Tax Type
Retail Sales and Use Tax
Description
Taxpayer is a medical device and supply manufacturer and retailer
Topic
Durable Medical Equipment Exemption
Nonprofits
Property Subject to Tax
Date Issued
06-13-2012
June 13, 2012
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****:
This will reply to your letter in which you request a ruling on behalf of your client (the "Taxpayer"), regarding the application of the retail sales and use tax to products for sale in Virginia. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is a medical device and supply manufacturer and retailer. The Taxpayer seeks further clarification as to the documentation required when certain medical products are sold exempt to hospitals and physicians. It is the Taxpayer's understanding, based on Public Document (P.D.) 00-215 (12/7/00), that hospitals, doctor's offices, and similar entities are subject to the tax on their purchases of prosthetic devices unless a patient is specifically identified at the time of the sale. The Taxpayer further understands that prosthetic devices purchased in bulk and then dispensed to individual patients are taxable even if the prosthetic is modified or fitted for a specific individual.
The Taxpayer sets out four scenarios in which a particular prosthetic device is sold to hospitals and doctors' offices in Virginia. To the extent that the prosthetic device meets the definition of an exempt device, the Taxpayer requests further detail regarding the acceptable documentation needed to be in compliance with the prescription requirements set out in Va. Code § 58.1-609.10 10.
RULING
Virginia Code § 58.1-609.10 10 provides an exemption for "prosthetic devices and. . . 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. Durable medical equipment is equipment that (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."
Title 23 of the Virginia Administrative Code (VAC) 10-210-940 G addresses purchases on behalf of an individual and states, "In order to be deemed a purchase on behalf of an individual, the item must be specifically bought for the individual. If items are purchased in bulk and then dispensed to individual patients, no exemption is applicable even if the item is modified or fitted for a specific individual." The fact that an item is purchased from a medical equipment supplier or is purchased on a physician's prescription is not dispositive of its exempt status.
Title 23 VAC 10-210-940 E explains the application of the exemption and states the items purchased by a licensed physician for use in his professional practice are deemed to be purchases on behalf of an individual only if purchased for a specific individual.
Profit Hospitals and Licensed Physicians
Qualifying prosthetic devices under Va. Code § 58.1-609.10 10 may be sold exempt of the tax to profit hospitals and licensed physicians when such device is purchased by, or on behalf of an individual for use by such individual. The Department has not prescribed a certificate of exemption to use when prosthetic devices or other durable medical equipment are purchased on behalf of a specific person. When the purchaser is not entitled to an exemption for its purchases, it is necessary for the Taxpayer to obtain a signed statement from the purchaser, (e.g., profit hospitals, licensed physicians) certifying that the qualifying prosthetic device is purchased on behalf of a specific patient through a doctor's prescription or profit hospital's work order and is for sole use by such patient. The purchaser is also responsible for retaining a copy of the doctor's prescription or hospital work order as part of the record of the transaction for tax auditing purposes. See P.D. 95-266 (10/17/95).
Nonprofit Hospitals
Virginia Code § 58.1-609 11 provides an exemption for nonprofit entities that includes the sale of tangible personal property to nonprofit hospitals, nonprofit clinics, and nonprofit nursing homes. These entities must provide the Taxpayer a Sales and Use Tax Certificate of Exemption letter issued by the Department. This letter verifies the entity's exempt status and includes the tax exempt number necessary for making tax exempt sales to such an entity. Therefore, all purchases, including purchases of prosthetic devices, by nonprofit hospitals for their use and consumption, are exempt from the sales and use tax.
The documentation requirements for the four scenarios you present are addressed below.
Scenario 1
A doctor's office issues the Taxpayer a purchase order for one unit of a particular prosthetic device. The purchase order does not contain any information related to the ultimate consumer/patient.
The purchase order does not specify that the prosthetic device is purchased on behalf of a specific patient for sole use by such patient. Thus, the transaction is taxable.
Scenario 2
A hospital issues the Taxpayer a purchase order for one hundred units of a particular prosthetic device. The purchase order is not patient specific and the purchaser subsequently distributes the items to various hospitals, medical centers, and doctor's offices.
Pursuant to Title 23 VAC 10-210-940 G, bulk purchases of prosthetic devices by a profit hospital are taxable. Sales to nonprofit hospitals either in bulk or on behalf of a specific individual are exempt under the provisions of Va. Code § 58.1-609 11.
Scenario 3
A hospital issues the Taxpayer a purchase order for five units of a particular prosthetic device. The ultimate patient's names are included in the purchase order but the actual doctor written prescriptions are not included.
The documentation provided in this scenario is not sufficient to exempt the sale of a qualified prosthetic device to a profit hospital. The Taxpayer must obtain a signed statement from the hospital certifying that the prosthetic device is purchased for a specific patient through a doctor's prescription or a profit hospital's work order for the sole use by the patient listed in the purchase order.
Scenario 4
A hospital issues a purchase order to the Taxpayer for five units of a particular prosthetic device. The ultimate patient's names and their respective doctor written prescriptions are included in the purchase order.
The documentation provided in this scenario is sufficient to exempt the sale of a qualified prosthetic device to a profit hospital.
I hope this responds to your inquiry. This ruling is limited to the documentation necessary to sell a prosthetic device exempt of the tax and does not address whether the prosthetic device sold by the Taxpayer qualifies as a prosthetic device in accordance with the exemption in Va. Code § 58.1-609.10 10.
The Code of Virginia sections, regulation and public documents cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions about this response, you may contact ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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- Craig M. Burns
Tax Commissioner
- Craig M. Burns
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AR/1-4760008418.T
Rulings of the Tax Commissioner