Could a Virginia medical practice buy IUDs and pessaries in bulk without sales or use tax?

Plain-English summary

Virginia denied the medical practice's refund claim for IUDs and pessaries purchased in bulk. The Department treated both products as medical devices, not medicines or drugs, so the prescription-drug exemption did not apply.

The separate medical-device exemption required the items to be purchased by or on behalf of an individual for that person's use. The practice instead bought the IUDs and pessaries in bulk, kept them in stock, and supplied them to patients as needed. The record did not show purchases for identified individual patients.

Because neither exemption fit those facts, the audit assessment remained correct and the refund was denied.

What this means for you

• A product used in medical treatment is not automatically a tax-exempt drug.
• Virginia distinguished FDA-classified medical devices from medicines and drugs.
• Bulk office inventory did not satisfy the requirement that a device be bought by or for an individual.
• Patient-specific purchasing and documentation could present different facts.

Common questions

Were IUDs and pessaries treated as pharmaceuticals?

No. The Department said the FDA classified them as medical devices.

Why did the individual-use medical-device exemption fail?

The practice stocked the products in bulk and did not show that the purchases were made for particular patients.

Citations and references

• Va. Code § 58.1-609.10(9)-(10), formerly § 58.1-609.7(1)-(2).
• The source discusses P.D. 03-1 and P.D. 01-180.

Subject

Taxpayer's purchases of IUDs and pessaries do not qualify for exemption

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 06-135

Original ruling text

October 30, 2006

Re: § 58.1-1821 Application: Retail Sales and Use Tax

Dear *:

This is in response to your letter submitted on behalf of * (the "Taxpayer") in which you seek correction of the retail sales and use tax assessment issued for the period July 2001 through June 2004. The Taxpayer has paid the assessment in full and seeks a refund of the tax and interest remitted with regard to the purchases being contested in this appeal. I apologize for the delay in responding to your letter.

FACTS

The Taxpayer operates as a medical practice offering medical services to its patients. The Taxpayer was audited and assessed the tax on purchases of intrauterine devices (IUDs) and pessaries. The Taxpayer contests the assessment and contends that these items are pharmaceuticals that can be purchased exempt of the tax. The Taxpayer represents that the IUDs are used for birth control and the pessaries are used for support of the uterus, bladder and rectum.

DETERMINATION

Virginia Code § 58.1-609.10 9 (former Va. Code § 58.1-609.7 1) provides an exemption from the retail sales and use tax for medicines and drugs dispensed by or sold on prescriptions or work orders of licensed physicians and other licensed practitioners.

Virginia Code § 58.1-609.10 10 (former Va. Code § 58.1-609.7 2) provides an exemption from the retail sales and use tax for:

Wheelchairs and parts therefor, braces, crutches, prosthetic devices, orthopedic appliances, catheters, urinary accessories, other durable medical equipment and devices, and related parts and supplies specifically designed for those products .... when such items or parts are purchased by or on behalf of an individual for use by such individual. Durable medical equipment is equipment that (i) can withstand repeated use, (ii) is primarily and customarily used to serve a medical purpose, (iii) generally is not useful to a person in the absence of illness or injury, and (iv) is appropriate for use in the home.

In Public Document (P.D.) 03-1 (1/15/03), the taxpayer was the manufacturer and distributor of medical devices. The taxpayer distributed a joint fluid therapy device (the "device") that is used in the treatment of pain in patients suffering from osteoarthritis of the knee. The United States Food and Drug Administration (FDA) classified the device as a medical device. The taxpayer made bulk sales of the device to its customers, including hospitals, medical clinics, or other licensed medical practitioners. The taxpayer requested that the Department exempt the sale of the device to its customers as a drug prescribed by a licensed person. The Department determined that the exemption found in Va. Code § 58.1-609.7 1 did not apply because the device was not considered a drug by the FDA, but instead was classified as a medical device. In addition, the exemption in Va. Code § 58.1-609.7 2 did not apply because the devices were sold in bulk to the taxpayer's customers, and not by or on behalf of an individual for such use by the individual, as required by the statute.

In P.D. 01-180 (10/31/01), the taxpayer operated as a physicians' practice offering obstetric and gynecological services. At issue was the tax assessed on the taxpayer's purchases of intrauterine copper contraceptive devices (the "devices") provided by the taxpayer in the provision of its services. The Tax Commissioner ruled that the exemption in Va. Code § 58.1-609.7 2 did not apply to these purchases because the device did not meet all of the criteria set out in the statute. Additionally, the exemption was found not to apply to the purchases because there was no evidence that the devices were purchased on behalf of individual patients.

In this case, the Taxpayer asserts that it should not have been assessed tax on the IUDs and pessaries purchased, contending that the IUDs and pessaries are pharmaceuticals. Based on FDA guidelines reviewed by the Department, IUDs and pessaries are classified by the FDA as medical devices. Accordingly, the exemption found in Va. Code § 58.1-609.10 9 for medicines and drugs does not apply to the purchase of the IUDs and pessaries by the Taxpayer.

Virginia Code § 58.1-609.10 10 requires that purchases of medical devices be made by or on behalf of an individual. There is no evidence that the IUDs and pessaries at issue were purchased for an individual patient. Rather, the Taxpayer purchased the IUDs and pessaries in bulk and held them in stock for distribution to its patients as needed. Accordingly, the Taxpayer's purchases of IUDs and pessaries do not qualify for exemption and were properly taxed in the audit.

CONCLUSION

Based on the above determination, the assessment is correct as issued. Accordingly, the Taxpayer's request for refund is denied.

The Code of Virginia sections and public documents cited, along with other reference documents, are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions about this determination, you may contact * in the Department's Office of Policy and Administration, Appeals and Rulings, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/55816P