Board Rules Use of Prescription Does Not Convey Tax Exempt Status to Over-the-Counter Drugs
In PCA-Corrections, LLC v. Finance and Administrative Cabinet, File No. K07-R-17 (KBTA Jan. 6, 2009), the Kentucky Board of Tax Appeals (“Board”) held that over-the-counter drugs and substances dispensed by prescription are not exempt from sales and use tax.
PCA-Corrections, LLC (“PCA”) is a wholesaler of medical drugs and sundries. It sells prescription drugs and over-the-counter drugs and substances. The Kentucky Department of Revenue (“Department”) levied sales and use tax on over-the-counter drugs and substances supplied by PCA to inpatient rehabilitation and convalescent institutions. PCA argued that these items were exempt from taxation pursuant to KRS 139.472 (Kentucky’s provision exempting prescription drugs) because they were dispensed with a prescription.
After a two day hearing, the Board held that:
The mere dispensing with prescription of drugs normally sold over the counter, and of substances better categorized as dietary supplements, in the same manner, does not make them “prescription drugs” and thus exempt in this case from taxation. If a drug can normally be purchased over the counter, then the Board finds that the same is not for purposes of the above statute [KRS 139.472(1)(a)], a prescription drug and exempt from taxation without more.
The Board also held that PCA was entitled to a credit for insulin products that are specifically exempt from sales and use tax under KRS 139.472.