Which nonprescription drugs and proprietary medicines qualified for Virginia's sales-tax exemption?

Plain-English summary

Virginia Tax Bulletin 13-5 used a three-part test for the nonprescription-drug exemption: the item must be a nonprescription drug or proprietary medicine, be sold for internal or topical use, and be sold to cure, mitigate, treat, or prevent human disease. The exemption applied regardless of whether the purchaser was an individual, physician, medical facility, or other entity.

The bulletin generally excluded cosmetics, grooming and toilet articles, foods and supplements, most vitamins and minerals sold as supplements, devices, natural or herbal products lacking a qualifying drug, and products whose medicinal ingredients served only a secondary function. Its long lists of qualifying and nonqualifying items were guides, not exhaustive rules.

Product purpose and classification mattered. High-concentration glycolic-acid products remained cosmetics when their primary purpose was appearance enhancement. FDA-classified homeopathic drugs could qualify if used internally or topically to address human disease. A package combining exempt drugs with nonqualifying items, such as a first-aid kit, was taxable on its total price.

Over-the-counter registration alone did not establish exemption. Sensitive-care products required case-by-case review of ingredients and intended use. Retailers had to report exempt sales on Form ST-9 and keep segregated purchase and sales records.

Retailers that incorrectly collected tax had to remit it unless they refunded the customer. A customer seeking a refund normally returned to the retailer with the receipt; the retailer could then claim credit for refunded tax it had remitted. The bulletin updated and superseded VTB 98-4.

What this means for you

• Apply the three-part drug, internal-or-topical-use, and disease-purpose test to each product.
• Do not treat an entire product category or “medical” marketing label as automatically exempt.
• Review FDA status, active ingredients, labeling, and primary intended use.
• Treat mixed kits containing nonqualifying items as taxable on the total sales price under this bulletin.
• Segregate exempt product purchases and sales in retailer records.
• Remit all tax collected unless it is actually refunded to the customer.

Common questions

Q: Did purchaser identity control the exemption?
A: No. The bulletin said the exemption applied regardless of the nature of the purchaser.

Q: Were vitamins and dietary supplements exempt?
A: Generally no, except the bulletin noted vitamins and mineral concentrates sold under a qualifying written prescription.

Q: Did OTC registration prove exemption?
A: No. The product still had to contain a qualifying medicine or drug and meet the use and disease-purpose tests.

Q: Were all antiseptic or medicated personal-care products exempt?
A: No. Primary purpose controlled, and medicinal ingredients serving only a secondary function did not qualify the item.

Citations and references

• Senate Bill 317, Chapter 117, 1990 Acts of Assembly.
• House Bill 1665, Chapter 696, 1997 Acts of Assembly.
• Virginia Tax Bulletin 98-4, superseded by Tax Bulletin 13-5.

Subject

Information Regarding Nonprescription Drugs and Proprietary Medicines

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 13-32

Original ruling text

TAX BULLETIN 13-5
Virginia Department of Taxation

March 15, 2013

INFORMATION REGARDING NONPRESCRIPTION DRUGS AND PROPRIETARY MEDICINES

The Department of Taxation has received a number of inquiries recently as to whether certain specified products qualify for exemption from the Retail Sales and Use Tax as nonprescription drugs or proprietary medicines. This Tax Bulletin provides an overview of the exemption available for nonprescription drugs and proprietary medicines. This Tax Bulletin updates and supersedes Virginia Tax Bulletin (VTB) 98-4 (May 15, 1998).

BACKGROUND

In 1990, the Virginia General Assembly enacted legislation (Senate Bill 317, Chapter 117, 1990 Acts of Assembly) to exempt from the Retail Sales and Use Tax all nonprescription drugs and proprietary medicines purchased for the cure, mitigation, treatment, or prevention of disease in human beings. Although the legislation contained a July 1, 1992 effective date, due to a number of deferrals, the exemption did not take effect until July 1, 1998. Subsequent legislation enacted by the 1997 General Assembly (House Bill 1665, Chapter 696, 1997 Acts of Assembly), expanded the exemption to include samples of nonprescription drugs and proprietary medicines distributed free of charge by the manufacturer, including packaging materials and constituent elements and ingredients.

The exemption continues to be applicable regardless of the nature of the purchaser, and applies to purchases made by individuals, physicians, medical facilities, and all other entities.

EXEMPTION GENERALLY

The exemption extends to “nonprescription drugs,” which include any substances or mixture of substances containing medicines or drugs for which no prescription is required and which are generally sold for internal or topical use in the cure, mitigation, treatment or prevention of disease in human beings. The exemption also applies to “proprietary medicines,” defined as any nonprescription drug sold to the general public under the brand name or trade name of the manufacturer, which drug does not contain any controlled substance or marijuana.

