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


425.0142 Items Provided to Patients by HMO. The following covers the application of tax to items furnished to patients by a HMO.

(1) Prescription Medicines

The patient 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 or reimburse for said purchases from another pharmacy.

The HMO owned pharmacy is considered the retailer of the medicines, containers, and labels. It may buy those items ex-tax for resale. The subsequent sales of medicines to patients will be exempt if they qualify under Regulation 1591 (a). Also, the subsequent sales of the containers and labels containing medicines will be exempt if they qualify under Regulation 1589 (b). If the HMO does not own the pharmacy, the pharmacy is the retailer with the same results. It matters not if the patient must make a co-payment.

(2) Durable Medical Equipment (DME)

The HMO provides DME (wheelchairs, crutches, etc.) to members when ordered by physicians. The HMO retains title to the DME products even though the products may never be returned. The HMO does not charge the patient for the DME.

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.

(3) Cervical Diaphragms

Cervical diaphragms are not considered a medicine, but rather a device. (Regulation 1591 (c)(2).) 1/8/93.