In a Final Order dated January 14,2025, the Indiana Department of State Revenue denied a refund of sales tax to an Indiana Medical Center they claimed they overpaid to vendors for purchases of medical supplies and equipment. The taxpayer, a surgery center and clinic in Indiana, submitted a refund claim for $12,417.20, which the Department of Revenue (DOR) reviewed. The DOR approved a partial refund of $1,177.06, noting that some of the items the Medical Center had purchased were not exempt from sales tax. The taxpayer made a timely protest, the Department had a hearing, and now the final order has been issued nothing that the taxpayer failed to establish the items purchased should be considered exempt from sales tax.
The focus of the appeal was the taxpayer’s claim they were owed refunds related to prosthetic devices, oxygen, and qualifying drugs. Though prosthetic devices may be exempt, the taxpayer in this case included items such as bandages, splints, and staples which are not considered prosthetic devices. Noting that some of them – staples and splints – are listed in Appendix L of the Streamlined Sales and Use Tax Agreement (SSTA) under prosthetics. The Department, however, points out that nothing in the SSTA becomes law in Indiana unless adopted by the State of Indiana, and no such adoption is in place for Appendix L of the SSTA. Further, the exemption in Indiana for prosthetics to be exempt from sales tax requires a prescription from a licensed practitioner, and the taxpayer could not prove that end users had the prescriptions required to make the devices exempt. The oxygen canisters were ineligible for refund since the exemption only applied when the returnable items (in this case, the canisters) are purchased; the taxpayer in this case rents the canisters, so there is no sale at retail as the exemption requires. Because rental transactions are generally subject to sales tax, the Department again denied the taxpayer’s refund. Finally, the Department considered the taxpayer’s claims that the reagents used in disease testing should be exempt from sales tax as prescription drugs. Under Indiana law, a “drug” can be a substance or compound used for diagnosis, and in order to get the exemption, the drug or drugs must be prescribed or administered by a licensed practitioner. Through the Department agreed the taxpayer may have “drugs”, the taxpayer could not provide any prescription to substantiate the exemption claim.
Indiana is a state which strictly construes arguments against taxpayers, which means taxpayers must prove they are entitled to exemptions, rather than states are required to prove the items in question are taxable. In this case, the taxpayer could not back up their claims, which left them with a much smaller refund than they initially requested. It is important to ensure that all the required elements and documentation are considered and accounted for when claiming exemptions. (Final Order Denying Refund 04-20242047, Dated January 14, 2025, Indiana Department of State Revenue)