Were all pharmaceuticals, including proprietary or over-the-counter medicines, exempt when sold for nursing-facility patients under physician prescriptions?

Plain-English summary

All qualifying pharmaceuticals sold by the Company for nursing-facility patients under physician prescriptions were exempt from Rhode Island sales and use tax, including proprietary medicines. The prescription requirement allowed qualifying products that otherwise could be sold over the counter to receive the medicines-and-drugs exemption.

The Company contracted with nursing facilities to provide all pharmaceuticals needed by their patients. Every pharmaceutical sold under the arrangement, including proprietary medicines, was prescribed by a physician.

R.I. Gen. Laws § 44-18-30(K) exempted medicines and drugs, as defined in § 5-19-1, when sold on prescription. Section 5-19-1 covered drugs and preparations recognized in the United States Pharmacopoeia or National Formulary and meeting their strength, quality, or purity standards.

The Division explained that those references included both products ordinarily sold through pharmacists and proprietary or patent medicines sold over the counter. Rhode Island-licensed nursing homes and healthcare facilities could not administer the products to patients without a physician's prescription, and the facilities were treated as purchasers when contracting with the Company.

What this means for you

Nursing homes and licensed care facilities

The exemption rested on physician prescriptions for the patient pharmaceuticals supplied under the facility contract.

Pharmaceutical providers

Do not assume a proprietary or over-the-counter label defeats the exemption. The product still had to meet the statutory medicine or drug definition and be sold under prescription.

Accountants and tax professionals

Document both elements: statutory product qualification and the physician prescription. The ruling did not create a blanket exemption for every item a pharmaceutical provider sells.

Common questions

Were prescription drugs exempt? Yes, when they met the statutory definition and were sold under prescription.

Could proprietary or patent medicines qualify? Yes. The order included them when they met the definition and were physician-prescribed.

Did it matter that some products could normally be sold over the counter? No, not under the stated facts, because the nursing-facility sales were under physician prescriptions.

Who was treated as the purchaser? The licensed nursing home or healthcare facility contracting for the patients' pharmaceuticals.

What source-text issue should readers notice? The discussion first quotes § 5-19-1 but later refers to § 4-19-1; the holding relies on § 5-19-1.

Citations and references

• R.I. Gen. Laws § 44-18-30(K) — prescription medicines and drugs exemption.
• R.I. Gen. Laws § 5-19-1 — definition of drugs and medicines.

Source

• Landing page: Rhode Island Declaratory Rulings
• Declaratory order: Declaratory Order 1992-06

Original ruling text

Ruling Request No. 92-06

Ruling Request No. 92-06

Re: Request for Sales/Use Tax Ruling on Certain Sales of Pharmaceuticals

Facts

A certain company, is a provider of pharmaceuticals to nursing home patients. The company enters into contracts with nursing facilities to provide all pharmaceuticals needed by patients of the nursing facility. All pharmaceuticals (including proprietary medicines) that are sold by a certain company to nursing facility patients are prescribed by a physician.

Ruling Requested

All pharmaceuticals (including proprietary medicines) that are sold by the certain company to nursing facility patients under a physicians prescription will be exempt from Rhode Island sales and use taxes.

Discussion

R.I.G.L. 44-18-30 reads as follows:

44-18-30. Gross receipts exempt from sales and use taxes. -- There are exempted from the taxes imposed by this chapter the following gross receipts:

(K) Medicines and drugs. From the sale and from the storage, use, or other consumption in this state, subsequent to March 31, 1948, of medicines and drugs as defined in section 5-19-1, sold on prescriptions.

R.I.G.L. 5-19-1 reads in pertinent part:

5-19-1. Definitions.-- The terms "drugs" and "medicines and poisons", as used in this chapter shall mean and include all drugs and preparations sold under or by a name recognized in the United States pharmacopoeia or national formulary, and of the standards of strength, quality or purity as determined by the test, if any, laid down in the United States pharmacopoeia or national formulary; provided however, that the term "poison",...

R.I.G.L. 44-18-30(K) exempts medicines and drugs as defined in section 5-19-1 provided they are sold on prescription. R.I.G.L. 4-19-1 defines medicines and drugs as all drugs and preparations sold under or by a name recognized in the United States Pharmacopoeia or National Formulary and meets specific standards of strength, quality or purity as determined by the test (if any) set forth in the United States Pharmacopoeia or National Formulary. Medicines and drugs listed in the pharmacopoeia include not only prescription drugs normally sold through a pharmacist but proprietary or patent medicines sold over the counter.

Nursing homes and other health care facilities licensed by the Rhode Island Department of Health are not allowed to administer to its patients any drugs or proprietary medicines unless prescribed by a physician. Accordingly, nursing homes and other licensed health facilities are deemed to be the purchasers of prescription drugs and medicines when contracting with the company for all pharmaceuticals needed by patients of the licensed facilities.

Ruling

All pharmaceuticals (including proprietary medicines) sold by the company to nursing facility patients under a physician's prescription are exempt from Rhode Island sales and use taxes pursuant to 44-18-30(K).

The ruling may be relied upon by the company and shall be valid until the applicable statutory provisions are amended in a manner requiring a different result or until the underlying factual presentation changes.

**R. Gary Clark

Tax Administrator

August 18, 1992**