Tax Type
Retail Sales and Use Tax
Description
Application of retail sales and use tax to various products
Topic
Exemptions
Property Subject to Tax
Date Issued
07-02-2014
July 2, 2014
Re: Ruling Request: Retail Sales and Use Tax
Unknown Client
Dear *****:
This is in response to your letter submitted on behalf of your client (the "Taxpayer"), in which you request a ruling on the application of the retail sales and use tax to various products sold by the Taxpayer. I apologize for the delay in responding to your request.
FACTS
The Taxpayer operates retail locations within Virginia. The Taxpayer provides a list of products and requests a ruling on the application of the retail sales and use tax for such products.
RULING
Nonprescription Drugs
Virginia Code § 58.1-609.10 14 provides an exemption from the retail sales and use tax for nonprescription drugs and proprietary medicines. Virginia Tax Bulletin (VTB) 13-5 (3/15/13) defines nonprescription drugs as any substances or mixtures of 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. In addition, the Department's Nonprescription Drug Exemption Question and Answer Summary (NPD-Q&A) provides guidance in determining whether a product qualifies for, the nonprescription drug exemption.
Lip Balms: Question 1-32 in the NPD-Q&A Summary addresses lip balms. The Department's policy is that medicated lip balms contain a medicine or drug for the purpose of treating some type of malady and qualify for exemption. However, non-medicated lip balms are subject to the tax. This is consistent with the classification of medicated lip balms in VTB 13-5 as exempt nonprescription drugs.
The products submitted for review are moisturizers intended to provide relief for dry, chapped and cracked lips. These products are not intended for the cure, mitigation, treatment, or prevention of disease in human beings and the nonprescription drug serves a secondary function to the intended use of the product. Accordingly, the lip balm products do not qualify for the exemption.
Saline Solutions: Question 1-44 in the NPD-Q&A Summary addresses saline solutions. The products submitted for review do not contain a medicine or drug and do not meet the first criteria for exemption set forth in the statute. Accordingly, the saline products do not qualify for exemption.
Acne Products: The acne products submitted for review contain a nonprescription drug and are intended for the topical use in the treatment, prevention, cure, or mitigation of acne in human beings and qualify for exemption in accordance with VTB 13-5 as exempt nonprescription drugs. Also see Question 1-52 in the NPDQ&A Summary.
Debrox: Debrox is an earwax removal kit. The kit includes earwax removal drops and applicator to administer the drops in the ear. VTB 13-5 lists earache/earwax removal preparations as exempt nonprescription drugs. Accordingly, the earwax and removal kit qualifies for exemption.
Metamucil: The classification of Metamucil for tax purposes has been previously addressed in Public Document (P.D.) 05-135 (8/10/05). The active ingredient in Metamucil is psyllium husk, a natural, therapeutic fiber. Metamucil does not contain a nonprescription drug or proprietary medicine and, therefore, does not meet the first criterion in the statute and does not qualify for exemption.
Benefiber: The products submitted for review consist of a fiber drink mix in powder form and a fiber supplement in powder form. VTB 13-5 provides that the exemption does not apply to dietary foods, supplements and substitutes, herbal teas, drinks, pills or powder supplements. Accordingly, the fiber mix and fiber supplement do not qualify for the nonprescription drug exemption. I will address the application of the reduced food tax to these products under the Food Tax Reduction Program section of this letter.
Bikini Zone Cream: This product contains a nonprescription drug and intended for topical use. However, the product is not used to treat, cure, mitigate or prevent disease in human beings. Accordingly, Bikini Zone Cream is taxable because it does not meet all the criteria set forth in the statute.
Mouthwash: The Taxpayer submits five products for review. The Cool Mint Listerine Antiseptic mouthwash contains an antiseptic. The remaining four mouthwash products contain a nonprescription drug or ingredients to help prevent gingivitis, plaque or similar germ fighters but do not contain an antiseptic.
As provided in VTB 13-5, mouthwashes are articles advertized or held out for sale for grooming purposes and will not qualify for the exemption. Mouthwash products containing antiseptic ingredients are classified as exempt nonprescription drugs pursuant to VTB 13-5 and exempt of the tax. Accordingly, the Cool Mint Listerine Antiseptic will qualify for exemption. The remaining mouthwash products do not contain an antiseptic and are subject to the tax.
Alli: Alli is a nonprescription weight loss aid sold in capsule form. VTB 13-5 states that diet aids will not qualify for exemption as nonprescription drugs. Accordingly, the weight loss product Alli will not qualify for the exemption.
Durable Medical Equipment
Virginia Code § 58.1-609.10 10 provides that the retail sales and use tax does not apply to:
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- Wheelchairs 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; and insulin and insulin syringes, and equipment, devices or chemical reagents that may be used by a diabetic to test or monitor blood or urine, 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.
Ace Bandages and Compression Knee and Wrist Supports: These items are consumables and are not considered equipment. Further, these items may be useful to someone without injury or illness to be used for athletic, exercise, or recreational activities. Accordingly, these items do not qualify for the exemption.
Thermophore Heating Pad: The Food and Drug Administration (FDA) classifies the Thermophore heating pad as a Class II medical device. This item meets the four criteria for exemption in the statute. Therefore, the item will qualify for exemption when purchased by or on behalf of in individual for use by such individual.
Ice Bag: The item submitted for review is a reusable ice bag. The ice bag is classified by the FDA as a Class I medical device. This item meets the four criteria in the statute and is exempt of the sales tax when purchased by or on behalf of an individual for use by such individual.
