Can a veterinary-drug distributor sell drugs and medicine to New York veterinarians tax-free as a 'sale for resale,' when those veterinarians in turn resell the products directly to farmers under a drop-ship program?

Plain-English summary

W.A. Butler Co. is a veterinary-pharmaceutical distributor serving New York veterinarians. Its "Pharm Link" program lets a veterinarian effectively act as a retailer: the vet places an order with Butler, and Butler ships the drugs directly to the farm (a "ship-to" address the veterinarian sets up per customer) for the farmer's use on farm animals raised for production. The veterinarian never physically handles the product. Butler argued this should qualify as a tax-free "sale for resale," since the whole point of the arrangement is that the veterinarian is reselling the drugs to the farmer.

The Department said no, pointing to a special override rule that predates the ordinary resale-certificate mechanism: Tax Law § 1115(f) specifically provides that whenever a veterinarian buys "articles of tangible personal property designed for use in some manner relating to domestic animals or poultry," that purchase is deemed a taxable retail sale to the veterinarian — and explicitly, "the sale of any such articles of tangible personal property to a veterinarian shall not be deemed a sale for resale," no matter what happens to the item afterward. This overrides the ordinary rule that a genuine resale (with a proper Form ST-120, Resale Certificate) would otherwise escape tax at the distributor level. So Butler's Pharm Link sales to New York veterinarians are taxable, full stop, regardless of the drop-ship structure or the veterinarian's intent to resell.

The relief valve here isn't an up-front exemption but a downstream refund: under § 1119(a)(5), a veterinarian can apply for a refund or credit of the sales tax paid on drugs/medicine that are either used by the vet in exempt veterinary services on farm livestock/poultry, or sold to a farmer who qualifies for the farming exemption (§ 1115(a)(6)) for use on that livestock/poultry. In other words, the legislature deliberately chose "tax now, refund later" over "exempt at purchase" for this specific veterinarian-to-farmer chain.

What this means for you

Veterinary drug and supply distributors

A drop-ship or "resale" structure with a veterinarian doesn't create the usual resale exclusion — New York's veterinarian-specific rule taxes the sale to the vet regardless. Collect sales tax on these transactions rather than relying on a resale certificate, which the Department has specifically said doesn't apply here.

Veterinarians running similar retail/drop-ship drug programs

You'll pay sales tax on your purchases from distributors, but you (not the distributor) hold the separate right to apply for a refund/credit once the drugs are actually used on, or resold for use on, farm production livestock or poultry — track these transactions to support that refund claim.

Accountants and tax professionals

This is a clean confirmation that the § 1115(f) veterinarian purchase rule overrides the ordinary resale exclusion regardless of distribution structure (drop-ship, direct sale, etc.) — the refund mechanism in § 1119(a)(5) is the only relief, and it belongs to the veterinarian, not the upstream distributor.

Common questions

Q: Can a distributor sell to a veterinarian tax-free using a resale certificate?
A: No — Tax Law § 1115(f) specifically overrides the ordinary resale exclusion for items designed for use on domestic animals/poultry sold to a veterinarian, regardless of the veterinarian's intent to resell.

Q: Who can claim a refund on this tax — the distributor or the veterinarian?
A: The veterinarian. Section 1119(a)(5) gives the refund/credit right to the veterinarian, based on the drugs/medicine being used in exempt services on farm livestock/poultry or sold to a qualifying farmer for that use.

Q: Would a farmer buying the same drugs directly from the distributor (skipping the vet) be taxed the same way?
A: No — a direct purchase by a qualifying farmer could be exempt under the farming exemption (§ 1115(a)(6)); it's specifically the veterinarian's purchase that's always taxable under § 1115(f).

