MEDICAL CLINICS AND RELATED BUSINESSES

IOWA SALES AND USE TAX INFORMATION

The information in this publication applies only to medical clinics and similar businesses, not to nonprofit hospitals or hospices.

Hospice Exemption

Effective July 1, 1999, the sale or rental of tangible personal property and the sale of services to a freestanding nonprofit hospice facility that operates a hospice program are exempt from sales tax.

Nonprofit Hospital Exemption

Effective July 1, 1998, sales to nonprofit hospitals are exempt from tax.

EXEMPT SALES/PURCHASES

Prescription Drugs

Prescription drugs are defined as medication, oxygen, or insulin intended to be dispensed to an ultimate user pursuant to a prescription drug order or medication order from a practitioner. This means that any drug requiring a prescription is exempt upon a doctor’s order, whether or not there is actually a prescription; for example, drugs administered in an emergency situation. "Doctors" include, but are not limited to, dentists, optometrists, chiropractors, podiatrists, and osteopaths, as well as medical doctors.

Also included within the meaning of prescription drug is any drug or medication dispensed under a prescription, even if there is no requirement for a prescription. For example, a doctor writes a prescription detailing dosage and intervals for 200 mg tablets of ibuprofen. If a pharmacist fills and labels the order, it is exempt from sales tax. If the pharmacist instructs a person to choose ibuprofen sold "over the counter," it is a taxable sale.

Ultimate User

In order for prescription drugs or medical devices to be exempt from sales or use tax, the sale or rental must be to an ultimate user. An "ultimate user" is an individual who has lawfully obtained and possesses a prescription drug or medical device. An ultimate user cannot be a corporation or partnership. The drug or device must be prescribed, dispensed or administered for placement on or into the body of the ultimate user to be exempt.

For example, a wheelchair prescribed for human use and sold by a medical supply store to an individual is exempt from tax. A sale of a wheelchair to a medical clinic for its own use is subject to tax because the clinic is not the ultimate user. The ultimate user must be an individual.

Prescription Not Required

The following items are exempt from sales tax with or without a prescription and whether or not sold to an ultimate user:

Medical Devices

The term "medical devices" means equipment or a supply intended to be dispensed for human use by a practitioner, including orthopedic or orthotic devices. It also includes ostomy, urological, and tracheostomy devices and supplies dispensed with or without a prescription to an ultimate user.

Prosthetic Devices

"Prosthetic device" is defined as a piece of special equipment designed to be a replacement or artificial substitute for an absent or missing part of the human body.

The following is a nonexclusive list of exempt prosthetic devices. They are exempt with or without a prescription.

Orthotic and Orthopedic Devices

An "orthotic device" is defined as a piece of special equipment designed to straighten a deformed or distorted part of the human body, such as corrective shoes or braces. An orthotic device is an orthopedic device.

An "orthopedic device" is a piece of special equipment designed to correct deformities or to preserve and restore the function of the human skeletal system, its articulations and associated structures.

Following is a nonexclusive list of orthotic/orthopedic devices which are exempt when prescribed for human use and sold or rented to the ultimate user.

Related Devices

Sales or rental of devices, such as power devices, which are used exclusively in conjunction with prosthetic, orthotic, or orthopedic devices are exempt from tax.

Purchases and Sales for Resale

Medical clinics and similar businesses may make rentals or purchases tax-free for resale to patients if the following circumstances are met: (1) the drug, device, or other property is actually transferred to the patient; (2) the drug, device, or property is transferred in a form or quantity capable of a fixed or definite price value; (3) the medical clinic and the patient intend the transfer to be a sale; and (4) the sale is separately itemized on the patient’s bill.

For example, a medical clinic may not purchase surgical knives and blades for resale because the patient does not take possession of them, and there is no intent by either the medical clinic or the patient for a sale to occur. On the other hand, a medical clinic may purchase a box of tissues for resale if all four conditions listed above are met.

TAXABLE SALES/PURCHASES

Medical Equipment and Supplies

Not all medical equipment and supplies are exempt from sales tax.

Following is a nonexclusive list of items that are medical devices or medical supplies. Their sales are taxable.

This publication is based on Iowa Code sections 422.42, 422.43, and 422.45, and Department rules 20.7, 20.8, and 20.9.