In determining whether the nonprescription drug exemption applies, three questions must be considered: (1) Is the item a nonprescription drug or proprietary medicine? (2) Is the product sold for internal or topical use? (3) Is the product sold for the cure, mitigation, treatment or prevention of disease in human beings?

While these questions must be considered, there are certain categories of items that generally would not qualify for exemption as nonprescription drugs. These categories include:

Cosmetics – articles applied to the body for cleansing, beautifying, promoting attractiveness or altering the appearance (including makeup, body lotions, cold creams, daily moisturizers, and hair restoration products), regardless of whether the items contain nonprescription drugs or other medicinal ingredients;

Toilet articles – articles advertised or held out for sale for grooming purposes (including many soaps, toothpastes, hair sprays, shaving products, colognes, deodorants, and mouthwashes);

Food products and supplements – items classified as such by the Federal Food and Drug Administration (including herbal teas, drinks, pills or supplements, diet aids, and weight control preparations);

Vitamins and mineral concentrates sold as dietary supplements or adjuncts (except when sold pursuant to a written prescription by a licensed physician, nurse practitioner, or physician’s assistant);

Devices – including contraceptive items, birth control preparations, and testing kits;

Products listing natural and herbal ingredients as the active components, where such products do not contain a nonprescription drug or proprietary medicine or do not treat, cure, or prevent disease in human beings; and

Items containing nonprescription drugs or other medicinal ingredients, where the inclusion of such substances serves as a secondary function to the intended use of the product.

PRODUCT CLASSIFICATIONS

Nonprescription Drugs : Examples of exempt nonprescription drugs are listed below. This list is intended as a guide and is not intended to be all inclusive.

Acne products

Alcohol (rubbing)

Alcohol swabs

Allergy relief products

Analgesics

Anesthetics

Antacids

Antibiotic ointments

Antifungals

Antihistamines

Antimalarials

Antinauseants

Antiseptics

Aspirin

Asthma preparations

Baby powder (medicated)

Bandages/gauze/swabs/wipes containing antiseptic or bacterial control products in the pad

Bee sting relievers

Benzoin

Boric acid ointment

Burn remedies

Calamine lotion

Camphor

Castor oil

Cathartics

Cold capsules and remedies

Cold/canker sore preparations

Contact lens lubricating and wetting solutions (inserted directly into the eye)

Contraceptive creams (containing nonprescription drugs and intended to treat a disease)

Cough and cold items, cough drops, cough syrups

Dandruff and seborrhea preparations

Decongestants

Diarrhea remedies

Digestive aids

Disinfectant (for use in humans)

Diuretics

Earache/earwax removal preparations

Eczema preparations

Epsom salts

Expectorants

Eye drops, lotions, ointments and washes for healing, treatment or therapeutic use

Fever blister aids

First aid healing agents, cleaners

Fluoride rinses and antiseptic dental washes

Foot care products for treatments of infections (callous removers, medicated corn, ingrown toenail preparations, athlete’s foot treatments)

Fungicides (for use on humans)

Glucose tablets

Glycerine products intended for medical use

Hay fever aid products

Headache relief aid products

Hemorrhoidal treatments

Hydrogen peroxide

Ibuprofen

Insect bite and sting preparations

Iodine (tincture of)

Itch, rash relievers

Laxatives

Lice products used to kill lice that infect humans

Liniments

Lip balms, ice and salves (medicated)

Lotions (medicated)

Menstrual cramp relievers

Mercurochrome

Mineral oil

Motion sickness remedies

Mouthwashes (antiseptic )

Muscle ache relievers

Nasal drops and sprays

Nicotine supplements (that treat nicotine withdrawal symptoms)

Oil of wintergreen

Pain relievers (oral or topical)

Parasiticides (for humans)

Peroxide (medicinal)

Poison ivy and oak preparations

Powder (medicated)

Rectal preparations

Shampoos (medicated)

Shaving products (medicated)

Sinus relievers

Sitz bath solutions

Skin irritation relievers

Sleep aids (inducers)

Soap (germicidal, surgical, therapeutic, or anti-bacterial)

Styptic pencils

Sunburn lotions

Sunscreen (containing SPF protection)

Suppositories (except contraceptives)

Teething preparations

Throat lozenges(medicated)

Tooth desensitizers

Toothache relievers

Upset stomach relievers

Vaginal infection remedies

Wart removers

Witch hazel

Worming treatments (for humans)

Zinc oxide ointments

Nonqualifying Items : Examples of items that would not qualify for the nonprescription drug exemption are listed below. This list is intended as a guide and is not intended to be all inclusive. Items listed below may qualify for another medical exemption.

