Tax Type
Retail Sales and Use Tax
Description
Durable medical equipment
Topic
Taxability of Persons and Transactions
Date Issued
05-03-1985
May 3, 1985
Re: §58.1-1821 Application/Sales and Use Tax
Dear ****
This will reply to your letter of November 27, 1984 in which you submit an application for correction of sales and use tax assessed to ***** as the result of a recent audit.
FACTS
***** (hereinafter *****) is engaged in the sale and leasing of medical equipment and supplies. A recent audit of ***** for the period from March 1, 1980 to June 30, 1984 revealed the corporation's failure to collect the sales tax on durable medical equipment sold and leased.
***** contests the tax assessed as the result of the department's audit, contending that the corporation and the home health care industry in general understood that the sales and leases of durable medical equipment were exempt from the sales and use tax based upon Virginia Code Sections 58-441.6(s) and (sl) and two informal rulings issued by the department.
DETERMINATION
During the instant audit period, Section 58-441.6(s) of the Code of Virginia provided a sales and use tax exemption for the following items of tangible personal property:
Medicines, drugs, hypodermic syringes, artificial eyes, contact lenses, eyeglasses and hearing aids dispensed by or sold on prescriptions or work orders of licensed physicians, dentists, optometrists, opthamologists, opticians, audiologists, hearing aid dealers and fitters, and controlled drugs purchased by a licensed physician for use in his professional practice.
Additionally, Virginia Code Section 58-441.6(sl) provided a similar exemption for the following items:
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.
It is asserted that the items included in the department's audit of ***** were exempt from the tax during the audit period under the above statutes. Among the items taxed were oxygen concentrators, IPPB machines, oxygen tanks, respirators, nebulizers, liberator/strollers, pulmo-aides, TNS units, and other items of durable medical equipment and supplies, all of which were prescribed for ***** customers by physicians. However, a review of the above statutes and applicable case law reveals that an exemption was not available for such items even though purchased under the prescriptions of physicians.
During the audit period in question, Virginia Code Sections 58-441.6(s) and (sl) clearly exempted from tax prescription "medicines" and "drugs" as well as many specific items. Traditionally, the department has deemed medical oxygen prescribed by a physician to be exempt from tax as a "medicine" or "drug"; however, oxygen equipment and cylinders were deemed subject to tax when rented or sold separately from oxygen. This position was predicated upon the fact that such cylinders and equipment were not medicines or drugs, nor were they among the other items specifically exempted from tax.
This was the consistent position of the department since the inception of the sales and use tax and was based upon two principles of case law. First, a statute that is plain upon its face should be taken at face value, 17 Mich Jur 316 and second, statutes granting tax exemptions are construed strictly against the taxpayer, Commonwealth v. Community Motor Bus Company, 214 Va. 155, 198 S.E. 2d 619 (1973).
It is asserted that the intent of Virginia Code Sections 58-441.6(s) and (sl) was clearly to exempt the items in question. Counsel for notes that the statutes included four broad categories and specific listings of various items to make clear the broad scope of the exemptions. Accordingly, it is asserted that a limited reading of the statutes was not intended by the General Assembly. The only restriction on the exemptions, ***** contends, was that the item purchased be prescribed by a physician.
The broad interpretation given Virginia Code Sections 58-441.6(s) and (sl) by ***** completely overlooks the judicial principle, firmly established in the Virginia courts, that exemptions from taxation are to be construed strictly. Neither is interpretation consistent with the legislative history of the statute. When the Retail Sales and Use Tax Act was enacted in 1966, the only medical items exempted from tax were medicines, drugs, crutches, braces, artificial eyes, contact lenses, eyeglasses, hearing aids, prosthetic devices, and orthopedic appliances. Under ***** argument, the Retail Sales and Use Tax Act would not need to have been amended to provide an exemption for durable medical equipment; however, the legislative record reveals that the Act has been amended on several occasions since 1966 to change the law with respect to medical items.
It is also asserted that the department has espoused a broad interpretation of Virginia Code Sections 58-441.6(s) and (sl), evidenced by two rulings of the department given wide circulation within the medical equipment and supply industry. A reading of those letters does not reveal that a broad interpretation was given those statutes by the department. The letters in question from the department set forth the authors' opinions that only certain specific items were exempt from tax (oxygen enrichers, canes, respirators, traction equipment, walkers, hydrocollators, negative pressure machines, and preset oxygen). In fact, the October 13, 1977 letter from R. L. Holt in question specifically states that with the exception of certain items specified in the letter "all other sales or rentals of the materials on the list (furnished by the taxpayer)...would be subject to the 4% sales tax even if sold pursuant to a prescription or work order of a licensed physician." Among the items on the taxpayer's list deemed to be taxable by Holt were oxygen walker systems, nebulizers, oxygen regulators, oxygen humidifiers, oxygen regulators, oxygen tents, oxygen masks, and many other items of durable medical equipment.
