When were veterinary prescription refills treated as professional-service supplies rather than taxable retail drug sales?

Plain-English summary

California treated veterinarians as statutory consumers of qualifying drugs and medicines used or furnished while performing professional services. Tax applied when the veterinarian acquired those products, while the later transfer to the animal owner's client was not another taxable retail sale.

For refills without a new office visit, the letter assumed the initial prescription followed an examination and used a 12-month veterinary relationship rule. A qualifying refill personally furnished by the veterinarian within one year of the visit remained part of the professional service: the supplier reported tax, and the veterinarian did not owe tax on the transfer to the client.

A sale beyond one year after the visit, or a sale made by someone other than the veterinarian, was treated as a retail sale the veterinary practice had to report. The letter also said office staff could not dispense the described “dangerous drugs,” even as refills.

For audit timing, it stated a three-year deficiency period when the veterinarian filed returns but omitted sales, and an eight-year period when no return was filed.

Source and live-annotation limits

The letter does not reproduce the July 22, 1994 request or identify the correspondent, veterinarians, animal owners, animal patients, or drugs. It supplies no drug list, labels, prescriptions, examinations, relationship records, furnishing person, office-visit or sale dates, charges, invoices, returns, omitted-sales evidence, audit, assessment, completed transactions, or later outcome. Its conclusions expressly assume an initial examination or treatment and the required federal legend. Copies of Regulations 1506 and 1587 were described as enclosed but are absent.

The live annotation preserves the veterinarian-consumer rule and the within-one-year versus later-or-other-person distinction. It omits the unidentified-taxpayer and hypothetical-facts posture, section 6596 warning, missing process facts, legend and examination assumptions, statutory and regulatory analysis, excluded-product list, staff-dispensing restriction, separate-charge and feed issues, tax-reimbursement point, three- and eight-year audit periods, missing enclosures and records, and later-outcome gap.

What this means for you

Veterinarians, veterinary practices, and tax professionals

Document the drug and required legend, prescriber and person who physically furnishes it, initial and later examination dates, continuing veterinarian-client-patient relationship, separately stated charges, sale date, supplier tax, returns, and filing history. This general opinion did not validate any listed product or actual taxpayer's records.

Common questions

Were all products sold by veterinarians covered?

No. The cited definition excluded items such as vitamins, shampoos, pet food, prescription diet food, flea powders, and flea sprays; some feed sales could have separate treatment.

Was this binding advice for the veterinarians mentioned by the requester?

No. The requester did not identify them, and the letter expressly characterized itself as general comments on hypothetical facts.

Citations and references

• California Revenue and Taxation Code section 6018.1 and Regulation 1506(h) (veterinarians as statutory consumers and retailers, as cited)
• California Revenue and Taxation Code sections 6015(a) and 6051 (retailer and sales tax, as cited)
• California Business and Professions Code sections 4211, 4227, 4228(b), and 4229; California Code of Regulations title 16, section 1747.1 (dangerous drugs and dispensing, as cited)
• California Civil Code section 1656.1 (tax reimbursement, as cited)
• California Revenue and Taxation Code section 6487(a)-(b) (three- and eight-year deficiency periods, as cited)
• California Revenue and Taxation Code section 6596 (specific written advice, as cited)
• July 22, 1994 request and drug list — described but not included
• Enclosed copies of Regulations 1506 and 1587 — described but not reproduced
• FDA relationship requirement and California Veterinary Medicine Board of Examiners twelve-month position — stated without reproducing the underlying materials

Verbatim support

From the official October 13, 1994 letter:

Since you did not identify the taxpayers, this letter does not constitute specific written advice to the taxpayers per Revenue and Taxation Code Section 6596.

Regarding sales made by persons other than the veterinarian or beyond one year after the office visit, those are retail sales on which your clients are required to report and pay tax.

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/360-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/360-0168.pdf

Original ruling text

360.0168

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

October 13, 1994

Re: [No Permit Number]
Sales of Drugs to veterinarians
Dear
Your letter of July 22, 1994, to the Board of Equalization Sales and Use Tax Department was referred to the Legal Division for a response. You list several drugs which your veterinarian clients prescribe that are refilled without an office visit required. You ask which of these items are subject to sales tax and also how far back a veterinarian can be audited and required to pay tax. Since you did not identify the taxpayers, this letter does not constitute specific written advice to the taxpayers per Revenue and Taxation Code Section 6596. Instead, it constitutes general comments regarding the applicability of California Sales and Use Tax Law to a set of hypothetical facts. OPINION A. Sales and Use Tax Generally. In California, except where specifically exempted by statute, Revenue and Taxation Code Section 6051 imposes an excise tax, computed as a percentage of gross receipts, upon all retailers for the privilege of selling tangible personal property at retail in this state. (Unless otherwise noted, all statutory references are to the Revenue and Taxation Code.) A "retailer" is one who engages in the business of making retail sales of tangible personal property. (§ 60l5(a).) Some persons who make sales of tangible personal property have been defined by statute as being the consumers of the property when it is purchased. As a re5ult, tax applies to the sale of the property to the "statutory consumer" but not to that person's ensuing sale of the property to the actual end consumer. You did not give any information regarding the process by which the drugs you list are conveyed to your clients' buyers. From your reference to "prescription drugs,” we assume that your clients give the animals a standard physical exam and/or other necessary treatment before initially prescribing these medicines. We also assume that each medicine carries the standard legend required by federal regulations regarding use of these drugs only by or upon the order of a veterinarian.

