Using Tax Strategies in Florida When Selling Pharmacies

By Brad MacLiver
Authorship and profile at Google


Industry Roll-Ups are where an industry’s many players are consolidated into smaller groups for economic benefits. FL pharmacy buyers participate in the pharmacy industry roll-up to achieve economies of scale in purchasing, marketing, information systems, logistics, distribution, and top management. Florida pharmacy sellers both independent owners and drug store chains must consider their current market value, recognize the narrowing of profit margins, and realize what their tax consequences will be if they sell.

When pharmacy owners sell their pharmacy in FL it is considered a capital asset. The difference between the amounts it is sold for and the amount spent to either purchase or start the Florida pharmacy is a capital gain, or a capital loss. In the U.S., all capital gains must be reported and the appropriate tax paid.

Specific tax strategies can be used to help offset the tax liabilities when selling a Florida pharmacy or a drug store. Unless a professional is handling a large number of pharmacy acquisitions, they usually do not know these federal regulations that allow for reducing the tax liability for the pharmacy owner in FL.

Many Business Brokers, CPA’s, attorneys, and other professional advisors inform their clients that selling a FL pharmacy will result in tax consequences. However, most of these professionals do not handle the buying and selling of pharmacies on a daily basis and may not realize the different aspects of structuring a pharmacy transaction allowing the reduction of the tax burden to the pharmacy owner in Florida.

There are some capital gain tax strategies that must be implemented before any obligation to sell the pharmacy in Florida. When a drug store owner is considering selling their pharmacy either now, or in the next few years, it is urgent the best course of action be considered now instead of later.

Estate planning when selling a Florida pharmacy should also be a consideration. Specific federal regulations allow an asset to be converted to an income stream, provide a tax deduction, increase asset diversification, and provide risk reduction, along with offering effective retirement and estate planning. If the pharmacy seller is nearing a retirement age, or will be working as a pharmacist for another company, instead of being an owner, then estate planning should also be considered.

As reimbursements are cut, more regulations are applied, and Florida pharmacy profits continue to slip, more independent pharmacy owners along with small and regional pharmacy chains will be considering selling their pharmacies and drug stores in Florida. Tax considerations should be a paramount part of the decision process.

Pharmacy owners should consult with a pharmacy industry expert for advice on structuring the sale of their Florida pharmacy. Someone with extensive experience in pharmacy and drug store acquisitions will have the knowledge and expertise to structure the transaction for tax considerations. Like all tax planning issues, waiting until the end of the year is not always the best strategy. Following this advice can place larger sums of money in the bank of pharmacy owners in Florida when a pharmacy is sold.

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340B Discount Programs for Florida Pharmacies

By Brad MacLiver
Authorship and profile at Google


The U.S. Department of Health and Human Services provides a program for discounted prescription drugs to qualified Federally Qualified Health Centers (FQHC), Disproportionate Share Hospitals (DSH), and other qualified entities. When these facilities don’t have their own pharmacies they are allowed to contract with a local FL pharmacy. The drug pricing program is often referred to as 340B, named after the section of the law that established the program.

Section 340B legislation was enacted to provide indigent and uninsured populations access to deeply discounted medications. Because the program was enacted to help specific populations, restrictions and regulations are in place that dictate how the program operates and who the medications can be dispensed to.

Pharmacies in Florida can be contracted by a FQHC or another 340B qualified entity to dispense and manage the medications. Patients from these entities provide increased traffic in the FL pharmacies, allowing the pharmacies an opportunity for additional front end sales in addition to the Rx sales.

Pharmacy owners who participate in 340B pharmacy programs need to manage their business consistently with customary business practices. The pharmacy should have dispensing and inventory records, billing statements, etc in the event of an audit. Business records should show that drugs purchased by customers, under the 340B Drug Pricing Program, were not diverted to people who are not part of the program.

Along with the additional record keeping a Florida pharmacy owner will need employees who understand the various state and federal rules and regulations, which govern the 340B program. The FL pharmacy will also need to have a location for the 340B inventory, which is separate from their normal inventory, or have a software management system to track the separate inventories.

A system of separating the inventory is required due to the drug inventory used for the 340B pharmacy program is owned by entity that contracted the pharmacy. Since the 340B inventory is not “owned” by the pharmacy this inventory will be treated differently for tax purposes. The pharmacy generates income from dispensing fees they are paid instead of a mark-up or profit margin on the inventory.

Since customers participating in a 340B program can only purchase the designated medications from a pharmacy contracted with a 340B entity, this allows a pharmacy to have a market niche. A contracted pharmacy servicing 340B customers benefit from additional customer traffic visiting the store.

With the current economic situation and high unemployment, many people have lost their insurance benefits. This will likely expand the need for 340B pharmacy programs and provide additional 340B customers to a participating pharmacy in Florida.

However, when a pharmacy owner is weighing the potential benefits of a 340B program, they should also consider other aspects of their business and the current market conditions of the Florida pharmacy industry. What are the FL pharmacy’s goals over the next couple years? A younger pharmacy owner with long term objectives can benefit for many years from the added customers. However, a pharmacy owner considering selling the business in the next couple years should be aware that acquisition values are based on the customer files, and many buyers are not currently willing to include 340B customer files in their offers. This results in a lower pharmacy business valuation and market price for the pharmacy despite the volume of business. Also, due to the current economic conditions there are some 340B customers who despite the deeply discounted prices, have chosen not to purchase medications. Pharmacy owners need to consider the added costs and time of 340B inventory and customer tracking and reporting, may not be offset by the fees received.

If a pharmacy owner in FL is considering the benefits of participating in a 340B program, or is considering selling the pharmacy in the couple years, it is advisable to discuss the options with a pharmacy industry expert.

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Pharmacy Transactions and Capital Gains Tax for Florida

By Brad MacLiver
Authorship and profile at Google


What is a capital asset and how would it affect you, a Florida pharmacy business owner in selling your pharmacy?

In this case, just looking at a Florida pharmacy business and not the personal possessions of the pharmacy owner, if the Florida pharmacy owner decided to sell their business, it now becomes the “capital asset.” Now the pharmacy owner would look at the variance in the price they paid for the pharmacy business (the basis), and the amount the pharmacy business sells for, whether for profit or loss, and this is considered a “capital gain or loss” by the federal government and must be reported and can be taxed.

Investment income is another way capital gains may be referred to due to its relation to real assets, such as financial resources, property, and intangible assets, such as goodwill.

With the current economic down turn, the ability to locate financing for a potential Florida pharmacy business buyer is more difficult and will be in lesser amounts if attained; and selling the pharmacy business for solid profit is extremely difficult. Couple this with the probability the seller of the Florida pharmacy business may have to reduce the asking price to allow buyers the ability to attain financing, and even more importantly, still pay a higher percentage of taxes.

How can an owner of a Florida Pharmacy business combat these issues? Believe it or not, there are some good strategies out there to do just that, but first the pharmacy owner needs a specialist in the pharmacy business industry that knows these strategies and tools. Washburn & Associates are these specialists that know the in and out of selling a Florida pharmacy for the greatest profit available, while paying the least in taxes.

One tool, but not the only one, available is the “Charitable Remainder Trust” or CRT; this used to help with the capital gains tax burden.

Now, what is a CRT? Legally described as “Split Interest Trust,” which are used due to the mix of charitable giving and personal financial positions; CRT’s may lesson the tax liabilities, enhance the pharmacy business owners finances while allowing for charitable donations.

Charitable donations create a CRT when a pharmacy owner donates from their own assets, such as money, real estate, and so forth, and are donated to this special type of Trust. This trust is put in place for a specific time period or until the donor’s death; and during this period the pharmacy owner may receive income and if desired, purchase life insurance to provide for their heirs after they are gone from this Trust’s assets, and without state tax liability. Remember, CRT’s are there for use by financial specialist in the pharmacy business industry, such as Washburn & Associates, to increase the pharmacy owner’s assets and charitable donations by understanding the federal government’s strict and complex tax laws covered in the Internal Revenue Code 644, that say when and how a CRT can be set up.

The bottom line is, the Florida pharmacy business owner, considering selling their pharmacy, wants to receive the best money for their pharmacy business. And by consulting with the pharmacy business industry specialists at Washburn & Associates the pharmacy business owner can be assured they will glean the best from their business investment.

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