ALABAMA DEPARTMENT OF REVENUE
SALES, USE & BUSINESS TAX DIVISION
SALES & USE TAX RULE
810-6-3-.37.03. Medicaid.
(1) Sales of eyeglasses and durable medical equipment furnished to Medicaid
recipients are exempt from sales or use tax when billed directly to and
paid for directly by Medicaid. Such sales are sales to the State of Alabama
and are specifically exempt from tax pursuant to Sections 40-23-4(a)(11)
and 40-23-62(13), Code of Alabama 1975. Payment for these items may be
as the result of a contract between Medicaid and a manufacturer who provides
the item, bills Medicaid directly under the terms of the contract, and
receives payment directly from Medicaid; or, payment may be as the result
of contracts with various suppliers, such as home health providers, who
furnish the item, bill Medicaid directly pursuant to the terms established
by the Medicaid program, and receive payment directly from Medicaid. In
both instances payment is made directly by Medicaid; the Medicaid recipient
does not make payment and then receive reimbursement from Medicaid. (Sections
40-23-4(a)(11) and 40-23-62(13))
(2) The sales and use tax exemption outlined in Section (1) above does
not apply in instances where an item is sold directly to and paid for by
a Medicaid recipient. Should the nature of the present Medicaid program
change, the sales and use tax exemption outlined in Section (1) would not
apply to eyeglasses or durable medical equipment purchased and paid for
by a Medicaid recipient who later receives reimbursement from Medicaid
nor would the exemption apply with respect to that portion of a co-pay
purchase paid for directly by the Medicaid recipient. (Sections 40-23-2
and 40-23-61)
(3) Drugs as defined in Section 40-23-4.1(a), Code of Alabama 1975,
are specifically exempt from sales and use tax; and, sales thereof to Medicaid
recipients are exempt regardless of who is billed for the drugs or who
makes payment for said drugs.
(4) Hospitals and nursing homes purchasing tangible personal property
for use in furnishing services to Medicaid recipients are not exempt from
sales or use tax. Hospitals and nursing homes are primarily engaged in
the business of rendering services. They are not liable for sales tax with
respect to their gross receipts for meals, drugs, or other tangible personal
property used in rendering hospital or nursing home services. Hospitals
and nursing homes are deemed to be the purchasers for use or consumption
of such tangible personal property, and the sellers of these items to hospitals
and nursing homes are required to collect sales or use tax on sales of
such property to private hospitals and nursing homes. Provided, however,
purchases by private hospitals and nursing homes of drugs as defined in
Section 40-23-4.1(a), Code of Alabama 1975, are specifically exempt from
sales and use tax. Prescription drugs sold separate and apart from services
rendered by a hospital or nursing home are also exempt from sales and use
tax pursuant to Section 40-23-4.1, Code of Alabama 1975. See Sales and
Use Tax Rule 810-6-3-.47.01 entitled Prescription Drugs. (Adopted
March 18, 1970, amended November 9, 1970, amended September 20, 1974, amended
August 10, 1982, readopted through APA effective October 1, 1982, amended
January 29, 1990)
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