Sales Tax Slice: Sales Taxes on Allergy Sufferers Are Nothing to Sneeze At


Spring is here! Flowers are in bloom, birds are chirping, and the buds on trees are bursting. Many greet this explosion of life with joy, but others’ allergies drive them to the pharmacy. Many of those dealing with runny noses and red eyes may turn to both prescription and over-the-counter allergy medications for some symptom relief, in addition to devices such as neti pots. Such sufferers will also find some complexity in the sales and use tax treatment of such medicines and contraptions across the states.

If your allergies aren’t quite extreme enough to necessitate prescription medicines and only warrant over-the-counter medicines, states vary in their treatment of these remedies. In some states, like Arkansas, California, and Georgia, all over-the-counter medicines are taxable. Other states, such as Indiana, Iowa, and Kansas, tax over-the-counter drugs unless they are prescribed by a physician. Some states, including New York, New Jersey, and Minnesota, exempt such drugs entirely. In Texas, over-the-counter drugs are exempt from sales tax if they are required to be labeled with a “Drug Facts” panel in accordance with regulations of the federal Food and Drug Administration.

The rules for prescription drugs are much less complex. With one exception, almost all states exempt prescription drugs from sales and use taxes entirely. Illinois is the only state that taxes prescription medicines, but it taxes them at a reduced tax rate.

For medical equipment like sinus irrigators, the taxability rules are murkier than a windshield covered in pollen largely because the states do not have uniform definitions for medical equipment or medical devices. For the 23 states that are full members of the Streamlined Sales and Use Tax Agreement, durable medical equipment is defined as equipment that can withstand repeated use; is primarily and customarily used to serve a medical purpose; is generally not useful to a person in the absence of illness or injury; and is not worn in or on the body. For other states, the definitions and terms used to describe such medical items vary greatly; Florida refers to “medical products” and Louisiana uses the term “medical devices.” Even if taxpayers can figure out how states define medical equipment, whether it is taxable also differs among the states. A few states, like Maryland, exempt equipment sold without a prescription, but in most states allergy sufferers will pay tax on devices sold without a prescription.

However your state taxes your preferred method of allergy fix, I hope that everyone finds relief from the spring pollen.

Continue the discussion on Bloomberg Tax’s State Tax Group on LinkedIn: How should states tax drugs and medical equipment? Should taxability differ for over-the-counter products?

 

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