Were reusable esophageal dilators exempt from California sales tax as implants or prosthetic devices?

Plain-English summary

An unidentified manufacturer's representative asked about sales of reusable esophageal dilators to gastroenterologists, hospitals and clinics. The request described a thin cylindrical instrument filled with mercury, reusable after sterilization, with an approximately three-year shelf life. It was used during surgery and, more commonly, in outpatient treatment to dilate the esophagus.

Tax Counsel said there was no single answer for every use. Devices used temporarily during surgery were taxable under the excluded-device provision. For the outpatient uses, the opinion inferred from reusability that the dilator was inserted for treatment and then removed.

The opinion rejected an analogy to catheters used for drainage through an artificial opening because those catheters had a specific exemption. It also treated permanent implants and prostheses as different categories: on its historical analysis, a prosthesis could be partly inserted but was worn outside the body, while an implanted dilator could qualify only if intended to remain at least six months. On the assumed temporary-use facts, retail sales were taxable.

Live annotation and source posture

The current live annotation states categorically that esophageal dilators were not permanently implanted and their retail sales were taxable. The supporting opinion is more conditional. It says there was no single answer, identifies temporary surgical use, and expressly derives its broader temporary-insertion premise from the product's reusability. It supplies no product instructions or implant-duration evidence confirming that inference.

The source says the device was filled with mercury in order to make it liable and flexible. That wording is preserved below; no supplied record establishes whether another word was intended. It also prints Title 28, California Code of Regulations when introducing Regulation 1591 and contains other visible transcription defects such as it shall the presumed and functioning- of. This page does not silently repair those official-source statements.

The exemption discussion relies on two cases. Legal research resolved the primary reporter 137 Cal.App.2d 87 to the named Market Street Railway decision filed in 1955, not the source's printed 1953. The source's parallel 290 PO.2d 201 does not resolve; 290 P.2d 20 resolves to the named case, but the original remains unchanged. Standard Oil, 39 Cal.App.3d 765 with parallel 114 Cal.Rptr. 571, resolved to the named 1974 decision.

The August 19 request, the manufacturer's and taxpayer's identities, product literature, instructions, actual implant duration, sales records and transactions are absent. The source includes no audit, assessment, refund, appeal or other outcome. The Regulation 1591 enclosure listed at the end is also absent.

The official three-page PDF has a complete native text layer. Its only raster image is the California state seal in the first-page letterhead, not scanned body text, 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

Reusability was used here as evidence of temporary removal, not as an independent statutory disqualification. Actual design and intended implant duration remain critical. A device intended to remain in place for the historical six-month period presented a different question from an instrument inserted only during treatment.

For another dilator, preserve manufacturer instructions, sterilization and reuse records, implant and removal protocols, intended duration, provider use and invoices. Analyze the actual current implant, prosthetic-device and furnishing provisions rather than relying on the live annotation's shortened statement.

Common questions

Q: Did the opinion say every esophageal dilator is taxable?

A: No. It said there was no single answer and based its conclusion on temporary surgical use and an assumed removal after outpatient treatment.

Q: Why did the catheter analogy fail?

A: The opinion said drainage catheters inserted into artificial openings had a specific exemption that did not extend to the described esophageal dilators.

Q: What did the opinion mean by permanently implanted?

A: It used an intent that the item remain in place for at least six months, even if later removed sooner for another reason.

Q: Did this letter protect the unidentified taxpayer as specific written advice?

A: No. The opening paragraph expressly says the failure to identify the taxpayer prevented section 6596 treatment.

Q: Did the source prove the dilators were always removed promptly?

A: No. It inferred temporary removal from reusability and did not include the request or product instructions.

Missing evidence and references

• August 19, 1993 request letter — described but absent
• Manufacturer, taxpayer, permit number and specific products — unidentified
• Product literature, mercury specification, dimensions and instructions — not supplied
• Surgical and outpatient protocols, intended implant duration, sterilization and reuse records — not supplied
• Purchase orders, invoices, customers, sales and tax records — not supplied
• Audit, assessment, refund, appeal or transaction outcome — not supplied
• Regulation 1591 enclosure — listed but absent

Verbatim support

From the official October 6, 1993 Tax Counsel opinion:

Since you did not identify the taxpayer, this letter does not constitute specific written advice to the taxpayer under Revenue and Taxation Code Section 6596. Rather, it constitutes general comments regarding the applicability of California Sales and Use Tax Law to a set of hypothetical facts.

