Latest / Pharmacy Podcast Network / The Lots of News and State Taxes, Too Edition | Essential: The Pharmacy Compounding Podcast

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The Lots of News and State Taxes, Too Edition | Essential: The Pharmacy Compounding Podcast · Pharmacy Podcast Network

• 0:05
  Speaker 1: You are listening to the global network of podcasters dedicated
• 0:09
  Speaker 1: to the pharmacy profession. Welcome to the Pharmacy Podcast Network.
• 0:26
  Speaker 2: Welcome to Essential Pharmacy Compounding News and Analysis from the
• 0:31
  Speaker 2: Alliance for Pharmacy Compounding. I'm Andrew Cantor. As usual, we'll
• 0:35
  Speaker 2: give you a bit of compounding news before we get
• 0:37
  Speaker 2: to the main event. That's where we'll talk to CPA
• 0:40
  Speaker 2: Scott Sykes about compounding pharmacy taxes, which are more interesting
• 0:45
  Speaker 2: and probably more important than you might realize. But first,
• 0:49
  Speaker 2: the news. The News Peptides are big news, and they're also,
• 0:56
  Speaker 2: you know, big business. Thing is, many of the peptides
• 0:59
  Speaker 2: in question are not approved for patients, and they certainly
• 1:02
  Speaker 2: can't legally be compounded. But demand is there, thanks in
• 1:06
  Speaker 2: large part to peptides being pushed by, let's say, questionable parties.
• 1:11
  Speaker 2: Looking at you, TikTok. The point is, the only way
• 1:14
  Speaker 2: consumers are getting these peptides is outside the healthcare system,
• 1:18
  Speaker 2: the regulated healthcare system. So at best, they're getting research-only
• 1:22
  Speaker 2: grade active ingredients, and at worst, they're getting, I mean,
• 1:26
  Speaker 2: could be anything. Baking soda? Grandpa's ashes? This is not
• 1:30
  Speaker 2: a healthy system. What we need is what we've talked
• 1:33
  Speaker 2: about before, careful, well-thought-out path to compounding within reasonable patient
• 1:40
  Speaker 2: safety guardrails. Patients should be able to get appropriate peptides
• 1:44
  Speaker 2: via legitimate, licensed compounding pharmacies rather than someone with a
• 1:49
  Speaker 2: PO box for an address. I'm just giving you a
• 1:51
  Speaker 2: really high-level overview of what APC believes is a smart
• 1:56
  Speaker 2: solution to the peptides gray market, something that protects patients and,
• 1:59
  Speaker 2: you know, acknowledges the current state of the marketplace, which
• 2:03
  Speaker 2: ain't great. So APC has done a couple of things.
• 2:06
  Speaker 2: We've created a new web page that outlines the whole
• 2:09
  Speaker 2: situation and our recommendations. And that is at a4pc. org slash peptides.
• 2:17
  Speaker 2: We've also released a much more detailed issue brief. It
• 2:20
  Speaker 2: outlines exactly what we think is the right way to
• 2:23
  Speaker 2: regulate what's now essentially an unregulated market. And that's on
• 2:27
  Speaker 2: that same peptides page, a4pc. org slash peptides, because we really
• 2:32
  Speaker 2: need an alternative to the wild west we're in right now.
• 2:35
  Speaker 2: And there are plenty of people, legislators, the media, for starters,
• 2:38
  Speaker 2: people who ought to know there's a middle ground between
• 2:41
  Speaker 2: what we've got now and, you know, opening the peptide
• 2:44
  Speaker 2: spigots completely. So share that news. We've talked about animal
• 2:51
  Speaker 2: derived thyroid products, ADT, and how the FDA reclassified them
• 2:56
  Speaker 2: as biologics, meaning they would be off limits for compounding.
• 3:00
  Speaker 2: There's some questionable science and logic behind the decision, and
• 3:04
  Speaker 2: APC pushed back in January with a citizen petition to
• 3:08
  Speaker 2: the agency. Well, now there's another citizen petition filed with
• 3:11
  Speaker 2: the FDA that, like ours, asks it to reverse its
• 3:15
  Speaker 2: decision on ADT. What this filing does is amp up
• 3:19
  Speaker 2: the science behind the request. It gets deep into the
• 3:23
  Speaker 2: amino acid weeds to argue, well, to explain how the
• 3:27
  Speaker 2: active ingredients in ADT are not biologic, at least by
• 3:31
  Speaker 2: the legal definition, and why that means the FDA's decision
• 3:35
  Speaker 2: doesn't make any sense. Not to mention that the agency
• 3:37
  Speaker 2: doesn't seem to have followed its own procedures, but that's
• 3:40
  Speaker 2: a whole other argument. This newer petition is actually a
• 3:43
  Speaker 2: pretty nice compliment to APC's. We focused on the effect
• 3:47
  Speaker 2: on patients that a ban on ADT compounding will have,
• 3:51
  Speaker 2: and it's good to see there's broad pushback against FDA's policy.
• 3:55
  Speaker 2: So what'll happen next? These days it's anyone's guess, and
• 3:58
  Speaker 2: there's no timetable. So a quick note about documentation and
• 4:04
  Speaker 2: judgment and crossing your T's and dotting your I's. The
• 4:08
  Speaker 2: FDA recently took some enforcement action against a compounding pharmacy.
• 4:13
  Speaker 2: It was a 503A pharmacy that was dispensing compounded GLP-1 drugs.
