Were medical gases and argon used in cryosurgery exempt from Virginia sales tax?

Plain-English summary

Virginia allowed exemption for qualifying prescription medical gases sold to specified licensed providers and facilities, but held that argon used in cryosurgery was taxable. The Department relied on federal and Virginia drug classifications.

Medical gases such as oxygen, carbon dioxide, helium, nitrogen, nitrous oxide, medical air, and combinations were classified as prescription drugs. They could be sold exempt to the licensed practitioners and medical facilities listed in Va. Code § 58.1-609.10 9. Purchase documentation needed the licensed physician's name or federal DEA number. This ruling superseded P.D. 93-144 to the extent that earlier document treated medical gases as taxable.

Argon was different. Although a cryoprobe is a medical device, the FDA did not extend a drug classification to the argon dispensed through it. Argon required no prescription and did not contain a medicine or drug. It therefore qualified for neither the prescription-drug exemption nor the nonprescription-drug exemption and was treated as a taxable medical supply.

What this means for you

• Identify the tax classification of each gas rather than treating all medical-use gases alike.
• Keep purchaser documentation showing the licensed physician's name or DEA number for exempt practitioner sales.
• A product's use in a medical procedure does not by itself make the product an exempt drug.
• A later FDA classification change could support a new Virginia ruling request.

Common questions

Q: Were prescription medical gases exempt?
A: Yes, when sold to the practitioners or medical facilities listed in the statute and supported by the required purchase documentation.

Q: Why was cryosurgical argon taxable?
A: The FDA did not classify the argon itself as a drug, and it did not meet Virginia's nonprescription-drug test.

Q: Did this ruling change earlier Virginia guidance?
A: Yes. It superseded P.D. 93-144 as that document related to taxation of medical gases.

Citations and references

• Va. Code § 58.1-609.10 9 and 14; Va. Code Title 54.1, Chapter 34.
• 21 U.S.C. §§ 321(g)(1) and 353(b)(1)(A).
• Virginia Tax Bulletin 13-5.
• Virginia Public Documents 93-144, 99-32, 06-110, and 08-78.

Subject

Exemption from the Virginia retail sales and use tax is not available for argon gas

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 13-46

Original ruling text

April 1, 2013

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This is in response to your letter in which you request a ruling on the application of the retail sales and use tax to medical gases sold by * (the "Taxpayer").

FACTS

The Taxpayer is a distributor of industrial, medical and specialty gases. The Taxpayer sells the medical and specialty gases to licensed hospitals and physicians. The gases include, but are not limited to, oxygen used for respiratory therapy, nitrous oxide which is an anesthetic, nitrogen used in cryogenic therapy by licensed dermatologists, helium used in the treatment of respiratory ailments and argon used in cryosurgery. In addition, the Taxpayer sells medical oxygen to home healthcare providers. The Taxpayer believes the sale of medical and specialty gases qualify for exemption as either controlled medicines under Title 23 of the Virginia Administrative Code (VAC) 10-210-940 or nonprescription drugs pursuant to Virginia Tax Bulletin (VTB) 13-5 (3/15/13).

RULING

Medicines and Drugs Exemption

Virginia Code § 58.1-609.10 9 provides an exemption from the retail sales and use tax for:

Medicines [and] drugs . . . dispensed by or sold on prescriptions or work orders of licensed physicians . . . [and] controlled drugs purchased for use by a licensed physician, dentist, optometrist, licensed nurse practitioner, or licensed physician assistant in his professional practice, regardless of whether such practice is organized as a sole proprietorship, partnership, or professional corporation, or any other type of corporation in which the shareholders and operators are all licensed physicians, optometrists, licensed nurse practitioners, or licensed physician assistants engaged in the practice of medicine, optometry, or nursing; medicines and drugs purchased for use or consumption by a licensed hospital, nursing home, clinic, or similar corporation not otherwise exempt under this section . . . . "

Nonprescription Drug Exemption

Virginia Code § 58.1-609.10 14 provides, in pertinent part, that the retail sales and use tax shall not apply to "(i) any nonprescription drugs and proprietary medicine purchased for the cure, mitigation, treatment, or prevention of disease in human beings." VTB 13-5 provides that nonprescription drugs 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." VTB 13-5 defines "proprietary medicines" as "any nonprescription drug sold to the general public under the brand name or trade name of the manufacturer and which does not contain any controlled substance or marijuana."

In VTB 13-5, the Department set out three factors to determine if a product falls within the scope of the exemption: (1) whether the item is a nonprescription drug ( i.e. , is the product a substance or mixture of substances containing medicines or drugs for which no prescription is required); (2) whether the product is for topical or internal use; and (3) whether the product is for the cure, mitigation, treatment, or prevention of a disease in human beings.

The Department considers the federal Food and Drug Administration's (FDA) guidelines in the classification of products for purposes of the above exemptions.

Medical Gases

The FDA classifies medical gases ( e.g. , oxygen, carbon dioxide, helium, nitrogen, nitrous oxide, medical air and combinations of these) as drugs within the meaning of section 201(g)(1) of the Federal Food, Drug, and Cosmetic Act (the Act) (21 U.S.C. 321(g)(1)) and pursuant to section 503(b)(1)(A) of 51 the Act (21 U.S.C. 353(b)(1)(A) and are required to be dispensed by prescription. The Virginia Board of Pharmacy concurs with the federal classification and deems medical gases as Schedule VI controlled substances under the Virginia Drug Control Act found in Va. Code Title 54.1 Chapter 34.

Pursuant to Va. Code § 58.1-609.10 9, the Taxpayer may sell medical gases exempt of the tax to a licensed physician, dentist, optometrist, licensed nurse practitioner, or licensed physician assistant for use in his professional practice. The Taxpayer may also sell medical gases exempt of the tax to a licensed hospital, nursing home, clinic or similar corporation. In P.D. 06-110 (10/10/06) and 08-78 (6/6/08), the Tax Commissioner ruled that the purchase documentation must include the licensed physician's name or the physician's federal Drug Enforcement Agency (DEA) number to support the exempt sale.

It is noted that the Tax Commissioner ruled in P.D. 93-144 (6/10/93) that medical gases are taxable. This ruling supersedes P.D. 93-144 as it relates to the taxation of medical gases.

Argon Gas

Argon gas is a colorless, odorless, non-flammable, non-reactive inert gas. Argon gas may be used for medical purposes in cryosurgery and is administered by means of a medical device called a cryoprobe. Based on information from the FDA, the cryoprobe is deemed a medical device; however, no FDA classification is extended to the argon gas that is dispensed via the cryoprobe. The FDA does not classify argon gas as a drug and, therefore, it can be dispensed without a prescription. Because argon gas is not dispensed by or sold on prescriptions or work orders of licensed physicians or deemed a controlled substance regulated by the FDA, argon gas does not qualify for the exemption under Va. Code § 58.1-609.10 9.

Furthermore, argon gas does not meet the first prong of the test in P.D. 99-32. It is not a substance that contains a medicine or drug. Accordingly, the exemption for nonprescription drugs and proprietary medicines does not apply to argon gas

CONCLUSION

Based on the information provided and research of the FDA guidelines, argon gas that is used for medical purposes in cryosurgery is deemed a medical supply for which an exemption from the Virginia retail sales and use tax is not available. I trust that this responds to your inquiry. This response is based on the facts provided as summarized above. Should the FDA change its classification of argon used for medical purposes, the Taxpayer at that time may request another ruling from the Department regarding the application of the retail sales and use tax as a result of such change.

The Code of Virginia sections, tax bulletin and public documents 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 about this ruling, please contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

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