Tax Type
Retail Sales and Use Tax
Description
Durable medical equipment and devices
Topic
Taxability of Persons and Transactions
Date Issued
04-08-1997
April 8, 1997
Re: Request for Ruling: Retail Sales and Use Tax
Dear****************
This is in reply to your letter to *******in which you seek information regarding the application of the Virginia sales and use tax to sales of durable medical equipment (DME) by your client (the "Client").
FACTS
The Client is located outside Virginia and manufactures products used in the health care and sports medicine areas and sells primarily to hospitals, physicians, and medical dealers. You request information on the taxability of sales of four products.
RULING
Code of Virginia § 58.1-609.7(2) provides an exemption from the sales and use tax for:
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- Wheelchairs and parts therefor, braces, crutches, prosthetic devices, orthopedic appliances, catheters, urinary accessories, other durable medical equipment and devices, and related parts and supplies specifically designed for those products; and insulin and insulin syringes, and equipment, devices or chemical reagents which may be used by a diabetic to test or monitor blood or urine, when such items or parts are purchased by or on behalf of an individual for use by such individual. Durable medical equipment is equipment which (I) can withstand repeated use, (ii) is primarily and customarily used to serve a medical purpose, (iii) generally is not useful to a person in the absence of illness or injury, and (iv) is appropriate for use in the home."
In order to qualify as exempt DME, the product must meet the four criteria provided above and the products must be purchased by or on behalf of an individual for use by such individual. The fact that an item is purchased from a medical equipment supplier or is purchased on a physician's prescription is not dispositive of its exempt status.
Braces: The Client produces a wide range of braces to treat a variety of injuries. The Client produces primarily a line of ankle braces to treat sprains and strains. Braces are exempted by the statute when purchased by or on behalf of an individual. The braces described in this instance would qualify as exempt DME when purchased specifically for an individual.
Cold Compression Devices: These devices constitute a three part system consisting of a cuff which holds cold water and covers an injured area, a cooler that holds water and ice for 6-8 hours of cryotherapy, and a tube to exchange the water between the cooler and the cuff. The cuffs are available for almost every part of the body. The device is designed to minimize hemorthrosis (blood filling joint cavities) and swelling resulting from sprains, strains, post operative surgery, trauma, rehabilitation, contusions, and other soft tissue injuries. The cold compression devices meet the four criteria provided by the statute and are prescribed for individual use. As such, this device would qualify for exemption when purchased by or on behalf of an individual.
Product #3: This product is a hospital based system that prevents blood clot formation in the veins of the lower legs following surgery. This system is composed of a pump that provides graduated and sequential compression to aircells, a cuff that covers the leg and houses the aircells, and tubing that exchanges air between the pump and the cuff. In this instance, the Client retains ownership of the pump and tubing components of the system and provides such items free of charge for use in a hospital setting only. The cuffs are sold in sets for individual use within the hospital setting.
This system does not qualify as exempt DME because it does not meet the requirements prescribed by the statute. The pump and tubing are not the subject of a sale, and the system, including the cuffs sold for individual use, is not designed for use in the home. Further, the pump and tubing are provided for repeated use in the hospital for the treatment of more than one individual.
Public Document (P.D.) 96-173 (7/18/96) addresses the issue of medical products provided without the benefit of a sale. The ruling dealt with a distributor of orthopedic implant systems used in rehabilitative and reconstructive surgery. The taxpayer in that case provided tools to hospitals and physicians for use in orthopedic implant surgery. The tools were not the subject of a sale or rental, as were the implants, but instead remained under the ownership of the taxpayer. The Tax Commissioner determined that the taxpayer made a taxable use of the tools when it provided such tools to the hospitals and physicians without the benefit of a sale. The taxpayer in P.D. 96-173 was held liable for the use tax on the tools.
The same reasoning applies in this instance. The pumps and tubing are withdrawn from an exempt resale inventory and provided to the hospital free of charge. The Client at the point of withdrawal from inventory incurs the use tax on such products, independent of the fact that the items ultimately will be used by an individual. In the absence of some other exemption, the Client must collect the tax on the sale of the cuffs.
Product #4: This product is designed to treat Iymphedema, venous ulcers, and associated complications. It treats the chronic accumulation of excess fluid mainly in the lower extremities (legs). The product is a three part system composed of a pump that applies graduated and sequential compression to aircells, a leg brace that supports the leg and houses the aircells, and tubing that exchanges air between the pump and the brace. This system meets the four criteria provided by the statute and would qualify for exemption when purchased by or on behalf of an individual.
The department has addressed the taxability of DME in several rulings, a sampling of which is enclosed for your review. Your attention is directed to P.D. 93-144 (6/10/93) which explains the taxability of DME purchases when purchased by nonprofit medical entities and for-profit medical entities.
Nonprofit hospitals and nonprofit licensed nursing homes are exempt from the tax on their purchases under Code of Virginia § 58.1-609.7(4). In addition, certain nonprofit medical-related organizations are exempt from the tax on their purchases under Code of Virginia § 58.1-609.7. The Client may sell products exempt of the tax to these entities upon receipt of Form ST-13 (exemption certificate for certain nonprofit entities) or a copy of a department letter provided to the entity confirming their exempt status.
Under 23 VAC 10-210-940, for-profit hospitals, nursing homes, clinics, homes for adults, and licensed physicians are subject to the tax on their purchases of DME, unless such purchases are specifically for an individual or patient. Because the department has not prescribed a certificate of exemption for use when DME is purchased on behalf of a specific individual, the Client must obtain from its for-profit purchaser a signed statement certifying that the DME is purchased on behalf of a specific individual or patient pursuant to a physician's prescription or a for-profit hospital's work order. See P.D. 95-266 (10/17/95).
The Client, as a manufacturer of medical products, may sell to Virginia dealers under the resale exemption provided in the definition of "retail sale" in Code of Virginia § 58.1-602. See Form ST-10, Resale Certificate of Exemption.
In regard to shipping charges, Code of Virginia § 58.1-609.5(3) provides an exemption from the sales tax for "[t]ransportation charges separately stated." The statute is further interpreted by 23 VAC 10-210-6000. The department has consistently held that shipping, postage, or mailing charges are exempt from the tax when separately stated on the invoice. When these charges, however, are combined on an invoice with handling charges or other charges, the exemption does not apply. See P.D. 95-253 (9/11 /95) and P.D. 96-95 (5/16/96).
In addition to copies of prior department rulings, l am also enclosing copies of the cited statutes, regulations, and Forms ST-10 and ST-13 for your review. I hope the foregoing has responded to your inquiry. If you have additional questions, please contact********* in the Office of Tax Policy at **********
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11579J
Rulings of the Tax Commissioner