December 23, 2015
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This will reply to your letter in which you appeal the denial of the refund claim for Virginia retail sales and use tax remitted by ***** (the "Taxpayer") on medicines and drugs purchased for use in their medical practice. The Taxpayer filed a refund request with the Department on December 14, 2014 for the period November 1, 2011 through September 30, 2014.
FACTS
The Taxpayer is a for-profit family medical practice. The refund request is for sales and use tax paid on medicine and drugs purchased for use in the medical practice. The refund request was denied by the Department's auditor based on Public Documents (P.D.) 06-110 (10/10/06), 08-78 (6/6/08) and 10-118 (7/1/10), which provide that a purchase order for controlled drugs must contain the name of the licensed physician or the physician's Drug Enforcement Administration (DEA) number in order to qualify for the Virginia retail sales and use tax exemption for medicines and drugs. The Taxpayer appeals the auditor's denial of the refund request based on the statutory reading of the exemption found in Va. Code § 58.1-609.10(9) and the Taxpayer's interpretation of the legislative intent of a 2006 amendment to the exemption statute.
DETERMINATION
Virginia Code § 58.1-609.10(9) provides a retail sales and use tax exemption for the following:
Medicines, drugs, hypodermic syringes, artificial eyes, contact lenses, eyeglasses, eyeglass cases, and contact lens storage containers when distributed free of charge, all solutions or sterilization kits or other devices applicable to the wearing or maintenance of contact lenses or eyeglasses when distributed free of charge, and hearing aids dispensed by or sold on prescriptions or work orders of licensed physicians, dentists, optometrists, ophthalmologists, opticians, audiologists, hearing aid dealers and fitters, nurse practitioners, physician assistants, and veterinarians; controlled drugs purchased for use by a licensed physician, optometrist, licensed nurse practitioner, or licensed physician assistant in his professional practice, regardless of whether such practice is organized as a sole proprietorship, partnership, or professional corporation, or any other type of corporation in which the shareholders and operators are all licensed physicians, optometrists, licensed nurse practitioners, or licensed physician assistants engaged in the practice of medicine, optometry, or nursing; medicines and drugs purchased for use or consumption by a licensed hospital, nursing home, clinic, or similar corporation not otherwise exempt under this section; and samples of prescription drugs and medicines and their packaging distributed free of charge to authorized recipients in accordance with the federal Food, Drug, and Cosmetic Act (21 U.S.C.A. § 301 et seq., as amended). With the exceptions of those medicines and drugs used for agricultural production animals that are exempt to veterinarians under subdivision 1 of § 58.1-609.2, 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. (Emphasis denotes 2006 Legislative Amendment).
Prior to 2006, nonprofit licensed hospitals, nursing homes, clinics and similar corporations and for-profit licensed hospitals all qualified for an exemption on their purchases of medicines and drugs. The nonprofit entities qualified under the nonprofit exemption found in Va. Code § 58.1-609.11, which provides an exemption for purchases by nonprofit entities (provided the entities met certain requirements), while for-profit licensed hospitals qualified under the above exemption statute as a result of a 1999 amendment. In 2006, the above exemption statute was expanded to include purchases of medicines and drugs by for-profit nursing homes, clinics, and similar corporations. To summarize, as of 2006, licensed hospitals, nursing homes, clinics and similar corporations (both nonprofit and for-profit) are entitled to an exemption on their purchases of medicines and drugs in accordance with Va. Code § 58.1-609.11 or Va. Code § 58.1-609.10 (9).
At issue in this case are the public documents that the auditor relied upon to deny the Taxpayer's refund request. The documents were issued after the effective date of the 2006 amendment, and all three addressed purchases of medicines and drugs made by medical entities such as hospitals, clinics and medical practices. In each instance, the taxpayers were denied the exemption for their purchases based on the fact that the invoices for such purchases did not include the name of a licensed physician and the DEA number for such physician. This was an administrative requirement set out by the Department as guidance for taxpayers in documenting invoices to support the exempt purchase of medicines and drugs by licensed physicians in regard to a separate exemption clause in Va. Code § 58.1-609.10 (9). However, this requirement is not necessary to document exempt purchases of medicines and drugs by medical entities in accordance with the 2006 statutory amendment.
Based on a clear reading of the statutory exemption at issue, the Taxpayer's purchases of medicines and drugs qualify for the exemption. The Taxpayer's request for refund will be returned to the audit staff for verification of the refund amount and issuance of the refund to the Taxpayer. The refund will include tax and refund interest.
The Code of Virginia section and public documents cited in this letter are found on-line at www.tax.virginia.gov in the Laws, Rules, and Decisions section of the Department's web site. Questions concerning the refund verification process should be directed to the auditor. If you have questions concerning the issues discussed in this determination, please contact ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1-6064636685.T