Tax Type
Retail Sales and Use Tax
Description
Medical, dental, and optical supplies and drugs; Acupuncture supply purchases were taxable.
Topic
Taxability of Persons and Transactions
Date Issued
05-06-1998
May 6, 1998
Dear*************
In your letter of January 5, 1998, you seek reconsideration of my prior response of December 17, 1997, in which the retail sales and use tax audit assessment issued to ***** (the Taxpayer) was upheld.
FACTS
The Taxpayer maintains that the various acupuncture supplies included in the department's audit for the period September 1991 through May 1997 are medical supplies which qualify for exemption from the retail sales and use tax. The Taxpayer indicates that the American Medical Association (AMA) and the federal government have designated acupuncture as a standard medical practice as of November 1997, and acupuncture needles as being supplies used by licensed physicians in their professional practice. The Taxpayer also indicates that the AMA, the Food and Drug Administration (FDA), the federal government, and the American Academy of Medical Acupuncture have determined that acupuncture needles are medical supplies and have acknowledged that acupuncture is an accepted medical practice.
The Taxpayer also maintains that the shipping, insurance and handling charges included in the audit are all exempt from the retail sales and use tax. The Taxpayer proposes that the department exclude these charges based on a reasonable average amount charged by the United Parcel Service (UPS) and the U.S. Post Office. The Taxpayer indicates that invoices are readily available.
The Taxpayer also requests reconsideration of the penalty assessed in this case.
DETERMINATION
Acupuncture needles
Although acupuncture is now recognized as a standard medical practice and acupuncture needles are recognized as medical supplies, there is no specific statutory exemption from the sales and use tax available for these needles when purchased by a licensed physician or any other qualified practitioner of acupuncture. This conclusion is based on a careful review of the specific exemptions from the retail sales and use tax granted under Code of Virginia Sec. 58.1-609.7(1), (2) and (3) as interpreted by Title 23 of the Virginia Administrative Code (VAC) 10-210-940 and 10-210-2060, copies enclosed.
There is also no general exemption from the retail sales and use tax for medical supplies, devices and equipment purchased by licensed physicians. This fact is well established by 23 VAC 10-210-2060(B) which clearly sets out that "[p]hysicians, surgeons and other practitioners of the healing arts are the consumers of all tangible personal property used in performing their professional services. They must pay the tax to their suppliers at the time of purchase. If the supplier fails to collect the tax, the practitioner must pay the tax on a Consumer's Use Tax Return, Form ST-7.'
However, there are certain exceptions to the above general taxation rule. For example, 23 VAC 10-210-2060(B) explains that the only type of medical supplies which licensed physicians may purchase exempt of the tax are "controlled drugs and hemodialysis and peritoneal dialysis equipment and supplies for use in their professional practice. . . .' Pursuant to 23 VAC 10-210-940(B)(2), controlled drugs are defined as "those drugs itemized under Sec. 54.1-3400 et seq. of the Code of Virginia but shall include only medicines and drugs and not devices.' Although an acupuncture needle is a medical device or supply, it does not constitute an exempt medicine or controlled drug. Nor do acupuncture needles, devices and related supplies constitute hemodialysis or peritoneal dialysis equipment and supplies.
Title 23 VAC 10-210-2060(B) further states that "[p]urchases by a licensed physician of . . . durable medical equipment . . . are subject to the tax, unless purchased on behalf of a specific patient. Other purchases, including bulk purchases, of such items are subject to the tax, even if items from a bulk inventory are subsequently dispensed to or modified for specific patients.' To qualify for exemption, durable medical equipment must be purchased by or on behalf of a specific patient and must satisfy all of the criteria of Code of Virginia Sec. 58.1-609.7(2) which defines "durable medical equipment' as "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.'
According to information previously submitted, the FDA initially designated acupuncture needles as Class III medical devices for use only in approved research projects. However, the FDA has redesignated acupuncture needles as Class ll medical devices for "single use only' by qualified practitioners. Since acupuncture needles and related supplies are not purchased in response to a specific patient, it is clear that they are not purchased on behalf of a specific patient. Moreover, since acupuncture needles may not be used repeatedly and have not been approved for use in the home, acupuncture needles do not constitute durable medical equipment as defined under Code of Virginia Sec. 58.1-609.7(2).
