Tax Type
Retail Sales and Use Tax
Description
Medical, dental, and optical supplies and drugs; Medical supplies billed to third party payor
Topic
Taxability of Persons and Transactions
Date Issued
06-28-1996
June 28, 1996
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear*********
This is in reply to your letter of April 16, 1996, in which you seek correction of sales and use tax assessed to***** (the "Taxpayer"), for the period July 1992 through June 1995.
FACTS
The Taxpayer is a retail dealer of medical equipment and supplies. As a result of an audit, the Taxpayer protests the assessment of tax on sales of medical supplies to individuals which are billed to a third party payor. The Taxpayer asserts that it is prohibited from collecting the sales tax on sales associated with reimbursement by a third party payor. The Taxpayer contends that it should not be held responsible for the sales tax on such sales and refers to a 1995 law change to support its position.
DETERMINATION
The department has consistently held that sales of medical equipment and supplies to individuals and billed to a third party payor (e.g., Medicaid or an insurance company) are subject to the tax even though the dealers of such products are prohibited by agreement with the third party payor from collecting any additional amounts (including tax) from the individual. (See P.D. 91-43 (3/19/91). The department is bound by the doctrine of strict construction regarding sales tax exemptions. When a statute is subject to two interpretations, one granting the exemption and the other denying the exemption, the latter is chosen. Since no exemption is specifically provided for the medical supplies in this case, the assessment of the tax by the auditor was correct.
The law change referenced by the Taxpayer is the result of legislation passed by the 1995 General Assembly, effective April 6, 1995. The legislation created an exemption from the sales and use tax for medical products and supplies such as bandages, gauze dressings, incontinence products, and wound care products, when purchased by a Medicaid recipient through a Department of Medical Assistance (DMAS) provider agreement. At this point, the Taxpayer's sales to Medicaid recipients qualify for exemption from the sales tax, provided payment is made by DMAS.
The legislation, under Code of Virginia § 58.1-609.7(20), (copy enclosed) applies to the Taxpayer's audit for the periods April 1995 through June 1995. The auditor will adjust the audit in accordance with the policy set forth in this letter. This determination is consistent with P.D. 96-97 (5/21/96), copy enclosed.
If you have questions concerning the adjustment of the audit, please contact **** a****. Should you have questions regarding the application of the department's policy as discussed in this letter, you may contact ****** at ***** .
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11159J
Rulings of the Tax Commissioner