RD376 - 2007 - 2011 Virginia Retail Sales and Use Tax Expenditure Study, Volume 1, Number 3


Executive Summary:
Pursuant to Code of Va. § 58.1-609.12, the Department of Taxation (“TAX”) is charged with the responsibility of determining the fiscal, economic and policy impact of each of the Retail Sales and Use Tax exemptions provided for by Code of Va. §§ 58.1-609.10 and 58.1-609.11 and reporting such findings to the chairmen of the House and Senate Finance Committees no later than December 1 of each year. Each of these exemptions are to be reviewed in periodic cycles and reports issued on a rotating basis in accordance with a schedule determined by the Tax Commissioner. There are nineteen exemption categories scheduled to be studied during the 2007-2011 period, and every five-year period thereafter. This is the third report of the 2007-2011 series and in addition to the yearly update on the nonprofit exemption, includes a detailed analysis of exemptions that pertain to:

Purchases of certain medicines, drugs, and related supplies dispensed on written prescriptions by specified medical professionals; controlled drugs purchased for use by certain specified medical professionals; medicines and drugs purchased for use by licensed hospitals, nursing homes, clinics, and similar entities; and certain samples of prescription drugs (Code of Va. § 58.1-609.10(9)).

Purchases of drugs and supplies used in hemodialysis and peritoneal dialysis (Code of Va. § 58.1-609.10(11)).

Purchases of nonprescription drugs and proprietary medicines; and any samples of nonprescription drugs and proprietary medicines distributed free of charge by the manufacturer, including packaging materials and constituent elements and ingredients. (Code of Va. § 58.1-609.10(14)).

This report includes detailed information on the policy and fiscal impacts of these three exemptions, as well as the apparent rationale for these exemptions and their legislative history. This report also includes a comparison of the Virginia exemptions with the sales tax structures of other states, with particular emphasis placed on a comparison with the exemptions provided in contiguous states. The goal of the Sales and Use Tax Expenditure Study is to provide a more complete picture of the revenue impact and policy issues surrounding each of these exemptions.