Georgia Revises Sales Tax Exemptions for Drugs, Other Medical Items, and Food

May 2nd, 2011

On April 27, Georgia Governor Nathan Deal signed House Bill 168 (HB 168) into law. The act, which is the latest in a series of legislative changes bringing Georgia's sales tax laws into conformity with the Streamlined Sales and Use Tax Agreement (SSUTA), makes several changes to the way Georgia treats drugs, certain medical equipment and supplies, and food for sales tax purposes.

Prior to the enactment of HB 168, Georgia's sales tax exemption for prescription drugs applied to purchases of controlled substances or drugs that were "lawfully dispensed" only upon a prescription. The Georgia Department of Revenue (DOR) interpreted this language to apply only to sales made to, or on behalf of, a patient who holds a prescription, and not to bulk purchases made by hospitals. However, the enactment of HB 168 has modified the drug exemption language to exempt “drugs which are lawfully dispensable only by prescription…” (emphasis added). The DOR views this change in language as an expansion of the drug exemption, and now takes the position that the drug exemption applies to sales to hospitals as well as patients. (Note that the resale exemption has always been available for a hospital's purchase of drugs to the extent such drugs are resold to patients.)

HB 168 also addresses Georgia's exemptions for durable medical equipment and prosthetic devices. The previous statutory language stated that purchases of these items were exempt when "prescribed by a physician," but now the law states that such purchases are exempt when "sold or used pursuant to a prescription." This new language strengthens the DOR's position that these exemptions do not apply to bulk sales to hospitals.

The act also limits the reach of the exemption for diabetic supplies. Under the new law, the only items that are exempt from tax when dispensed without a prescription are insulin syringes and blood glucose level measuring strips. Thus, sales of insulin, blood measuring devices, other monitoring equipment, or insulin delivery systems used exclusively by diabetics are no longer exempt unless they fall within one of the other medical exemptions.

Finally, new language clarifies that the exemption for “food and food ingredients” does not apply when such items are sold for use in the operation of a business. In addition, dietary supplements are now excluded from the definition of "food and food ingredients," and are therefore subject to tax.