contained some sales made to nonprofit hospitals (i.e,*****Hospital, ********* Hospital, Hospital, and ********** Hospital). Accordingly, these sales will be removed from the audit. Although an ST-13 exemption certificate was furnished, no tax was assessed in the audit on sales made to Hospital, a nonprofit hospital.
We will also remove those sales in which the Taxpayer has furnished signed statements from organizations to the effect that their purchases were made on behalf of a specific individual. For the future, however, only those statements which specifically comply with the "Certificate of Exemption" section of this determination will be deemed adequate documentation for the Taxpayer to relieve it from the collection of tax.
Medication Cassettes and Batteries: Medication cassettes which are designed specifically for use with an infusion pump qualify for exemption when purchased by or on behalf of a specific individual. However, general purpose items, e.g., batteries not specifically designed for use with DME, may not be purchased exempt from the tax. In the absence of evidence to the contrary, the medication cassettes and batteries assessed in the audit are taxable, as these items appear to have been sold in bulk or do not otherwise qualify for the nonprofit hospital, resale, or other tax exemption.
The audit will be revised in accordance with this determination, and a revised audit report and notice of assessment will be issued as soon as practical. Interest accrued from the date of assessment to present will be waived.
If you have any questions regarding this letter, please contact*********** of my Office of Tax Policy at******.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/8881R
Re: § 58.1-1821 Application: Sales and Use Tax
Dear****************:
This will reply to your September 30, 1994, letter seeking correction of the sales and use tax assessment issued to **************(the "Taxpayer") for the period of March 1991 through February 1994.
FACTS
The Taxpayer is an out-of-state medical equipment supplier primarily engaged in manufacturing computerized ambulatory drug delivery devices, commonly known as "infusion pumps." An audit for the period of March 1991 through February 1994 resulted in an assessment for untaxed sales of ambulatory infusion pumps and medication cassettes to Virginia customers. The Taxpayer protests the tax assessed on the infusion pumps indicating that in each instance, the purchase was made on behalf of a specific individual and should therefore qualify for the durable medical equipment ("DME") exemption provided under Code of Virginia § 58.1-609.7(2).
DETERMINATION
-
- Code of Virginia § 58.1-609.7(2) provides an exemption from the tax for:
...durable medical equipment and devices, and related parts and supplies specifically designed for those products...when such items or Parts are purchased by or on behalf of an individual for use by such individual. Durable medical equipment is equipment which (i) can withstand repeated use, (ii) is primarily and customarily used to serve a medical purpose, (iii) generally is not useful to a person in the absence of illness or injury, and (iv) is appropriate for use in the home. (Emphasis added).
- Code of Virginia § 58.1-609.7(2) provides an exemption from the tax for:
-
- Virginia Regulation (VR) 630-10-65(G) further provides that:
In order to be deemed a purchase on behalf of an individual, the item must be specifically bought for the individual. If items are purchased in bulk and then dispensed to individual patients, no exemption is applicable even if the item is modified or fitted for a specific individual. (Emphasis added).
Certificate of Exemption: VR 630-10-20 provides that:
All sales, leases and rentals of tangible personal property are subject to the tax until the contrary is established. The burden of proving that the tax does not apply rests with the dealer unless he takes, in good faith from the purchaser or lessee, a certificate of exemption indicating that the property is exempt under the law.
- Virginia Regulation (VR) 630-10-65(G) further provides that:
Infusion Pumps: The department has previously ruled that infusion pumps qualify for tax exemption as durable medical equipment when purchased or leased by or on behalf of a specific individual: see P.D. 89-219 (8/4/89), copy enclosed. The fact that federal law prohibits distribution of infusion pumps without a physician's prescription is not dispositive of the pumps' exempt status. Also, while health care service providers may not maintain an inventory of infusion pumps because of the high costs of the pumps and the availability of overnight delivery, and thus may order only a few pumps at a time, this alone does not suggest that the purchases are on behalf of specific patients. Rather, the determinative factor is whether the Taxpayer's customers purchased these items on behalf of specific patients for use only by such individuals.
The auditor assessed tax on the infusion pumps since the Taxpayer lacked evidence at the time of audit to prove that the sale of these pumps qualified for an exemption from the tax, e.g., the sale of a pump to an organization which purchases it on behalf of a specific individual for sole use by such individual, a sale for resale, etc. Subsequent to the audit, the Taxpayer has provided valid exemption certificates showing that some sales qualified for exemption from the tax as a sale (i) for resale by registered sellers, (ii) for direct and exclusive use in an exempt research activity, or (iii) for use by a nonprofit community health center. We have reviewed these certificates and find that all of them are acceptable. Accordingly, sales made to these entities will be removed from the audit.
Based on information received from the Department of Health, we were able to determine that the audit contained some sales made to nonprofit hospitals (i.e,*****Hospital, ********* Hospital, Hospital, and ********** Hospital). Accordingly, these sales will be removed from the audit. Although an ST-13 exemption certificate was furnished, no tax was assessed in the audit on sales made to Hospital, a nonprofit hospital.
We will also remove those sales in which the Taxpayer has furnished signed statements from organizations to the effect that their purchases were made on behalf of a specific individual. For the future, however, only those statements which specifically comply with the "Certificate of Exemption" section of this determination will be deemed adequate documentation for the Taxpayer to relieve it from the collection of tax.
Medication Cassettes and Batteries: Medication cassettes which are designed specifically for use with an infusion pump qualify for exemption when purchased by or on behalf of a specific individual. However, general purpose items, e.g., batteries not specifically designed for use with DME, may not be purchased exempt from the tax. In the absence of evidence to the contrary, the medication cassettes and batteries assessed in the audit are taxable, as these items appear to have been sold in bulk or do not otherwise qualify for the nonprofit hospital, resale, or other tax exemption.
The audit will be revised in accordance with this determination, and a revised audit report and notice of assessment will be issued as soon as practical. Interest accrued from the date of assessment to present will be waived.
If you have any questions regarding this letter, please contact*********** of my Office of Tax Policy at******.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/8881R
Rulings of the Tax Commissioner