Taxpayer operates an
Indiana health care facility. After an audit, the Indiana Department of Revenue
("Department") determined that Taxpayer owed use tax for the tax years
2005, 2006, 2007, 2008, and 2009. The audit also addressed two refund claims
Taxpayer had filed for the 2007, 2008, and 2009 tax years, which the Department
granted in part and denied in part.
…
The Department found that
Taxpayer had purchased certain "medical supplies" without paying
sales tax at the time of purchases, and assessed used tax on the purchases.
…
Taxpayer asserts that its
purchase of "'disposable medical supplies' [such as] catheters, guides,
introducers, various kits, various packs, disposable staplers, sheaths, trach
tubes, foley trays, etc" are exempt from sales and use tax under the
"durable medical equipment exemption" provided under IC § 6-2.5-5-18.
Taxpayer maintains that "all disposable medical supplies are purchased
directly by [Taxpayer] and then resold to the patient on a licensed
practitioners order." Taxpayer states that "under [its Patient
Consent Agreement]... the surgeons, radiologist, pathologists, and
anesthesiologists at [Taxpayer's facility] are independent contractors and are
not employees or agents of [Taxpayer]. Any physician service charges are billed
directly to the patient from the physician, not [Taxpayer]. In effect, Taxpayer
maintains since the "surgical supplies" are used to correct a
malfunction of the body and its use is prescribed by one licensed to issue such
a prescription, the "surgical supplies" are exempt.
While 45 IAC 2.2-5-28(h) states, "The term
'medical equipment, supplies or devices,' as used in this paragraph, are those
items, the use of which is directly required to correct or alleviate injury to
malfunction of, or removal of a portion of the purchaser's body," this
provision is not to be read in isolation from the remainder of the regulation.
(Emphasis added). The Department refers to 45 IAC 2.2-5-28(g), which states, "The
sale to the user of medical equipment, supplies, or devices prescribed by one
licensed to issue such a prescription are exempt from sales and use tax."
(Emphasis added).
Notwithstanding that
Taxpayer has not provided copies of the "prescriptions," it seems
that the actual "disposable medical supplies" themselves would not be
prescribed to the patient for the patient to "use" them. Apparent
from the nature of the items for which an exemption is requested–i.e.,
"catheters, guides, introducers, various kits, various packs, disposable
staplers, sheaths, trach tubes, foley trays"–these are the types of
"disposable medical supplies" that are necessary for a "licensed
practitioner" to complete a "prescribed procedure." Nonetheless,
even if the items themselves were prescribed, the items would be for the
"licensed practitioners" to "use" to carry out the
provision of the medical services that the practitioners are providing to the
patient. Thus, for the transactions in question, even if the "disposable
medical supplies" were "sold" to the "patient," these
"sales" were not to the "user" of the medical supplies. The
"user" of the medical supplies would be the "independent
contractors,"–i.e., surgeons, radiologists, pathologists, and
anesthesiologists–that are "licensed practitioners" that
"used" these supplies to carry out their medical services that they
provide to the patient.
…
Taxpayer asserts that it
mistakenly paid sales tax on its purchase of "medical supplies and
equipment that were later resold to the federal and/or state government."
Initially, the Department found Taxpayer had made purchases during the 2007 and
2008 tax years that were resold to patients covered under Medicare Part A and
Medicaid. Since the items purchased were resold to–i.e., paid for by–the
federal and state government, the items that were purchased were not subject to
sales/use tax at the time of Taxpayer's purchase and were not subject to sales
tax at the time of resale to the government. See IC § 6-2.5-5-8(b) (providing a
purchase for resale exemption for sales/use tax); See also IC § 6-2.5-5-24
(providing a sales tax exemption for purchases made by the federal government);
See also IC § 6-2.5-5-16 (providing a sales tax exemption for purchases made by
the state of Indiana).
...
However, Taxpayer is
mistaken. Taxpayer was not assessed sales tax on its failure to collect sales
tax on its resale of items to patients covered under Medicare Part B or the
"managed care programs." Even if Taxpayer's assertion about the sales
not being subject to sales tax is presumed valid, a refund is not due Taxpayer.
If sales tax were collected by Taxpayer as a retail merchant on Taxpayer's
sales of items to patients, then Taxpayer, as the retail merchant, cannot
receive a refund of the sales tax it collected unless the retail merchant has
first refunded the sales tax it collected to its customer. See IC §
6-2.5-6-14.1 (providing that "a retail merchant is not entitled to a
refund of state gross retail or use taxes unless the retail merchant refunds those
taxes to the person from whom they were collected"). Since Taxpayer has
not presented any information demonstrating that it collected sales tax from
its customers as a retail merchant and refunded those monies collected back to
the customers, then Taxpayer is not entitled to a refund of sales tax.
In the alternative, if
Taxpayer meant to claim that a refund is due for the sales/use tax that it paid
on its purchase of items to be resold, the relevant question is not to whom the
Taxpayer made the sale. The relevant question is whether or not the items were
actually resold. If the items were resold to patients, then the items would
qualify for the purchase for resale exemption regardless of the customer's
status. The status of the customer, as a government entity or otherwise, does
not become relevant except in determining if the proper amount of sales tax was
collected from the customer at the time of resale.
Based upon the
documentation presented, it appears that the audit/refund investigation
addressed the assessment of use tax and/or the denial of Taxpayer's refund of
tax that Taxpayer paid at the time of purchase. Therefore, the audit division
is requested to perform a supplemental audit. Taxpayer's protest is sustained
to the extent that the supplemental audit reveals that Taxpayer has been
assessed or requested a refund of use tax it paid on items that were resold to
its patients. However, Taxpayer's protest is denied to the extent that the
supplemental audit reveals that the items in question were not resold to
patients. As discussed previously in Issue I, items that are consumed/used by
the hospital or the "licensed practitioners" to carry out the
provision of the medical services that the practitioners are providing to the
patient are not resold.
…
The Department issued
proposed assessments that calculated the interest due on the tax from the due
date of the returns for the tax periods. Taxpayer protests that the interest
should instead be assessed from the 2009 refund date.
...
Taxpayer makes a fairness
argument claiming that the Department had use of Taxpayer's money for the
period from the due date of the return to the date the refund was granted.
However, the Department, when it granted the refund, compensated Taxpayer for
the use of its money by paying interest to Taxpayer as provided in IC §
6-8.1-9-2(d).
In fact, the Department
notes IC § 6-8.1-10-1(e) expressly states that the interest cannot be waived.
Accordingly, the Department
acted appropriately under the authority granted under statutes, and declines
Taxpayer's invitation to takes actions that exceed this statutory authority.
