Prescription drugs and sales tax

Anybody who has to get a prescription filled probably doesn’t have sales tax at the top of their mind in front of the pharmacist. And that’s no prequel to sticker shock – most of the time. But there are some states and some circumstances (not many, but some) where Rx meds incur sales tax.

(Almost) unanimously tax-free

Great news for those in need of amoxicillin, blood thinners, anti-cholesterol statins and the like: No state with a statewide sales tax, save one, charges sales tax on drugs available only by prescription and that are prescribed by a doctor. Examples include antibiotics, narcotics and controlled substances.

“Sales of drugs and medicines are not taxable if the drug or medicine is intended for internal or external use in people to diagnose, cure, treat, or prevent illness or disease, says the New York Department of Taxation and Finance. “This includes both prescription and nonprescription drugs and medicines that are recognized by the United States Pharmacopeia, the Homeopathic Pharmacopeia of the United States, or the National Formulary.”

The one exception among states with a sales tax is Illinois, which imposes a 1% sales tax on prescriptions and on non-prescription items claimed to have medicinal value. (The state sales tax otherwise is 6.25%.)

The exemption doesn’t necessarily apply to local sales taxes, such as those of a given parish in Louisiana, a state already infamous for its complex sales tax structure. (As of this year, parish tax returns must include new line items for prescription drug sales.) In Alaska, a NOMAD state with no statewide sales tax, municipalities such as Anchorage do specifically exempt prescription drugs from local sales tax.

Non-prescription and OTC

All other drugs in places like your local CVS, though, fall into a more gray area depending on the state and other factors. Non-prescription or over-the-counter (OTC) drugs and medicines can also be purchased exempt from sales tax. They include pain relievers, antacids, cough and cold remedies and even dandruff shampoo and treatments.

Possibly exempt medicines and drugs could also include acne preparations, contact lens preparations, eye drops, laxatives, sunburn treatments and sunscreens, vaginal creams for specific medical conditions and birth control, among others.

States that exempt these or other OTC drugs include Florida (a lengthy list), Maryland, Connecticut, New York, Vermont, Minnesota, Virginia, Pennsylvania, New Jersey, Texas and the District of Columbia.

Sometimes, the OTC drug is exempt if it contains a medication that doesn’t incur sales tax. On rare occasions of the need of a certain strength of medication or due to insurance requirements, doctors will write a prescription for OTC drugs, rendering the drug tax-exempt in many states.

Will OTCs’ generally taxable status change soon? Could be:

“Given that prescription medications filled at pharmacies are universally exempt from sales tax, over-the-counter drugs merit the same tax-free status,” writes The Consumer Healthcare Products Association. “State and local authorities aiming to support public health should strongly consider aligning tax codes so these essential, everyday healthcare products remain affordable and accessible to all.”

If you think your business may be impacted by ever-changing sales tax laws and developments, contact TaxConnex. TaxConnex provides services to become your outsourced sales tax department. Get in touch to learn more.