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Medical Industry Tax Updates: Sales & Use Tax Updates #3

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Recently, I came across a couple of revised interpretations that impacted my previous post, “Which States Tax Medical Devices”. This review also lead me to a few other updates that I thought you might find interesting.

Washington (State): Durable Medical Equipment: a retailer sold a hyperbaric chamber to a customer without charging/collecting tax reimbursement on the item. The retailer claimed the item was exempt from tax under Wash. Rev. Code § 82.08.0283(1)(c), as medically prescribed oxygen. The Department of Revenue ruled that the item was Durable Medical Equipment (DME), not an item used to generate or store oxygen, and therefore subject to tax. Further, the retailer failed to verify whether the purchaser was prescribed the oxygen treatment so there was no apparent basis for the retailer to claim the exemption in the first place. In short, hyperbolic chambers are considered DME and subject to sales/use tax in the state of Washington. (Washington Tax Determination No. 15-0301, 11/05/2015, 35 WTD 344 (released 07/29/2016).)

Oklahoma: Oncology Device: a company sells cancer therapy devices that are designed to treat tumors in the head by applying low-intensity electrical fields to the brain through a cap-like device. Customers purchase the item so they can wear it continuously throughout the day to treat the disease with minimal interruption to their daily activities. The Oklahoma Tax Commission issued a legal ruling finding that this item was a prosthetic device that is exempt from tax pursuant to Okla. Stat. 68 § 1357(22). Oklahoma generally exempts sales of medical devices from tax if the item is purchased under a prescription (written order), but this ruling now exempts this type of product from tax because it can be classified as a prosthetic device. (No. LR 14-018, 04/16/2015, released 07/21/2016.)

Mississippi: Home Medical Supplies & Durable Medical Equipment: as I discussed in my previous medical industry updates post, (effective 7/1/16), certain home medical supplies (HMS) and durable medical equipment (DME) are now exempt from tax when purchased under the written order (prescription) of a licensed physician. (Miss. Code Ann. § 27-65-111) The Department of Revenue recently issued some further clarification on the matter that I thought I would pass along as a supplement to my previous post. Instead of listing what is exempt, I will provide you with a list of categories and items that are taxable so you can have an idea of what is not eligible as an exempt HMS under the revision: anything not purchased under a prescription; items paid for by Medicare or Medicaid; any sales occurring prior to 7/1/16 even if purchased under a prescription; items associated with athletic or exercise activities; items of personal comfort or hygiene; items associated with a home modification, e.g. a ramp or door opener. Again, the vast majority of HMS purchased under a prescription after 7/1/16 are now exempt from tax.

Missouri: As another update to my previous post, “Which States Tax Medical Devices,” effective 8/28/16 Missouri will exempt all sales, rentals and parts of durable medical equipment (DME) from tax. Some exempt DME items of note include: oxygen, hospital beds and wheelchairs.

Colorado: Permanent Implant: the Department of Revenue (DOR) issued a ruling that a permanent implant used to correct a physical deformity in the male urinary tract is an exempt prosthetic device. (Colorado Private Letter Ruling No. PLR-16-008.) Although it may seem applicable, Colorado would not classify this item as exempt durable medical equipment because the item is worn in the body. (C.R.S. § 39-26-717) Some of the distinguishing characteristics noted by the DOR were that the device replaced a missing or defective part of the body and that the device was an exempt material furnished as a part of a professional service because it left with the patient- permanently implanted. There was no discussion, unfortunately, regarding what the DOR considers “permanently implanted” to be. Many stents, for example, are regarded as being permanently implanted when in reality, many of these items are removed in a relatively short period of time, i.e. months or years.

Note: Colorado is an interesting, and frustrating, state for sales and use tax purposes. The state allows its cities to elect “home rule status,” under which each electing city may enact and enforce its own local sales and use tax laws. Not all cities within the state elect home rule status, and non-home rule cities follow state law. Accordingly, when dealing with Colorado transactions, you need to determine if the applicable city has elected home-rule status and if so, the nature of its particular rules.

Questions? Comments? As always, please don’t hesitate to contact me (or to post a comment) should you have any questions regarding the forgoing. Also, feel free to suggest a topic of interest you would like me to address in the future.

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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