It should be noted that the two letters in question were not official rulings by the Tax Commissioner. However, several letters since that time signed by the Director of the Tax Policy Division or myself have stated that oxygen concentrators, IPPB machines, and similar items were not exempt from the tax. Furthermore, Section 1-65 of the Virginia Retail Sales and Use Tax Regulations relating to medical items, in effect during the instant audit period, made no mention of the applicable exemptions being subject to a broad interpretation and lends no support to ***** contention.
While the items included in this audit likely would have been exempted from tax under a 1984 legislative amendment to Virginia Code Section 58-441.6(sl), such amendment was not necessarily indicative of prior legislative intent. The 1984 amendment exempted "durable medical equipment and devices, and related parts and supplies specifically designed for those products" from the tax effective July 1, 1984. In addition, the Virginia Supreme Court has held that a change in the law is normally presumed when new provisions are added to an existing statute by amendatory act Boyd v. Commonwealth, 215 Va. 16 (1975). Furthermore, the Court held in City of Richmond v. Sutherland, 114 Va. 688 (1913) that "(i)t must be presumed...that in making the amendment the legislature acted with full knowledge of, and in reference to, the existing law upon the same subject and the construction placed upon it by the courts" (emphasis added). Inasmuch as the courts have adopted a rule of strict construction with respect to tax exemptions, it must therefore be presumed that the 1984 statutory change was needed to exempt durable medical equipment and devices from the sales tax.
Counsel for ***** alleges though that the 1984 amendment is retroactive because the statutory change was consistent with the prior interpretation of the law by the department. However, this is not the case as the department has released no official ruling or regulation setting forth existence of a broad exemption for all durable medical equipment prior to the 1984 amendment.
While I see no reason why a broad sales and use tax exemption for all medical items could have been thought to exist based on the 1977 and 1978 letters in question, I do see that confusion obviously existed as to the status of the items deemed exempt in those letters. For this reason, the instant audit will be revised to delete that portion of tax applicable to oxygen concentrators, IPPB machines, respirators, one-time sales or rentals of oxygen tanks (as opposed to continuing demurrage charges), hydrocollators, and negative pressure machines. Tax applicable to nebulizers, liberator/strollers, pulmo-aides, TNS units, and all other durable medical equipment will remain taxable except for the period from May 1, 1984 to the end of the audit when ***** had in its possession a letter stating incorrectly that purchases under a prescription were exempt.
As to the items which will not be removed from the audit, under the rule of strict construction I must reject the notion that such items are prosthetic devices, syringes, medicines or drugs. The sale of oxygen walker systems is the sale of devices to assist breathing, not the sale of medicines or drugs or of devices to replace a part of the body. Also, nebulizers and pulmo-aides are not "hypodermic syringes" or "insulin syringes" as exempted by law.
Sincerely,
W. H. Forst
Tax Commissioner
Re: §58.1-1821 Application/Sales and Use Tax
Dear ****
This will reply to your letter of November 27, 1984 in which you submit an application for correction of sales and use tax assessed to ***** as the result of a recent audit.
FACTS
***** (hereinafter *****) is engaged in the sale and leasing of medical equipment and supplies. A recent audit of ***** for the period from March 1, 1980 to June 30, 1984 revealed the corporation's failure to collect the sales tax on durable medical equipment sold and leased.
***** contests the tax assessed as the result of the department's audit, contending that the corporation and the home health care industry in general understood that the sales and leases of durable medical equipment were exempt from the sales and use tax based upon Virginia Code Sections 58-441.6(s) and (sl) and two informal rulings issued by the department.
DETERMINATION
During the instant audit period, Section 58-441.6(s) of the Code of Virginia provided a sales and use tax exemption for the following items of tangible personal property:
Medicines, drugs, hypodermic syringes, artificial eyes, contact lenses, eyeglasses and hearing aids dispensed by or sold on prescriptions or work orders of licensed physicians, dentists, optometrists, opthamologists, opticians, audiologists, hearing aid dealers and fitters, and controlled drugs purchased by a licensed physician for use in his professional practice.
Additionally, Virginia Code Section 58-441.6(sl) provided a similar exemption for the following items:
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.
It is asserted that the items included in the department's audit of ***** were exempt from the tax during the audit period under the above statutes. Among the items taxed were oxygen concentrators, IPPB machines, oxygen tanks, respirators, nebulizers, liberator/strollers, pulmo-aides, TNS units, and other items of durable medical equipment and supplies, all of which were prescribed for ***** customers by physicians. However, a review of the above statutes and applicable case law reveals that an exemption was not available for such items even though purchased under the prescriptions of physicians.
During the audit period in question, Virginia Code Sections 58-441.6(s) and (sl) clearly exempted from tax prescription "medicines" and "drugs" as well as many specific items. Traditionally, the department has deemed medical oxygen prescribed by a physician to be exempt from tax as a "medicine" or "drug"; however, oxygen equipment and cylinders were deemed subject to tax when rented or sold separately from oxygen. This position was predicated upon the fact that such cylinders and equipment were not medicines or drugs, nor were they among the other items specifically exempted from tax.
