Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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425.0000 PRESCRIPTION MEDICINES—Regulation 1591

Annotation 425.0142.010


425.0142.010 Items Provided to Patients by HMO. An HMO provides durable medical equipment (DME) such as wheelchairs, oxygen dispensing equipment, etc., to members at no charge when ordered by physicians. The HMO retains title to the DME products and the member must return it or pay the HMO the fair market price when it is no longer prescribed. Since the HMO is not the patient and is providing the DME free of charge, the HMO is the consumer of the items. Tax applies to the sale of the DME to the HMO.

An out-patient of the HMO is not required to make a co-payment or a fee for prescribed medicines. The patient takes the prescription to the HMO-owned pharmacy which will dispense the medicine.

Under this plan, the HMO would be the consumer of those items it dispenses that are not billed to the patients. The HMO would owe tax on the purchase price of nonmedicine items including containers for prescription medicines, but not on prescription medicines as provided under Regulation 1591. However, the HMO (pharmacy) would be the retailer of items excluded from the term medicine under Regulation 1591 sold to the patient, even though the patient may be subsequently reimbursed by the HMO. 10/5/95.