B. Veterinarians.
There is no statutory exemption for sales of drugs and medicines for the purpose of treating animals. However, veterinarians are statutory consumers of such drugs and medicines used or furnished by them in the performance of their professional services. (§ 6018.1.) For the purposes of this section, "drugs and medicines" are defined as follows: " ... substances or preparations intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease in animals and which is commonly recognized as a substance or preparation intended for this use. The term includes legend drugs, pills, and capsules (other than vitamins), liquid medications, injected drugs, ointments, vaccines, intravenous fluids, and medicated soaps if those soaps are available only to veterinarians. The term does not include vitamins, shampoos, pet foods, prescription diet foods, flea powders, and flea sprays." (Reg.1506(h)(1)(B). Regulation 1506(h) interprets and implements section 6018.1. Sales and Use Tax Regulations are issued by the Board to interpret, implement, or make specific the provisions of the Sales and Use Tax Law to aid in the administration and enforcement of that law and have the force and effect of law.) For a veterinarian to refill a prescription, the FDA requires a current doctor/client/patient relationship. The California veterinary Medicine Board of Examiners deems a hands-on physical examination of the dog within the previous twelve months to be necessary for a doctor/client/patient relationship to exist. The drugs you describe appear to be the kinds of products which fit within the above definition. Title 16 Cal; Code Regs. section 1747.1 (California Board of Pharmacy Regulations) states that all drugs which bear the legend such as "caution - Federal law restricts this drug to use by or on the order of a licensed veterinarian" or similar words are dangerous drugs within the meaning of Business and Professions Code section 4211. We assume that all of the medicines you list bear a legend like the one listed in California Board of Pharmacy Regulation 1747.1. Thus, such medications are considered "dangerous drugs." Business and Professions Code section 4211 defines "dangerous drug". In general, no person shall provide any dangerous drug, except upon the prescription of a physician and surgeon, dentist, podiatrist, or veterinarian. (See Business and Professions Code section 4227.) Business and Professions Code Section 4228(b) states in part "physicians, dentists, podiatrists, and veterinarians may personally furnish any dangerous drug prescribed by them to the patient for whom prescribed .... " Business and Professions Code section 4229 states that "no prescription for any dangerous drug ... may be refilled except upon authorization of the prescriber which may be given orally or at the time of giving the original prescription". Thus, only a veterinarian may dispense "dangerous drugs" and only "to the patient". A staff person in the veterinarian's office may not dispense a "dangerous drug," even as a refill. The California Veterinary Medicine Board of Examiners considers a hands-on physical examination of the dog within the previous twelve months to be necessary for a veterinarian/client/patient relationship to exist. You do not indicate whether your clients examine their patients on these medications at least every twelve months.

As noted above, licensed veterinarians are consumers of drugs and medicines which they use furnish in the performance of their professional duties. They are also the consumers of other tangible personal property which they furnish to clients without a separately stated charge. They are, however, retailers of drugs and medicines which they furnish for a consideration without performing specific related professional services and of other tangible personal property which they furnish to clients for a separated stated charge. (Reg. 1506(h) (2).) Some of their feed sales may not be subject to tax pursuant to Regulation 1587. You indicate that the medicines you list are refilled without an office visit. Therefore, regarding the medicines sold within one year of the office visit, the taxable event is the sale to your clients. (Reg. 1506(h) (2) (A).) Their suppliers report and pay tax on such sales and may collect sales tax reimbursement from your clients (Civ. Code § 1656.1.) who would owe no tax on their subsequent sales of such products to their own clients in the performance of their professional duties. Regarding sales made by persons other than the veterinarian or beyond one year after the office visit, those are retail sales on which your clients are required to report and pay tax. You asked about limitations on auditing tax records. The limitation on a deficiency determination is three years if the veterinarian had been filing a return but did not report some sales or eight years if he did not file at all. It begins to run on the last day of the calendar month following the period for which the amount is proposed to be determined. (§ 6487(a) & (b) .) For your information, I have enclosed copies of Regulations 1506 and 1587. I hope the above discussion has answered your question. If you need anything further, please do not hesitate to write again.

Sincerely,

John L. Waid
Tax Counsel

JLW:es