S.2, California—Sales and Use Tax: Taxpayer’s Sales of Organic Mattresses Did Not Qualify as Exempt Sales of Medicine

A taxpayer’s sales of organic mattresses were properly subject to California sales and use tax because the mattresses did not meet the definition of medicine. Generally, the sale of medicines, when those medicines are prescribed and sold or furnished under specified conditions is exempt from tax. Further, medicines include items such as prescription drugs approved by the United States Food and Drug Administration (FDA), and other substances or preparations for application to the human body which are commonly recognized for use in the diagnosis, cure, mitigation, treatment, or prevention of disease. In this matter, the California Department of Tax and Fee Administration (department) audited the taxpayer and disallowed claimed exempt sales of prescription mattresses. The taxpayer argued that she called the department in 2008 and was orally advised that sales of mattresses made pursuant to a valid prescription were exempt from tax. However, it was noted that the taxpayer did not submit documentary evidence to support her position that her mattresses were commonly recognized as medicines in the medical community, applicable regulatory institutions, or otherwise as a matter of law. Furthermore, the taxpayer conceded that the mattresses were not approved by the FDA to diagnose, cure, mitigate or treat any disease. Therefore, the taxpayer’s sales of organic mattresses did not qualify as exempt sales of prescription medicine. Further, the taxpayer’s request for relief from the liability on equitable grounds was denied because the Office of Tax Appeals lacked the authority to apply the doctrine of equitable estoppel to grant relief of taxes based on reliance on oral advice. Accordingly, the taxpayer’s petition was denied. Additionally, the taxpayer’s petition for a rehearing was denied because the taxpayer failed to establish any ground for a rehearing.

Atkins, California Office of Tax Appeals, No. 18022352, November 18, 2020, released June 2021, ¶407-473