Drug Sales to Federally-Insured Customers Taxable in Washington

A retail grocery company was liable for business and occupation (B&O) tax on prescription sales made by pharmacies in its grocery stores in Washington. In contrast to the company’s claims, federal health insurance law did not preempt the tax on sales to federally-insured patients.

B&O Tax Applies to Drug Sales to Federally-Insured Customers

Many of the company’s customers are patients insured by carriers participating in federal health insurance programs such as:

  • the Federal Employees Health Benefits Act (FEHBA);
  • Medicare Advantage; and

The company sought a refund of tax paid on its sales to customers insured under federal programs. In short, it argued that the B&O tax was a prohibited indirect tax on the insurance carriers participating in the programs.

However, the preemption provision in FEHBA did not apply. First, the taxpayer did not show that the tax it paid on its retail sales was imposed on a FEHBA carrier. In addition, the taxpayer did not receive payments from the FEHB Fund.

Further, the taxpayer was not a Medicare Advantage plan or organization Also, the tax was not imposed on the premiums or other payments that insurance carriers might receive from the TRICARE program.

Determination No. 15-0343, Washington Department of Revenue, November 30, 2017, ¶204-333

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All stories by: CCHTaxGroup