The Taxpayer claims that acupuncture needles fall into the same category as scalpel blades and hypodermic syringes. Although there is no statutory exemption for scalpel blades purchased by a licensed physician for use in his or her professional services, Code of Virginia Sec. 58.1-609.7(1) provides an exemption from the tax for hypodermic syringes only when dispensed by or sold on prescriptions or work orders of licensed physicians. From the facts submitted, I must conclude that an acupuncture needle cannot be dispensed by or sold on prescriptions or work orders of licensed physicians to non-practitioners. Furthermore, an acupuncture needle is not a hypodermic syringe or hypodermic needle since it is not used to inject fluids into the body or draw fluids from the body. For these reasons, the exemption for hypodermic syringes is not available.
The foregoing establishes that acupuncture needles do not fall under any of the exceptions noted by the above cited regulations and statutes. As there is no specific or analogous statutory exemption for acupuncture devices, needles and related supplies, the tax assessed on these items is proper.
Shipping, handling and insurance charges
Code of Virginia Sec. 58.1-609.5(3) exempts transportation charges only when they are separately stated on the customer's invoice. I would note that 23 VAC 10-210-6000(B) specifically excludes "handling charges' from the definition of "transportation charges' since handling does not constitute part of the actual transportation of the product to the customer. Accordingly, when a taxable handling charge and an exempt transportation charge are combined into a single charge, the combined shipping and handling charge is taxable, even if such lump-sum charge is separately stated. This policy is longstanding and has been consistently applied as demonstrated by the enclosed Public Documents (P.D.) 89-132 (4/27/89) and 91-223 (9/23/91).
From the information received, it appears that the shipping, handling and insurance charges at issue are combined into lump-sum charges. Based on the department's established policies in these matters, the tax assessed on these charges is proper.
Penalty
The Taxpayer did not achieve an acceptable level of compliance on this second audit. Therefore, as explained in my December 17, 1997 letter, penalty on the tax deficiencies is proper.
Conclusion
Based on all of the foregoing and the information presented, l find that the Taxpayer has provided no basis upon which to revise the audit findings. If the Taxpayer wishes to avoid additional interest charges, the outstanding liabilities of should be paid within the next 30 days.
If you have any questions about the policies and laws stated in this letter, please contact ***** of my tax policy staff at *****.
Dear*************
In your letter of January 5, 1998, you seek reconsideration of my prior response of December 17, 1997, in which the retail sales and use tax audit assessment issued to ***** (the Taxpayer) was upheld.
FACTS
The Taxpayer maintains that the various acupuncture supplies included in the department's audit for the period September 1991 through May 1997 are medical supplies which qualify for exemption from the retail sales and use tax. The Taxpayer indicates that the American Medical Association (AMA) and the federal government have designated acupuncture as a standard medical practice as of November 1997, and acupuncture needles as being supplies used by licensed physicians in their professional practice. The Taxpayer also indicates that the AMA, the Food and Drug Administration (FDA), the federal government, and the American Academy of Medical Acupuncture have determined that acupuncture needles are medical supplies and have acknowledged that acupuncture is an accepted medical practice.
The Taxpayer also maintains that the shipping, insurance and handling charges included in the audit are all exempt from the retail sales and use tax. The Taxpayer proposes that the department exclude these charges based on a reasonable average amount charged by the United Parcel Service (UPS) and the U.S. Post Office. The Taxpayer indicates that invoices are readily available.
The Taxpayer also requests reconsideration of the penalty assessed in this case.
DETERMINATION
Acupuncture needles
Although acupuncture is now recognized as a standard medical practice and acupuncture needles are recognized as medical supplies, there is no specific statutory exemption from the sales and use tax available for these needles when purchased by a licensed physician or any other qualified practitioner of acupuncture. This conclusion is based on a careful review of the specific exemptions from the retail sales and use tax granted under Code of Virginia Sec. 58.1-609.7(1), (2) and (3) as interpreted by Title 23 of the Virginia Administrative Code (VAC) 10-210-940 and 10-210-2060, copies enclosed.
There is also no general exemption from the retail sales and use tax for medical supplies, devices and equipment purchased by licensed physicians. This fact is well established by 23 VAC 10-210-2060(B) which clearly sets out that "[p]hysicians, surgeons and other practitioners of the healing arts are the consumers of all tangible personal property used in performing their professional services. They must pay the tax to their suppliers at the time of purchase. If the supplier fails to collect the tax, the practitioner must pay the tax on a Consumer's Use Tax Return, Form ST-7.'
