Are COVID-19 tests taxable?
by November 29, 2023
Please note: This blog was originally published in 2020. It’s since been updated for accuracy and comprehensiveness.
Looking back from the onset of the coronavirus pandemic until today, it’s staggering to note how the battle against the virus has changed. As we learn more about how the virus spreads, we’ve evolved the guidance on mask types, indoor vs outdoor activities, and what symptoms to watch out for.
The methods in which people are tested for the virus have also changed. Instead of waiting in a line to be tested in a parking lot of a drug store, you can test yourself by purchasing an at-home test kit. Many states have tried to ease the burden of these purchases on consumers, and in some states, this extends to creating sales and use tax exemptions on purchases like COVID-19 tests. But not every state has decided to exempt at-home testing kits from sales tax.
Are at-home COVID-19 tests subject to sales tax?
As with most things sales tax related, it depends on the state. Some areas of the US, like the District of Columbia, have passed legislation exempting COVID-19 diagnostic test kits. In other areas, like Pennsylvania, similar legislation has been introduced. We expect to see more states exempt these test kits going forward, removing a barrier for consumers trying to stop the spread of the virus.
Not all states are taking this stance though. The state of New Jersey has decided at-home tests are taxable since the testing kits contain both a taxable and non-taxable item; under existing sales tax law, those types of purchases are taxable. However, there is still an option for consumers to receive financial help. The IRS announced that the cost of COVID-19 home testing is an eligible medical expense that can be reimbursed under flexible health spending arrangements, a benefit part of many health plans.
When the pandemic first hit the US, states were quick to release sales tax relief measures that benefited retailers. However, it’s important to note that many of these measures have expired, and it is the responsibility of the retailer to ensure they are aware of these expiration dates. For example, Virginia’s sales tax exemption for personal protective equipment expired in March of 2022, and requires businesses to begin paying sales tax on these purchases again. For information specific to your state, check out our state sales tax guides.
Stay sales tax compliant with TaxJar’s API
Don’t let changing legislation hinder your business. As these changes come quickly, retailers have to make changes fast to avoid overcharging or undercharging sales tax. For example, a Walgreens in New York (where COVID-19 test kits are tax exempt) mistakenly charged sales tax on the purchase of a COVID-19 test, and had to go back and refund the customer for the additional sales tax charges. The representative from Walgreens stated, “With the urgency to get these new COVID at-home tests available in stores and being a new product with no taxability guidance issued from New York State, retailers were left to figure out taxability. As more information and guidance becomes available, we adjust our registers accordingly to be in compliance with the state and local laws.” It’s crucial for retailers to move with urgency and implement new changes when they come up.
That’s where TaxJar can help. The TaxJar API will ensure you are always collecting sales tax when you should, and exempting it when you shouldn’t. Our extensive product tax code library includes categorization for at-home testing, and we stay on top of legislation to ensure we are always keeping you compliant.
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