Flu Vaccine Subject To Sales and Use Tax - Iowa

September 16, 2009 | Roger McEowen


The Iowa Department of Revenue (IDOR) was recently asked by Walgreens whether the flu vaccine is subject to sales and use tax.  Walgreens is considering a promotional campaign involving the free distribution of the flu vaccine to uninsured persons.  No prescription is necessary to get the vaccine, and persons wanting the free vaccine will be checked out to make sure that they are, indeed, uninsured.  Once a person qualifies for the free vaccine, that person will get a voucher that they can use to get the vaccine for free.  Under the program, Walgreens does not receive any reimbursement from a vaccine manufacturer or anyone else to offset the cost of the program.  Walgreens will purchase the vaccine from an out-of-state source.

IDOR ruled that the vaccine is subject to Iowa sales and use tax, irrespective of the fact that Walgreens is not selling the vaccine.  Because, IDOR reasoned, the vaccine is tangible personal property and the gift of the vaccine by Walgreens is a use that is "incident to ownership" in Iowa, the vaccine is taxable under Iowa Code Sec. 423.5(1).  As for the application of an exemption, IDOR ruled that none applied. 

But, wait a minute.  There is a way around the problem for Walgreens.  As Joe Kristan pointed out in our conversation earlier this morning, there is no use tax if the tangible personal property at issue is resold in the course of business.  See Iowa Code Sec.423.6(2).  So, all Walgreens needs to do is charge a penny for the vaccine.  That wipes out the use tax and just about entirely wipes out the sales tax too.  Too bad IDOR didn't point that out to Walgreens in their ruling.  IDOR Ruling No. 09300051 (Aug. 17. 2009).