• 4:18
  Speaker 2: If you read the complaint quickly, you might make the
• 4:20
  Speaker 2: mistake of thinking that the FDA had a problem with
• 4:23
  Speaker 2: the volume of GLP-1 dispensing that the pharmacy was doing.
• 4:27
  Speaker 2: But that's actually not the case. First of all, there's
• 4:30
  Speaker 2: no real limit on how much a 503A pharmacy can compound,
• 4:34
  Speaker 2: as long as every prescription is valid. Now, what happened
• 4:36
  Speaker 2: here is that the FDA believed the pharmacy didn't have
• 4:39
  Speaker 2: enough documentation. Specifically, it was looking for the paperwork that
• 4:44
  Speaker 2: showed how prescribers determined that a compounded GLP-1 had a
• 4:48
  Speaker 2: significant difference for each patient. Without that documentation, the FDA said,
• 4:53
  Speaker 2: the medications the pharmacy was dispensing were essentially copies of
• 4:57
  Speaker 2: the commercial products. And that's what the issue was. Not volume,
• 5:01
  Speaker 2: just insufficient documentation. And there's a lesson here. Prescriber judgment,
• 5:05
  Speaker 2: it's important, but so is taking the time to document
• 5:09
  Speaker 2: that judgment. The FDA, it's watching. One of the benefits
• 5:16
  Speaker 2: for pharmacies and facilities that are APC members is getting
• 5:19
  Speaker 2: great deals on credit card processing, like possibly the best
• 5:23
  Speaker 2: rates in the industry. How do we save you money?
• 5:25
  Speaker 2: It's easy to find out. Grab a recent credit card
• 5:28
  Speaker 2: processing statement, and you'll need about 60 seconds. head over
• 5:32
  Speaker 2: to apcpayments.com, there's a link in the show notes, and
• 5:37
  Speaker 2: spend 60 seconds using our Whizbang savings calculator. As I'm
• 5:42
  Speaker 2: recording this, about 100 APC member companies have switched, and
• 5:46
  Speaker 2: one of them is now saving $ 160, 000 a year. Obviously,
• 5:51
  Speaker 2: your mileage may vary, but isn't it worth your time
• 5:54
  Speaker 2: to find out? All we're saying is that a few
• 5:57
  Speaker 2: minutes now could be worth a lot of money, and
• 5:59
  Speaker 2: if it isn't, yeah, you can pat yourself on the
• 6:01
  Speaker 2: back for already having a great processing deal. Give it
• 6:03
  Speaker 2: a shot. APCPayments.com There's currently a shortage of starter parenteral
• 6:13
  Speaker 2: nutrition products for newborns, so the FDA is giving a
• 6:16
  Speaker 2: bit of flexibility to 503A and 503B compounders to fill
• 6:20
  Speaker 2: the gap. It's a lot like the guidance it issued
• 6:23
  Speaker 2: during the pandemic. There's one problem, though. The FDA's regulatory
• 6:28
  Speaker 2: barrier might be down, temporarily, but getting the ingredients to
• 6:32
  Speaker 2: make those products, that is a different story. See, the
• 6:35
  Speaker 2: amino acids involved have to be specifically made for pediatric patients,
• 6:40
  Speaker 2: and the bulk ingredients to make them for sterile injections,
• 6:43
  Speaker 2: they're not available. So yeah, compounders want to step up,
• 6:46
  Speaker 2: but without the raw materials, they just can't be that helpful.
• 6:52
  Speaker 2: You might know that the FDA has guidance for industry
• 6:55
  Speaker 2: for animal drug compounding. It's called GFI-256, and it covers
• 7:00
  Speaker 2: compounding in state-licensed pharmacies. Well, now the agency has drafted
• 7:05
  Speaker 2: a new guidance proposal that would give it the same
• 7:07
  Speaker 2: kind of enforcement power, sorry, enforcement discretion, over 503B outsourcing
• 7:13
  Speaker 2: facilities that are doing veterinary compounding. They've given that draft
• 7:17
  Speaker 2: the catchy name GFI-256B. The idea has been kicking around
• 7:22
  Speaker 2: for a while, since at least 2022, and that was
• 7:25
  Speaker 2: like years ago. GFI 256B is still a draft, and
• 7:29
  Speaker 2: comments to the agency are open through November 27th. If
• 7:33
  Speaker 2: you're interested, there's a link in the show notes. The
• 7:38
  Speaker 2: National Association of Boards of Pharmacy just published its updated
• 7:42
  Speaker 2: Model Pharmacy Acts and Rules. These are NABP's suggestions for
• 7:48
  Speaker 2: how states should regulate pharmacy compounding. And a while back,
• 7:52
  Speaker 2: APC was asked to weigh in on them. So we
• 7:54
  Speaker 2: were happy to see a bunch of our suggestions make
• 7:56
  Speaker 2: it into the final recommendations. A couple of examples. NABP
• 8:01
  Speaker 2: now recommends that sterile compounding facilities be allowed to self-inspect
• 8:05
  Speaker 2: annually rather than have the state board of pharmacy come in.
• 8:09
  Speaker 2: And another thing, NABP wants to see the phrase serious
• 8:13
  Speaker 2: adverse drug experience clearly defined. And that is something we
• 8:18
  Speaker 2: specifically pushed for. Our fingerprints are in other parts of
• 8:21
  Speaker 2: the recommendations, including on labeling requirements, veterinary compounding, and a
• 8:25
  Speaker 2: bunch more. Check them out. We've got a link to
• 8:27
  Speaker 2: the model pharmacy acts and rules in the show notes.
• 8:33
  Speaker 2: And with that, it is time for our deep dive.
• 8:36
  Speaker 2: Compounding pharmacy taxes are their own animal, and obviously there's
• 8:40
  Speaker 2: something you don't want to screw up. Besides, there might
• 8:43
  Speaker 2: be deductions and write-offs and credits you aren't taking advantage of.
• 8:47
  Speaker 2: So today, the newest member of APC staff, Sarah Durr,
• 8:50
  Speaker 2: she's our State Regulatory Affairs Director, and she knows pharmacy
• 8:54
  Speaker 2: inside and out because she's the former CEO of the
• 8:57
  Speaker 2: Minnesota Pharmacists Association. She's going to be talking with CPA
• 9:01
  Speaker 2: Scott Sykes about everyone's favorite subject, taxes. Why? Because when
• 9:06
  Speaker 2: you're a compounder, you've got some different needs that other
• 9:09
  Speaker 2: businesses and even other pharmacies don't have. So we'll talk
• 9:12
  Speaker 2: a little bit about that. Sarah, Scott, welcome.
• 9:17
  Speaker 3: Thanks, Andrew. Welcome, Scott. We're happy to have you here.
• 9:20
  Speaker 1: When we think about state-level issues affecting pharmacists, our minds
• 9:24
  Speaker 1: often go to pharmacy practice laws, Board of Pharmacy regulations.
• 9:27
  Speaker 3: Or licensing requirements.
• 9:29
  Speaker 1: But operating across state lines can also have tax obligations
• 9:32
  Speaker 1: that aren't always as obvious to us. For compounding pharmacists
• 9:37
  Speaker 1: in particular, there are a lot of variables, such as
• 9:40
  Speaker 1: where the pharmacy is located, where the patients are located,
• 9:44
  Speaker 1: what products the pharmacy is selling, and even whether a
• 9:47
  Speaker 1: medication is intended for human or animal use. So today,
• 9:50
  Speaker 1: we want to unpack some of those state-by-state differences, talk
• 9:54
  Speaker 1: about both state sales tax and income tax nexus, and
• 9:57
  Speaker 1: most importantly, how pharmacy owners understand what questions they should
• 10:01
  Speaker 1: be asking about their own operations.
• 10:04
  Speaker 3: So Scott, let's start with the basics.
• 10:07
  Speaker 1: Why is state taxes in particular something pharmacists need to
• 10:10
  Speaker 1: think about, especially when prescription medications are generally thought of
• 10:14
  Speaker 1: as tax-exempt?
• 10:16
  Speaker 4: Yeah, so thank you for having me. It's a pleasure
• 10:19
  Speaker 4: to be here. So, you know, you mentioned in the
• 10:24
  Speaker 4: intro there that compounding pharmacies don't think about the state
• 10:29
  Speaker 4: tax issues, and they don't. This always is a surprise
• 10:36
  Speaker 4: when we're talking to compounding pharmacies out there. And if
• 10:39
  Speaker 4: you're shipping in multistate or operating in multistate, You absolutely
• 10:46
  Speaker 4: need to be aware of the state sales tax nexus issues.
• 10:51
  Speaker 4: You need to be aware of income tax nexus issues
• 10:53
  Speaker 4: in those states. And in some states, you need to
• 10:57
  Speaker 4: be aware of gross receipt tax and things like that.
• 11:00
  Speaker 4: There are... Different, you know, every state is different. So
• 11:05
  Speaker 4: pharmacies have to be aware of, you know, which states
• 11:08
  Speaker 4: they're working in, the requirements for those states under each
• 11:12
  Speaker 4: tax area, and then be ready to respond. But I
• 11:16
  Speaker 4: can tell you that most compounding pharmacies think they're just
• 11:21
  Speaker 4: shipping in multi-state and, you know, they're handling their home
• 11:25
  Speaker 4: state and everything's fine. Multi-state compounding pharmacy is is a
• 11:31
  Speaker 4: can of worms. And it's not just as easy as
• 11:34
  Speaker 4: shipping out of state. You got to be tracking this
• 11:36
  Speaker 4: stuff day in, day out, month in, month out, make
• 11:39
  Speaker 4: sure you're compliant.
• 11:41
  Speaker 1: What are some income tax nexus for multi-state pharmacies? As
• 11:44
  Speaker 1: you mentioned, we have to be considering if we're shipping
• 11:46
  Speaker 1: to multiple states, what the tax implications may be. Can
• 11:49
  Speaker 1: selling or shipping into another state create an income tax
• 11:53
  Speaker 1: filing obligation, even without employees or a physical location in
• 11:56
  Speaker 1: that other state?
• 11:58
  Speaker 4: Yeah, it most certainly could. So You know, again, if
• 12:04
  Speaker 4: we start with the sales tax side, pharmacies that are
• 12:09
  Speaker 4: shipping in multi-state need to know where they're shipping to.
• 12:14
  Speaker 4: They need to be able to track that every month.
• 12:16
  Speaker 4: They need to know the number of transactions, the number
• 12:20
  Speaker 4: of prescriptions being shipped to that state every month and
• 12:24
  Speaker 4: year to date. They need to know the dollar volume
• 12:27
  Speaker 4: of those prescriptions. And then they need to be checking
• 12:31
  Speaker 4: the thresholds for each state for a sales tax filing requirement. Now,
• 12:37
  Speaker 4: even though most states' prescriptions are non-taxable, that's not 100%.
