Can I get a prescription for these diapers? – Wacky Tax Wednesday
Some sales of diapers and incontinence underpads are exempt in North Carolina as of October 1, 2019. But put down your diaper bags, parents of little ones: The exemption probably doesn’t benefit you.
The new exemption in North Carolina applies only to diapers and incontinence underpads “sold on prescription by an enrolled State Medicaid/Health Choice provider for use by beneficiaries of the State Medicaid program when the provider is reimbursed by the State Medicaid program or a Medicaid managed care organization.”
That’s a mouthful, but retailers who sell these products may want to memorize it. Diapers and incontinence underpads sold to consumers without such a prescription remain subject to North Carolina state and local sales and use tax.
The exemption is due to the enactment of Senate Bill 523 and described in this North Carolina Department of Revenue Important Notice (published more than two weeks after the exemption took effect). Both the bill and notice define “diaper” as “an absorbent garment worn by humans who are incapable of, or have difficulty, controlling their bladder or bowel movements.” “Incontinence underpad” is defined as “an absorbent product, not worn on the body, designed to protect furniture or other tangible personal property from soiling or damage due to human incontinence.”
It’s been years since my children wore diapers, but when they did, they certainly seemed like “humans … incapable of … controlling their bladder or bowel movements.” And I sure appreciated the pads that protected our furniture from diaper “blowouts.”
Since there’s no mention of infants or toddlers or an age restriction in SB 523 or the department notice, some consumers and retailers may not realize diapers and pads purchased for their use can’t qualify for the exemption. After all, a growing number of states are opting to exempt necessities like diapers and feminine hygiene products these days.
Yet North Carolina’s Medicaid program only covers incontinence briefs and diapers for persons aged three or older. This essential fact is highlighted on page 10 of the legislature’s bill summary notes.
What’s Streamlined Sales Tax got to do with it?
The bill summary also notes that North Carolina couldn’t exempt diapers prior to 2017 unless it also exempted “clothing.”
North Carolina is a member of the Streamlined Sales and Use Tax Agreement (SSUTA or SST), which was created to help simplify sales and use tax compliance. One way the 24 SST member states do that is by adhering to uniform tax base definitions and rules. The SST definition of “clothing” includes “diapers, children and adult, including disposable diapers.”
Diapers once had to be treated like other clothing in SST member states, at least for sales and use tax purposes. However, on October 10, 2017, the SST State and Local Advisory Council unanimously voted to allow states to treat diapers differently from clothing after North Dakota, working on behalf of the National Diaper Bank Network, lobbied for that change.
The Streamlined Sales and Use Tax Agreement still lists diapers as clothing. However, it specifies that a member state may exclude “diapers, children and adult, including disposable diapers” from the definition of clothing as of October 11, 2017. States “may limit the excluding to children’s diapers or adult diapers” if they so choose.
North Carolina could, therefore, exempt children’s diapers from sales tax. At this point, however, diapers for children and infants remain taxable in the Tar Heel State. (Fun fact: no other SST member state has changed the taxability of diapers since the policy change took effect.)
One final housekeeping note: Enrolled State Medicaid/Health Choice providers that do prescribe diapers and incontinence pads to patients must maintain records substantiating that they’re only for use by beneficiaries of the State Medicaid program. These records must also prove those sales were reimbursed by the State Medicaid program or a Medicaid managed care organization.
The 2021 sales tax changes report: midyear update
Your guide to navigating the complicated world of tax compliance and preparing for the future
Stay up to date
Sign up for our free newsletter and stay up to date with the latest tax news.