Did an occupational healthcare provider have to charge Virginia sales tax on its medical services, and how were its supplies treated?

Subject

Application of the retail sales and use tax to healthcare services

Plain-English summary

The described healthcare services were nontaxable professional medical services. They included examinations, screenings, tests, immunizations, and treatment delivered by properly licensed healthcare professionals as part of an occupational healthcare and fitness program.

That service treatment did not exempt the provider's own purchases. The provider was the consumer of property used in delivering its services and generally had to pay sales tax to suppliers. If a supplier did not collect tax, the provider had to accrue and remit consumer use tax.

What this means for you

• No sales tax was charged on the professional services described in the request.
• Property transferred only as an inconsequential part of a service with no separate charge did not turn the service into a taxable sale.
• Practitioners generally owed tax on equipment and supplies they consumed while performing services.
• The regulation separately identified limited exceptions, including qualifying controlled drugs and certain dialysis equipment and supplies purchased by licensed physicians.

Common questions

Could the provider buy all medical supplies tax-free because its services were exempt?

No. The provider was generally the taxable consumer of property used in performing the services.

What if a supplier failed to charge sales tax?

The provider had to accrue and remit consumer use tax to Virginia.

Citations and references

• Va. Code §§ 58.1-609.5(1) and 54.1-3443 et seq.
• 23 VAC 10-210-2060(A)-(B).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 10-269

Original ruling text

December 16, 2010

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This is in response to your letter submitted on behalf of * (the "Taxpayer"), in which you request a ruling on the application of the retail sales and use tax to the provision of healthcare services.

FACTS

The Taxpayer provides healthcare services as part of a comprehensive occupational healthcare and fitness program. The services include, but are not limited to, health maintenance examinations, surveillance physicals, audiograms, exercise treadmill stress tests, optical exams, blood pressure screenings, and allergy and flu immunizations. The Taxpayer is focused on providing a range of healthcare services and treatment of occupational and non-occupational illnesses and injury. The services are provided by a team of professionals, including a clinic administrator, a physician, a physician's assistant, registered nurses, a medical assistant, a radiology technician, as well as ancillary staff such as medical records clerks, a wellness manager, and instructors. The healthcare professionals are properly certified and licensed. The Taxpayer requests a ruling regarding the application of the retail sales and use tax to the healthcare services it provides.

RULING

Pursuant to Va. Code § 58.1-609.5 1, the retail sales and use tax does not apply to "[p]rofessional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate charges are made ...."

Title 23 of the Virginia Administrative Code (VAC) 10-210-2060 A states, "The charges for professional services performed by physicians, surgeons and other 'practitioners of the healing arts' are not subject to the tax. If a practitioner regularly makes sales of tangible personal property, he is required to register as a dealer and collect and pay the tax on retail sales."

Title 23 VAC 10-210-2060 B provides:

Physicians, surgeons and other "practitioners of the healing arts" are the consumers of all tangible personal property used in performing their professional services. They must pay the tax to their suppliers at the time of purchase. If the supplier fails to collect the tax, the practitioner must pay the tax on a Consumer's Use Tax Return, Form ST-7. The only exception is that licensed physicians may purchase controlled drugs and hemodialysis and peritoneal dialysis equipment and supplies for use in their professional practice exempt from the tax. Controlled drugs are those itemized in Article 5 (§ 54.1-3443 et seq .) of Chapter 34 of Title 54.1 of the Code of Virginia . Purchases by a licensed physician of wheelchairs, braces, crutches, prostheses, orthopedic appliances, durable medical equipment, and similar items are subject to the tax, unless purchased on behalf of a specific patient. Other purchases, including bulk purchases, of such items are subject to the tax, even if items from a bulk inventory are subsequent], dispensed to or modified for specific patients.

Based upon the information provided by the Taxpayer, the services at issue are professional medical services as considered in the aforementioned authorities. Accordingly, the Taxpayer is not required to charge the retail sales and use tax on the services provided. However, as a service provider and practitioner of the healing arts, the Taxpayer is deemed the consumer of all tangible personal property used in the performance of these professional services. Accordingly, the Taxpayer must pay the tax to its suppliers at the time of purchase. If the supplier fails to collect the tax at the time of purchase, the Taxpayer must accrue the use tax and remit the tax it to the Department.

This response is based on the facts provided as summarized above. Any change in facts or the introduction of new facts may lead to a different result.

The Code of Virginia section and regulation cited 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 response, you may contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-4479982164.P