Sales Tax Articles
Sales Tax State Activity Update - February 2008
Reversal of Fortune for Diabetic Testing Materials in California
A California Appeals Courts, in partially reversing the decision of the Trial Court, ruled that sales of insulin syringes to hospitals are exempt, but glucose test strips and skin puncture lancets are taxable.
The Trial court had ruled that all of these diabetic supplies were exempt when sold to hospitals.
Once obtained by the hospitals, the insulin syringes, glucose test strips, and skin puncture lancets were furnished by the hospitals' registered pharmacists to the hospitals' labs which in turn provide the items to the medical staff for use in attending to patients.
Section 6369(a) of the California Code provides an exemption for medicines:
- Prescribed for the treatment of a human being by a person authorized to prescribe the medicines, and dispensed on prescription filled by a registered pharmacist in accordance with law.
- Furnished by a licensed physician and surgeon, dentist, or podiatrist to his or her own patient for treatment of the patient.
- Furnished by a health facility for treatment of any person pursuant to the order of a licensed physician and surgeon, dentist, or podiatrist.
- Sold to a licensed physician and surgeon, podiatrist, dentist, or health facility for the treatment of a human being.
Section 6369(e) conveys that insulin and insulin syringes furnished by a registered pharmacist to a person for treatment of diabetes as directed by a physician shall be deemed to be dispensed on prescription. Regulation 1591.1 reiterates this statement and also directly states that these items are exempt when furnished by a pharmacist to a person for treatment of diabetes, as directed by a physician.
The Appeals Court rejected the notion that insulin or insulin syringes were only exempt when sold to an individual, rather than a health care facility. The plain language of the statute indicates that these items are considered medicines, and as such, are exempt as being sold to a health facility for the treatment of a human being.
Glucose test strips and skin puncture lancets, which are used to monitor a diabetic's blood sugar level, are not mentioned in Section 6369. These items are discussed in Regulation 1591.1. They are noted to be "an integral and necessary active part of the use of insulin and insulin syringes or other anti-diabetic medications", but they are not classified as medicines. They are not afforded the same treatment as insulin and insulin syringes. Regulation 1591.1 only exempts these items when a pharmacist furnishes these to a diabetic patient to determine his or her own blood sugar. As such, the Appeals Court reversed the decision of the Trial Court in ruling that glucose test strips and skin puncture lancets sold to hospitals are subject to tax.
(Cardinal Health 110 v. State Board of Equalization, California Court of Appeal, 1st Appellate District, A1114257, A1114273, 01/18/2008)
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