Are diagnostic reagents that veterinarians use on blood samples to test dogs and cats for disease exempt from Texas sales tax as drugs and medicines?

Subject

Diagnostic Reagents Used By Veterinarians To Test Dogs/Cats For Disease — Not Exempt As Drugs And Medicines

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9310L1267E12

Plain-English Summary

A taxpayer asked the Comptroller whether diagnostic reagents used on blood to test for disease are exempt from sales tax as drugs and medicines. The letter answers no.

The Comptroller first notes that the reagents are substances, not hardware, equipment, appliances, or devices — but being a "substance" doesn't automatically make something a drug or medicine for exemption purposes. To be exempt as a drug and medicine, the letter explains, a substance must (1) possess curative or remedial properties, and (2) be applied to animals or consumed by animals, either internally or externally, for the alleviation of pain or for the cure or prevention of sickness, disease, or suffering.

The diagnostic reagents fail that test. Although they are important in diagnosing disease, the letter states that the reagents do not cure or remedy the disease itself. More importantly, the reagents are not applied to the animal or consumed by the animal — they are used on blood samples, not on the animal directly. Because the reagents don't meet either part of the drug/medicine test, the Comptroller concludes they are not exempt.

The letter closes with the Comptroller's standard caveat that the opinion is based on the facts submitted, and that other facts, though similar, may yield different results.

What This Means For You

If you sell or use diagnostic reagents for veterinary blood testing: This letter indicates such reagents are taxable, because they are used on blood samples to detect disease rather than applied to or consumed by the animal itself, and they do not themselves cure or remedy anything.

If you're evaluating whether an animal-health product qualifies as an exempt drug or medicine: Under the reasoning in this letter, ask two questions — does the substance have curative or remedial properties, and is it applied to or consumed by the animal (internally or externally) to alleviate pain or cure/prevent sickness, disease, or suffering? A product used only to diagnose (rather than treat) disease, and never applied to or consumed by the animal, does not satisfy this test.

If facts differ from a simple blood-test reagent: The letter itself cautions that its conclusion is based on the specific facts submitted, and that other, similar-seeming facts could yield a different result — so a reagent or substance actually applied to or consumed by the animal for treatment purposes could be analyzed differently.

Q&A

Q: Are diagnostic reagents used to test blood for disease exempt as drugs and medicines under this ruling?
A: No. The letter states that "the diagnostic reagents are not exempt as drugs and medicines."

Q: Why doesn't being a "substance" (rather than hardware or equipment) make the reagents exempt?
A: The letter explains that being a substance "does not automatically make the substances drugs and medicines" — a substance must still meet the specific curative/remedial and application/consumption requirements to qualify.

Q: What does a substance have to do to be exempt as a drug and medicine, according to this letter?
A: It "must possess curative or remedial properties and must be applied to animals or consumed by the animals either internally or externally for the alleviation of pain or for the cure or prevention of sickness, disease, or suffering."

Q: Why did the reagents fail this test?
A: Per the letter, "the diagnostic reagents do not cure or remedy the disease itself," and "the reagents are not applied to the animal or consumed by the animal."

Q: Does this letter apply to all similar diagnostic products regardless of the facts?
A: No. The letter states, "This opinion is based on the facts you submitted. Other facts, though similar, may yield different results."

Original ruling text

October 26, 1993

Dear *:

Thank you for your letter concerning whether diagnostic reagents
used on blood to test for disease are exempt as drugs and medicines.

The diagnostic reagents are substances, rather than hardware,
equipment, appliances, or devices. However, that does not automatically make
the substances drugs and medicines. To be exempt as a drug and medicine, the
substance must possess curative or remedial properties and must be applied to
animals or consumed by the animals either internally or externally for the
alleviation of pain or for the cure or prevention of sickness, disease, or
suffering.

Although important in the diagnosis of disease, the diagnostic
reagents do not cure or remedy the disease itself. More importantly, the
reagents are not applied to the animal or consumed by the animal. Based on
this, the diagnostic reagents are not exempt as drugs and medicines.

This opinion is based on the facts you submitted. Other facts,
though similar, may yield different results.

You may call me toll free at 1-800-531-5441, ext. 5-0030. The
direct line is 512/475-0030. You may also write to Tax Administration,
Comptroller of Public Accounts.

Sincerely,

David Somerville
Tax Administration Division

NOTE: Previous Accession Number 9311185L.3 and/or 9311185L