Tax Type
Retail Sales and Use Tax
Description
Physician purchases
Topic
Taxability of Persons and Transactions
Date Issued
05-24-1984
May 24, 1984
Dear ****
This will refer to your meeting of last year with members of the department's Tax Policy Division staff in which the department's interpretation of the Sales and Use Tax law with respect to physicians was discussed. At the conclusion of that discussion, you requested that the department draft a letter for use by the ***** and its members in order that they might better understand the correct application of the tax. I hope that this letter will serve that purpose.
The Virginia Retail Sales and Use Tax Act includes two tax exemptions directed toward the practice of medicine generally. § 58-441.6(s) of the Code of Virginia provides an exemption from tax for:
Medicines, drugs, hypodermic syringes, artificial eyes, contact lenses, eyeglasses and hearing aids dispensed by or sold on prescription or work order of licensed physicians, dentists, optometrists, ophthalmologists, opticians, audiologists, hearing aid dealers and fitters, and controlled drugs purchased by a physician for use in his professional practice.
Additionally, Virginia Code § 58-441.6(sl) provides an exemption from the tax for:
Wheelchairs and parts therefor, braces, crutches, prosthetic devices, orthopedic appliances, catheters, urinary accessories, insulin and insulin syringes, when purchased by or on behalf of an individual for use by such individual.
In interpreting the above two statutes, the department has traditionally considered "controlled drugs" to be the only items that a physician can purchase exclusive of the sales tax. As you may know, the Virginia Supreme Court has adopted a doctrine of strict interpretation with respect to sales tax exemptions, e.g. tax exemptions are strictly construed against the taxpayer, with doubts resolved against the taxpayer (see Commonwealth v. Community Motor Bus 214 Va. 155, 198 S.E. 2d 619 and numerous other cases). Accordingly, the department has deemed the above exemptions to be applicable only to the purchase of medical items by patients rather than the purchase of such items by physicians.
With respect to sub§ (s) of Virginia Code § 58-441.6, the department considers this exemption to be directed exclusively at the patient or the person medically in need of care rather than the physician himself (with the exception of controlled drugs which the statute clearly states are exempt from tax when purchased by a physician). This interpretation of the law was validated by the Virginia Supreme Court in Commonwealth v. Bluefield Sanitarium (see 216 Va. 686, 222 S.E. 2d 526) in which it was determined that the statute was designed to "relieve patients of a tax, not to relieve persons engaged in essentially service businesses" (216 Va. at 690).
Based upon the Court's finding in Bluefield Sanitarium, the department has reasonably interpreted sub§ (sl) to also be inapplicable to purchases by physicians. This statute, in language clearer in under-standing than sub§ (s), is specifically directed at the "individual for use by such individual."
Having set forth the department's policy that only controlled drugs may be purchased exclusive of the tax by a physician, I will now expand on what items constitute "controlled drugs." Generally, any drug contained under Schedules I-VI of the controlled substances regulated under the Virginia Drug Control Act may be purchased in a tax-exempt manner by a physician for use in his/her practice.
While the Virginia Drug Control Act addresses drugs, substances, and devices, we cannot interpret the Virginia Code § 58-441.6(s) exemption for controlled drugs to apply to devices. While dispensed by a physician and included under the Drug Control Act, devices such as diaphragms and tuberculin time testers are substantially different from "drugs" as to be precluded from exemption under the doctrine of strict construction.
You related several items in your meeting last year for which there was some confusion as to their status as drugs exempt from tax. I would consider the following items to be controlled drugs exempt from tax when purchased by a physician:
(1) Injectible Penicillin
(2) Oral Polio Vaccine
(3) Vitamin B-12
(4) Injectible Gold for arthritis, and
(5) Phenergran
As noted previously, I would consider a tuberculin time tester to be a device subject to tax.
In addition, you asked about the status of certain physicians who, when a drug store is not located in their community, buy and sell drugs and other medicines, in effect acting as pharmacists. In cases such as this, a dispensing physician holding a special certificate from the Board of Pharmacy may purchase items for resale exclusive of the sales tax; however, the use tax should be remitted if any such items (except controlled drugs) are withdrawn from his/her resale inventory for use in his practice.
I hope that this answers your questions regarding the application of the sales and use tax to physicians. Please contact us if you desire further information.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner