How should a hospital buy Foley catheters and arm supports that could be used in either exempt or taxable ways?

Plain-English summary

The representative asked whether hospitals should buy mixed-use Foley catheters and arm supports under exemption certificates and accrue tax using a ratio for taxable use. The examples distinguished Foley catheters attached to anatomical openings for drainage from post-operative insertion through artificial openings, and arm supports used as orthopedic splints.

The reply supplied no ratio calculation. It said a hospital could give a written exemption certificate for items it could certify would be used in a section 6369 exempt manner, could not certify items it knew would be used taxably, and had to pay tax to the extent certified items were actually put to taxable use.

The letter separately said that when a hospital sold an item to a patient for a separate charge, it could buy that item under a resale certificate. That was a resale rule, not an exempt-use certificate for the hospital's own use.

Feeding tubes and intravenous kits

The same letter rejected treating feeding tubes or intravenous administration kits as disposable eating utensils merely because they delivered nutrition. It said feeding this way was not what was customarily understood as a meal, so hospitals could not use the straw-and-napkin resale treatment described in the request.

If the administered substance was a prescription item qualifying as medicine under historical Regulation 1591, the source said a combined solution, container and administration-kit unit could be exempt when the container and kit cost was less than 10 percent of the entire unit. A separately sold administration kit was taxable. The request and unit-cost evidence are absent.

Live annotation and source posture

The current live annotation preserves the Foley-catheter and arm-support examples, certificate rule and tax-on-later-taxable-use conclusion. It says tax is due when certified items are used or sold in a taxable manner. The supporting letter speaks of taxable use, then separately says that a patient sale for a separate charge supports resale-certificate treatment. This page preserves the source's two distinct paths rather than reading every patient sale as a taxable withdrawal.

The live annotation omits the feeding-tube and intravenous-kit half of the letter. The source does not supply the proposed ratio method. The operative response requires certification based on expected exempt use and tax on items actually used taxably; no allocation percentage, sampling method or calculation appears.

The official record supplies no catheter type or size, surgery, opening, arm-support design, patient, prescription, hospital accounting policy, certificate, separately stated charge, purchase cost or combined-unit calculation. It also contains visible wording such as connecting functions, unique collection and de minimus; those statements remain verbatim below and are not silently repaired.

No audit, assessment, return, payment, refund, appeal or completed hospital implementation appears in the source.

The official two-page PDF has a complete native text layer. Its sole small raster image is letterhead artwork, 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

Mixed potential uses did not justify certifying every unit as exempt or applying an unsupported blanket ratio. The hospital needed a grounded expectation of exempt use at purchase and records of later taxable use.

Keep exemption and resale certificates separate. For each product, document expected and actual use, statutory medicine category, patient charge, inventory withdrawal and tax paid. For combined administration units, verify current law and actual component pricing rather than carrying forward the 1980 threshold.

Common questions

Q: Could the hospital exempt every Foley-catheter or arm-support purchase?

A: No. It could not certify items it knew would be used in a taxable manner.

Q: Did the letter approve accruing tax through a use ratio?

A: No specific ratio was approved. The response required tax on items bought under a certificate that were actually used taxably.

Q: Could a separate patient charge support resale treatment?

A: Yes. The letter allowed a resale certificate when the hospital sold the item to the patient for a separate charge.

Q: Were feeding tubes treated like disposable meal utensils?

A: No. The source said feeding by tube or intravenous kit was not customarily a meal.

Q: Did the less-than-10-percent statement exempt every kit?

A: No. It concerned the container and administration-kit cost within a combined unit whose solution was qualifying prescription medicine; a separately sold kit was taxable.

Missing evidence and references

• August 14, 1980 request letter — described but absent
• Requester, hospital, patients and transactions — redacted or unidentified
• Foley-catheter types, insertion paths, surgeries and actual uses — not supplied
• Arm-support design, instructions and splint use — not supplied
• Feeding-tube and intravenous-kit composition, solution and prescription records — not supplied
• Component and total unit costs supporting the stated threshold — not supplied
• Exemption and resale certificates, inventory records and taxable-use calculations — not supplied
• Separately stated patient charges, invoices and resale records — not supplied
• Tax returns, payments, audit, assessment, refund and outcome — not supplied

Verbatim support

From the official September 29, 1980 Staff Counsel letter:

The hospital may not purchase items under an exemption certificate which it knows will not be used in an exempt manner.

