Tax Type
Retail Sales and Use Tax
Description
Medical, dental, and optical supplies and drugs; Sales to nursing homes and patients
Topic
Taxability of Persons and Transactions
Date Issued
02-26-1997
February 26, 1997
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear**********
This is in reply to your letter in which you seek correction of sales and use tax assessed to******* (the "Taxpayer”), for the period May 1993 through April 1996.
FACTS
The Taxpayer is engaged in sales of controlled drugs, nonprescription medicines, nutritional products, and medical equipment and supplies to for-profit and nonprofit nursing homes and their patients. The auditor assessed tax on untaxed sales of controlled drugs to for-profit nursing homes and sales of nonprescription medications and medical products to individual patients. The Taxpayer disputes the tax based on its belief that the contested items are exempt because they were dispensed pursuant to physician's prescription order.
DETERMINATION
Controlled drugs: Code of Virginia § 58.1-609.7(1 ) provides, in part, an exemption from the sales and use tax for medicines and drugs dispensed by or sold on prescription or work orders of licensed physicians and controlled drugs purchased for use by a licensed physician in his professional practice.
In this case, the controlled drugs were sold to for-profit nursing homes in bulk quantities. Subsequent to purchase, the nursing homes dispensed the controlled drugs to their patients pursuant to a physician's prescription order. The Taxpayer did not make sales of controlled drugs pursuant to a physician's order as contemplated under the exemption, but instead sold controlled drugs in bulk quantities to for-profit nursing homes for dispensing to patients on an as needed basis. The Taxpayer was required to collect the tax as for-profit nursing homes do not enjoy an exemption from the sales tax on their purchases similar to the exemption for nonprofit nursing homes provided under Code of Virginia § 58.1-609.7(4).
Nonprescription medicines: The 1990 Virginia General Assembly enacted legislation that would exempt nonprescription drugs, nonproprietary medicines, and certain over-the-counter (OTC) medications. Code of Virginia § 58.1-609.7.(15), copy enclosed. The effective date of the exemption, however, has been deferred to July 1, 1998. As the nonprescription drug exemption has not become effective, such sales do not qualify for exemption, and the Taxpayer was required to collect the sales during the audit period.
Durable medical equipment: Code of Virginia § 58.1-609.7(2), copy enclosed, provides an exemption for "[w]heelchairs and parts therefor, braces, crutches, prosthetic devices, orthopedic appliances, catheters, urinary accessories, other 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." Virginia Regulation (VR) 630-10-65, copy enclosed, provides a listing of exempt durable medical equipment and includes IV stands. The IV stands that were sold on behalf of individual patients and held taxable in the audit will be removed.
In addition, the department determined in Public Document (P.D.) 91-24 (3/11/91), copy enclosed, that nutritional products sold specifically for use with enteral or parenteral feeding equipment would qualify for exemption. It is not clear under what circumstances the Taxpayer sold nutritional products to individual patients. If such products were sold to individual patients to be used specifically with exempt durable medical equipment as described in P.D. 91-24, the sales would qualify for exemption.
Medicaid recipients: The 1995 Virginia General Assembly passed legislation, effective April 6, 1995, that would exempt sales of 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. The legislation, Code of Virginia § 58.1-609.7(20), copy enclosed, applies to the Taxpayer's sales of such products to individual patients for the audit periods April 1995 through April 1996. This exemption is scheduled to expire June 30, 1998.
For future audits, the Taxpayer must collect the tax on its sales to for-profit nursing homes and individual patients unless the sales qualify for exemption as discussed in this determination. The auditor will adjust the audit in accordance with the policy provided herein and issue a revised assessment, including updated interest, to the Taxpayer within 30 days of the date of this letter.
If you have questions concerning the policy set forth in this letter, please contact ***at *********. Questions concerning the audit adjustments should be directed to *************at********* .
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11463J
Rulings of the Tax Commissioner