Diabetic Test Strips And State Tax Laws

Pharmacists certainly know the high cost of glucose test strips. A January 2010 Diabetes Forecast article published by the American Diabetes Association noted that the yearly cost of test strips to an individual typically range from $104 to $1,820, depending upon the frequency of testing. Some states exempt test strips from sales tax when they are purchased by individuals, but these states pay a high price. If all the states with a sales tax imposed their tax on test strips sold to individuals and medical providers, the resulting sales-and-use tax revenue would total approximately a quarter of a billion dollars per year.

SSTP states all over the map

Twenty-four states currently participate in the Streamlined Sales Tax Project (SSTP), which seeks to simplify sales tax laws in order to overcome a U.S. Supreme Court decision that state sales-and-use tax systems are so complicated that states cannot justifiably require out-of-state catalog and internet sellers to collect such tax unless the sellers have a physical presence within the state.

To reduce sales-and-use tax complexity among states, the SSTP has developed uniform definitions — such as the definition of a "drug." However, neither the SSTP definitions nor the healthcare item lists related thereto define or otherwise address diabetic test strips, leaving SSTP states to independently determine the taxability of the test strips, with varying results.

SSTP states such as Arkansas, Georgia, Indiana, Iowa, Kentucky, Minnesota, New Jersey, North Dakota, Ohio, and Wisconsin, maintain specific exemptions for test strips. Kansas, Nebraska, North Carolina, South Dakota, Utah, and West Virginia exempt the test strips if they are purchased with a prescription.

Michigan and Vermont classify test strips as a component of blood glucose meters, which constitute exempt durable medical equipment in those states. Rhode Island exempts test strips "as they are considered used in the diagnosis of a disease" under the Streamlined definition of a drug.

Other SSTP states tax test strips. Oklahoma imposes tax unless reimbursed under a Medicaid or Medicare program, while Tennessee, Nevada, and Wyoming tax test strips sold to individuals on the basis that such items do not qualify as exempt durable medical equipment.

Nevertheless, because SSTP states exempt prescription drugs purchased by individuals, an argument exists in SSTP states taxing test strips that such test strips constitute exempt drugs...