Did pharmaceutical manufacturers owe Florida use tax when they gave free prescription-drug samples to practitioners and hospitals for patient treatment?

Plain-English summary

Florida concluded that prescription-drug manufacturers and distributors did not owe use tax when they gave free samples to practitioners and hospitals for patient treatment.

The association's members manufactured and sold prescription medicines and were authorized to conduct that business in Florida. They supplied samples free of charge to doctors and hospitals, which then gave the drugs to patients during medical treatment.

Florida law defined a drug sample as a human prescription drug labeled “sample,” “not to be sold,” “complimentary,” or similar wording, provided as a courtesy to promote sales and not intended for sale.

Although Florida generally imposed use tax on the cost of taxable tangible property distributed or consumed in the state, the Department relied on the exemption for drugs sold to physicians and hospitals in connection with medical treatment. Because the corresponding retail sale was exempt, the complementary use tax did not apply to the free samples.

What this means for you

Pharmaceutical manufacturers and distributors

The ruling covered permitted drug businesses providing genuine prescription samples to authorized practitioners and hospitals for treatment. Preserve labeling, permit, recipient, and distribution records.

Medical practices and hospitals

The approved samples were received for lawful administration or dispensing in the ordinary course of practice or official duties and then provided to patients during treatment.

Accountants and tax professionals

The no-use-tax result followed the medical-drug retail exemption. Confirm that the product, sample labeling, supplier authorization, recipient, and treatment use all fit the cited provisions.

Common questions

Q: Were the samples sold to doctors or hospitals?
A: No. They were provided free of charge.

Q: Were the samples later given to patients?
A: Yes, during medical treatment.

Q: Did the manufacturers owe use tax on the samples' cost?
A: No.

Q: Why did the use-tax exemption apply?
A: The rule exempted drugs sold to physicians and hospitals for medical treatment, and use tax did not apply when the corresponding retail sale was specifically exempt.

Q: What qualified as a drug sample?
A: A human prescription drug marked as a sample or complimentary, provided as a courtesy, not intended for sale, and intended to promote the drug's sale.

Q: Can another drug company rely on this TAA?
A: Not automatically. The advisement states that it binds the Department only on the permits, products, labels, recipients, no-charge distribution, and medical-treatment facts described.

Citations and references

• Fla. Stat. §§ 212.02(20) and 212.05(1)(b) — use and use tax on cost price
• Fla. Stat. § 212.08(2)(a) — prescription-medicine exemption
• Fla. Stat. §§ 499.01, 499.028(1)(a), and 499.03(1) — drug permits, samples, and lawful possession
• Fla. Admin. Code rr. 12A-1.020(1)(a)2., (5) and 12A-1.091(4) — medicine and complementary use-tax exemptions
• Whitehead & Kales Co. v. Green, 113 So. 2d 732 (Fla. 1959)
• Green v. Pederson, 99 So. 2d 292 (Fla. 1957)
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96A-050

Original ruling text

Nov 05, 1996

Re: TAA - 96(A)-050
Samples of Prescription Pharmaceutical Drugs Given Away
Free to Practitioners and Hospitals
Sections 212.02(20), 212.05(1)(b), 212.08(2)(a), 499.001,
499.028(1)(a), 499.03(1), F.S.
Rule 12A-1.020(1)(a)2., and (5), 12A-1.091(4), F.A.C.

Dear:

This is in response to your letter of August 9, 1996, in
which you requested the issuance of a technical assistance
advisement on behalf of the XX (Hereinafter "Association")
regarding the question of whether use tax applies to
prescription drugs given away free of charge to practitioners
and hospitals in the state of Florida, by members of the
coalition. The XXXX consists of XXXX, and XXXX.

In your letter, you explained that the members of the
Association are engaged in the manufacture and sale of
prescription pharmaceutical drugs. The members provide samples
of the prescription medicines to doctors and hospitals free of
charge, and these samples are subsequently given to patients in
the course of medical treatment.

APPLICABLE AUTHORITY

Section 499.01, F.S., provides that manufacturers and
distributors of prescription drugs are required to have a permit
issued by the Florida Department of Health and Rehabilitative
Services in order to conduct business in this state.
Manufacturers and distributors of prescription drugs which have
been issued a permit can be in possession of and make delivery
of prescription drugs to their customers in this state.

Section 499.03(1), F.S., provides that a person may not
possess, or possess with intent to sell, dispense, or deliver,

any habit-forming, toxic, harmful, or legend drug as defined in
s. 499.003, F.S., unless the possession of the drug has been
obtained by a valid prescription of a practitioner, licensed by
law to prescribe the drug. This section goes on to provide that
a licensed practitioner authorized by law to prescribe legend
drugs, and licensed hospitals that procure such drugs for lawful
administration or dispensing by practitioners can receive
delivery of and be in possession of such drugs for use in the
usual course of their business or practice or in the performance
of their official duties, as the case may be.

Section 499.028(1)(a), F.S., defines "Drug sample," or
"complimentary drug," to mean a human prescription drug that is
labeled "sample," "not to be sold," "complimentary," or other
words to that effect, that is provided as a courtesy, that is
not intended to be sold, and that is intended to promote the
sale of the drug.

Section 212.05(1)(b), F.S., provides that a tax is levied
on the cost price of each taxable item of tangible personal
property when it is used, consumed, distributed, or stored for
use or consumption in this state.

"Use" is defined in section 212.02(20), F.S., to mean and
include the exercise of any right or power over tangible
personal property incident to the ownership thereof, or interest
therein. However, it does not include the sale at retail of the
property in the regular course of business.

Use tax is imposed on the privilege of using tangible
personal property which has been shipped into this state and has
come to rest in this state and has become a part of the property
in Florida. See Whitehead & Kales Company v. Green 113 So.2d
732 (Fla. 1959)

Section 212.08(2)(a), F.S., provides an exemption from tax
for the sale of medicines dispensed in a retail establishment by
a pharmacist licensed by the state, according to an individual
prescription or prescriptions written by a prescriber authorized
by law to prescribe medicinal drugs. Rule 12A-1.020(1)(a)2.,
F.A.C., provides an exemption from tax for medicine which is

prescribed and sold by the prescriber, when the medicine is
recorded as if a prescription would have been issued or
required.

Rule 12A-1.020(5), F.A.C., provides an exemption from tax
for the sale of drugs to or by physicians, dentists,
veterinarians, and hospitals in connection with medical
treatment. Also, Rule 12A-1.091(4), F.A.C., states that use tax
does not apply to any property of which the retail sale is
specifically exempt from the payment of the Florida sales tax.
See also Green v. Pederson 99 So.2d 292 (Fla. 1957).

DEPARTMENT RESPONSE

Possession of prescription pharmaceuticals by members of
the Association, authorized by the Florida Department of Health
and Rehabilitative Services to conduct business in this state,
is beyond the scope of Part I, Chapter 212, F.S. Since Rule
12A-1.020(5), F.A.C., exempts the sale of drugs to physicians
and hospitals in connection with medical treatment, use tax can
not be imposed when the members of the Association give free
samples of pharmaceutical drugs to practitioners of the healing
arts and hospitals.

This response constitutes a Technical Assistance Advisement
under s. 213.22, F.S., which is binding on the department only
under the facts and circumstances described in the request for
this advice as specified in s. 213.22, F.S. Our response is
predicated on those facts and the specific situation summarized
above. You are advised that subsequent statutory or
administrative rule changes or judicial interpretations of the
statutes or rules upon which this advice is based may subject
similar future transactions to a different treatment than
expressed in this response.

You are further advised that this response and your request
are public records under Chapter 119, F.S., which are subject to
disclosure to the public under the conditions of s. 213.22, F.S.
Your name, address, and any other details which might lead to
identification of the taxpayer must be deleted by the Department
before disclosure. In an effort to protect the confidentiality

of such information, we request you notify the undersigned in
writing within 15 days of any deletions you wish made to the
request or the response.

Sincerely,

Richard S. Harrod
Senior Tax Specialists
Tax Policy and Dispute Resolution

RSH
Control No. 26243