When is sales tax due on your DME-related sales and services? The North Carolina Business Court Weighs In.
Feeling Great, Inc. v. North Carolina Department of Revenue
Sales tax compliance may not be the reason you are in business, but consequences can be very serious if you fail to collect and remit sales taxes on a taxable transaction. Durable medical equipment suppliers (DME) should take note of a recent decision by the North Carolina Business Court in which the DME supplier (at least according to the Court) erroneously thought that certain DME sales were exempt from use tax.
In Feeling Great, Inc. v. North Carolina Department of Revenue, 2015 NCBC 81 (N.C. Business Ct. Aug. 20, 2015), the DME suppliers did not collect and remit use tax to the Department of Revenue on the basis that the purchases at issue (medical supplies used in sleep study testing) were exempt from sales and use tax under N.C. Gen. Stat. 105-164.13(12)d. That statute provides that sales of “[d]urable medical supplies sold on prescription” are exempt from sales tax. Seems straightforward, right?
The Department of Revenue, however, issued a tax assessment for sales of supplies used in sleep study testing in connection with a diagnostic sleep system machine. The sleep studies were covered by Medicare or Medicaid and were not part of the tax assessment. It was the supplies used with the sleep studies, such as cleaner, sensors, gauze tape, Q-Tips, and the like, that the Department took issue with because the physicians’ prescriptions did not specifically mention the supplies as having been prescribed, only the sleep studies!
Feeling Great’s problem was that the prescriptions did not specifically refer to “supplies” associated with the sleep studies. Instead, the physician only “prescribed sleep study testing for the patient.” Had the prescription included “all supplies as needed” in the description, the court implied that the result would have been different: sales of such supplies would have been “on prescription” and therefore exempt from sales tax.
Feeling Great’s many arguments to the contrary, including that “Medicaid routinely authorizes the purchase of durable medical equipment and associated ‘supplies’ under a single prescription” (which the administrative law judge had found), were not accepted by the Business Court.
It may seem odd to distinguish between a prescription that prescribes sleep study testing and a prescription that prescribes sleep study testing as well as needed supplies for the machine, but it is the distinction that caused a significant sales tax assessment for the taxpayer in this case. DME suppliers should carefully review the prescriptions and be mindful of the Department’s position when collecting sales and use tax.
Posted on March 1, 2016, in Administrative code, Administrative Law Judge, Administrative Remedies, Alleged Overpayment, Appeal Rights, Appealing Adverse Decisions, DHHS, Durable Medical Equipment, Health Care Providers and Services, IRS, Judicial Review, Lawsuit, Legal Analysis, Legal Remedies for Medicaid Providers, Medicaid Appeals, Medicaid Attorney, NC, North Carolina, OAH, Office of Administrative Hearings, Petitions for Contested Cases, Taxes and tagged Administrative Law Judge, Administrative Remedies, Business Court, DME taxes, Durable Medical Equipment, Durable medical equipment providers, Feeling Great, Medicaid, Medical supplied, Medicare, NC Business Court, NC Department of Revenue, Office of Administrative Hearings, Prescribed durable medical equipment, Prescription DME, Robert Shaw, Sales tax compliance, Tax exempt. Bookmark the permalink. Leave a comment.