I sold dental prosthetics tax-exempt to a customer who checked the medical-exemption box on their certificate -- why did the state still assess me use tax on those sales?

Plain-English summary

A dealer of dental prosthetics and related products sold to oral surgeons, dentists, and dental laboratories in Virginia was audited for July 2017 through June 2020. The auditor found untaxed sales of dental devices, prosthetics, and related parts where the customer's exemption certificates were invalid — specifically, the underlying sales records didn't contain patient-specific information. The dealer contested the assessment, arguing it had accepted an exemption certificate in good faith from the customer.

Why the certificate wasn't enough. Virginia Code § 58.1-609.10 10 exempts durable medical equipment that (i) withstands repeated use, (ii) is primarily and customarily used for a medical purpose, (iii) isn't generally useful absent illness or injury, and (iv) is appropriate for home use. But 23 VAC 10-210-940 F 5 limits that exemption to items specifically purchased for a particular individual — and the Department has consistently required that patient-specific information appear on the billing invoice at the time of sale, not be traceable afterward (citing P.D. 00-215). Here, the dealer pointed to a Form ST-13 exemption certificate where the customer had checked a box indicating the purchases were for specific patients, plus later email correspondence confirming the implants were for specific patients — but neither document showed that the customer had identified specific individuals when the orders were actually placed.

Strict construction cuts against the taxpayer. Virginia courts require sales and use tax exemptions to be strictly construed, resolving any doubt against the party claiming the exemption (citing Commonwealth v. Community Motor Bus Co. and Golden Skillet Corp. v. Commonwealth). Combined with the timing gap in the dealer's documentation, that doctrine meant the assessment had to stand.

The good-faith exemption-certificate framework generally. The ruling also restates Virginia's broader good-faith standard for exemption certificates (23 VAC 10-210-280 B, seen in this corpus's companion rulings on resale certificates, P.D. 25-41/25-79/25-81): a certificate can be accepted in good faith when it's submitted with the original transaction, filled out completely, free of obvious errors, and the property sold matches the certificate's wording exactly. Certificates obtained only after an audit begins get closer scrutiny and generally can't be treated as accepted in good faith.

What this means for you

Sellers of durable medical equipment or dental/medical prosthetics

Collect and document patient-specific information — which specific individual the item is for — at the time of the sale itself, not after the fact. A customer checking a box on a general exemption certificate, without item-level, patient-specific detail tied to that order, likely won't survive an audit.

Anyone relying on a customer's exemption certificate for medical-related sales

Verify the certificate is complete and specific to the transaction when you accept it — the durable medical equipment exemption is one of several Virginia exemptions courts construe strictly against the taxpayer, so ambiguity in your documentation will be resolved against you.

Businesses gathering exemption support during an audit

Documentation obtained only after the audit starts (like the after-the-fact email correspondence here) gets more scrutiny and generally won't establish good-faith acceptance — build your recordkeeping practices to capture the needed detail up front.

Common questions

Q: My customer's exemption certificate says purchases are "for specific patients" — isn't that enough for the durable medical equipment exemption?
A: Not by itself. The Department requires the billing records to show which specific individual an item was purchased for at the time of the sale, not just a general checkbox statement on the certificate.

Q: Can I fix this after an audit starts by getting email confirmation from my customer?
A: Documentation gathered after the audit begins receives closer scrutiny and generally isn't sufficient to show the exemption applied at the time of sale, as this ruling illustrates.

Q: Why does the exemption get interpreted so narrowly?
A: Virginia courts require strict construction of sales and use tax exemptions — any doubt about whether an exemption applies is resolved against the taxpayer claiming it.

Citations and references

Statutes and regulations:

• Va. Code § 58.1-609.10 10 — durable medical equipment exemption
• 23 VAC 10-210-940 F 5 — exemption available only for items specifically purchased for a particular individual
• 23 VAC 10-210-280 B — good-faith acceptance of exemption certificates; greater scrutiny for certificates obtained during an audit

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 24-140

Original ruling text

December 13, 2024

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 audit assessment issued for the period July 2017 through June 2020.

