Were bulk purchases of Mirena and Implanon exempt controlled drugs when used by a medical practice?

Subject

Mirena and Implanon qualified as exempt controlled drugs for professional use

Plain-English summary

Virginia exempted the medical practice's bulk purchases of Mirena and Implanon. Both contraceptive products release medication into the body.

The FDA classified them as prescription drugs, and the Virginia Board of Pharmacy treated them as Schedule VI controlled substances. That distinguished them from an earlier ruling involving IUDs that released no medicine and were classified as medical devices.

Because Virginia exempted controlled drugs purchased for use by licensed practitioners in their professional practice, the Department removed the purchases and abated the bill in full.

What this means for you

• Product classification matters: a drug-releasing product can receive different treatment from a device without medicine.
• The exemption covered controlled drugs used in the licensed practice, including bulk purchases under these facts.
• FDA and Virginia pharmacy classifications supplied the factual basis for treatment.

Common questions

Why did an earlier IUD ruling not apply?

Those IUDs did not release a medicine or drug and were classified as medical devices.

What happened to the audit bill?

It was abated in full.

Citations and references

• Va. Code § 58.1-609.10(9).
• Virginia Public Document 06-135.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 09-127

Original ruling text

August 24, 2009

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 by the Department for the period January 2006 through December 2008.

FACTS

The Taxpayer operates as a medical practice offering medical services to its patients. The Taxpayer was audited and assessed tax on bulk purchases of the contraceptive products Mirena and Implanon. Mirena is an intrauterine device (IUD) that slowly releases a chemical agent levonorgestrel into the body that causes contraceptive effects. Implanon is a subdermal implant device that releases the medication etonogestela into the body for the same purpose.

The auditor assessed the tax based on Public Document (P.D.) 06-135 (10/30/06). The Taxpayer contests the assessment of the tax to these purchases on the basis that they are classified as prescription drugs by the United States Food and Drug Administration (FDA) and Schedule VI controlled drugs under the Virginia Drug Control Act. Based on these authorities, the Taxpayer claims that Mirena and Implanon are exempt of the tax in accordance with Va. Code § 58.1-609.10 9. The Taxpayer cites a number of other authorities to support its position.

DETERMINATION

Virginia Code § 58.1-609.10 9 provides an exemption from the retail sales and use tax for "[m]edicines [and] drugs . . . dispensed by or sold on prescriptions or work orders of . . , licensed physicians . . . [and] controlled drugs purchased for use by a licensed physician, optometrist, licensed nurse practitioner, or licensed physician assistant in his professional practice . . . ."

Based on FDA guidelines reviewed by the Department, the Mirena and Implanon devices are classified by the FDA as prescription drugs. The Virginia Board of Pharmacy concurs with the federal classification and deems Mirena and Implanon as Schedule VI controlled substances under the Virginia Drug Control Act. For this reason, P.D. 06-135 is not applicable to the Taxpayer because the IUDs in that ruling did not release a medicine or drug and were classified by the FDA, as medical devices. Based on the above information and the requirements set forth in the statute, Mirena and Implanon qualify for exemption under Va. Code § 58.1-609.10 9 as controlled drugs purchased for use in the Taxpayer's professional practice.

CONCLUSION

Based on the foregoing, the audit will be adjusted to remove the tax assessed on the purchases of Mirena and Implanon. Accordingly, Bill #* which consists only of the Mirena and Implanon assessment, will be abated in full.

The Code of Virginia section and public document cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's website. If you have any questions about this determination, you may contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-3628511257.T