Tax Type
Retail Sales and Use Tax
Description
Medical, dental and optical supplies and drugs; Prescription medicines and medical aids.
Topic
Taxability of Persons and Transactions
Date Issued
10-29-1997
October 29, 1997
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear*************
This is in reply to your letter of July 24, 1997, in which you seek correction of a number of sales and use tax assessments issued to your client,***********(the "Taxpayer"), for periods from November 1993 through December 1996.
FACTS
The Taxpayer operates an institutional pharmacy and provides a variety of medical products to for-profit and nonprofit nursing homes, homes for adults, and other long-term care facilities. The Taxpayer operates a number of locations throughout Virginia.
The Taxpayer disputes the tax assessed on sales of nutritional supplements, intravenous and ostomy supplies, influenza vaccines, and diabetic testing devices to for-profit entities. The Taxpayer believes the disputed items qualify for exemption under Code of Virginia § 58.1-609.7 because the items were sold in accordance with prescription orders of licensed physicians.
DETERMINATION
Generally
The Taxpayer, as an institutional pharmacy, does not make sales of medical products pursuant to prescriptions or work orders of licensed physicians. Instead, the Taxpayer sells medical products to customers that subsequent to purchase are withdrawn from inventory and dispensed, in many instances, pursuant to prescriptions or work orders of licensed physicians. The fact that medical products may be purchased as a result of a prescription order is not dispositive of exempt status under Virginia sales and use tax law. The Taxpayer may sell products exempt of the tax when the circumstances of the sale meet the criteria of any of the medical-related exemptions set forth in Code of Virginia § 58.1-609.7. Otherwise, the Taxpayer is required to collect the tax on sales of medical products to for-profit entities.
In this case, the Taxpayer believes certain medical-related exemptions apply to its sales of products. Code of Virginia § 58.1-609.7(1) provides, in part, an exemption for medicines and drugs dispensed by or sold on prescription or work orders of licensed physicians and controlled drugs purchased for use by a licensed physician in his professional practice.
Code of Virginia § 58.1-609.7(2) provides an exemption for "[w]heelchairs and parts therefor, braces, crutches, prosthetic devices, orthopedic appliances, catheters, urinary accessories, other durable medical equipment and devices, and related parts and supplies specifically designed for those products; and insulin and insulin syringes, and equipment, devices or chemical reagents which may be used by a diabetic to test or monitor blood or urine, when such items or parts are purchased by or on behalf of an individual for use by such individual...."
I will address the application of the cited exemptions and prior rulings of the department to the disputed items.
Nutritional Supplements
In Public Document (P.D.) 91-24 (3/11/91), the department determined that enteral and parenteral nutritional products qualify for exemption when sold specifically for use with enteral or parenteral feeding equipment purchased by or on behalf of a specific individual, in accordance with Code of Virginia § 58.1-609.7(2). Nutritional products sold as dietary supplements for oral consumption are taxable.
It is not clear under what circumstances the Taxpayer sold nutritional products. If such products were sold to or on behalf of an individual to be used specifically with exempt durable medical equipment as described in P.D. 91-24, the sales would qualify for exemption and removal from the audit. See also P.D. 93-144 (6/10/93). I will refer this issue back to the auditor to make a determination consistent with the policy set out in the preceding paragraph.
Intravenous Supplies
In this instance, the intravenous supplies consist of injection pump sets and intravenous fluids. The pump sets consist of tubing and a chamber attachment for use with injection pumps. The sets do not include injection pumps. The department has previously determined injection (infusion) pumps to be exempt durable medical equipment when purchased on behalf of a specific individual. See P.D. 89-219 (8/4/89). The injection pump sets are specifically designed for use with injection pumps and therefore qualify for exemption as related parts and supplies, when purchased on behalf of an individual. The pumps sets purchased for specific individuals will be removed from the audit.
The intravenous fluids include sodium chloride, D5W dextrose, and normal saline solutions. The Taxpayer cites P.D. 94-131 (4/26/94) to support its contention that the disputed fluids constitute drugs exempt from the tax. The ruling explained that sterile water and sodium chloride solutions are considered Schedule VI drugs when the solution brands contain the legend: "Caution: Federal Law Prohibits Dispensing Without a Prescription. It was determined that the solutions, as Schedule VI drugs, qualified as "controlled drugs" exempt from the tax when purchased for use by a licensed physician in his professional practice.
The circumstances are different in this case. The sale of the solutions does not meet the criteria of Code of Virginia § 58.1-609.7(1). The solutions were sold to for-profit entities for subsequent withdrawal from inventory as needed. Because an exemption does not apply, the Taxpayer was required to collect the tax on sales of intravenous solutions to for-profit entities.
Ostomy Supplies
The Taxpayer describes the ostomy supplies as a type of catheter. Code of Virginia § 58.1-609.1(2) exempts catheters purchased by or on behalf of an individual. If the ostomy supplies are a type of catheter and were purchased on behalf of an individual, they will be removed from the audit. The application of the tax to ostomy supplies is also discussed in P.D. 91-24.
Influenza Vaccines
Influenza vaccines are deemed Schedule VI drugs as defined in Code of Virginia § 54.1-3455. In this instance, the Taxpayer sells the vaccines to for-profit entities in bulk quantities. After purchase, the entity dispenses the vaccines to patients pursuant to a physician's prescription order. The Taxpayer does not sell the vaccines pursuant to a physician's order as contemplated under Code of Virginia § 58.1-609.7(1), but instead sells the vaccines to for-profit entities for dispensing on an as needed basis. The Taxpayer was required to collect the tax on sales of the vaccines to for-profit entities as an exemption does not apply.
Diabetic Testing Devices
The Taxpayer contends that one-touch testing devices used for diabetic testing are exempt from the tax under the language of Code of Virginia § 58.1-609.7(2). The department has ruled the exemption applies to blood and glucose testing items and finger lancing devices purchased on behalf of a specific individual. See P.D. 91-93 (5/29/91). Such items purchased for specific individuals will be removed from the audit.
The determination in this ruling is consistent with the policy set forth in P.D. 97-103 (2/26/97). The ruling dealt with sales of medical products by a similar taxpayer. In instances where the sale did not meet the criteria of a specific exemption, the transaction was held taxable.
The auditor will contact the Taxpayer to revise the audits as discussed in this ruling. I am enclosing the cited Public Documents and Title 23 of the Virginia Administrative Code (VAC) 10-210-940, which discusses the application of the tax to medicines, drugs, and medical products in detail. If you have questions regarding the policy set forth in this ruling, please contact *** in the Office of Tax Policy at *********. Questions regarding the audit revisions should be directed to *** in the *** District Office at*****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12797J
Rulings of the Tax Commissioner