Virginia– Taxability of Medical Gasses

SALT Report 2355 – The Virginia Tax Commissioner issued a ruling regarding the taxability of certain industrial, medical, and specialty gases. The gases include oxygen used for respiratory therapy, nitrous oxide used as an anesthetic, nitrogen used in cryogenic therapy, helium used to treat respiratory ailments, and argon used in cryosurgery. The Taxpayer in this case, requested a ruling as to whether the sale of these gases to hospitals, physicians, and home healthcare providers are exempt as controlled medicines or as non-prescription drugs.

In its decision the Commissioner referred to the following rulings and regulations:

Virginia Code § 58.1-609.10 9 which provides an exemption from the retail sales and use tax for, “Medicines [and] drugs…dispensed by or sold on prescriptions or work orders of licensed physicians…[and] controlled drugs purchased for use by a licensed physician, dentist, optometrist, licensed nurse practitioner, or licensed physician assistant in his professional practice…”

Virginia Code § 58.1-609.10 14 which provides that retail sales and use taxes do not apply to “(i) any non-prescription drugs and proprietary medicine purchased for the cure, mitigation, treatment, or prevention of disease in human being,” and

Virginia Tax Bulletin 13-5 which identifies the criteria that must be met for a product to be exempt as a non-prescription drug:

  1. The product is a non-prescription drug that is a substance or mixture of substances containing medicines or drugs for which no prescription is required
  2. The product is for topical or internal use, and
  3. The product is for the cure, mitigation, treatment, or prevention of a disease in human beings

Generally, medical gases, such as oxygen, carbon dioxide, helium, nitrogen, nitrous oxide, and medical air, are considered drugs that can only be dispensed with a prescription. Therefore, pursuant to Virginia Code § 58.1-609.10 9, the Taxpayer can sell these medical gases exempt to a licensed physician, dentist, optometrist, licensed nurse practitioner, licensed physician assistant, hospital, nursing home, or clinic.

However, argon gas, which is a colorless, odorless, non-flammable, non-reactive inert gas that is used in cryosurgery, is not a drug classified by the FDA; therefore, argon gas can be dispensed without a prescription. Because argon gas is neither dispensed or sold under the prescription of a licensed physician, nor is it deemed a controlled substance regulated by the FDA, argon gas does not qualify for the exemption under Virginia Code § 58.1-609.10 9.

As for the non-prescription drug criteria set forth in Virginia Tax Bulletin 13-5, the Comptroller determined that argon gas did not meet the requirements because argon gas is not a substance that contains a medicine or drug. Accordingly, the exemption for non-prescription drugs and proprietary medicines does not apply to argon gas.

For Further Information

Virginia Tax Commissioner-Ruling #13-46

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