Could veterinarians use Virginia's agricultural exemption for animal-health products bought for their practices?

Plain-English summary

Veterinarians generally had to pay tax on agricultural products used in their practices. They rendered professional services and were treated as the users or consumers of medicines, supplies, equipment, and other tangible property rather than as farmers producing an agricultural product for market.

The limited statutory exception covered medicines and drugs used or consumed directly in caring for agricultural production animals, or resold to a farmer for direct use in producing an agricultural product for market. The ruling noted that the older veterinarian regulation had not been updated to reflect that 2006 statutory change.

Outside that medicines-and-drugs exception, the distributor correctly charged retail sales and use tax on agricultural products sold to veterinarians for operational use. If a supplier did not collect tax, the veterinarian owed consumer use tax.

Common questions

Q: Did veterinarians qualify as farmers?
A: No. The ruling treated them as professional-service providers.

Q: What veterinarian purchases could qualify?
A: Specified medicines and drugs for agricultural production animals or resale to a farmer for direct production use.

Citations and references

• Va. Code § 58.1-609.2(1).
• 23 VAC 10-210-50 and 10-210-6050(A).

Subject

Veterinarians are subject to tax on purchases of agricultural products.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 12-187

Original ruling text

November 15, 2012

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This is in response to your letter and conversation with a member of the Appeals and Rulings staff in which you request a ruling on the application of the retail sales and use tax to agricultural products sold by * (the "Taxpayer") to veterinarians. I apologize for the delay in responding to your correspondence.

FACTS

The Taxpayer is a national distributor of health products, feed and supplies for equine, livestock and companion animals. The Taxpayer's customer, a veterinarian, is disputing the sales tax charged on the purchase of agricultural products and specifically cites the agricultural exemption for which it believes it qualifies. Based on Va. Code § 58.1-609 2, it is the Taxpayer's understanding that veterinarians are only allowed an exemption for medicines and drugs that are consumed directly in the care, medication, and treatment of agricultural production animals or for resale to a farmer for direct use in producing an agricultural product for market. The Taxpayer cites Virginia Administrative Code (VAC) 10-210-50 A and Title 23 VAC 10-210-6050 to support the application of the tax to agricultural products sold to veterinarians. The Taxpayer requests a ruling regarding products sold to a veterinarian and seeks confirmation from the Department that it is in compliance with Virginia law regarding the taxation of such products.

RULING

Veterinarians

Title 23 VAC 10-210-6050 A states:

Veterinarians are engaged in rendering professional services and are the users or consumers of medicines, drugs, medical supplies, equipment and all other tangible personal property purchased for use in their operation. They must pay the tax to their suppliers on purchases of this property. If the purchases are made from instate or out-of-state suppliers who do not collect the Virginia sales or use tax, the veterinarian must pay the use tax directly to the Department of Taxation on a Consumer's Use Tax Return, Form ST-7.

Effective July 1, 2006, Va. Code § 58.1-609.2 1 was amended to provide veterinarians an exemption from the sales and use tax on purchases of medicines and drugs provided that those items are used or consumed directly in the care and treatment of agricultural production animals and for resale to a farmer for direct use in producing an agricultural product for market. The above regulation regarding veterinarians does not reflect this law change.

Agricultural Exemption

Virginia Code § 58.1 609.2 1 provides an exemption for:

Commercial feeds; seeds; plants; fertilizers; liming materials; breeding and other livestock; semen; breeding fees; baby chicks; turkey poults; rabbits; quail; llamas; bees; agricultural chemicals; fuel for drying or curing crops; baler twine; containers for fruit and vegetables; farm machinery; medicines and drugs sold to a veterinarian provided they are used or consumed directly in the care, medication, and treatment of agricultural production animals or for resale to a farmer for direct use in producing an agricultural product for market ....

Title 23 VAC 10-210-50 interprets Va. Code § 58.1-609.2 1 and provides, in pertinent part:

The tax does not apply to commercial feeds, seed, plants, fertilizers, liming materials, breeding and other livestock, semen, breeding fees, baby chicks, turkey poults, agricultural chemicals, fuel for drying or curing crops, baler twine, containers for fruits or vegetables, farm machinery and agricultural supplies sold to farmers for use in agricultural production for market . . . . [Emphasis added].

The intent of the above statute is to provide a sales and use tax exemption to a farmer who produces an agricultural product to be sold on the open market. Agriculture generally involves the cultivation of soil, production of crops, and raising of livestock. Veterinarians are not engaged in agricultural production for market. Rather, they are engaged in rendering professional services. Therefore, with the exceptions of those medicines and drugs used for agricultural production animals that are exempt to veterinarians under Va. Code § 58.1-609.2 1, veterinarians do not qualify for the agricultural exemption. Accordingly, the Taxpayer is correct in its understanding that veterinarians are subject to the tax on their purchases of agricultural products. Therefore, the agricultural products in question are subject to the retail sales and use tax when sold to veterinarians for use in their operations.

This ruling is based on the facts provided as summarized above. Any change in facts or the introduction of new facts may lead to a different result.

The Code of Virginia section and regulations cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's web site. If you have any questions concerning this ruling, please contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-4903861258.T