News-Record.com

In case you missed it, here's Guilford Tax Director Francis Kinlaw's take, in a News & Record op-ed, on the issue of taxing free drug samples:

In recent weeks, several articles and letters have been published regarding the taxation of medical samples by North Carolina’s counties. Given the considerable publicity and concern that this issue has evoked, I wish to provide significant information relating to Guilford County’s current policy and to existing state law.

Many readers undoubtedly will be pleased to learn that a bill currently being considered by the N.C. General Assembly (Senate Bill 1878) would exempt from taxation “free samples of drugs that are required by federal law to be dispensed only on prescription and are given to physicians and other medical practitioners to dispense free of charge in the course of their practice.” If you favor the addition of these words to N.C. General Statute 105-275, you may wish to inform your state legislators of your opinion. (Because property tax laws may be established and revised only at the state level of government, county commissioners and elected officials other than state senators and state representatives are unable to change the law.)

The following facts will explain and clarify the basis for recent decisions and actions by the Guilford County Tax Department.

A directive from the North Carolina Department of Revenue (issued on May 26, 2006) states clearly that “supplies and samples used by and in the possession of medical establishments … are required to be listed for taxation in the various counties of North Carolina where the business personal property is located.”

A routine audit conducted by our office revealed that one large medical practice had failed to list drug samples for taxation in one or more prior tax years. (We attempt to audit the tax listings of every business in the county, regardless of the nature of the business, every five or six years.)

Although drug samples account for a very small percentage of the taxable property in a medical practice and, consequently, for a small percentage of the tax bill, representatives of the medical profession have deemed this issue to be worthy of public discussion.

It is important to note that, because Jan. 1 of each year is the only date of significance insofar as the taxation of business personal property is concerned, a medical practice can maintain and dispense drug samples throughout the calendar year without affecting its tax obligation. Physicians may choose to reduce their supplies of drug samples prior to Jan. 1 and then increase their supplies of samples after Jan. 1. In other words, the volume of drug samples on hand for the other 364 days of a calendar year — other than Jan. 1 — has no effect whatsoever on the tax bill of a medical practice.

Tax administrators in Mecklenburg and Forsyth counties have stated in recent weeks that their counties follow exactly the same procedures that were applied by our department. All other counties in North Carolina are also subject to the same laws that govern taxation in our county.
I understand the opposition by many people to the relevant state law and realize that they would welcome legislative action revising that statute. In my role as tax director, I can assure the public that our Tax Department consistently follows procedures established by state law and that our actions regarding property taxation of drug samples will change if and when the applicable state law is revised.

Francis H. Kinlaw is Guilford County tax director.