Taxpayer is a limited partnership that operates nursing homes both in this state and outside Indiana. The nursing homes provide long-term and rehabilitative health care. The Department of Revenue ("Department") conducted an audit review of Taxpayer's tax returns and business records.
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The audit found that Taxpayer's purchases of "non-prescription lotions and ointments" were subject to sales and use tax. Taxpayer disagrees maintaining that "non-legend" drugs are exempt from sales use tax.
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Taxpayer maintains that its purchase of topical substances – such as protective lotions, ointments, moisturizing cream – are non-legend drugs and fall within the exemption set out in IC § 6-2.5-5-19 (2003). Taxpayer is correct. The lotions and ointments fall within the definition of "drugs" under IC § 6-2.5-1-17(3) because they cure, mitigate or treat disease or "affect the structure or any function of the body," are prescribed pursuant to IC § 16-42-19-3, and "the ultimate user of the drug is a person confined to a hospital or health care facility." IC § 6-2.5-5-19(d)(2) (2003). However, it should be noted that the exemption does not cover the use of non-legend drugs outside of Taxpayer's facility. To the extent that Taxpayer prescribes non-legend drugs to patients residing within its care facilities, Taxpayer's purchases of those drugs are exempt from sales/use tax.
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The Department's audit found that Taxpayer purchased "IV supplies, syringes, catheters... wheelchairs, bariatric items, VAC units" and other medical supplies without paying sales tax. The Department's audit therefore assessed Taxpayer use tax on these items.
Taxpayer disagrees stating that the "medical items should be removed from the proposed assessment because they are exempt from tax and [Taxpayer] was told that they were not taxable."
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In this case, the transactions were between Taxpayer and its various vendors. Taxpayer was the purchaser but did not sustain a "condition brought about by injury to, malfunction of, or removal of a portion of the purchaser's body." See 45 IAC 2.2-5-27(b).
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The "IV supplies, syringes, catheters... wheelchairs, bariatric items [and] VAC units" fall within 45 IAC 2.2-5-36(a)(5) as "apparatus used in the practice of surgery or medicine" and are plainly "medical supplies consumed in professional use" as defined under 45 IAC 2.2-5-36(a)(4). There is no indication that any of the items were ever resold to individual patients or that Taxpayer – as a long-term medical care facility– ever quoted its patients a selling price for these items.
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Nonetheless, Taxpayer argues that it is entitled to prospective enforcement of the Department's position because it relied on a previous Letter of Findings, issued in 2006, which contradicts the Department's current position. Taxpayer points to Letter of Findings 97-0111 (August 31, 1998) and Letter of Findings 05-0297 (December 1, 2006). In those Letters of Finding, the Department sustained the Taxpayer on the issue of whether IV supplies, respiratory supplies, and "intrusive" supplies were subject to sales tax. In addition, Taxpayer cites to a Departmental Revenue Ruling 1998-02 (February 6, 1998) in which the Department found "the sale of [coronary] stents separately from [a] coronary angioplasty balloon catheter is not subject to sales/use tax."
However, the cited ruling has been superseded and replaced by rulings correctly indicating that the property in question was not exempt from sales tax. See Revenue Ruling 2009-16ST (December 1, 2009) (repealing Revenue Ruling 2008-03ST); Revenue Ruling 2009-17ST (December 1, 2009) (ruling that heart catheters and machines are subject to Indiana sales and use tax); Revenue Ruling 2010-01ST (January 11, 2010) (repealing Revenue Ruling 2008-17ST); Revenue Ruling 2010-02ST (February 18, 2010) (ruling that surgical cutting equipment employed in orthopedic surgery was taxable).