• 12:46
  Speaker 4: Some states do tax that. Some counties tax this stuff.
• 12:51
  Speaker 4: Some are a little particular about compounding prescriptions in general.
• 12:54
  Speaker 4: So you got to understand every state's rules and make
• 12:58
  Speaker 4: sure you're compliant and And some of it's a trailing
• 13:01
  Speaker 4: 12-month of activity. Some of it's the previous year activity.
• 13:06
  Speaker 4: So you have to keep a running balance of the
• 13:08
  Speaker 4: activity from a sales tax filing requirement standpoint. From an
• 13:13
  Speaker 4: income tax standpoint, that's a whole other set of rules.
• 13:16
  Speaker 4: That's a whole other issue. And you can have sales
• 13:20
  Speaker 4: tax filing requirements but not have an income tax filing requirement.
• 13:27
  Speaker 4: So you have to look at both kind of independently
• 13:31
  Speaker 4: if you're a compounding pharmacy. But from an income tax perspective,
• 13:36
  Speaker 4: most compounding pharmacies are going to, you know, if you
• 13:41
  Speaker 4: talk to your CPAs and things like that, they're going
• 13:44
  Speaker 4: to say that you probably don't have a filing requirement
• 13:48
  Speaker 4: if all you're doing is shipping into that state from
• 13:50
  Speaker 4: an income tax perspective. And that may be true, and
• 13:55
  Speaker 4: a lot of times you may hear Public Law 86-272,
• 13:57
  Speaker 4: which is getting a little technical here, but that's a
• 14:01
  Speaker 4: federal protection where states can't necessarily tax the pharmacy if
• 14:06
  Speaker 4: all they're doing is shipping to the state. Now, that
• 14:10
  Speaker 4: is an area a state will argue all day long
• 14:14
  Speaker 4: if they can because they want their revenues. States are
• 14:17
  Speaker 4: getting better at picking up on these things. The technology
• 14:21
  Speaker 4: is getting better. The states are working with other departments
• 14:28
  Speaker 4: now better, and they're picking up on who should be
• 14:32
  Speaker 4: potentially paying these taxes. But yeah, from an income tax perspective,
• 14:36
  Speaker 4: Public Law 86-272 is what you'll hear a lot. Hey,
• 14:39
  Speaker 4: I don't have to file because of that. Well, that
• 14:42
  Speaker 4: may not always be the case. And like I said,
• 14:44
  Speaker 4: states will argue that, hey, if you've got a non-residence license,
• 14:49
  Speaker 4: you're shipping to the state. Yeah, okay, that may be protected.
• 14:51
  Speaker 4: But what are you doing after the sale? Are you
• 14:54
  Speaker 4: servicing that patient to any degree? Are you helping them
• 14:57
  Speaker 4: administer the prescription? So on and so forth. that can
• 15:03
  Speaker 4: open the door that that protection is not allowed in
• 15:08
  Speaker 4: the state. And they're going to say, well, you know,
• 15:10
  Speaker 4: you have an income tax filing requirement. So again, a
• 15:14
  Speaker 4: lot of compounding pharmacies just don't think about this stuff.
• 15:17
  Speaker 4: When they do think about it is when they're looking
• 15:19
  Speaker 4: to sell, because guess what? A buyer is going to
• 15:22
  Speaker 4: ask every one of these questions. And if you want
• 15:25
  Speaker 4: to maximize your price, if you want to maximize the value,
• 15:28
  Speaker 4: if you want to make it a clean exit, a
• 15:30
  Speaker 4: quick exit, These things you've got to have buttoned up,
• 15:33
  Speaker 4: and you've got to have it buttoned up tight because
• 15:35
  Speaker 4: any quality of earnings, any type of financial review is
• 15:38
  Speaker 4: going to go diving into these things, not to mention
• 15:41
  Speaker 4: the potential audits that do come out of these things. Now,
• 15:46
  Speaker 4: and I'll cut it off after this, but if you
• 15:49
  Speaker 4: have physical nexus in these states, inventory, sales reps– you're
• 15:56
  Speaker 4: actually delivering in these states with a vehicle of yours,
• 16:02
  Speaker 4: you're going to fall into a nexus, most likely a
• 16:05
  Speaker 4: nexus requirement issue, and you better be filing in these states.
• 16:11
  Speaker 1: Scott, what I'm really hearing is that state, when you're
• 16:14
  Speaker 1: looking at the different states that you're working with, the
• 16:16
  Speaker 1: state Nexus tax is very different from necessarily the income
• 16:21
  Speaker 1: tax filings that you need to do. Those are two
• 16:23
  Speaker 1: very separate things that need to be considered. Whether your
• 16:26
  Speaker 1: shipping into the state can impact or if you have
• 16:29
  Speaker 1: employees in that state or if you are possibly doing
• 16:32
  Speaker 1: some sort of counseling or administration of medications can all
• 16:34
  Speaker 1: impact your state implications.
• 16:36
  Speaker 4: Oh, it absolutely can. Yeah, because sales tax has its
• 16:39
  Speaker 4: own rules. So there's sales tax nexus. There's income tax
• 16:42
  Speaker 4: nexus has its own rules and thresholds for a state.
• 16:46
  Speaker 4: which could be completely different in the same state. And
• 16:49
  Speaker 4: then in some states like Washington, Oregon, Ohio, you may
• 16:54
  Speaker 4: have a gross receipt tax or a B & O tax.
• 16:57
  Speaker 4: That is clearly not protected under Public Law 86-272. So
• 17:03
  Speaker 4: if you're doing any activity in those states, you better
• 17:06
  Speaker 4: be checking to make sure you're compliant because there is
• 17:09
  Speaker 4: no like, hey, I'm protected, I don't need to file
• 17:12
  Speaker 4: here type argument. Um, in general, now there are thresholds
• 17:16
  Speaker 4: and things like that. Um, but you, you know, you
• 17:19
  Speaker 4: need to be aware of that. So, and again, if
• 17:21
  Speaker 4: you've got assets, if you got a property, if you
• 17:25
  Speaker 4: got employees, if you got sales reps going into these States,
• 17:29
  Speaker 4: if you're doing trade shows, um, you know, things like
• 17:33
  Speaker 4: that in these States, you, you know, that factors into
• 17:37
  Speaker 4: those filing requirements. Yep.
• 17:40
  Speaker 1: And you briefly mentioned audits. Are you seeing an increase
• 17:43
  Speaker 1: in state audit activity across.
• 17:44
  Speaker 3: Income, tax, nexus? And if so, what exposure.
• 17:48
  Speaker 1: Could pharmacies face if they have been doing business in
• 17:51
  Speaker 1: a state but haven't been filing the required returns?
• 17:55
  Speaker 4: I wouldn't say you've seen an increase. I do expect
• 17:58
  Speaker 4: an increase in here with the technology that's getting better
• 18:02
  Speaker 4: and these states adopting this technology to pinpoint the activity
• 18:08
  Speaker 4: that's going on in their state. But there are audits.
• 18:11
  Speaker 4: I mean, we do see sales tax audits. We see
• 18:14
  Speaker 4: franchise tax audits. We see, just before I got on
• 18:18
  Speaker 4: a call here, I had a correspondence issue for a
• 18:21
  Speaker 4: compounder in Texas. But they're located in Colorado. So they're real.
• 18:28
  Speaker 4: They happen. They pop up. Now, what you don't want
• 18:33
  Speaker 4: to do is be in a position where where you
• 18:38
  Speaker 4: should have been filing for a very long time and haven't,
• 18:40
  Speaker 4: and then those states can, you know, open a can
• 18:43
  Speaker 4: of worms and then you're kind of, you know, you
• 18:46
  Speaker 4: could be looking at back penalties and interest for failing
• 18:49
  Speaker 4: to file tax returns and whatnot. And, again, even if
• 18:53
  Speaker 4: these– for sales tax purposes, even if these prescriptions are non-taxable,
• 18:58
  Speaker 4: there's still a filing requirement if you are required to file.
• 19:02
  Speaker 4: I mean, I've got a client where we file, I
• 19:04
  Speaker 4: don't know, 10 states because they meet the thresholds. But
• 19:07
  Speaker 4: there's no tax we're paying, but it's a filing requirement,
• 19:10
  Speaker 4: and we're checking those boxes. And those are what you
• 19:14
  Speaker 4: need to do. So, you know, I fully expect that–
• 19:20
  Speaker 4: In my world, the CPA world here, we are planning,
• 19:26
  Speaker 4: the whole industry where I'm in, are planning on more
• 19:29
  Speaker 4: state activity in this area in the next five, 10
• 19:32
  Speaker 4: years for sure.
• 19:35
  Speaker 1: So as you kind of mentioned, there is that concern
• 19:37
  Speaker 1: when it comes to wanting to sell your pharmacy and what.
• 19:40
  Speaker 3: That's going to look like.
• 19:42
  Speaker 1: What should pharmacists consider in being proactive now, even though
• 19:47
  Speaker 1: they may not be selling at this moment, but maybe
• 19:49
  Speaker 1: in the future, they want to sell, what should they
• 19:51
  Speaker 1: be proactive now so that when it does come time
• 19:53
  Speaker 1: to sell, they are prepared and they don't have all
• 19:56
  Speaker 1: these back taxes or things that they haven't filed for years?
• 19:59
  Speaker 4: Yeah, so if you're not multi-state and you're getting into it,
• 20:02
  Speaker 4: just know, you know, track where these prescriptions are going.
• 20:09
  Speaker 4: understand the rules, the filing requirements for that state, and
• 20:14
  Speaker 4: monitor your activity in that state from a number of transactions,
• 20:18
  Speaker 4: a number of prescriptions. Some of them have a number
• 20:20
  Speaker 4: of sales, like 200 transactions, and also a dollar volume.
• 20:26
  Speaker 4: Some of them say 200 transactions or $ 50, 000 in sales.
• 20:31
  Speaker 4: And then once you hit that, you've got to start filing. Um,
• 20:36
  Speaker 4: and so monitoring that, and then from an income tax
• 20:39
  Speaker 4: nexus standpoint, doing the same thing. Now I will mention,
• 20:44
  Speaker 4: you know, this is a big compliance issue. It's, um,
• 20:49
  Speaker 4: it is, it's a big compliance issue. It is not
• 20:53
  Speaker 4: easy tracking all of this. That's why I say it is,
• 20:56
  Speaker 4: it is costly to get into a multi-state situation and
• 21:00
  Speaker 4: do it correctly. Um, Now, from an income tax perspective,
• 21:04
  Speaker 4: it may be beneficial, as a matter of fact, because
• 21:07
  Speaker 4: you may be in a state that says, hey, if
• 21:10
  Speaker 4: you've got sales in Florida, I'm not counting. Our home
• 21:15
  Speaker 4: state's not counting those as taxable sales from an income
• 21:19
  Speaker 4: tax perspective. So if I'm in North Carolina and I
• 21:23
  Speaker 4: ship to Florida a million dollars of sales, North Carolina
• 21:27
  Speaker 4: may not tax. I'm not throwing out. I'm just using
• 21:31
  Speaker 4: these as examples. But North Carolina, in this example, may
• 21:34
  Speaker 4: not tax that million dollars of sales. Well, Florida's not
• 21:38
  Speaker 4: taxing it either because, A, it doesn't have a state tax. But, A,
• 21:41
  Speaker 4: maybe you don't meet the thresholds that it's a taxable situation.
• 21:46
  Speaker 4: Guess what? That million dollars is not getting taxed anywhere.
• 21:49
  Speaker 4: So it can be beneficial with the right tax. analysis,
• 21:55
  Speaker 4: the right planning, the right strategy here to get compliant.
• 22:00
  Speaker 4: It can save you state tax monies here, depending on
• 22:04
  Speaker 4: which state you're in and all of that. So oftentimes,
• 22:08
  Speaker 4: it can actually be pretty beneficial from an income tax.
• 22:11
  Speaker 4: One other thing that I'll add here, and again, being
• 22:14
  Speaker 4: proactive is just tracking and keeping up with it and
• 22:17
  Speaker 4: knowing the rules every month. You got to do it
• 22:19
  Speaker 4: every month. But one thing I'll also mention, which is common,
• 22:23
  Speaker 4: is the pet prescriptions. Now, you want to talk about
• 22:27
  Speaker 4: a can of worms, I'll tell you, now that is
• 22:29
  Speaker 4: a can of worms. If you're doing pet medication multi-state,
• 22:32
  Speaker 4: go ahead and buckle up, because every state, every county,
• 22:37
  Speaker 4: everything will tell you that it may be taxable, it
• 22:42
  Speaker 4: may not be taxable. Livestock taxable, it may not be taxable.
• 22:45
  Speaker 4: So you have to literally go state by state, dig
• 22:49
  Speaker 4: into the rules and regulations, understand is this horse prescription
• 22:53
  Speaker 4: going to be taxable in Utah or this pet medication
• 22:56
  Speaker 4: is going to be taxable here or not. So I'll
• 22:59
  Speaker 4: tell you, pet medication is a big, big compliance issue
• 23:04
  Speaker 4: that you need to be aware of. And again, this
• 23:07
  Speaker 4: all comes to head either you get audited or you're
• 23:11
  Speaker 4: looking to sell because when you're looking to sell, these
• 23:13
  Speaker 4: questions are one of the first things that are going
• 23:15
  Speaker 4: to be asked.
• 23:17
  Speaker 1: And Scott, one thing that you mentioned is making sure
• 23:20
  Speaker 1: that you're doing this on a monthly basis so that
• 23:22
  Speaker 1: you're keeping up with what's happening as state taxes may change.
• 23:25
  Speaker 3: Their laws and things like that.
• 23:27
  Speaker 1: I know from a personal standpoint, I've been told to
• 23:29
  Speaker 1: keep my taxes anywhere from five to seven years with records.
• 23:33
  Speaker 3: Do you have a.
• 23:33
  Speaker 1: Certain year requirement that most states would have for keeping
• 23:36
  Speaker 1: your records?
• 23:37
  Speaker 4: Well, if you haven't been filing in a state and
• 23:40
  Speaker 4: you're required to, then there's no statute of limitations there
• 23:43
  Speaker 4: because you haven't started it. And so they can go
• 23:46
  Speaker 4: back as far as they want. If you've started filing,
• 23:50
  Speaker 4: you know, the normal statute of limitations is three years. But,
• 23:54
  Speaker 4: you know, I would I'd keep at least seven years
• 23:58
  Speaker 4: just to kind of be on the safe side here.
• 24:01
  Speaker 4: for sure in terms of that. But if you come
• 24:04
  Speaker 4: to find out that, hey, we should have been filing
• 24:07
  Speaker 4: in this state all along, we haven't, there are, the
• 24:11
  Speaker 4: states do have a, most states have an avenue where
• 24:15
  Speaker 4: you can call a voluntary disclosure type thing with the state.
• 24:22
  Speaker 4: And you just come to the state and say, hey, state,
• 24:24
  Speaker 4: we haven't been filing like we should have. We want
• 24:28
  Speaker 4: to get compliant with you Um, and here's, you know,
• 24:33
  Speaker 4: all the data and you can fill out their disclosure form. And, um,
• 24:38
  Speaker 4: usually states will be, we'll work with you or whatever, um, to,
• 24:42
  Speaker 4: to get you compliant. If you come out voluntarily and
• 24:46
  Speaker 4: do that.
• 24:47
  Speaker 3: That's very helpful.
• 24:48
  Speaker 1: Kind of shifting gears here for compounding pharmacy specifically, how
• 24:52
  Speaker 1: can tax treatment differ between compounded medications itself and and
• 24:57
  Speaker 1: the ingredients, supplies, or devices used that help us in
• 25:01
  Speaker 1: preparing and dispensing medications.