Food Tax Reduction Program
The Food Tax Reduction Program set out in Va. Code § 58.1-611.1 applies a reduced sales and use tax rate to sales of food purchased for home consumption as defined under the Food Stamp Act of 1977, 7 U.S.C. § 2012. The reduced tax rate applies regardless of whether the food is sold to an individual or a business. Currently, the reduced food tax rate is 2.5% (1.5% state and 1.0% local).
Benefiber: The Taxpayer questions whether the fiber drink mix qualifies as food and is subject to the reduced sales tax rate based on the "Nutrition Facts" panel on its label in contrast to the "Supplement Facts" panel on the label of the fiber supplement.
Under the FDA guidelines, conventional foods are foods that are not dietary supplements. A dietary supplement is a product taken by mouth that is intended to supplement the diet and contains one or more "dietary ingredients". Dietary supplements must be labeled as such and must not be represented for use as a conventional food or as the sole item of a meal or the diet. Therefore, conventional foods must have a "Nutrition Facts" panel on their labels whereas dietary supplements must have a "Supplement Facts" panel on their label.
The fiber drink mix is represented as a conventional food based on the "Nutrition Facts" panel on its label and is taxable at the reduced sales tax rate. See Va. Code § 58.1-611.1 and VTB 05-7 (5/31/05). The fiber supplement is represented as a dietary supplement based on the "Supplement Facts" panel on its label. As such, the fiber supplement does not qualify as a food for home consumption and is taxable at the current full sales tax rate. Generally, the current sales tax rate is 5.3% (4.3% state and 1.0% local). However, the sales tax rate is 6.0 (5.0% state and 1.0% local) in the Northern Virginia and Hampton Roads regions. See P.D. 13-103 (6/14/13) for a listing of localities in these regions.
O'Doul's Non-Alcoholic Brew: "Alcoholic beverages" are defined in Va. Code § 4.1-100 of the Alcoholic Beverage Control Act as “including alcohol, spirits, wine, and beer, and any one or more of such varieties containing one-half of one percent or more of alcohol by volume, including mixed alcoholic beverages, and every liquid or solid, patented or not, containing alcohol, spirits, wine, or beer and capable of being consumed by a human being.” According to the manufacturer, O'Doul's Non-Alcoholic Brew contains one-half of one percent of alcohol by volume. . . ." VTB 05-7 provides that food for human consumption shall not include "alcoholic beverages". Accordingly, O'Doul's Non-Alcoholic Brew would not qualify for the reduced sales tax rate.
Noncarbonated Beverages and Drinks: The products submitted for review are noncarbonated beverages that contain natural coconut water or coconut juice that are packaged for home consumption. These items are considered "accessory food items" in VTB 05-7 and qualify for the reduced sales tax rate.
Propane
Pre-filled propane tank with exchange: In P.D.14-3 (1/13/14), the Tax Commissioner ruled that the sale of small qualities of propane to customers who refill portable cylinders is not subject to the tax. The Tax Commissioner determined that a 30 or 34 pound tank or smaller that is filled to capacity constitutes a small quantity of propane gas. Propane sold to customers in such small quantities for use in (i) grilling or other outdoor cooking purposes, (ii) temporary heat spaces, such as garages or sheds or to provide a source of heat on a patio, and (iii) connection with recreational vehicles for cooking or heating purposes constitutes domestic consumption and is exempt of the tax. Therefore, the charge for propane used for domestic consumption with a tank exchange qualifies for exemption. The Taxpayer's sales receipts or daily sales records should clearly indicate the number of pounds sold and the number of purchasers.
Pre-filled propane tank with no exchange: Virginia Code § 58.1-603 1 imposes the retail sales and use tax on "the gross sales price of each item or article of tangible personal property when sold at retail or distributed in this Commonwealth." Although the charge for propane sold for domestic consumption is exempt from the retail sales and use tax pursuant to Va. Code § 58.1-609.10 1 and Title 23 of the Virginia Administrative Code (VAC) 10-210-630, such exemption does not extend to the propane tank charge. As such, if the Taxpayer combines the exempt charge (propane) with a taxable charge (propane tank) into a lump-sum charge it will result in a taxable charge on the total sales price. However, if the Taxpayer separately states the propane tank charge and the propane charge on the record of transaction, the tax will apply to the propane tank charge.
Retailer's Coupons
P.D. 96-390 (12/27/96) addresses the sale of a certificate book that contained manufacturer's coupons that could be redeemed at any retail establishment that honors the coupons. In that case, the Tax Commissioner ruled that the sale of the certificate books by the taxpayer merely represents the right to receive manufacturer's coupons, the value of which will be taxed at the time of redemption. As such, the sale of the certificate books would not be taxable pursuant to Title 23 VAC 10-210-430 A.
The Taxpayer's entertainment coupon book is similar to the certificate book in P.D. 96-390 in that it represents the right to receive coupons. Accordingly, the sale of the entertainment coupon book is not subject to the tax. I note that in contrast to the manufacturer's coupons in P.D. 96-390, the value of retailers' coupons in the Taxpayer's entertainment coupon book is not included in the sales price of merchandise. Retailers' coupons are treated as advertisements of price discounts, and the sales tax is computed on the price of the item after deducting the discount.
I trust that the foregoing answers your questions. This ruling is based on the facts presented in your letter as summarized above. Any change in facts or the introduction of new facts may lead to a different result.
The Code of Virginia and regulation sections, public documents and other referenced documents cited are available on-line in the Laws, Rules and Decisions Library section of the Department's web site located at www.tax.virginia.gov. The Nonprescription Drug Exemption Question and Answer Summary is available on-line at www.townhall.virginia.gov in the Guidance Documents section of the Virginia Regulatory Town Hall web site. If you should have any questions regarding this ruling, you may contact ***** of the Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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Craig M. Burns
Tax Commissioner
AR/1-5167367074.T
Rulings of the Tax Commissioner