Reminder: OTC Sales Tax Requirements
posted: 01/23/2012

There has been much confusion about the proper collection and reporting of sales tax by pharmacies when dispensing an over-the-counter (OTC) medications or devices if these items are dispensed by the pharmacy pursuant to a prescription or order from a qualified licensed health professional. Michigan enacted legislation in 2004 that changed the tax code on sales of medical goods and prescription medications. Prior to these changes, sales tax was not applied to the purchase of a prescription medication for human use. Current tax code in Michigan now reads that prescription medications are exempt from sales tax if “sales of drugs for human use can only be legally dispensed by prescription…” With this notable change, over-the-counter prescriptions, even if dispensed pursuant to a prescription by a physician, are no longer exempt from sales tax because they can be legally obtained without a prescription. Pharmacies are, therefore, obligated to report to the state and pay for tax on OTC sales, even if these sales are billed under prescription and billed to an insurance provider. Pharmacies and their legal or accounting representatives should be aware of these tax code changes and ensure they are complying with Michigan sales tax requirements. Additional information can be seen on the Michigan Department of Treasury Web site.


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