Document Number
05-26
Tax Type
Retail Sales and Use Tax
Description
Marketer and distributor of animal health products
Topic
Exemptions
Date Issued
03-07-2005
March 7, 2005



Re: § 58.1-1821 Application: Retail Sales and Use Tax

Dear *****:

This is in response to your letter in which you seek correction of the retail sales and use tax assessment issued to ***** (the "Taxpayer"), for the period April 2001 through March 2004.

FACTS

The Taxpayer is a major marketer and distributor of animal health products including pharmaceuticals, biologicals, implants, insecticides, and cleaning and sanitizing agents. The Department's audit disclosed that the Taxpayer made sales to customers and did not collect sales tax. The auditor assessed tax on these sales. The Taxpayer disagrees with the audit results, stating that the identified sales are not taxable because it accepted exemption certificates in good faith. Accordingly, the Taxpayer seeks an abatement of the Department's assessment.

DETERMINATION

Prescription Medicine and Drug Sales

Virginia Code § 58.1-609.10 9 exempts from the sales and use tax, "medicines [and] drugs . . . dispensed by or sold on prescriptions or work orders of . . . veterinarians." This Code section continues, "Any veterinarian dispensing or selling medicines or drugs on prescription shall be deemed to be the user or consumer of all such medicines and drugs."

As stated previously, veterinarians are generally regarded to be the taxable users or consumers of all tangible personal property used in their practices. Taxable articles of this type might include medicines or drugs purchased by the veterinarian for use in administering treatment to animals, including farm animals. In this regard, the Department has traditionally not made a distinction between veterinarians who deal primarily with farm animals and those who deal primarily with nonfarm animals.

Further, Title 23 of the Virginia Administrative Code (VAC) 10-210-6050 provides that:
    • Veterinarians are engaged in rendering professional services and are the users or consumers of medicines, drugs, medical supplies, equipment and all other tangible personal property purchased for use in their operation. They must pay the tax to their suppliers on purchases of this property. If the purchases are made from in-state or out-of-state suppliers who do not collect the Virginia sales or use tax, the veterinarian must pay the use; tax directly to the Department of Taxation . . . .

Based on the foregoing, it is clear that a veterinarian may not purchase prescription medicines and drugs exempt of the tax under any circumstances. A veterinarian must pay the tax on all prescription medicines and drugs that will be dispensed or sold, even in the event the prescription will be administered to a farm animal. Therefore, a resale exemption certificate (or any other certificate of exemption) is never acceptable from a veterinarian purchasing prescription medicines and drugs. See also, Public Documents 89-125 (4/24/89) and 97-139 (3/21/97).

Accordingly, I see no basis for adjustment regarding the Taxpayer's sales of prescription medicine and drugs.

Taxability of Agricultural Products

Code of Virginia § 58.1-609.2 1 provides an exemption from the retail sales and use tax for:
    • farm machinery; tangible personal property, except for structural construction materials to be affixed to real property owned or leased by a farmer, necessary for use in agricultural production for market and sold to or purchased by a farmer or contractor; and agricultural supplies provided the same are sold to and purchased by farmers for use in agricultural production, which also includes beekeeping and fish, quail, rabbit and worm farming for market.

Based on this statute, it is apparent that farm equipment and supplies are exempt when used for agricultural production for market. When claiming the agricultural exemption, each farmer must complete and sign the Certificate of Exemption, Form ST-18, and furnish it to the seller. The seller is required to maintain and preserve each exemption certificate, accepted in good faith, for a minimum of three years.

After reviewing your letter and the audit report, I agree that the latex gloves (including the Vet Orange Glove) and the DC & R Disinfectant should be exempt under Va. Code § 58.1-609.2 1 when sold to a farmer. These items for use in agricultural production are necessary to the prevention of the spread of disease and sickness. I will agree to remove sales of these items from the audit, provided the Taxpayer accepted and retained a properly completed certificate of exemption.

In the case of the paint sticks and fly bait, the Taxpayer accepted completed certificates of exemption from farmers indicating these supplies would be for use in agricultural production. The Taxpayer exercised reasonable care in accepting the certificates. Therefore, I will agree to remove sales of these items from the audit.

Responsibility to Pay Use Tax

You maintain that it is the customer's responsibility to pay use tax on any items they consume in their practice. Notwithstanding the purchaser's obligation to pay the tax on untaxed sales, it is the seller (i.e., the Taxpayer, in this case) that is legally obligated to collect the tax. This obligation is made clear in Va. Code § 58.1-603, which mandates that the retail sales tax is levied and imposed, "upon every person who engages in the business of selling at retail or distributing tangible personal property in this Commonwealth . . . ." Further, Va. Code § 58.1-625 provides that, "any dealer who neglects, fails, or refuses to collect such tax upon every taxable sale . . . of tangible personal property made by him, his agents, or employees shall be liable for and pay the tax himself."

CONCLUSION

Based on the foregoing, the audit will be returned to the audit staff to adjust the assessment as noted above, provided the Taxpayer received valid certificates of exemption for those sales. After the auditor makes the appropriate adjustments, the Taxpayer will receive a revised bill. The Taxpayer should remit its payment for the outstanding balance as shown on the revised bill within 30 days from the date of the bill to avoid the accrual of additional interest.

The Code of Virginia sections cited, along with other reference documents, are available on-line in the Tax Policy Library section of the Department of Taxation's website, located at www.policylibrary.tax.virginia.gov. If you have any questions about this response, you may contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings, at *****.
                • Sincerely,


                • Kenneth W. Thorson
                  Tax Commissioner




AR/51892.i


Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46