Taxpayer is an Indiana veterinary clinic. The Indiana
Department of State Revenue ("Department") conducted a sales and use
tax audit of Taxpayer for the years 2009 and 2010 and made an assessment of
additional sales tax pursuant to the audit. The Department found that Taxpayer
did not collect sales tax on its sales of the flea medications, Elizabethan
collars, the rental of traps, and the rental of pet carriers.
According to the Department's audit, Taxpayer now agrees
that it should collect sales tax on its rental of traps and pet carriers.
However, Taxpayer protests the imposition of sales tax on its sale of flea
medications (Advantage, Advantage Multi, and Frontline) and Elizabethan collars
under prescription by its veterinarians who are licensed to dispense
medications and equipment for treatment of animals.
...
The Department's audit subjected Taxpayer's sale of flea
medications (Advantage, Advantage Multi, and Frontline) to sales tax. The
Department's audit stated that while these drugs are dispensed by veterinarians
(suggesting that typically they would be exempt), the Department's audit also
found that because these drugs are also sold over-the-counter
("OTC"), they are therefore not exempt even when sold by a licensed
practitioner. The audit states:
Taxpayer sells Frontline, Advantage, and Advantix flea
control medications. The taxpayer understands after discussing this issue with
their supplier that these items are supposed to be sold only to licensed
practitioners to dispense these medications. In reality, these items are being
sold over the counter by large brick and motor stores and also on the internet.
Since there is no exemption available for over the counter medications, this
audit will propose an assessment of Indiana sales tax on the selling price of
the items as per 45 IAC 2.2-2-1.
...
As a side note, Taxpayer points out that only one of the
flea medications, Advantage, is sold over the counter. Whether or not the
Department's audit or Taxpayer are correct as to which drugs are sold over the
counter, the issue is irrelevant in this instance because the issue, pursuant
to IC § 6-2.5-5-19(c), is whether or not these drugs are sold by licensed
practitioners, irrespective of whether they are legend or non-legend drugs (the
latter being the drugs that can be sold OTC).
IC § 6-2.5-5-19(c) addresses transactions where drugs –
whether legend or non-legend – are sold by licensed practitioners (IC 6-2.5-5-19(c)(2)),
or sold by registered pharmacists upon prescription by licensed practitioners (IC 6-2.5-5-19(c)(1)).
IC § 6-2.5-5-19(d) addresses transactions where a person
(other than a licensed practitioner or a registered pharmacist) sells
non-legend drugs. In that case, under IC § 6-2.5-5-19(d) the sale of the
non-legend drug is only exempt if it is dispensed under an original
prescription or a drug order and the ultimate user of the drug is confined to a
hospital or health care facility.
First, there is no question that Taxpayer's veterinarians
are licensed practitioners. 45 IAC 2.2-5-37(a).
Second, the flea medications are drugs under IC § 6-2.5-1-17. Taxpayer
presented documentation demonstrating that these flea medications are sold to
Taxpayer's patients by its veterinarians.
...
Taxpayer has met its burden to show that the flea
medications are properly sold to its patients exempt from sales tax under IC §
6-2.5-5-19(c).
...
The Department, on page 8 of the Audit Summary, lists
Elizabethan Collars among the items it is subjecting to sales tax under the
general heading of "Non Medicine Sales." The Audit Summary, however,
does further explain why it subjected these items to sales tax.
Taxpayer protests that these items are sold as medical
equipment subject to exemption. Taxpayer explains that:
These collars are dispensed upon the order of a veterinarian
post-surgery only when medically necessary. As stated in the Post Operative
Care for Dogs handout given to clients of [Taxpayer]..., "Male dogs must
wear the Elizabethan Collar for at least 10 days... Male dogs can do great
damage to their incision in a short amount of time." Male dogs (and cats)
are likely to lick, scratch and bite their incisions after surgery, causing
numerous medical problems. The only way to successfully prevent their behavior
is through the use of an E-collar.
...
The Department does not believe that Elizabethan Collars are
properly thought of as "medical equipment" for purposes of exemption
under IC § 6-2.5-5-18(a). 45 IAC 2.2-5-28.
Because the Elizabethan Collars are not "directly required to correct or
alleviate injury to malfunction of, or removal of a portion of the purchaser's
body" but rather have a preventative function, under 45 IAC 2.2-5-28(h)
(and the referenced information bulletin) they are therefore not properly sold
to Taxpayer's patients exempt from sales tax. Because Taxpayer should have
collected sales tax on its sale of Elizabethan collars, the audit correctly
assessed the tax.
...
