How Do State Tax Sales of Over-the-Counter Medication?
mapWhile most states levy general sales taxes on items that consumers purchase every day, those taxes often contain carveouts for some necessities such as rent, groceries, and medicine. Prescription drugs, for instance, are currently exempt from state sales tax in 44 of the 45 states levying such taxes (Illinois is the only exception, charging a reduced tax rate of 1 percent). Nonprescription or “over-the-counter” medicine, by contrast, is usually subject to sales tax.
The above map, based on information from the Federation of Tax Administrators, shows that just nine states and the District of Columbia exempt nonprescription drugs while one state (Illinois) taxes those drugs at a lower rate. While the ostensible purpose of these exemptions is to curb the impact of sales taxes on lower- and middle-income families, ITEP research has found that these taxes remain steeply regressive and that targeted low-income tax credits can offer a more effective approach.