Were drugs and medical supplies exempt when pharmacies served authorized veterans and an association handled billing with Veterans Administration funds?
Apply this to your situation
This page answers the general question as of 1960. Ask about yours and see what current California tax law says, with citations.
Plain-English summary
The Veterans Administration contracted with a pharmaceutical association to handle member pharmacies' bills for drugs and medical supplies furnished to authorized veterans. The VA supplied the money that the association ultimately paid to the pharmacies.
California treated those transactions as exempt sales to the United States. The association's billing role did not change the purchaser because the VA contract covered the program and the VA bought and paid for the supplies.
The opinion distinguished this structure from one in which the government merely gives veterans funds and the veterans independently purchase from pharmacies.
What this means for you
Pharmacies, benefit administrators, federal health programs, and tax advisers
Identify whether the federal agency contracts for and pays for the supplies or merely reimburses an individual purchaser. A billing intermediary does not necessarily change an otherwise direct federal purchase.
Common questions
Q: Did the association become the purchaser?
A: No. It handled billing.
Q: Who supplied the purchase funds?
A: The Veterans Administration.
Q: Would the answer be the same if veterans received funds and shopped independently?
A: The opinion expressly distinguished that arrangement and did not treat it as the same transaction.
Citations and references
- The opinion cited no numbered statute, regulation, or case.
Source
- Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
- Annotation page: Annotation 505.0780
- Original supporting opinion: 505.0780 PDF
Original ruling text
STATE OF CALIFORNIA
505.0780
STATE BOARD OF EQUALIZATION
Sacramento, Calif.
May 6, 1960
In your letter of April 29 to Los Angeles - Auditing, you inquired whether sales by M Company, to the Veterans Administration Program are exempt sales to the United States. It is our understanding that the Veterans Administration has entered into a contract with the C Association whereby the Association handles billings by member pharmacies for drugs and supplies furnished to authorized veterans. The Veterans Administration provides the funds which are ultimately paid over by the Association to the pharmacies. It is our opinion that the furnishing of drugs and medical supplies to veterans under this program, with the Association handling the billings of the individual pharmacies and the Veterans Administration supplying the funds therefor, are sales to the United States and exempt from sales tax. We do not believe that this result is inconsistent with the statements appearing on page 3570 of the Annotations. This is because it is our understanding that, under the contracts, the supplies are in fact purchased and paid for by the Veterans Administration and the Veterans Administration is not merely furnishing funds to veterans with which to make purchases of drugs and supplies from pharmacies.
George A. Trigueros
GAT:eb
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