This was the consistent position of the department since the inception of the sales and use tax and was based upon two principles of case law. First, a statute that is plain upon its face should be taken at face value, 17 Mich Jur 316 and second, statutes granting tax exemptions are construed strictly against the taxpayer, Commonwealth v. Community Motor Bus Company, 214 Va. 155, 198 S.E. 2d 619 (1973).
It is asserted that the intent of Virginia Code Sections 58-441.6(s) and (sl) was clearly to exempt the items in question. Counsel for notes that the statutes included four broad categories and specific listings of various items to make clear the broad scope of the exemptions. Accordingly, it is asserted that a limited reading of the statutes was not intended by the General Assembly. The only restriction on the exemptions, ***** contends, was that the item purchased be prescribed by a physician.
The broad interpretation given Virginia Code Sections 58-441.6(s) and (sl) by ***** completely overlooks the judicial principle, firmly established in the Virginia courts, that exemptions from taxation are to be construed strictly. Neither is interpretation consistent with the legislative history of the statute. When the Retail Sales and Use Tax Act was enacted in 1966, the only medical items exempted from tax were medicines, drugs, crutches, braces, artificial eyes, contact lenses, eyeglasses, hearing aids, prosthetic devices, and orthopedic appliances. Under ***** argument, the Retail Sales and Use Tax Act would not need to have been amended to provide an exemption for durable medical equipment; however, the legislative record reveals that the Act has been amended on several occasions since 1966 to change the law with respect to medical items.
It is also asserted that the department has espoused a broad interpretation of Virginia Code Sections 58-441.6(s) and (sl), evidenced by two rulings of the department given wide circulation within the medical equipment and supply industry. A reading of those letters does not reveal that a broad interpretation was given those statutes by the department. The letters in question from the department set forth the authors' opinions that only certain specific items were exempt from tax (oxygen enrichers, canes, respirators, traction equipment, walkers, hydrocollators, negative pressure machines, and preset oxygen). In fact, the October 13, 1977 letter from R. L. Holt in question specifically states that with the exception of certain items specified in the letter "all other sales or rentals of the materials on the list (furnished by the taxpayer)...would be subject to the 4% sales tax even if sold pursuant to a prescription or work order of a licensed physician." Among the items on the taxpayer's list deemed to be taxable by Holt were oxygen walker systems, nebulizers, oxygen regulators, oxygen humidifiers, oxygen regulators, oxygen tents, oxygen masks, and many other items of durable medical equipment.
It should be noted that the two letters in question were not official rulings by the Tax Commissioner. However, several letters since that time signed by the Director of the Tax Policy Division or myself have stated that oxygen concentrators, IPPB machines, and similar items were not exempt from the tax. Furthermore, Section 1-65 of the Virginia Retail Sales and Use Tax Regulations relating to medical items, in effect during the instant audit period, made no mention of the applicable exemptions being subject to a broad interpretation and lends no support to ***** contention.
While the items included in this audit likely would have been exempted from tax under a 1984 legislative amendment to Virginia Code Section 58-441.6(sl), such amendment was not necessarily indicative of prior legislative intent. The 1984 amendment exempted "durable medical equipment and devices, and related parts and supplies specifically designed for those products" from the tax effective July 1, 1984. In addition, the Virginia Supreme Court has held that a change in the law is normally presumed when new provisions are added to an existing statute by amendatory act Boyd v. Commonwealth, 215 Va. 16 (1975). Furthermore, the Court held in City of Richmond v. Sutherland, 114 Va. 688 (1913) that "(i)t must be presumed...that in making the amendment the legislature acted with full knowledge of, and in reference to, the existing law upon the same subject and the construction placed upon it by the courts" (emphasis added). Inasmuch as the courts have adopted a rule of strict construction with respect to tax exemptions, it must therefore be presumed that the 1984 statutory change was needed to exempt durable medical equipment and devices from the sales tax.
Counsel for ***** alleges though that the 1984 amendment is retroactive because the statutory change was consistent with the prior interpretation of the law by the department. However, this is not the case as the department has released no official ruling or regulation setting forth existence of a broad exemption for all durable medical equipment prior to the 1984 amendment.
While I see no reason why a broad sales and use tax exemption for all medical items could have been thought to exist based on the 1977 and 1978 letters in question, I do see that confusion obviously existed as to the status of the items deemed exempt in those letters. For this reason, the instant audit will be revised to delete that portion of tax applicable to oxygen concentrators, IPPB machines, respirators, one-time sales or rentals of oxygen tanks (as opposed to continuing demurrage charges), hydrocollators, and negative pressure machines. Tax applicable to nebulizers, liberator/strollers, pulmo-aides, TNS units, and all other durable medical equipment will remain taxable except for the period from May 1, 1984 to the end of the audit when ***** had in its possession a letter stating incorrectly that purchases under a prescription were exempt.
As to the items which will not be removed from the audit, under the rule of strict construction I must reject the notion that such items are prosthetic devices, syringes, medicines or drugs. The sale of oxygen walker systems is the sale of devices to assist breathing, not the sale of medicines or drugs or of devices to replace a part of the body. Also, nebulizers and pulmo-aides are not "hypodermic syringes" or "insulin syringes" as exempted by law.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner