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

Subject

Samples of Prescription Pharmaceutical Drugs

Plain-English summary

The Department concluded that Florida use tax did not apply when the pharmaceutical companies gave free prescription-drug samples to practitioners and hospitals for use in treating patients. The taxpayers manufactured and sold prescription pharmaceuticals and were authorized to conduct business in Florida.

Florida generally imposed use tax on the cost price of taxable tangible personal property used, consumed, distributed, or stored for use in the state. But the cited medical-drug rules exempted sales of drugs to physicians and hospitals in connection with medical treatment and provided that use tax did not apply when the property's retail sale was specifically exempt.

The samples fit the stated medical use: the manufacturers supplied them free of charge to doctors and hospitals, which then gave them to patients during medical treatment. The ruling also treated the permitted manufacturers' and sellers' possession of prescription pharmaceuticals as outside Part I of Chapter 212.

What this means for you

The ruling did not create a blanket exemption for every promotional product a drug company distributed. Its result depended on prescription-drug samples being provided to practitioners or hospitals and used in the course of rendering medical treatment.

The companies' authorization to possess and distribute prescription drugs in Florida also formed part of the Department's analysis.

Common questions

Q: Were the samples sold to doctors or hospitals? No. The pharmaceutical companies provided them free of charge.

Q: Who ultimately received the samples? Doctors and hospitals gave them to patients during medical treatment.

Q: Why did the sales-tax exemption matter to use tax? Rule 12A-1.091(4) stated that use tax did not apply to property whose retail sale was specifically exempt from Florida sales tax.

Q: What counted as a drug sample under the cited statute? A human prescription drug labeled as a sample, not for sale, complimentary, or similar wording, provided as a courtesy and intended to promote the drug's sale.

Citations and references

• Fla. Stat. § 212.05(1)(b) — use tax on taxable property used, consumed, distributed, or stored in Florida
• Fla. Stat. § 212.02(20) — definition of use
• Fla. Stat. § 212.08(2)(a) — exemption for prescribed medicines dispensed by licensed pharmacists
• Fla. Stat. §§ 499.01, 499.028(1)(a), and 499.03(1) — permits, drug samples, and lawful possession or delivery
• Fla. Admin. Code R. 12A-1.020(1)(a)2. and (5) — exemptions for prescribed medicines and drugs used in medical treatment
• Fla. Admin. Code R. 12A-1.091(4) — no use tax when the retail sale is specifically exempt
• Whitehead & Kales Company v. Green, 113 So. 2d 732 (Fla. 1959); Green v. Pederson, 99 So. 2d 292 (Fla. 1957) — cases cited in the advisement
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 97A-031

Original ruling text

SUMMARY

The possession of prescription pharmaceuticals by the
manufacturer and seller of such pharmaceuticals which is
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
manufacturers and sellers give free samples of
pharmaceutical drugs to practitioners of the healing arts
and hospitals, to be used in the course of rendering
medical treatment.

May 02, 1997

Re: TAA - 97A-031
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.
Rules 12A-1.020(1)(a)2., and (5), 12A-1.091(4), F.A.C.

Dear :

This is in response to your letter of March 6, 1997, in
which you requested the issuance of a technical assistance
advisement on behalf of your clients, XXX (hereinafter
"Taxpayers") regarding the question whether use tax applies to
prescription drugs given away free of charge to practitioners
and hospitals in the state of Florida, by the "Taxpayers."

In your letter, you explained that the "Taxpayers" are
engaged in the manufacture and sale of prescription
pharmaceutical drugs. They 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 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 "Taxpayers,"
who are authorized by the Florida Department of Health 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
"Taxpayers" give free samples of pharmaceutical drugs to
practitioners of the healing arts and hospitals, to be used in
the course of rendering medical treatment.

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
Technical Assistance &
Dispute Resolution

RSH
Control No. 28173