The dilator is a thin cylindrical instrument filled with mercury in order to make it liable and flexible. The dilator is reusable after sterilization and has a shelf life of approximately three years.

From the fact that the device is reusable, we presume that it is inserted into the patient's esophagus to treat the conditions and then removed.

We have assumed that the dilator is implanted temporarily in the patient only for as long as necessary to properly dilate the esophagus and then removed.

Citations and references

• California Revenue and Taxation Code §§ 6051, 6091, 6369, 6369(c), 6369(g), and 6596 — tax, presumption, medicine, implant, artificial-opening and specific-written-advice provisions discussed in the opinion
• Historical California Sales and Use Tax Regulation 1591(a), (b)(1), (b)(2), (b)(5), (c)(2), and (j) — furnishing, medicine, implant, prosthetic-device, excluded-device and artificial-opening rules discussed in the opinion
• Market Street Railway Co. v. California State Board of Equalization, 137 Cal.App.2d 87, 96 — source prints defective year and parallel reporter as disclosed above
• Standard Oil Co. v. State Board of Equalization, 39 Cal.App.3d 765, 769, 114 Cal.Rptr. 571 (1974)

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Live annotation: Annotation 425.0040
• Original supporting opinion: 425.0040 PDF

Original ruling text

425.0040

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

MEMBER
First District, Kentfield

450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 324-3828

BRAD SHERMAN
Second District, Los Angeles
ERNEST J. DRONENBURG, JR
Third District, San Diego

October 6, 1993

MATTHEW K. FONG
Fourth District, Los Angeles
GRAY DAVIS
Controller, Sacramento

Re:

[No Permit Number]
Esophageal Dilators

BURTON W. OLIVER
Executive Director

Dear REDACTED TEXT,
I am responding to your letter dated August 19, 1993, to the Legal Division. You asked for a letter ruling regarding the application of sales or use tax to your client's sales of esophageal dilators. Since you did not identify the taxpayer, this letter does not constitute specific written advice to the taxpayer under Revenue and Taxation Code Section 6596. Rather, it constitutes general comments regarding the applicability of California Sales and Use Tax Law to a set of hypothetical facts. I.

FACTUAL BACKGROUND
You describe the product the sales of which are at issue as follows: "XYZ Company, our client, manufactures and markets dilators. This product is sold to gastroenterologists, hospitals, and clinics. The dilator is a thin cylindrical instrument filled with mercury in order to make it liable and flexible. The dilator is reusable after sterilization and has a shelf life of approximately three years. "Generally the product is used by gastroenterologists to dilate the esophagus so that the patient's esophagus functions normally (i.e. allows the patient to eat and drink normally). Reasons for dilating the esophagus include the following: "1. Assist doctors during surgery (e.g. if a procedure requires the esophagus to be dilated). "2. On an outpatient basis for treatment of:
•

throat cancer patients

•

esophageal strictures (abnormal narrowing of the passage)

•

esophageal injuries

•

esophageal rings or webs (thin circular mucosa shelves)

•

scleroderma (hardening or thickening of esophagus due to abnormal tissue growth)

You further indicate that, although the dilator may be used to assist doctors during surgery, it is more generally used on an out-patient basis for treatment or repair of the esophagus. From the fact that the device is reusable, we presume that it is inserted into the patient's esophagus to treat the conditions and then removed. II. OPINION A.

Sales and Use Tax Generally.

