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Ruling 90-64

Pharmaceutical Products

An out-of-state pharmaceutical company, whose primary business is the manufacture and distribution of prescription drugs, sells its products to private label distributors, drug wholesalers, independent pharmacies, drug store chains, hospitals, nursing homes, clinics and physicians. While certain transactions will be for resale, the company has inquired as to whether the following sales of pharmaceutical products would be taxable or exempt.

1. Sales of prescription drugs or medicines to physicians for use in their medical practice are exempt from the sales and use tax under Section 12-412(4) of the Connecticut General Statutes and Section 12-426-13 of the Regulations of Connecticut State Agencies.

Sales of non-prescription drugs and medicines to physicians are exempt only when included in Section 12-412(48). The exempting statute provides as follows:

(48) Nonprescription drugs and medicines. Sales of the following drugs or medicines available for purchase without prescription: Vitamin concentrates; products intended to be taken for coughs or colds; laxatives; aspirin and other drugs or medicines having pharmacological effects similar to those of aspirin and generally classified as internal analgesics; antacids; and any medication prepared as an ointment or solution to be used in a person's eyes for the care and treatment of any disease of the eyes.

2. Connecticut General Statute 12-412(1) provides an exemption for sales to the United States, the State of Connecticut and their respective agencies. Accordingly, sales to veterans hospitals which are operated by the Federal government or a Connecticut state agency are exempt from sales or use tax. The company should obtain Governmental Agency Exemption Certificates on these sales to support its claim for an exempt sale.

3. Sales to for-profit hospitals have the same tax consequences as if sold to physicians for use in their medical practices.

Sales to and by nonprofit charitable hospitals for the exclusive use of such institutions are exempt under Section 12-412(5). Nonprofit charitable hospitals which qualify for the exemption are furnished sales tax exemption numbers and, in order to support its claim for an exemption, the company should have the customer complete a Regulation 15 Charitable and Religious Organization Exemption Certificate in which the nonprofit hospital's exemption number appears.

4. Sales to nursing homes and clinics for-profit have the same tax consequences as if sold to physicians or for-profit hospitals.

Nonprofit nursing homes or clinics which qualify for exemption would be furnished with a sales tax exemption number. The company should have its customers complete a Regulation 15 Charitable and Religious Organization Exemption Certificate in which the nonprofit nursing home or clinic's exemption number appears.

In addition to their sales activity, it is a common practice for the company's sales representatives to distribute samples to all its customers within the state. You have inquired as to the use tax ramifications of such distributions.

  1. The company would owe use tax only for the samples actually distributed in Connecticut.
  2. The tax would be based on the costs attributable to the tangible personal property in the sample, exclusive of the manufacturing labor costs, unless the finished product is acquired from a third party.
  3. All drug samples are subject to the use tax.

James F. Meehan

October 17, 1990