To the extent any items purchased under an exemption certificate are used in a manner so as to make them taxable, then the hospitals should pay tax on such items.

If, however, a separate charge is made for these items when they are sold by hospitals to patients, the items may be purchased under a resale certificate since they will be “resold” to patients.

If the price of the container and the administration kit is de minimus (i.e., less than 10 percent) in relation to the cost of the entire unit consisting of the kit and the solution, it would be exempt from tax. If, however, the administration kit is sold separately, tax will apply to the kit.

Citations and references

• California Revenue and Taxation Code § 6369 — historical medicine exemptions applied to particular catheter, support and hospital uses
• Historical California Sales and Use Tax Regulation 1591 — medicine classification and combined-unit treatment discussed in the letter
• California Sales and Use Tax Regulation 1667 — written exemption-certificate requirements quoted and applied in the letter

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Live annotation: Annotation 425.0052.800
• Original supporting opinion: 425.0052.800 PDF

Original ruling text

425.0052.800

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-3237

September 29, 1980

Mr. R--- -. F----- and --XXXX --- Dr.
---, CA XXXXX
Dear Mr. F---:
This is in response to your letter of August 14, 1980. Your inquiry concerns the correct application of tax to the following items: 1. Feeding tubes: When patients are unable to eat normally or are only able to consume liquid nourishment, they are fed through a feeding tube on an intravenous administration kit consisting of tubing, connecting functions, arm supports, and special needles. All of the supplies are used once and discarded, however, due to the unique collection under which this type of nourishment is administered, the mealtime may be 24 hours a day. You wish to know whether feeding tubes or intravenous administration kits or supplies used in feeding a patient who is unable to eat in a normal fashion, are considered disposable eating utensils when sold to patients of the hospital thus enabling the hospital to purchase such items extax under a resale certificate. We are of the opinion that when a patient is provided nutrients by means of a feeding tube or an intravenous administration kit that the patient will not be considered to have been fed what is customarily thought of as a meal. Accordingly, the disposable tubes and intravenous administration kits cannot be purchased for resale in the same manner hospitals purchase straws and napkins for service with traditional “meals.” We note however, if the substance fed the patient through the tube or intravenous set is a prescription item which qualifies as a “medicine” under Sales and Use Tax Regulation 1591, it would be exempt from tax. If the price of the container and the administration kit is de minimus (i.e., less than 10 percent) in relation to the cost of the entire unit consisting of the kit and the solution, it would be exempt from tax. If, however, the administration kit is sold separately, tax will apply to the kit.

F--- and A---, Inc.

-2-

September 29, 1980
425.0052.800

2.
It has been brought to your attention that some hospitals elect to use products not otherwise considered exempt in an exempt application. For example: a. Foley Catheters: Although customarily these catheters are attached to anatomical openings in the human body to drain waste, they are sometimes used for post-operative insertion through an artificial opening to drain waste. b. Arm supports: These are sometimes used as orthopedic supports in the nature of splints. You wish to know whether the hospital should buy these supplies under an exemption certificate and accrue use tax based on a ratio representing the taxable use of these products? The hospital may not purchase items under an exemption certificate which it knows will not be used in an exempt manner. An exemption certificate may be given by purchasers to sellers of tangible personal property when they can certify in writing to the seller that the property purchased will be used in a manner or for a purpose entitling the seller to regard the gross receipts from the sale as exempt from tax. (See Regulation 1667, “Exemption Certificates.”) It would thus be proper for a hospital to use an exemption certificate for the purchase of items which will be exempt from tax under Revenue and Taxation Code Section 6369. To the extent any items purchased under an exemption certificate are used in a manner so as to make them taxable, then the hospitals should pay tax on such items. If, however, a separate charge is made for these items when they are sold by hospitals to patients, the items may be purchased under a resale certificate since they will be “resold” to patients. If you have any further questions concerning this matter, please write this office. Very truly yours,

Mary C. Armstrong
Staff Counsel
MCA:ba