The Bottom Line Pharmacy Podcast Tradeshow Series: APC, Tax Compliance, Tax Changes, Methylene Blue

Are you shipping GLPs and other compounded medications out of state? You may have a tax compliance issue.  

From constant GLP changes to multi-state taxes, we’re coming to you post-APC Owner’s Summit to bring you the 411 on the compounding world! 

In this episode of The Bottom Line Pharmacy Podcast, Scotty Sykes, CPA, CFP® and Austin Murray share key insights from the APC Summit. 

Tune in to learn more about: 

• The growing role of wellness in patient care 

• Navigating multi-state tax complexities and IRS modernization 

• What the expiration of the Tax Cuts and Jobs Act could mean for you 

Join the discussion with us!

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Full episode with members-only insights

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If you prefer to read this content, the video transcript is below:

Austin Murray: All right, Scotty Sykes. Good morning. Welcome back.  

Scotty Sykes, CPA, CFP®: Good morning. 

Austin Murray: Just got back from APC, the Alliance for Pharmacy Compounding Owners Summit in Destin, Florida. Yeah, I thought it was really interesting. They talked a lot about, first of all, if you don’t know what the APC is, if you’re a compounder out there, you got to join APC. Just a lot of compounding owners in the in the same room together. And so, you know, when you’re a part of that group, I know this past weekend, they talked about AI, automation, operational efficiencies, and just those little nuggets of knowledge are really good that you can apply into your own pharmacy. What was your take on the APC show? 

Scotty Sykes, CPA, CFP®: So yeah, the APC is the premier kind of conference, if you will, for the compounders. And it was great to be there, it was our first year there. Obviously compounding has been hot this year with the GLPs. And so, we have a lot of clients in that space. And so, the conference there was I think they said it was the biggest conference they’ve had. 180 attendees or so, which is pretty significant for APC. And a lot of takeaways for me, Austin, one being a lot of discussions on what next after GLP and, a lot of that kind of some chatter going on in the room was the methylene blue as being a opportunity. Also chatter out there was the fact that the GLPs have put compounders on the map in the country and how their value and their expertise for patient care is really able to shine. 

Austin Murray: Yeah. 

Scotty Sykes, CPA, CFP®: And which ultimately provides opportunities for these compounders into the future. So I think that was a very good positive takeaway opportunity as you look forward in the space here for compounders. As you mentioned, there was a lot of chatter about the workflow efficiencies, and some AI tips in there. AI is still, people are still trying to figure out where and how that’s going to fit into the flow of things as it becomes more mainstream, and more people get more used to it. But those I guess were my main takeaways. Awesome. 

Austin Murray: Yeah, a lot of AI platforms. I remember one of the guys up there that talked about it, he had like 30 different like AI things that you could use. And it was just like, let’s just stick, let’s just pick one or two of these and start there. And then we’ll figure it out as we go.  

Scotty Sykes, CPA, CFP®: Yeah. There’s specific AI for things. So you could have an AI for USP-800. Yeah. 

Austin Murray: Right, right. Yeah, yeah. You have AI for your AI. I mean, it was just, it was ridiculous. It’s like, AI is supposed to help make these things easier. When you’ve got 30 different options, you’ve got 30 different AIs in your pharmacy. It’s a lot. But I did think the show was interesting. I heard a lot of chatter about Methylene Blue. Kind of tell me a little bit more about your take on, on Methylene Blue. I know T.W. Taylor’s talked about Methylene Blue a lot. Trying to get a hold of that. 

Scotty Sykes, CPA, CFP®: Yeah. Yeah, methylene blue makes your pee turn blue or something. He’s got a little saying there. He’s been selling that for a little bit now. I don’t really know too much about it. I know that from what I’m hearing, they’re charging about 120 for that. You gotta have a prescription for it. it’s, I believe, I believe it’s compounded, and it is, the margins are a little better than 50%. So we’re not talking about a GLP replacement here, but something that will keep some cash, some good margin cash coming into the pharmacy. 

Austin Murray: Something to layer on inside of your pharmacy. 

Scotty Sykes, CPA, CFP®: Right, and you know, this is kind of, I guess, it’s kind of going towards that theme of wellness and taking the best care of yourself and these patients that are looking for wellness opportunities, GLP-1, know, losing weight, weight management, all that stuff. Methylene blue has its own wellness properties to it, I think, is the kind of the big thing here. It’s centered around that wellness and wellness isn’t going away, you know, more and more patients want to be well. They don’t want to just react to being sick. They want to be well. So those are those opportunities are certainly more and more. 

Austin Murray: Yeah, and especially your younger patients. I know a lot of the people that are in my age group, like we really prioritize wellness. So, lot of your younger patients are, they prioritize wellness and then not only that, they will pay a premium to make sure that they’ve got like a good wellness plan in place, especially if it’s one that’s targeted to their goal.  

Scotty Sykes, CPA, CFP®: Exactly. 

Austin Murray: So, you know, if you’re offering a wellness plan of some kind. You’ve got a younger demographic in your area. That’s something to kind of lean into. I want to shift gears a little bit because there’s some tax stuff that is, there’s a lot of chatter out there about tax changes.  

Scotty Sykes, CPA, CFP®: There is.  

Austin Murray: What’s going to happen? Is something going to happen? What’s going to be extended? What’s going to be put on the horizon? But I’m not a tax expert. So, what’s your take on the tax stuff that’s coming? 

Scotty Sykes, CPA, CFP®: Yeah, So the tax stuff, there is a lot of chatter out there. Tax, IRS is getting cut, they’re getting DOGED’d, the tax law, Tax Cuts and Jobs Act is expiring this year, or is set to expire, the IRS is gonna be abolished. So, you know, those are kind of the three big things. A, they’ve been talking about, you know, cutting the IRS altogether. Since the time the IRS was started, it’s never happened. So, I probably wouldn’t bet on that. And maybe I’ll just, you know, maybe I’ll go back to school to be a pharmacist. I don’t know if that happens, but I’m kidding. I would never be able to do that job. I’m not a chemistry guy, the other thing is with the IRS losing some staff with the DOGE cuts, the tax community has not been experiencing any setback there. In fact, the IRS has computer systems going back to the 70s. So, there’s opportunity, there is ample opportunity to clean house at the IRS. So this is certainly, you have to say this is certainly a good thing with what they’re doing there to clean it up and get modernized systems in there, which I’m thinking, you know, get an Elon Musk guy in there, he’s not going to settle for computer systems from the 70s. 

Austin Murray: Yeah. Yeah. 

Scotty Sykes, CPA, CFP®: So there’s going to be good changes there. So I’m encouraged by that. And then the other thing is the expiration of the Tax Cuts and Jobs Act. It’s set to expire. It is not going to expire. There’s going to be a tax bill this year. They haven’t dropped anything yet. There’s not really been much chatter about it. But I know what the AICPA has been, our governing body has been pushing is to continue the qualified business income deduction, which I still see, in fact, I saw a pharmacy today that is still not taking advantage of that. It was not our client. Yeah, it was a different client, or it was a pharmacist client of ours who has another ownership, small ownership stake in a pharmacy and someone else does that tax return. And they had that pharmacy as a SSTB, specified service trade or business. And it’s just, it’s most likely not right. So still seeing that. Pharmacies are eligible in general for this QBI deduction. The other thing is they want to fix section 174 costs. You know, we were just mentioning about compounding Austin and a lot of compounders take advantage of the Research and Development Tax Credit. It’s hard to do because it requires contemporaneous documentation and you really have to have about $150,000 or $200,000 of R&D expenses to really make it worthwhile. And a lot of pharmacies don’t have that and they don’t have the contemporaneous documentation. So you got to jump those hurdles to qualify or to get in to really get the benefit of the R&D tax credit. But it is an option, certainly is an option. And I would be exploring that option if I was compounding or doing any R&D type work. The other side of the R&D tax credit is the Section 174 and that’s where those are R&D expenses. And whether you take the tax credit or not, if you’re doing any research and development and you’ve got expenses in those areas, you have to pretty much move those expenses off the profit and loss, move it out of expenses and put it on your balance sheet. So, what does that do? That increases your income because you’re moving those expenses off the profit and loss. It is in the law right now, Section 174, to do that if you have R&D expenses. This has, again, totally separate from the R&D credit. And so, the AICPA wants to, and Congress has bipartisan support, to retroactively fix that in tax law and remove it going forward because it does decrease competitiveness in the United States when you’re having to treat expenses like that for these businesses who are doing R&D work. For the R&D in a pharmacy you’re really talking about the formulas. You know, changing formulas and creating new formulas, things like that is where that R&D would really come into play. But there’s some other qualifying activities to consider as well. 

Austin Murray: Yeah, that’s interesting you bring that up because a lot of people will, they want to take advantage of the R&D credit, but they don’t know, a lot of them don’t know about the other side of that, which is the R&D expenses and kind of like how those two play in together. I know you’ve been talking about the R&D expenses and R&D credits for a while. So that’s really interesting that you brought that up. There’s another thing at the APC show that’s very common among compounders from a tax perspective, and that’s multi-state taxes. We actually have a webinar coming up with Atrium24 where you’re going to be talking about multi-state tax issues. But a lot of compounders are shipping out of state and there’s multi-state tax complexities there. Kind of break that down a little bit. 

Scotty Sykes, CPA, CFP®: Yeah, if you’re doing any…If you’re selling anything to other states, you need to be aware that these other states may say that you have some nexus to that state or connection to that state. And that state may say, well you need to file a sales tax return and pay sales tax perhaps, and or you have an income tax responsibility and need to file income tax returns. So, if you’re doing any sales or shipments or anything like that in other states outside your home state, you really need to be aware that you could have some compliance issues with these states and perhaps tax issues with these states. And…I know a lot of compounders, especially GLPs or maybe pet meds or certain pet meds, ship out of state and sell out of state. So, if that’s the case, you really have to understand what you’re doing, how you’re getting those sales from other states, how you are delivering that product to those states, and really get into some questions and details about how much sales you’re having in those states, how many transactions are in those states? You take all that data, and we have a questionnaire that we do, and it helps us determine whether you have any sales or income tax nexus now, it’s certainly a gray area because states will say…The sales tax is not necessarily a gray area. There’s usually some clear thresholds on whether you need to file or not. But the income tax on the other end is very gray because a lot of states will say, if you’re doing business in our state, you got to file. So, there’s some things, protections, federal law that you can potentially take advantage of to protect you from having to file an income tax requirement, but you have got to do your due diligence. And this is certainly a tricky area you have got to pay attention to. 

Austin Murray: Yeah, and we see that a lot also with home infusion owners where a lot of times they’ll live in a state, for example, maybe they live in like Tennessee, but they’ll have like an infusion center or an infusion pharmacy in like North Carolina or something like that. So, they’re living in one area, but they’ve got that infusion pharmacy in another state. So, navigating the complexities of that is very common in the infusion space as well.