In California, except where specifically exempted by statute, Revenue and Taxation Code section 6051 imposes an excise tax, computed as a percentage of gross receipts, upon all retailers for the privilege of selling tangible personal property at retail in this state. (Unless otherwise stated, all statutory references are to the Revenue and Taxation Code.) "[I]t shall the presumed that all gross receipts are subject to tax until the contrary is established. The burden of proving that a sale of tangible personal property is not a sale at retail is upon the person who makes the sale ... " (§ 6091.) "Exemptions from taxation must be found in the statute." "(Market St. Rv. Co. v. Cal. St. Bd. of Equal. (1953) 137 Cal.App.2d 87, 96 [290 PO.2d 201.]) The taxpayer has the burden of showing that he clearly comes within the exemption." (Standard Oil Co. v. St. Bd. of Equalization (1974) 39 Cal.App.3d 765, 769 [114 Cal.Rptr. 571].) B.

Prescription Medicines.

Section 6369, interpreted and implemented by Title 28, California Code of Regulations, Regulation 1591, provides that sales of medicine, when prescribed and sold or furnished under certain conditions for the treatment of a human being, are exempt from sales or use tax. (Reg. 1591(a).) Subdivision (b)(1) defines "medicine" to "mean and include any substance or preparation intended for use by external or internal application to the human body in the diagnosis, cure, mitigation, treatment, or prevention of disease and which is commonly recognized as a substance or preparation intended for such use." However, Regulation 1591(c)(2) adds that "medicines" do not include "articles which are in the nature of splints, bandages, pads, compresses, supports, dressings, instruments, apparatus, contrivances, appliances, devices, or other mechanical, electronic, optical or physical equipment or article or the component parts and accessories thereof." (Sales and Use Tax Regulations are Board promulgations which have the force and effect of law.) As a rule, then, items used to diagnose a condition or to apply medicine or treatment to the patient are not considered to be medicines. Regulation 1591(b) does provide that certain items which might otherwise be considered as being devices, etc., are defined as "medicines." Sub-division (b)(2) includes articles permanently implanted in the human body to assist the functioning- of, as distinguished from replacing all or any part of, any natural organ, artery, vein , or limb, and which remain or dissolve in the body. Regulation 1591(b)(5) includes prosthetic devices and their replacement parts designed to be worn on or in the person of the user to replace or assist in the functioning of a natural part of the human body. C.

Tax Consequences.

There is, unfortunately, no single answer to this question. You indicate that some of these instruments are used temporarily during surgery. When used in such a way, these items are in the nature of devices, appliances, etc., excluded from the definition of "medicines" by Regulation 1591(c)(2). Sales of esophageal dilators for use during surgery are subject to tax. You aver that, by analogy to exempt sales of catheters used for drainage through an artificial opening in the skin (See, Reg. 1591(j), the esophageal tubes are prosthetic devices. We

do not agree. First of all, sales of drainage catheters inserted into artificial openings are subject to a specific exemption. (See, § 6369(g).) Second, the exemptions for permanently implanted items and for prostheses are two separate exemptions. Former section 6369(c)- now sub-divisions (c) (1) & (2)- was enacted partially to confirm the board's existing interpretation that the definition of “medicines” as originally enacted did not encompass either items implanted in the body to assist the functioning of a natural body part or external prostheses. The legislature made permanently-implanted articles exempt without disturbing the Board's interpretation as to the original meaning of the law. In 1977, Section 6369(c)(4) was enacted exempting the sales and use of certain prostheses. Thus, prostheses are to be distinguished from implants. While a prosthesis may be partially inserted into a patient, they are worn on the outside of the patient's body. Your description of esophageal dilators indicates that they, to be used, must be implanted in the patient. Therefore, sales of such items, if exempt at all, are exempt only if the item is permanently implanted. We have previously concluded that, to be considered "permanently implanted," the item must be implanted with the intent that it remain in place for at least six months - i.e., the item was intended to be "permanently" implanted even if for some reason it had to be removed sooner. We have assumed that the dilator is implanted temporarily in the patient only for as long as necessary to properly dilate the esophagus and then removed. Under that assumption, then, esophageal dilators are appliances, devices, etc. excluded from the definition of "medicine" under Regulation 1591(c)(2) with the result that sales of such items are subject to tax. For your information, I have included a copy of Regulation 1591. I hope the above discussion has answered your question. If you need anything further, please do not hesitate to write again. Sincerely, John L. Waid Tax Counsel JLW:es Enclosure: Reg 1591