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(4)(i) (retail sale; resale exclusion)
• Tax Law § 1105(a) (retail sales tax), § 1110(a) (compensating use tax)
• Tax Law § 1115(a)(6) (farming/commercial horse boarding exemption), § 1115(f) (veterinary services/articles rule)
• Tax Law § 1119(a)(5) (refund/credit for veterinarian drugs/medicine)
• 20 NYCRR § 526.6(b)(2) (veterinary items retail-sale rule), (c) (resale exclusion)
• 20 NYCRR § 528.24 (veterinary services exemption; purchases by veterinarians)
• 20 NYCRR § 534.3 (refund/credit authorization)
• TSB-M-79(6)S (Credit or Refund for Veterinarians)

Prior rulings referenced:

• Matter of William J. Twining, DVM, TSB-H-82(15)S
• Matter of Delmar Animal Hospital, TSB-H-80(137)S
• J. Leon Lascoff & Son, Inc., TSB-A-90(50)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2003.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a03_24s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-03(24)S
Sales Tax
May 20, 2003

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S020318A

On March 18, 2002, the Department of Taxation and Finance received a Petition for
Advisory Opinion from W.A. Butler Co., 5600 Blazer Parkway, Dublin, OH 43017.
The issue raised by Petitioner, W. A. Butler Co., is whether its sales of drugs and medicines
to New York State veterinarians, that are in turn sold to farmers, are not subject to sales tax as sales
for resale.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
Petitioner is a distributor of veterinary pharmaceuticals and supplies, whose customers
include veterinarians located within the State of New York. Recently Petitioner established a new
service to its veterinary customers called Pharm Link. Pharm Link entails an agreement between
Petitioner and the veterinarian whereby the veterinarian assumes the role of a retailer. Basically,
the veterinarian places an order of drugs and medicines with Petitioner and resells them directly to
his or her customer, who is a farmer, for use on farm animals used in production of tangible personal
property for sale. A separate account is established for each “ship-to” address, which encompasses
each farm the veterinarian has established as a customer. The products are shipped directly from
Petitioner to the farm for the farmer’s use and consumption.
Applicable Law and Regulations
Section 1101(b)(4)(i) of the Tax Law defines “retail sale,” in part, as follows:
A sale of tangible personal property to any person for any purpose, other than
(A) for resale as such. . . .
Section 1105(a) of the Tax Law imposes sales tax on “[t]he receipts from every retail sale
of tangible personal property, except as otherwise provided in this article.”
Section 1110(a) of the Tax Law imposes a use tax “for the use within this state . . . of any
tangible personal property purchased at retail.”
Section 1115 of the Tax Law provides, in part:
(a) Receipts from the following shall be exempt from the tax on retail sales
imposed under subdivision (a) of section eleven hundred five and the compensating
use tax imposed under section eleven hundred ten:

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*

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(6) (A) Tangible personal property, whether or not incorporated in a building
or structure, for use or consumption predominantly either in the production for sale
of tangible personal property by farming or in a commercial horse boarding
operation, or in both.
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(f) Services rendered by a veterinarian licensed and registered as required by
the education law which constitute the practice of veterinary medicine as defined in
said law, including hospitalization for which no separate boarding charge is made,
shall not be subject to tax under paragraph (3) of subdivision (c) of section eleven
hundred five, but the exemption allowed by this subdivision shall not apply to other
services provided by a veterinarian to pets and other animals, including, but not
limited to, boarding, grooming and clipping. Articles of tangible personal property
designed for use in some manner relating to domestic animals or poultry, when sold
by such a veterinarian, shall not be subject to tax under subdivision (a) of section
eleven hundred five or under section eleven hundred ten. However, the sale of any
such articles of tangible personal property to a veterinarian shall not be deemed a
sale for resale within the meaning of paragraph (4) of subdivision (b) of section
eleven hundred one and shall not be exempt from retail sales tax.
Section 1119(a) of the Tax Law provides, in part:
Subject to the conditions and limitations provided for herein, a refund or
credit shall be allowed for a tax paid pursuant to subdivision (a) of section eleven
hundred five or section eleven hundred ten . . . (5) on the sale to or use by a
veterinarian of drugs or medicine if such drugs or medicine are used by such
veterinarian in rendering services, which are exempt pursuant to subdivision (f) of
section eleven hundred fifteen of this chapter, to livestock or poultry used in the
production for sale of tangible personal property by farming or if such drugs or
medicine are sold to a person qualifying for the exemption provided for in paragraph
(6) of subdivision (a) of section eleven hundred fifteen of this chapter for use by such
person on such livestock or poultry. . . . (Emphasis added)
Section 526.6(b)(2) of the Sales and Use Tax Regulations provides:
A sale of tangible personal property designed for use in some manner relating
to domestic animals or poultry, when sold to a licensed veterinarian, is deemed a
retail sale, notwithstanding a subsequent sale of such item of tangible personal
property by said veterinarian. . . .