FACTS

The Taxpayer, a dealer of dental prosthetics and related products to oral surgeons, dentists, and dental laboratories in Virginia, was audited for the period at issue. The Department’s auditor found that the Taxpayer had made untaxed sales of dental devices, prosthetics, and related parts, because the exemption certificates for the associated customers reviewed during the audit were invalid, and sales were not for specific patients. The Taxpayer filed an application for correction contending it accepted an exemption certificate in good faith from one of its customers and claims its sales of dental prosthetics to this customer were appropriately treated as exempt of tax.

DETERMINATION

Medical Equipment Exemption

The sales records listed as audit exceptions did not contain patient-specific information. Virginia Code § 58.1-609.10 10 provides an exemption for durable medical 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.”

Title 23 of the Virginia Administrative Code (VAC) 10-210-940 F 5 provides “[t]he exemption in this subsection is available only for items purchased by or on behalf of an individual for his use. In order to be deemed a purchase on behalf of an individual, the item must be specifically purchased for the individual.”

The Department has been consistent in its requirement that patient-specific information must be present on the billing invoices to a customer at the time of sale. In Public Document (P.D.) 00-215 (12/7/2000), the Department explained that tracing durable medical devices to specific patients after the purchase does not meet the requirement that the patient for which the item is obtained be known at the time of purchase.

The Virginia courts have consistently required strict construction of sales and use tax exemptions. Where there is any doubt as to the application of an exemption, the doubt is resolved against the person claiming the exemption. See Commonwealth v. Community Motor Bus Co., Inc ., 214 Va. 155 (1973) and Golden Skillet Corp. v. Commonwealth, 214 Va. 276 (1972).

In its application for correction, the Taxpayer states the certificate of exemption they accepted is sufficient to substantiate the claim that the sale of dental prosthetic devices is exempt from Virginia sales and use tax because its customer checked the corresponding box on a Form ST-13, the certificate of exemption for use when purchasing medical-related items, indicating the purchases would be used for specific patients. Further, the Taxpayer submitted email correspondence from its customer stating the purchased implants were for specific patients. These documents, however, fail to show that the customer bought items for specific individuals at the time the orders were placed.

CONCLUSION

Based on the documentation provided and the cited authorities, the documentation submitted by the Taxpayer does not meet the criteria set forth by the durable medical device exemption. Accordingly, the assessment is correct. An updated bill, with interest accrued to date, will be mailed shortly to the Taxpayer. No further interest will accrue provided the outstanding assessment is paid within 30 days from the date of this letter.

With regard to exemption certificates, Title 23 VAC 10-210-280 B provides that reasonable care and judgment must be exercised by both the purchaser and dealer when ensuring the completeness and correctness of exemption certificates. An exemption certificate may be accepted in good faith when the certificate is submitted as part of the original transaction, it has been filled out completely, when reasonable care is used by both parties to the transaction to ensure correctness, ( i.e. there are no obvious errors in the form’s completion), and the tangible personal property sold is covered by the exact wording of the certificate. See P.D. 01-36 (4/11/2001), P.D. 11-8 (1/20/2011), and P.D. 19-50 (5/9/2019). When exemption certificates are not available at the onset of an audit, the Department has held that any certificate obtained during the audit is precluded from being considered accepted in good faith, and closer scrutiny will be applied to information supplied on the certificate. See P.D. 98-29 (2/20/1998), P.D. 01-36 (4/11/2001), P.D. 05-160 (10/7/2005) and P.D. 16-104 (5/25/2016). The Taxpayer may wish to consider reviewing and modifying it sales operations to ensure exemption certificates are accepted in good faith.

The Code of Virginia sections and regulations cited are available online at law.lis.virginia.gov. The public documents cited are available at tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website. If you have any questions regarding this determination, you may contact * in the Office of Tax Policy and Legal Affairs, Tax Adjudication and Resolution Division, at or **.

Sincerely,

James J. Alex

Tax Commissioner

Commonwealth of Virginia

AR/3772.Z

Related Documents

98-29

00-125

00-215

01-36

04-218

05-160

07-169

11-8

16-104

19-50