• 25:03
  Speaker 4: Yeah. So, see, I mean, now we're getting into the— now
• 25:06
  Speaker 4: you're getting into it. So, you know, some states will
• 25:09
  Speaker 4: say a compounding medication is a prescription, and in our
• 25:13
  Speaker 4: state it's non-taxable. Other states could say, hey, the ingredient
• 25:18
  Speaker 4: cost is non-taxable, but, you know, the file or whatever
• 25:23
  Speaker 4: else could be taxable. So that's a state-by-state thing you've
• 25:28
  Speaker 4: got to look in. What do these states tax or
• 25:32
  Speaker 4: not tax? What do they consider non-taxable? Do they consider
• 25:37
  Speaker 4: the entire prescription product or is it just a part
• 25:41
  Speaker 4: of it? And so, I mean, like I said, you
• 25:46
  Speaker 4: can see where this can really open a can of worms,
• 25:48
  Speaker 4: where multi-state shipping is not an easy task, an easy
• 25:54
  Speaker 4: compliance issue.
• 25:55
  Speaker 2: By any means.
• 25:56
  Speaker 3: I think you've hit on.
• 25:57
  Speaker 1: A lot of the questions that I had kind of
• 25:59
  Speaker 1: one more follow-up. Are there any unique considerations for 503A
• 26:03
  Speaker 1: pharmacies versus 503B outsourcing facilities, particularly when they're selling to hospitals, clinics,
• 26:09
  Speaker 1: or other pharmacies?
• 26:11
  Speaker 4: There could be. Um, but again, it's going to be
• 26:16
  Speaker 4: a state by state rule here on terms of what
• 26:19
  Speaker 4: your state is going to classify as a taxable transit
• 26:22
  Speaker 4: action or not. Um, but there certainly could be.
• 26:26
  Speaker 1: And then I just want to circle back to this again,
• 26:28
  Speaker 1: because I think this is a very important part of
• 26:31
  Speaker 1: looking into what pharmacies need to be aware of when
• 26:33
  Speaker 1: it comes to state or income.
• 26:36
  Speaker 3: Taxes and whatnot.
• 26:37
  Speaker 1: For a pharmacy that's trying to be compliant with state
• 26:40
  Speaker 1: and income taxes, there are multiple different states that they're
• 26:43
  Speaker 1: maybe in and they're working for.
• 26:45
  Speaker 3: Where should they start?
• 26:46
  Speaker 1: What records, processes, or even just regular reviews would you
• 26:51
  Speaker 1: recommend a pharmacy take when they are multi-state?
• 26:55
  Speaker 4: Well, I would, A, find out which states you're shipping to.
• 27:00
  Speaker 4: You know, maybe go back to the last year and
• 27:02
  Speaker 4: start there. Where did we ship last year? What type
• 27:06
  Speaker 4: of volume were we shipping? How many transactions did we
• 27:09
  Speaker 4: do in these states? What's the dollar volume in these
• 27:13
  Speaker 4: states that we ship to? You know, if you start
• 27:16
  Speaker 4: getting into some $ 50, 000, $ 100, 000 plus in dollar volume in
• 27:22
  Speaker 4: these states, it should really grab your attention. And especially
• 27:27
  Speaker 4: if you're in, like I said, Ohio, Oregon, and Washington,
• 27:31
  Speaker 4: those states are a little different in terms of their
• 27:34
  Speaker 4: tax structure that is not protected under the public law, 86272.
• 27:39
  Speaker 4: But I can tell you, so you need to work
• 27:44
  Speaker 4: with your CPA once you have your list of states
• 27:48
  Speaker 4: that you're shipping in, the dollar volume, the number of transactions.
• 27:54
  Speaker 4: Get with your CPA and discuss it and discuss what
• 27:56
  Speaker 4: type of activity you're doing in that state. If it's
• 28:00
  Speaker 4: just shipping prescriptions, you know, I guess there's an argument
• 28:06
  Speaker 4: for 86272. But, you know, if a state wants to
• 28:11
  Speaker 4: argue against you on that protection, you know, you're going
• 28:15
  Speaker 4: to have to really prove otherwise because that's a hard one.
• 28:22
  Speaker 4: for the taxpayer to, to argue, um, when, when under audit. Um,
• 28:28
  Speaker 4: so you just need to make sure you have your,
• 28:30
  Speaker 4: your due diligence done for that state, for that protection, um,
• 28:35
  Speaker 4: in your file. Um, so that when, and if, you know,
• 28:39
  Speaker 4: a state, um, asks, you have that backup. Now, some
• 28:43
  Speaker 4: states do have a nexus questionnaire. You can go to
• 28:46
  Speaker 4: a state and say, you can go to a state
• 28:49
  Speaker 4: and say, Hey, um, I want to submit a nexus
• 28:53
  Speaker 4: analysis to you. They have forms for that. And you
• 28:57
  Speaker 4: fill it out, tell the state what you're doing, and
• 28:59
  Speaker 4: they will respond, you know, what type of nexus requirements
• 29:05
  Speaker 4: you may have. So sometimes that's prudent to do. That
• 29:09
  Speaker 4: may be very prudent to do if you're a new
• 29:11
  Speaker 4: pharmacy starting out in multi-state. You know, hey, state, I'm
• 29:14
  Speaker 4: looking to do this. And you can submit that form
• 29:17
  Speaker 4: and they'll tell you. Now, I can tell you what,
• 29:19
  Speaker 4: if you even breathe in California, you better be filing
• 29:22
  Speaker 4: a franchise tax return. That's just the way it is
• 29:27
  Speaker 4: in California. If you do a dollar of sales in California,
• 29:32
  Speaker 4: they want their $ 800 franchise tax fee.
• 29:35
  Speaker 1: That's really good to know, too, that there is that
• 29:38
  Speaker 1: difference between income tax and sales tax. There's franchise tax.
