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Medical Industry: Sales & Use Tax Multi-State Review - March 2016

author photo of James R. Dumler

Periodically, I’m going to pass along updates on various sales and use tax issues related to the medical industry. These updates will include changes to laws, recent court cases, administrative level decisions and the like. I will keep my eye out for issues that I feel are important and do my best to review all 45 jurisdictions moving forward. Here is the first of these updates.

  • Rhode Island- Exempt Medical Devices- Prosthetic Device: the Rhode Island Department of Revenue (RI-DOR) determined that a device intended to be implanted in the taxpayer’s (male) urinary tract to correct a physical deformity (enlarged prostate) fell within the statutory definition of an exempt medical device/apparatus.
    • RI-DOR defines prosthetic devices as replacement, corrective, or supportive devices, including repair and replacement parts, worn on or in the body to: artificially replace a missing portion of the body; prevent or correct a physical deformity or malfunction; or support a weak or deformed portion of the body. As such, they found that the taxpayer's medical device qualified as a prosthetic device because it was intended to be implanted in the male urinary tract to correct a physical deformity (enlarged prostate) and/or support a deformed portion of the body. The taxpayer's product qualified for the sales and use tax exemption because it is a prosthetic device that must be prescribed by a physician. (Rhode Island Ruling Request No. 2016-01, , 01/14/2016.)
  • Georgia- Durable Medical Equipment- Cancer Therapy System: the Georgia Department of Revenue (GDOR) determined that a taxpayer’s leases of cancer therapy systems to patients are not subject to Georgia sales and use tax because the leased equipment and related supplies are durable medical equipment leased pursuant to prescriptions. Since the exemption for durable medical equipment also applies to repair and replacement parts considered to be part of the leased equipment, the sale of the supplies is also exempt from Georgia sales and use tax when the sale is to a patient to whom a prescription for the therapy has been issued and who is in fact leasing the main equipment. (No. LR SUT-2014-17, , 11/10/2014 , released February 2016.)
  • Colorado- Medical Marijuana- Schedule of Fees: the Colorado Department of Revenue adopted emergency regulations Colo. Code Regs. 212-1:M 207 through Colo. Code Regs. 212-1:M 210 to clarify its schedules of fees for medical marijuana business applicants. These regulations cover application fees, licensing fees, and renewal fees, as well as taxpayers who convert from a medical dispensing facility to a retail facility. The schedule of application fees are as follows: Type 1 Center (1-300 patients) - $6,000; Type 2 Center (301-500 patients) - $10,000; Type 3 Center (501 or more patients) - $14,000. In addition, the Vendor Registration Application Fee is $300; the Medical Marijuana-Infused Products Manufacturer Application Fee is $1,000; and the Optional Premises Cultivation Location Application Fee is $1,000. The regulations went into effect on November 30, 2015.
  • Missouri- Sales of Dietary Supplements: a taxpayer’s sales of dietary supplements are not exempt under Mo. Rev. Stat. § 144.030.2(19) because the products sold are not prescribed, nor are they subject to the over-the-counter product labeling requirement in 21 CFR 201.66. However, dietary supplements that contain a nutritional facts label as provided by the Food and Drug Administration are subject to Missouri's reduced food sales tax rate under Mo. Rev. Stat. § 144.014.1.
    • Of note, sales of dietary supplements that contain only a supplemental facts label do not qualify for Missouri's reduced food sales or use tax rate. (Missouri Private Letter Ruling No. LR 7673, 12/08/2015.)
  • Tennessee- Diabetic Supplies and Equipment: the Tennessee Department of Revenue recently issued a sales tax notice discussing the exemption for supplies and durable medical equipment for diabetics. The notice explains that durable medical equipment (DME) is exempt from sales tax when sold for home use by a human being under a prescription from a licensed practitioner. DME is reusable medical and diagnostic equipment, including repair and replacement parts, that is not worn in or on the body. Prescription glucose meters and prescription nebulizers sold to individuals also qualify for the DME exemption. DME sold to or for use by a facility, such as a hospital, nursing home, clinic or dental office, is not for home use and therefore is subject to tax, as is DME sold to home health care professionals and pharmacies for their use in rendering outpatient health care services to humans. Syringes used for dispensing insulin and, beginning July 1, 2015, diabetic testing supplies such as lancets, lancet devices, glucose test strips, and control solutions, are exempt no matter who purchases them, and they do not require a prescription in order to qualify for exemption. (Tennessee Important Notice No. 15-26, 12/01/2015.)
  • New York- Moist Heat Packs: the New York Department of Taxation and Finance (NY-DTF) determined that moist heat packs constitute medical equipment exempt from sales tax. These products are used to treat various breastfeeding conditions such as mastitis, clogged milk ducts and milk blisters, and can also help prevent mastitis. In addition, the products can replace hot or cold packs that are used for other ailments. Heating pads and medical ice bags, which are similar to the product in question, have previously been determined to qualify as medical equipment. The product generally is not useful in the absence of illness, injury or physical incapacity. Accordingly, the moist heat packs constitute medical equipment exempt from sales tax pursuant to N.Y. Tax Law § 1115(a)(3). (New York Advisory Opinion No. TSB-A-15(49)S, 12/11/2015)

I hope you found this information useful and interesting. As always, I welcome any feedback and/or questions.

About the Author: James R. Dumler is a Certified Public Accountant (CPA) and an Equity Partner at McClellan Davis LLC, a professional firm specializing in a full spectrum of multistate sales and use tax services. James’ primary focus is multi-state sales and use tax audit, compliance and appeals matters, as well as cigarette & tobacco tax and sales and use tax return preparation. In addition, James has assisted numerous medical distributors and health facilities with compliance, refund and audit related matters in jurisdictions nation-wide.

Contact the Author: James can be easily reached using the "Request a Consultation" link on his associated FIRM PROFILE page. Post-related comments or questions are also welcome and may be submitted by using the on-page "Comment" feature, subject to disclaimer at bottom of page.

Other recent “Medical Industry Tax” posts by James R. Dumler:

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