Did dialysis-machine accessories for filter reuse and data management qualify as medicine?

Plain-English summary

Lynn E. Bjorklund asked whether a dialyzer-reprocessing system or a data-management system qualified as exempt medicine. The first system cleaned, tested and sterilized a dialysis-machine filter after use so it could be reused instead of discarded. The second was a mini-computer with software connected to the reprocessing system; it recorded reuse history by patient and printed filter labels.

The memorandum said a qualifying related supply had to be a necessary and integral part of the machine or device, or a substance or preparation intended for external or internal application to the dialysis patient's body. Technician-use items and items peripheral to dialysis did not satisfy that test.

It concluded that neither system qualified. A dialysis machine could operate without either one by following the normal procedure of replacing the used filter. Neither system was a substance or preparation intended for application to the patient.

Live annotation and source posture

The current live annotation agrees that the computer, software and reprocessing system were taxable because they were not integral to the dialysis machine, the machine could operate without them, and neither was applied to the patient. The live page calls kidney dialysis machines and necessary supplies exempt; the supporting memorandum more narrowly says kidney dialysis machines and certain related supplies were included under the historical provision, then states its related-supply test.

CDTFA separately publishes Annotation 425.0310 and a 425.0310 supporting opinion dated the same day. That two-page opinion contains near-identical facts, rule language, analysis and conclusion, but it is addressed to Oakland Auditing, identifies a redacted taxpayer and seller's-permit number, and prints the author's surname as Stipe. The one-page 425.0026 source is addressed to Lynn E. Bjorklund, omits that taxpayer metadata and prints Stripe. The official records supplied here do not explain why the analysis appears under two annotations or which document metadata should carry across them, so this page does not import the extra 425.0310 facts into 425.0026.

The 425.0026 source also contains extraction-visible defects: as·a appears in the related-supply test, and the final paragraph prints Regulation l59l(j) with lowercase letters in place of the digits 1. They remain verbatim below and do not change the surrounding conclusion.

The official one-page 425.0026 PDF has a complete native text layer and no raster images, so no OCR was required. Two fresh direct PDF downloads and two live-page downloads were byte-identical; duplicate default text extractions also matched.

CDTFA's Annotated Legal Opinions collection says the opinion letters are summarized as annotations and statutory law controls when a statute and annotation conflict.

What this means for you

Mere use alongside a qualifying dialysis machine did not make these historical systems exempt. The decisive facts in this memorandum were that dialysis could continue without them by replacing the filter and that neither system was applied to the patient.

For different equipment, document its physical and operational relationship to the dialysis machine, whether treatment can continue without it, whether it is used by a technician, and whether the product itself is a substance or preparation applied to the patient. Then check the current statute and regulations rather than relying on this 1986 memorandum.

Common questions

Q: Was the filter-reprocessing system exempt because it supported dialysis?

A: No. The memorandum treated it as peripheral because dialysis could continue by discarding and replacing the used filter.

Q: Was the connected computer and software exempt?

A: No. Recording reuse history and printing labels did not make the data-management system integral to the dialysis machine or a substance applied to the patient.

Q: Did the memorandum say every dialysis accessory was taxable?

A: No. It addressed only the two described systems and stated a test for necessary and integral supplies or substances and preparations applied to the patient.

Q: Did it decide a particular assessment, refund or transaction?

A: No such assessment, refund, invoice or outcome appears in the published 425.0026 source.

Q: Is Annotation 425.0310 the same document?

A: It publishes near-identical analysis dated the same day, but its addressee and document metadata differ. The official sources do not explain the relationship.

Missing evidence and references

• February 24, 1986 request letter — referenced but absent
• Taxpayer and product manufacturer or model — not identified in the 425.0026 source
• Product literature, specifications and operating instructions — not supplied
• Prescription, furnishing, purchase, lease, invoice or price records — not supplied
• Audit, assessment, refund or other transaction outcome — not supplied
• Explanation connecting the separately published 425.0026 and 425.0310 opinions — not supplied

Verbatim support

From the official March 24, 1986 Legal memorandum:

The “dialyzer reprocessing system” cleans, tests and sterilizes the dialyzer (kidney machine filter) after each use. The dialyzer can then be reused. Normal procedure would be for the dialyzer to be used once and then disposed of.

In order to qualify as·a “related supply,” it is our position that an item must be a necessary and integral part of the machine or device itself, or a substance or preparation intended for external or internal application to the body of the patient undergoing dialysis.

The systems are not an integral part of the dialysis machine since, with the normal procedure of replacing the used filter, the dialysis machine can operate without either system.

Therefore, the “dialyzer reprocessing system” and the “data management system” do not qualify as exempt medicines.

Citations and references

• California Revenue and Taxation Code § 6369 — prescription-medicine provision cited without a subsection in the memorandum
• Historical California Sales and Use Tax Regulation 1591(j) — artificial-opening appliance and related-supply provision quoted and applied in the memorandum
• Annotation 425.0310 and its supporting opinion — separately published near-duplicate official sources dated March 24, 1986

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Live annotation: Annotation 425.0026
• Original supporting opinion: 425.0026 PDF
• Related live annotation: Annotation 425.0310
• Related supporting opinion: 425.0310 PDF

Original ruling text

State of California

Board of Equalization

Memorandum
To:

Mr. Lynn E. Bjorklund

From:

Headquarters – Legal
Robert J. Stripe

Subject:

Regulation 1591 (Prescription Medicines)

425.0026
Date:

March 24, 1986

Your letter of February 24, 1986 has been referred to me for a response. You request our opinion whether a “dialyzer reprocessing system” or a “data management system” qualify as exempt medicines. Both systems are used in conjunction with kidney dialysis machines. The “dialyzer reprocessing system” cleans, tests and sterilizes the dialyzer (kidney machine filter) after each use. The dialyzer can then be reused. Normal procedure would be for the dialyzer to be used once and then disposed of. The “data management system” is a mini-computer with software and is connected to the “dialyzer reprocessing system”. It records dialyzer reuse history by patient and prints out dialyzer labels. Tax does not apply to the sale of prescription “medicines,” as that term is defined under section 6369 of the Revenue and Taxation Code and Sales and Use Tax Regulation 1591. Subsection (j) of Regulation 1591 provides that certain “appliances and related supplies necessary as the result of any surgical procedure by which an artificial opening is created in the human body for the elimination of natural waste, shall be deemed to be dispensed on prescription within the meaning of [Revenue and Taxation Code] section 6369.” Included within the meaning of the term “appliances and related supplies” are kidney dialysis machines and certain related supplies. In order to qualify as·a “related supply,” it is our position that an item must be a necessary and integral part of the machine or device itself, or a substance or preparation intended for external or internal application to the body of the patient undergoing dialysis. Accordingly, items which are used by a technician during the operation of the dialysis machine, or items which are peripheral to the dialysis process are not exempt from tax. Using the above guidelines, we are of the opinion that the “data management system” and the “dialyzer reprocessing system” do not qualify under Regulation l59l(j) as “related supplies” since we consider the use of these systems to be peripheral to the dialysis process. The systems are not an integral part of the dialysis machine since, with the normal procedure of replacing the used filter, the dialysis machine can operate without either system. Additionally, the “systems” are not a “substance or preparation intended for external or internal application to the body of the patient undergoing dialysis”. Therefore, the “dialyzer reprocessing system” and the “data management system” do not qualify as exempt medicines.

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