December 7, 2023
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in response to your letter submitted on behalf of ***** (the “Taxpayer”), in which you seek a reconsideration of the Tax Commissioner’s determination, issued as Public Document (P.D.) 22-70 (4/13/2022) for the period November 2011 through October 2017. I apologize for the delay in responding to your letter.
FACTS
In P.D. 22-70, the Taxpayer appealed an audit assessment that imposed tax on durable medical equipment and prosthetic devices. The Tax Commissioner determined that the inventory was purchased in bulk and that the Taxpayer had not shown that the equipment and devices were provided on a consignment basis. Accordingly, the sales tax exemption for prosthetic devices and other durable medical equipment pursuant to Virginia Code § 58.1-609.10 10 was denied and the assessment was upheld.
The Taxpayer requests reconsideration of this determination, contending that the bulk purchase invoices are actually post-procedure billing by the manufacturer. Further, the Taxpayer now asserts that it obtained the durable medical equipment and prosthetic devices after being ordered pursuant to a prescription or work order from a licensed physician or other licensed practitioner to be surgically implanted into a patient. Subsequently, the Taxpayer is billed by the manufacturer periodically for a number of devices used in the medical procedures.
DETERMINATION
In the determination issued to the Taxpayer, the Department’s reasons for upholding the assessment were based on 1) invoices that indicated purchases of bulk inventory, and 2) the fact that payment was made at the time of billing and not upon issuance of a physician’s work order. Under these circumstances, contracts stipulating the legally binding and specific terms of the consignment agreement between the vendors and the Taxpayer would be available in order to allow the Department to verify that the items of durable medical equipment purchased were provided on consignment with no exchange of consideration prior to removal from inventory pursuant to a physician’s work order of prescription. See P.D. 16-85 (5/17/2016).
While the Taxpayer has indicated that it would provide the necessary documentation, as of this date, contract documents have not been provided. Instead, letters from vendors have been submitted that make a generic statement that each vendor sold consignment inventory to the Taxpayer. The Taxpayer believes these letters show that the purchase of the items at issue meet the requirements for exemption. None of these documents, however, provide sufficient objective evidence to show that the purchase of the durable medical equipment took place when a purchase order was issued by the doctor on the prescription or work order for a specific patient. Accordingly, the Department is unable to verify that the durable medical equipment and prosthetic devices were purchased in accordance with P.D. 16-85 or pursuant to specific prescriptions or work orders issued by licensed physicians or practitioners for individual patients.
In Commonwealth v. Community Motor Bus Co., Inc., 214 Va. 155, 157 (1973), the Virginia Supreme Court ruled that “where there is any doubt as to the application of an exemption, the doubt is resolved against the one claiming the exemption.” As a result, sales and use tax exemptions are strictly construed against the taxpayer. Unless the Taxpayer provides contracts or agreements that provide clear and cogent evidence that it is entitled to the sales tax exemption under Virginia Code § 58.1-609.10 10, this will be the final time that I address this matter.
The assessment is upheld. Updated bills, with interest accrued to date, will be mailed shortly to the Taxpayer. No further interest will accrue provided the outstanding assessment is paid within 60 days from the date of this letter.
The Code of Virginia section and public document cited are available on-line at www.tax.virginia.gov in the Laws, Rules, and Decisions 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 (804) *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/4199.Y