However, there are certain exceptions to the above general taxation rule. For example, 23 VAC 10-210-2060(B) explains that the only type of medical supplies which licensed physicians may purchase exempt of the tax are "controlled drugs and hemodialysis and peritoneal dialysis equipment and supplies for use in their professional practice. . . .' Pursuant to 23 VAC 10-210-940(B)(2), controlled drugs are defined as "those drugs itemized under Sec. 54.1-3400 et seq. of the Code of Virginia but shall include only medicines and drugs and not devices.' Although an acupuncture needle is a medical device or supply, it does not constitute an exempt medicine or controlled drug. Nor do acupuncture needles, devices and related supplies constitute hemodialysis or peritoneal dialysis equipment and supplies.
Title 23 VAC 10-210-2060(B) further states that "[p]urchases by a licensed physician of . . . durable medical equipment . . . are subject to the tax, unless purchased on behalf of a specific patient. Other purchases, including bulk purchases, of such items are subject to the tax, even if items from a bulk inventory are subsequently dispensed to or modified for specific patients.' To qualify for exemption, durable medical equipment must be purchased by or on behalf of a specific patient and must satisfy all of the criteria of Code of Virginia Sec. 58.1-609.7(2) which defines "durable medical equipment' as "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.'
According to information previously submitted, the FDA initially designated acupuncture needles as Class III medical devices for use only in approved research projects. However, the FDA has redesignated acupuncture needles as Class ll medical devices for "single use only' by qualified practitioners. Since acupuncture needles and related supplies are not purchased in response to a specific patient, it is clear that they are not purchased on behalf of a specific patient. Moreover, since acupuncture needles may not be used repeatedly and have not been approved for use in the home, acupuncture needles do not constitute durable medical equipment as defined under Code of Virginia Sec. 58.1-609.7(2).
The Taxpayer claims that acupuncture needles fall into the same category as scalpel blades and hypodermic syringes. Although there is no statutory exemption for scalpel blades purchased by a licensed physician for use in his or her professional services, Code of Virginia Sec. 58.1-609.7(1) provides an exemption from the tax for hypodermic syringes only when dispensed by or sold on prescriptions or work orders of licensed physicians. From the facts submitted, I must conclude that an acupuncture needle cannot be dispensed by or sold on prescriptions or work orders of licensed physicians to non-practitioners. Furthermore, an acupuncture needle is not a hypodermic syringe or hypodermic needle since it is not used to inject fluids into the body or draw fluids from the body. For these reasons, the exemption for hypodermic syringes is not available.
The foregoing establishes that acupuncture needles do not fall under any of the exceptions noted by the above cited regulations and statutes. As there is no specific or analogous statutory exemption for acupuncture devices, needles and related supplies, the tax assessed on these items is proper.
Shipping, handling and insurance charges
Code of Virginia Sec. 58.1-609.5(3) exempts transportation charges only when they are separately stated on the customer's invoice. I would note that 23 VAC 10-210-6000(B) specifically excludes "handling charges' from the definition of "transportation charges' since handling does not constitute part of the actual transportation of the product to the customer. Accordingly, when a taxable handling charge and an exempt transportation charge are combined into a single charge, the combined shipping and handling charge is taxable, even if such lump-sum charge is separately stated. This policy is longstanding and has been consistently applied as demonstrated by the enclosed Public Documents (P.D.) 89-132 (4/27/89) and 91-223 (9/23/91).
From the information received, it appears that the shipping, handling and insurance charges at issue are combined into lump-sum charges. Based on the department's established policies in these matters, the tax assessed on these charges is proper.
Penalty
The Taxpayer did not achieve an acceptable level of compliance on this second audit. Therefore, as explained in my December 17, 1997 letter, penalty on the tax deficiencies is proper.
Conclusion
Based on all of the foregoing and the information presented, l find that the Taxpayer has provided no basis upon which to revise the audit findings. If the Taxpayer wishes to avoid additional interest charges, the outstanding liabilities of should be paid within the next 30 days.
If you have any questions about the policies and laws stated in this letter, please contact ***** of my tax policy staff at *****.
Rulings of the Tax Commissioner