Tax Type
Retail Sales and Use Tax
Description
Failure to remit use tax on various medical purchases.
Topic
Accounting Periods and Methods
Appropriateness of Audit Methodology
Exemptions
Date Issued
09-06-1991
September 6, 1991
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear***************
This will acknowledge receipt of your letter of March 6, 1991 in which you submit protective claims for refunds of sales and use tax paid by your clients, ********** ("Taxpayer A") and**********("Taxpayer B") for the audit periods of October 1987 to September 1990 and July 1989 to September 1990, respectively. Based upon the circumstances, I feel it is more appropriate to treat this matter as an application for correction under Va. Code §58.1-1821.
FACTS
Taxpayer A, an orthopedic medical practice made up of several doctors who are employees of the corporation, and Taxpayer B, an orthopedic surgery center, were recently audited and found to have failed to remit use tax on various purchases.
DETERMINATION
I will address the issues outlined in your letter individually below:
Subscriptions to various medical periodicals: Va. Code §58.1-608(A)(6)(c) provides an exemption from the sales and use tax for:
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- [a]ny publication issued daily, or regularly at average intervals not exceeding three months, and advertising supplements and any other printed matter ultimately distributed with or as part of such publications, except that newsstand sales of the same are taxable.
In order to qualify for this exemption, Virginia Regulation (VR) 630-10-73 provides that a publication must be issued daily or at average intervals not exceeding three months and must be a compilation of information available to the general public. General reference materials and their periodic updates, however, do not qualify as exempt publications.
In the audit of Taxpayer A, the Taxpayer's subscriptions to various medical publications were held taxable. However, a review of the sample periodicals provided, The Physician and Sportsmedicine and The Journal of Musculoskeletal Medicine, reveal that such qualify for exemption from the tax. The remaining publications held taxable in the audit may or may not qualify for the publications exemption and will have to be reviewed individually in order to make a determination. Thus, an auditor will be contacting you regarding this. Taxpayer A's assessment will be revised based on the auditor's findings.
The copying of x-rays by another physician's group: Since Taxpayer A does not have the facilities for copying x-rays, it has made arrangements with a second corporation to make copies of its x-rays, which are then given to the Taxpayer's clients when seeking a second opinion. The charges for copying the x-rays were held taxable in the audit. You maintain that since the second corporation is not in the business of copying x-rays the transaction should not be subject to the tax.
"Business" is defined in Va. Code §58.1-602 as "any activity engaged in by any person, or caused to be engaged in by him, with the object of gain, benefit or advantage, either directly or indirectly." While the second corporation is not involved in the routine copying of x-rays, I must conclude that the corporation is engaged in an activity with the object of indirect gain, benefit or advantage to both the Taxpayer and the second corporation. Thus, based on this definition, the second corporation is in the business of copying x-rays, an activity subject to the retail sales and use tax. Accordingly, the charges for copying the x-rays were appropriately held taxable in the audit
The bulk purchase of screws used in orthopedic surgery: In the instant case, Taxpayer B purchases screws for use in orthopedic surgery in bulk. You maintain that while the screws could be traced to specific individuals, the paperwork to facilitate such would be onerous. You also maintain that since the screws themselves can only be used in conjunction with the implants, which can be traced and identified, the screws should not be subject to the tax.
Va. Code §58.1-608(A)(7)(b) provides an exemption from the sales and use tax for prosthetic devices when purchased by or on behalf an individual using these items. Specifically relating to the instant case, VR 630-10-65, the regulation interpreting the exemption, states: "[i]tems withdrawn from an inventory of items purchased in bulk are not deemed to be purchased on behalf of an individual." Thus, the screws were properly assessed in the audit.
Purchases of controlled drugs: The department will agree to remove from the assessment the tax on such purchases. Please note, however, that complete resolution of this issue is pending legislative action by the 1992 General Assembly.
The assessments will be revised in accordance with the determination reached in this letter and refunds will be issued to the Taxpayers as soon as practicable.
If you have any questions regarding this, please contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner