Tax Type
Retail Sales and Use Tax
Description
List of Exemptions, Exceptions and Exclusions
Topic
Exemptions
Date Issued
10-23-1998
October 23, 1998
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****
This is in reply to your letters in which you request a ruling on the application of the sales and use tax to your client (the "Company').
FACTS
The Company, located outside Virginia, is a manufacturer of radio frequency arthroscopic systems (the "system) for use in the treatment of certain orthopedic conditions. The system consists of a probe device and a radio frequency generator. The probe delivers radioactive medication to diseased or damaged tissue, and the generator provides the radio frequency energy source for the probe. The probe has a one time use while the generator is designed for repeated use.
The Company uses distributors in Virginia to arrange lease agreements for the systems. The distributors are not affiliated with the Company. The Company leases the systems to the distributors who demonstrate and provide the systems to for-profit and nonprofit hospitals (the "hospital') for use on a trial basis. If the hospital decides to retain the system for continued use, the Company enters into a lease agreement with the hospital and invoices the hospital for the rental of the generator and for sales of the probes. The Company services the generators and makes sales of additional probes as needed. The Company pays the distributor a fee for facilitating the lease agreement. You assume the rental charges for the generators and the sales of the probes qualify for exemption as durable medical equipment under Title 23 of the Virginia Administrative Code (VAC) 10-210-940 (formerly Virginia Regulation 630-10-65).
DETERMINATION
Exemption for Durable Medical Equipment
Title 23 VAC 10-210-940 provides, in part, an exemption from the sales and use tax for wheelchairs, braces, crutches, prosthetic devices, orthopedic appliances, catheters, urinary accessories, insulin and insulin syringes, diabetic testing and blood or urine monitoring equipment and devices and other durable medical equipment and their related parts and supplies. Durable medical equipment is that which: (1) can withstand repeated use; (2) is primarily and customarily used to serve a medical purpose; (3) generally is not useful to a person in the absence of illness or injury; and (4) is appropriate for use in the home. In order to qualify as exempt durable medical equipment, the product must meet the four criteria provided above and the product 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.
The system meets the first three criteria but fails to satisfy the fourth, as it is not designed for use in the home. In addition, the system is not purchased or leased on behalf of or for use by an individual. Therefore, the rental charges for the generators and the sales of the probes do not qualify for the durable medical equipment exemption.
The lease of the systems to distributors in Virginia and the lease of the systems to the hospitals constitute separate transactions. I will address the transactions individually.
Leases to Distributors
Code of Virginia Sec. 58.1-603 imposes the sales tax upon every person who sells at retail tangible personal property or who leases or rents such property in Virginia. Code of Virginia Sec. 58.1-604 imposes the tax on the use or consumption of tangible personal property in this Commonwealth. "Use' is defined in Code of Virginia Sec. 58.1-602 to mean the exercise of any right or power over tangible personal property incident to the ownership thereof, except that it does not include the sale at retail of that property in the regular course of business.
The distributors lease the generators along with a supply of probes from the Company to use in soliciting lease arrangements on behalf of the Company. The distributors exercise a taxable use of the generators and the probes when they demonstrate and provide such items to the hospitals for use on a trial basis. The charges for the generators and the probes from the Company to the distributors are subject to the tax. The Company would be required to collect and remit the tax.
Leases to Hospitals
When the hospital decides to use the systems on a continuing basis, the Company invoices the hospital for the rental of the generator and for sales of the probes. Under Code of Virginia Sec. 58.1-603, this transaction would be subject to the tax.
Code of Virginia Sec. 58.1-609.7(4) provides an exemption from the sales tax for "[t]angible personal property for use or consumption by a nonprofit hospital or a nonprofit licensed nursing home.' The Taxpayer may lease the generators and sell the probes to nonprofit hospitals exempt of the tax upon receipt of Form ST-13 (exemption certificate for certain nonprofit entities) from the hospital.
For-profit hospitals are not entitled to the above exemption, and the Company would be required to collect the tax on the rental charges for the generators and the sales of the probes to such hospitals.
The ruling in this case is based on the facts presented in your letter and the additional information provided to a member of my Tax Policy staff. If any elements of the transactions change from those presented, the Company should seek another ruling from the department.
If you have additional questions concerning this matter, you may contact at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/13118J
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****
This is in reply to your letters in which you request a ruling on the application of the sales and use tax to your client (the "Company').
FACTS
The Company, located outside Virginia, is a manufacturer of radio frequency arthroscopic systems (the "system) for use in the treatment of certain orthopedic conditions. The system consists of a probe device and a radio frequency generator. The probe delivers radioactive medication to diseased or damaged tissue, and the generator provides the radio frequency energy source for the probe. The probe has a one time use while the generator is designed for repeated use.
The Company uses distributors in Virginia to arrange lease agreements for the systems. The distributors are not affiliated with the Company. The Company leases the systems to the distributors who demonstrate and provide the systems to for-profit and nonprofit hospitals (the "hospital') for use on a trial basis. If the hospital decides to retain the system for continued use, the Company enters into a lease agreement with the hospital and invoices the hospital for the rental of the generator and for sales of the probes. The Company services the generators and makes sales of additional probes as needed. The Company pays the distributor a fee for facilitating the lease agreement. You assume the rental charges for the generators and the sales of the probes qualify for exemption as durable medical equipment under Title 23 of the Virginia Administrative Code (VAC) 10-210-940 (formerly Virginia Regulation 630-10-65).
DETERMINATION
Exemption for Durable Medical Equipment
Title 23 VAC 10-210-940 provides, in part, an exemption from the sales and use tax for wheelchairs, braces, crutches, prosthetic devices, orthopedic appliances, catheters, urinary accessories, insulin and insulin syringes, diabetic testing and blood or urine monitoring equipment and devices and other durable medical equipment and their related parts and supplies. Durable medical equipment is that which: (1) can withstand repeated use; (2) is primarily and customarily used to serve a medical purpose; (3) generally is not useful to a person in the absence of illness or injury; and (4) is appropriate for use in the home. In order to qualify as exempt durable medical equipment, the product must meet the four criteria provided above and the product 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.
The system meets the first three criteria but fails to satisfy the fourth, as it is not designed for use in the home. In addition, the system is not purchased or leased on behalf of or for use by an individual. Therefore, the rental charges for the generators and the sales of the probes do not qualify for the durable medical equipment exemption.
The lease of the systems to distributors in Virginia and the lease of the systems to the hospitals constitute separate transactions. I will address the transactions individually.
Leases to Distributors
Code of Virginia Sec. 58.1-603 imposes the sales tax upon every person who sells at retail tangible personal property or who leases or rents such property in Virginia. Code of Virginia Sec. 58.1-604 imposes the tax on the use or consumption of tangible personal property in this Commonwealth. "Use' is defined in Code of Virginia Sec. 58.1-602 to mean the exercise of any right or power over tangible personal property incident to the ownership thereof, except that it does not include the sale at retail of that property in the regular course of business.
The distributors lease the generators along with a supply of probes from the Company to use in soliciting lease arrangements on behalf of the Company. The distributors exercise a taxable use of the generators and the probes when they demonstrate and provide such items to the hospitals for use on a trial basis. The charges for the generators and the probes from the Company to the distributors are subject to the tax. The Company would be required to collect and remit the tax.
Leases to Hospitals
When the hospital decides to use the systems on a continuing basis, the Company invoices the hospital for the rental of the generator and for sales of the probes. Under Code of Virginia Sec. 58.1-603, this transaction would be subject to the tax.
Code of Virginia Sec. 58.1-609.7(4) provides an exemption from the sales tax for "[t]angible personal property for use or consumption by a nonprofit hospital or a nonprofit licensed nursing home.' The Taxpayer may lease the generators and sell the probes to nonprofit hospitals exempt of the tax upon receipt of Form ST-13 (exemption certificate for certain nonprofit entities) from the hospital.
For-profit hospitals are not entitled to the above exemption, and the Company would be required to collect the tax on the rental charges for the generators and the sales of the probes to such hospitals.
The ruling in this case is based on the facts presented in your letter and the additional information provided to a member of my Tax Policy staff. If any elements of the transactions change from those presented, the Company should seek another ruling from the department.
If you have additional questions concerning this matter, you may contact at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/13118J
Rulings of the Tax Commissioner