Did an insurer's payment and resale certificate turn a medical supplier's direct sale to a patient into a tax-free resale?

Plain-English summary

Medical-equipment and supply companies sold items directly to patients receiving care at home. A redacted insurer or related organization often received and paid the bill, and a purchasing affiliate had issued a blanket resale certificate covering supplies for hospitals, clinics, and support facilities.

California said the certificate did not cover these patient transactions. It described other property intended for resale to member facilities, and the medical suppliers were dealing directly with the patients. Payment by the insurer did not change the transaction's basic character or make the insurer a purchaser for resale. The suppliers therefore had retail sales and had to pay tax on transactions involving taxable property.

Common questions

Did third-party payment make the insurer the buyer?

No. The opinion treated the supplier and patient as the parties to the sale.

Did California say every wheelchair, bed, walker, oxygen product, or disposable supply was taxable?

No. Those were examples of items furnished by the sellers. The holding addressed the resale theory and required tax on taxable transactions.

Citations and references

• California Revenue and Taxation Code section 6007 — property purchased for resale in the regular course of business
• California Sales and Use Tax Regulation 1668(a) — seller relief for a timely, good-faith resale certificate from a qualified purchaser
• California Sales and Use Tax Regulation 1669(g) — purchaser liability and penalties for knowingly issuing a resale certificate for goods to be consumed
• California Sales and Use Tax Regulation 1591(n) — insurer payment does not alter the fundamental character of the medical-item transaction, as applied in the opinion

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/425-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/425-0164.pdf

Original ruling text

425.0164

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

JOHAN KLEHS
First District, Hayward

LEGAL DIVISION – MIC: 82
450 N STREET, SACRAMENTO, CALIFORNIA
PO BOX 942879, SACRAMENTO, CALIFORNIA 94279-0082
TELEPHONE (916) 327-2291
FAX (916) 323-3387

DEAN F. ANDAL
Second District, Stockton
ERNEST J. DRONENBURG, JR.
Third District, San Diego
BRAD SHERMAN
Fourth District, Los Angeles

January 26, 1995

KATHLEEN CONNELL
Controller, Sacramento
___
BURTON W. OLIVER
Executive Director

REDACTED TEXT
Re:

REDACTED TEXT
Sales of Medical Equipment

Dear REDACTED TEXT,
I am answering your letter to me dated December 9, 1944. You ask if your member may sell tangible personal property to REDACTED TEXT enrollees free of tax by taking resale certificates from REDACTED TEXT. You state that your members provide medical equipment/supplies in the home to persons with disabilities or persons who without proper equipment/supplies would otherwise be hospitalized. Examples of the type of equipment/supplies are wheelchairs, beds, walkers, commodes, oxygen, disposable supplies, and nutrition services. The transaction takes place between the supply company and the patient, but is often billed to, and paid, by REDACTED TEXT has notified REDACTED TEXT members that their California Resale Certificate excludes these transactions from tax and has requested that sales tax be excluded from any future claims submitted to REDACTED TEXT. You attached a letter which REDACTED TEXT apparently received from REDACTED TEXT Accounts Payable Department, which indicated that, effective January 1, 1988, REDACTED TEXT became the procuring company for REDACTED TEXT, and also for itself. The letter indicates that REDACTED TEXT purchased all non-inventoried, non-construction and non-capitalized goods and materials for resale to the other companies. REDACTED TEXT attached a copy of a blanket resale certificate, dated January 15, 1992, which described the property to be purchased as “articles and supplies required for the operation of Medical Clinics and Hospitals and all support facilities.” OPINION As you know, the sale of property which the purchaser will re-sell in the regular course of business is excluded from tax. (Rev. & Tax. Code § 6007.) A seller who timely and in good faith takes a resale certificate from a person who is engaged in the business of selling tangible personal property and who holds a California seller’s permit is relieved from liability for sales tax or collecting the use tax. (Reg. 1668(a).) Sales and Use Tax Regulations are issued by the Board to aid in the enforcement and administration of the Sales and Use Tax Law and have the force and effect of law. A purchaser who issues a resale certificate, knowing at the time of

purchase that the goods will be consumed rather than resold, is liable for tax and penalties. (Reg. 1669(g).) We are of the opinion that this resale certificate is not effective to exclude these transactions from sales tax for two reasons. First, it covers only items which REDACTED TEXT intends to purchase for the purpose of resale to its member hospitals and clinics and support facilities. Supplies and support items used in the operation of a medical facility are consumed by the facility, so when REDACTED TEXT sells such items to its member facilities, those sales are at retail. It must pay tax on those transactions. The certificate thus does not cover the kinds of property which your members are selling. Second, under the facts you give, your members are selling medical equipment and supplies directly to the patients. While REDACTED TEXT may be billed and pay for the item, the transaction is directly between the REDACTED TEXT member and the patient. REDACTED TEXT is not purchasing the item for resale to the patient. The fact that a medical insurer is paying for all or part of the transaction does not alter its fundamental nature. (Reg. 1591(n).) We thus conclude that these sales are not sales to REDACTED TEXT for resale to the patients, but rather they are direct sales from REDACTED TEXT members to the patient and so are at retail. The REDACTED TEXT member must pay tax on all taxable transactions. 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:sr cc:

Mr. Ronald L. Dick
CH District Administrator
KH District Administrator

BOE-1137 REV. 11 (7-02)