Tax Type
Retail Sales and Use Tax
Description
Nonprescription drug and proprietary medicine exemption
Topic
Taxability of Persons and Transactions
Date Issued
03-18-1999
March 18, 1999
Re: Request for Ruling: Retail Sales and Use Tax
Dear***********************
This will reply to your letter in which you seek a ruling on the application of the retail sales and use tax to certain items sold by * * * * * (the Taxpayer). I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is a grocery retailer with stores located in Virginia. In addition to selling food items, the Taxpayer sells cosmetics, food supplements, vitamins, and grooming items. The Taxpayer seeks guidance in determining if a product qualifies for the exemption for nonprescription drugs and proprietary medicines set forth in Code of Virginia § 58.1-609.7(15). The Taxpayer also requests a ruling on the application of the sales and use tax to astringents, supplements, and homeopathic and natural products.
RULING
Effective July 1, 1998, Code of Virginia § 58.1-609.7(15) (copy enclosed) provides an exemption from the sales and use tax for nonprescription drugs and proprietary medicines. Nonprescription drugs are those substances containing medicines or drugs for which no prescription is required and which are generally sold for internal or topical use in the cure, mitigation, treatment, or prevention of disease in human beings. Proprietary medicines are nonprescription drugs sold to the general public under the brand name or trade name of the manufacturer and which do not contain any controlled substance or marijuana. The exemption does not apply to cosmetics, toilet articles, devices, food products and supplements, or vitamins and mineral concentrates sold as dietary supplements (except when sold pursuant to a written prescription by a licensed physician).
Based on the language of the exemption, the department considers three factors to determine if a product falls within the scope of the exemption: (1) Is the item a nonprescription drug (i.e., is the product a substance or mixture of substances containing medicines or drugs for which no prescription is required? (2) Is the product for topical or internal use? and (3) Is the product for the cure, mitigation, treatment, or prevention of a disease in human beings? To determine if a product contains a nonprescription drug, the department considers the Federal Food and Drug Administration's (FDA) guidelines in the classification of products for purposes of the exemption.
Homeopathic medicines
Homeopathic medicines are recognized by the FDA as drugs and are required to have much of the same labeling as conventional over-the-counter and prescription medicines. As such, homeopathic medicines used internally or topically, and intended for the cure, treatment, prevention, or mitigation of disease in human beings, will qualify for the exemption.
Astringents
In the case of astringents, most satisfy the first two tests to qualify for exemption as the preparations contain a nonprescription drug and are sold for topical use. The main issue is whether the product is sold for the prevention, cure, mitigation or treatment of disease in human beings. In making this determination, we look to the purpose for which the product is intended. Astringents are used to draw together or constrict tissue to diminish secretions and coagulate blood. Based on this definition, the department's initial assessment is that such products qualify for exemption. Nevertheless, the department is unable to issue a blanket exemption as each product must be evaluated to determine if it is intended to cure, prevent, or treat disease.
Natural foods and supplements
Under FDA guidelines, vitamins, minerals, and nutritional items are generally classified by the FDA as food or dietary supplements and are taxable since the nonprescription drug exemption does not apply to food supplements. In addition, the tax will apply to items that are labeled as food or dietary supplements. I would note that vitamins and mineral concentrates sold as dietary supplements are exempt when sold pursuant to a written prescription by a licensed physician.
I would also note that, based on information from the FDA, dietary supplements are allowed to make health claims, called "structure and function' claims; however, they cannot claim the products diagnose, treat, cure, or prevent disease in human beings. Therefore, any products that list "natural ingredients' and "herbal ingredients' as the active components will be taxable if they do not contain a nonprescription drug or proprietary medicine and claim to treat, cure, or prevent disease in humans.
In the case of cod liver oil, it is an oil obtained from the liver of cod and is a vitamin supplement. Cod liver oil is not considered a nonprescription drug and would not be exempt when marketed in its natural form. The department's initial assessment of cod liver oil was that it qualified for the exemption; however, upon further study the department has reversed its initial exempt classification and determined that cod liver oil marketed in its natural form is taxable.
Toothpaste
Toothpaste is generally sold for grooming purposes. The purpose of toothpaste with peroxide or fluoride added is to provide fresh breath and whiter teeth. Further, toothpaste with nonprescription drugs added to help prevent gingivitis serves as a secondary function to the intended use of the product. Therefore, toothpaste containing peroxide, fluoride and/or ingredients to help prevent gingivitis is taxable.
Bug repellents
Bug repellents are not the same as insect bite and sting preparations. Insect bite and sting preparations qualify for exemption because they contain medicine and are used as topical treatments in the prevention of infection or to prevent an allergic reaction. By contrast, bug repellents are used to repel bugs and insects to avoid bug bites. The ingredients in bug repellent are not intended to prevent or treat disease in humans. Therefore, bug repellents do not qualify as a nonprescription drug or medicine for purposes of the exemption.
Bandages, gauze, and swabs
Bandages with antiseptic or bacterial control products in the pad are intended to protect cuts, scrapes, and wounds and prevent infection. Bandages with antiseptic or bacterial control products in the pad satisfy the criteria for exemption as they contain a medicine, are used for topical use, and intended for the prevention of disease in humans. The exemption also applies to medicated dressings, swabs and wipes. However, bandages without medication fail to satisfy the first test in qualifying for exemption as they do not contain nonprescription medicines or drugs.
Summary
According to the information submitted for review, the Taxpayer has a clear understanding of the law as it pertains to nonprescription drugs and proprietary medicines. Nevertheless, if the Taxpayer desires a specific ruling on the exempt status of each product, it must provide the department with the complete product label for each item. This information will provide the department with the active ingredients and the intended use of the product in order to determine if the product qualifies for exemption.
I have enclosed a copy of the department's Nonprescription Drug Exemption Teleconference Question and Answer Summary which further addresses the nonprescription drug exemption and how it applies to certain products. I trust this letter and additional information have answered your questions and provided some guidelines for determining if an item qualifies for the nonprescription drug exemption.
If you have any additional questions, you may contact * * * * * in the department's Office of Tax Policy at * * * * *.
Sincerely,
Danny Payne
Tax Commissioner
Rulings of the Tax Commissioner