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With respect to the resale exclusion, Section 526.6(c) of the Sales and Use
Tax Regulations provides, in part:
(1) Where a person, in the course of his business operations, purchases
tangible personal property or services which he intends to sell, either in the form in
which purchased, or as a component part of other property or services, the property
or services which he has purchased will be considered as purchased for resale, and
therefore not subject to tax until he has transferred the property to his customer.
(2) A sale for resale will be recognized only if the vendor receives a properly
completed resale certificate. . . .
(3) Receipts from the sale of property purchased under a resale certificate are
not subject to tax at the time of purchase by the person who will resell the property.
The receipts are subject to tax at the time of the retail sale.
Section 528.24 of the Sales and Use Tax Regulations provides, in part:
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(a)(3) . . . exemption is allowed for articles of tangible personal property
designed for use in some manner relating to domestic animals or poultry, when sold
by . . . a licensed veterinarian.
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(c) Purchases by a veterinarian. (1) Purchases of tangible personal property
by a veterinarian for use in the practice of veterinary medicine and performing
taxable services are subject to tax.
(2) The purchase by a veterinarian of tangible personal property designed for
use in some manner relating to domestic animals or poultry is deemed a retail sale,
notwithstanding a subsequent sale of such items by the veterinarian.
Example 1:

The purchase of medicine . . . whether used by a veterinarian
in performing a service or sold to others, is subject to tax at
the time of purchase by a veterinarian. (Emphasis added)
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(d)(3) Veterinarians who carry on taxable activities are required to register
as vendors, collect the tax and file returns.

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Section 534.3 of the Sales and Use Tax Regulations provides, in part:
(a) Authorization. Where a sales or compensating use tax has been correctly,
legally, and constitutionally imposed and paid on the purchase of tangible personal
property, a refund or credit of State and local taxes paid pursuant to subdivision (a)
of section 1105 or section 1110 of the Tax Law on the sale or use will be allowed to
the purchaser or user when, to the satisfaction of the Department of Taxation and
Finance, the purchaser shows that such tangible personal property was used in one
of the following manners:
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(5) drugs or medicine sold to or used by a veterinarian if such drugs or
medicine were:
(i) used by the veterinarian in rendering services, exempt pursuant to section
1115(f) of the Tax Law, to livestock or poultry used in the production of tangible
personal property by farming; or
(ii) sold to a person entitled to claim the farmer’s exemption under section
1115(a)(6) of the Tax Law for use by such person on production livestock or
poultry. . . .
(f) Drugs or medicine used by veterinarians in rendering certain services to
livestock and poultry used in production, or sold to farmers for such use. A
veterinarian may apply for a credit or refund of sales tax paid on his purchase of
drugs and medicines:
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(2) sold to a person entitled to the farming exemption provided by section
1115(a)(6) of the Tax Law for his use on livestock or poultry used in the production
of tangible personal property for sale, by farming . . .
*
Example 1:

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A veterinarian treats several cows in a dairy herd for mastitis.
The veterinarian may apply for a credit or refund of the sales
tax paid at the time of purchase on the drugs and medicine he
uses to treat the affected cows. Additionally, he may claim
a credit or refund of sales tax paid on drugs or medicine he
sells the farmer to treat the herd. (Emphasis added)