• 29:41
  Speaker 1: And sometimes it's challenging to know all the ones that
• 29:44
  Speaker 1: you need to.
• 29:44
  Speaker 4: It is. It is a very, it's a tricky area.
• 29:47
  Speaker 4: And I'll tell you, we're a team of like 60
• 29:50
  Speaker 4: people here just doing pharmacy and And, you know, we've
• 29:54
  Speaker 4: got a team kind of dedicated to this area. And,
• 29:56
  Speaker 4: you know, you're learning something new every day because you're
• 29:59
  Speaker 4: working in new states, new areas, new counties. You know,
• 30:01
  Speaker 4: we didn't even talk about the counties or the local municipalities.
• 30:05
  Speaker 4: Some of those have sales tax or type requirements. And
• 30:11
  Speaker 4: sometimes when you do have a sales tax filing requirement,
• 30:14
  Speaker 4: you have to put what county you're selling to. So,
• 30:17
  Speaker 4: you know, it can get real granular that way, too. Yeah.
• 30:21
  Speaker 4: This is not an easy thing to just kind of
• 30:25
  Speaker 4: ignore because, again, either the audits are going to come
• 30:29
  Speaker 4: show up eventually one way or another, or when you sell,
• 30:32
  Speaker 4: the questions are going to come up. And if you're
• 30:34
  Speaker 4: not checking all those boxes with the seller or with
• 30:37
  Speaker 4: a buyer, that's going to raise doubt. What else are
• 30:40
  Speaker 4: you not doing? What else is wrong here? So that's
• 30:44
  Speaker 4: not what you want to be in a position when
• 30:46
  Speaker 4: you're selling a pharmacy.
• 30:48
  Speaker 3: So what I'm hearing is get a good CPA and
• 30:50
  Speaker 3: work very closely.
• 30:51
  Speaker 4: Well, yeah, yeah. I mean, take this seriously. Don't just
• 30:53
  Speaker 4: not think about multi-state issues for sure. It's there.
• 30:56
  Speaker 2: Yeah.
• 30:57
  Speaker 3: Wonderful. And Scott, I really appreciate your time.
• 31:00
  Speaker 1: So to close out, what are two or three things
• 31:02
  Speaker 1: you want pharmacy owners to remember about state or tax
• 31:06
  Speaker 1: income in the tax indexes area as well?
• 31:09
  Speaker 4: Well, I guess my takeaways is just be aware that
• 31:12
  Speaker 4: this is an issue and that if you're doing multi-state,
• 31:15
  Speaker 4: you need to be thinking about this. That's kind of
• 31:18
  Speaker 4: the number one thing I see when I'm talking to
• 31:21
  Speaker 4: compounding pharmacies out there is, what do you mean there's
• 31:25
  Speaker 4: a sales tax issue? I'm operating in North Carolina. I
• 31:29
  Speaker 4: don't understand. So, again, just being aware that, hey, if
• 31:33
  Speaker 4: you're shipping multi-state, you have– You got all these jurisdictions
• 31:38
  Speaker 4: you're shipping to, and they have their own tax requirements.
• 31:42
  Speaker 4: And so just be aware of that. Wonderful.
• 31:45
  Speaker 3: Thank you, Scott.
• 31:45
  Speaker 1: This has been very informational, and I hope this is
• 31:48
  Speaker 1: helpful for our listeners as they start to consider what
• 31:50
  Speaker 1: taxes they need to look at and what they need
• 31:52
  Speaker 1: to retain as documents, whether they're shipping out of state
• 31:55
  Speaker 1: or looking to sell. I think this gives them a
• 31:57
  Speaker 1: lot of information to process. We appreciate your time today.
• 32:00
  Speaker 1: I hope you have a wonderful rest of your day.
• 32:02
  Speaker 4: Thank you, Sarah. Appreciate it. Thanks for having me.
• 32:04
  Speaker 1: Wow.
• 32:05
  Speaker 2: Well, thank you both. That was almost terrifying. It's so
• 32:10
  Speaker 2: obvious that if you ship out of state, you have
• 32:12
  Speaker 2: a lot to worry about. I mean, taxes on both
• 32:15
  Speaker 2: the medication and the delivery system?
• 32:18
  Speaker 4: Yikes.
• 32:18
  Speaker 2: Like Sarah said, you really need a CPA if you
• 32:21
  Speaker 2: dispense even one pill out of state, especially if it's
• 32:25
  Speaker 2: to California. It's not something you want to mess with. Scotty.
• 32:28
  Speaker 2: Scotty's one of those CPAs, so we've got a link
• 32:31
  Speaker 2: to his company in the show notes. But again, thank
• 32:34
  Speaker 2: you both. Thank you both for being here. All right,
• 32:37
  Speaker 2: that is all for this episode of Essential. Remember, if
• 32:40
  Speaker 2: you're a compounding pharmacist or a technician, or if you
• 32:43
  Speaker 2: prescribe compounded meds, APC is helping you, helping your patients.
• 32:48
  Speaker 2: I won't go through everything we do, but I will
• 32:50
  Speaker 2: say that APC is the biggest and the loudest trade
• 32:54
  Speaker 2: association for the whole compounding profession. If you're not a member,
• 32:58
  Speaker 2: you really ought to be. We are working for you.
• 33:00
  Speaker 2: We'd love to have you on board. Just head over
• 33:02
  Speaker 2: to a4pc. org and check us out. All right, Brady, hit
• 33:08
  Speaker 2: that outro music. Thanks for listening, everybody.