Adhesive bandages, dressings and cotton

Adhesive removers

Adhesive tape

Ammonia

Appetite suppressants

Bath crystals, milks, oils, and powder

Birth control preparations

Breath fresheners and sweeteners

Bubble bath

Bunions, corn pads (nonmedicated)

Cleaning creams and lotions

Clove oil

Cod liver oil

Contact lens cleaning solutions and disinfectants (unless designed to be applied directly in the eye)

Cosmetics (whether or not containing medicinal properties or acne treatments)

Cotton applicators, rolls, balls, and swabs

Cuticle softener

Denture adhesives, cleaners, preparations

Deodorants, antiperspirants

Depilatories

Dental floss and threaders

Diet aids

Dietary foods, supplements and substitutes

Distilled water

Exfoliants

Hair restoration products

Hand sanitizers, sprays, foams, gels, soaps or wipes (including anti-bacterial)

Herbal teas, drinks, pills, or powder supplements

Household disinfectants and insecticides

Infant formula

Insect repellant

Lubricants

Mouthwashes (other than antiseptic)

Nutraceutical products

Oral electrolyte mixtures for rehydration

Pet medical supplies

Pet medicines

Petroleum jelly

Powders (nonmedicated)

Prophylactics

Pumice powder

Saline solution

Sanitary napkins, tampons, and similar items

Shampoos (nonmedicated)

Shaving products (nonmedicated)

Skin bleaches

Soaps (generally)

Stimulants

Suntan lotion (without SPF protection)

Talcum powder

Testing kits (except diabetic testing kits)

Thermometers

Toothpastes, polishes, powders, whiteners (including products containing fluoride or peroxide

Vitamins and mineral supplements

Wax

Weight control preparations

Wrinkle removing and concealing preparations

ADDITIONAL PRODUCT CLASSIFICATIONS

Glycolic Acid Products : Glycolic acid is considered a cosmetic used for smoothing skin, removing age spots and wrinkles, and for skin lightening for the purpose of beautifying, promoting attractiveness or altering the appearance. Although glycolic acid with higher concentration may be issued by physicians and dermatologists, the primary purpose of the product is to enhance the appearance. As a cosmetic, the product does not qualify as a nonprescription drug.

Homeopathic Medicines : The term “homeopathy” is defined in the Merriam Webster’s Collegiate Dictionary as a system of medical practice that treats a disease by the administration of minute doses of a remedy that would in larger amounts produce in healthy persons symptoms similar to those of the disease.

If a homeopathic product is classified as a drug by FDA, is used internally or topically, and for the cure, treatment, mitigation, or prevention of disease in human beings, the product is exempt from the Retail Sales and Use Tax.

Nonprescription Drugs Packaged with other Items : The sale of nonprescription items packaged with items that would not qualify for exemption as nonprescription drugs (such as the sale of a first-aid kit) is subject to the Retail Sales and Use Tax, computed on the total sales price.

Products that Require OTC Registration : Products that require over the counter registration do not necessarily qualify as a nonprescription drug or medicine. The product must contain medicines or drugs, be used internally or topically, and be intended for the treatment or prevention of disease in human beings.

Sensitive Care Products : Items identified as “sensitive care products,” range from lotions and soap-free cleaners to medicated products that treat a number of medical conditions. The taxability of these items must be determined on a case-by-case basis, based on the ingredients the item contains and the intended purpose of the product.

REQUIREMENTS FOR RETAILERS

Forms and Recordkeeping : Sales made under the nonprescription drug exemption must be included with all other exempt sales on the retailer’s regular sales tax return, Form ST-9. Retail dealers making sales of such items must keep records segregating purchases and sales of exempt items.

Improper Collection of the Tax : A retailer that incorrectly charges or overcollects the sales and use tax must timely remit all tax collected to the Department of Taxation, unless he provides a refund to the customer.

In order to obtain a refund of tax paid in error, a customer must return to the store with his sales receipt and obtain a refund from the retailer. The retailer can claim a credit for the tax refunded to customers on his sales and use tax return, provided he remitted the tax. If the retailer refuses to reimburse the erroneously charged tax, the consumer can contact the Department of Taxation and provide a receipt of the transaction in question so that the Department of Taxation can notify the retailer of any exemptions available on qualifying products.

For additional information, please visit TAX’s website, www.tax.virginia.gov . If you have any questions regarding this Tax Bulletin, you may also contact TAX at (804) 367-8037 or through the “Live Chat” service on TAX’s website, www.tax.virginia.gov.

This Tax Bulletin updates and supersedes Virginia Tax Bulletin (VTB) 98-4 (May 15, 1998).

Related Documents

98-4