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Opinion
Petitioner is a veterinary drug supplier whose customers include veterinarians located in
New York State. Petitioner maintains that its Pharm Link sales of drugs and medicines to New York
veterinarians should qualify as sales for resale under Section 526.6(c)(1) of the Sales and Use Tax
Regulations, since the drugs and medicines are intended to be resold by the veterinarians for use by
their customers on farm animals used in the production, for sale, of tangible personal property by
farmers.
Generally, a transaction to sell tangible personal property where the purpose of the purchaser
is to resell such property would be considered a sale for resale and would not be subject to New
York State or local sales tax, provided the seller timely accepted, in good faith, a properly completed
Form ST-120, Resale Certificate, from the purchaser. However, Petitioner’s transaction is an
exception to this rule since Petitioner’s sales of drugs and medicines to veterinarians fall under the
provisions of Sections 1115(f) and 1119(a)(5) of the Tax Law. See Matter of William J. Twining,
DVM, Dec State Tax Commission, January 12, 1982, TSB-H-82(15)S; Matter of Delmar Animal
Hospital, Dec State Tax Commission, July 28, 1980, TSB-H-80(137)S.
In 1967 Article 28 of the Tax Law was amended by Chapter 269 of the Laws of 1967 which
added Section 1115(f)) to the Tax Law, providing that sales of certain veterinary services, and sales
of tangible personal property designed for use with respect to domestic animals or poultry, by
veterinarians are not subject to sales tax. However, all purchases of such property by veterinarians,
whether such property is sold or transferred to the customer, are subject to sales tax.
Though direct purchases of drugs and medicines by a farmer from Petitioner might be
exempt under Section 1115(a)(6) of the Tax Law as tangible personal property used or consumed
predominantly in the production of tangible personal property for sale by farming, a veterinarian’s
purchase of such drugs and medicines used in the treatment of farm animals is taxable pursuant to
the provisions of Section 1115(f). Section 1119(a) of the Tax Law was amended by Chapter 604
of the Laws of 1978 to provide that a veterinarian may receive a refund or credit for the taxes paid
on his or her purchases of drugs or medicines used in rendering services, exempt pursuant to Section
1115(f) of the Tax Law, to livestock or poultry used in the production for sale of property by
farming or sold to a person qualifying for the exemption provided for in Section 1115(a)(6) of the
Tax Law for use by such person on such livestock or poultry. In short, the chosen statutory
mechanism was to allow for a refund or credit of the taxes paid on these purchases, rather than to
make these purchases exempt from tax. See Section 1119(a)(5) of the Tax Law.
Under the provisions of Section 1115(f) of the Tax Law, veterinarians’ purchases of drugs
and medicines designed for use with respect to domestic animals or poultry are deemed to be retail
sales as defined under Section 1101(b)(4) of the Tax Law and are therefore subject to sales or use
tax imposed under Section 1105(a) or 1110 of the Tax Law. See Technical Services Bureau
Memorandum, Credit or Refund for Veterinarians, February 5, 1979, TSB-M-79(6)S. Accordingly,
Petitioner’s sales of such drugs and medicines to New York State veterinarians are subject to the

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imposition of sales or use tax in accordance with Section 1105(a) or 1110 of the Tax Law. See
J. Leon Lascoff & Son, Inc., Adv Op Comm T&F, October 22, 1990, TSB-A-90(50)S; William J.
Twining, DVM, supra; Delmar Animal Hospital, supra. As previously noted, the veterinarians are
entitled to a refund or credit for tax paid on their purchase of drugs and medicines used by the
veterinarians in rendering services exempt pursuant to Section 1115(f) of the Tax Law to livestock
or poultry used in the production for sale of tangible personal property by farming, or sold to a
person qualifying for the exemption provided for in Section 1115(a)(6) of the Tax Law for use by
such person on livestock or poultry. See Section 1119(a)(5) of the Tax Law.

DATED: May 20, 2003

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Technical Services Division

The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.