Recent First Circuit Ruling Could Mean Tax Refunds for Healthcare Providers
Non-governmental hospitals will be interested in a recent Louisiana First Circuit Court of Appeal ruling that recognizes sales and use tax exemptions for a significant number of healthcare items. In Medical Diagnostic Services Inc., v. Bridges, 2009-0942 (La. App. 1st Cir. 12/30/09), 2009 W.L. 5150249, the court considered the Louisiana Department of Revenue’s denial of a medical provider’s claim for a refund of sales and use taxes. The healthcare provider plaintiffs included Medical Diagnostic Services, Inc. and Baton Rouge General Medical Center who claimed tax refunds in the amounts of $117,833.37 and $130,193.93 respectively for sales and use taxes paid during the period of January 1, 1991 through December 31, 1992.
The case involved the interpretation of LA-R.S. 47:305D(1)(j), which provides for a state sales and use tax exemption for “drugs prescribed by a physician or dentist.” In interpreting this provision, the court looked to the LA-R.S. 47:301(20) definition of “drugs,” which “includes all pharmaceuticals and medical devices which are prescribed for use in the treatment of any medical disease.” Ultimately, the court upheld the rulings of the Board of Tax Appeals and of the district court against the Department of Revenue, which finding that the following items “were used in the diagnosis of medical illness and diseases,” or “used in both diagnosis, healing and treatment of patients:”
| blood pressure cuffs | urine culture kits |
| diabetic test strips | urine sample cups |
| EKG electrodes | vacutainers |
| X-Ray film | whole blood tubes |
| microtainer specimen collectors | winged collection sets |
| vacutainer tubes | IV’s |
| lancets | butterflies |
| transfer pipettes | labeling tape |
| centrifuge tubes | biohazard collectors |
| multi-sticks 10 SG; and singles | feline leukemia test kit (a reagent) |
| all reagents, and reagent strips | probes |
| medical lab kits | sterile swabs |
| 24-hour collection bottles | pipettes |
| blood pressure prep kits | plates |
| diabetic lancets and test strips | micro dilution broach panel |
| disposable tourniquets | panels |
| dressings | stains |
| medicine spoons | syringes |
| medicine cups | disposable gloves |
| midstream urine cups | latex gloves |
| specimen collection cups | lab coats |
| specimen collection kits | masks |
| tender foot heel lances | shoe covers |
Thus, the Louisiana Department of Revenue was obligated to refund the amounts of sales and use taxes accordingly. Notably, the court found that the following items were not used in any of the categories: 72 hole racks, lamp hoods and canine heartworm test kits.
Because the decision was rendered so recently, this case is still subject to appeal to the Louisiana Supreme Court where it may or may not be upheld. While we wait for the final ruling, hospitals can start putting together refund claims for all open years. When the claims are ready, hospitals should work with their state and local tax professional to prepare the claim for filing.
