What general guidance did California give a hospital for distinguishing exempt medicines from taxable supplies?

Plain-English summary

California could not give definite answers for the hospital's abbreviated computer entries because they lacked descriptions of the products' nature and use. The letter instead summarized the historical prescription-medicine rules and provided general taxable and exempt lists for frequently used hospital items.

The guidance treated qualifying substances and preparations, permanent implants, orthotic and prosthetic devices, mammary prostheses, and qualifying artificial-opening supplies as medicines. It excluded many bandages, dressings, instruments, equipment, foot supports, and auditory, ophthalmic, or ocular devices. The attached lists then classified numerous examples under those historical rules.

Common questions

Did the letter definitively classify every item on the hospital's printout?

No. It expressly said the abbreviations and missing descriptions prevented definite answers.

Why do product descriptions matter?

The stated rules turned on an item's nature, use, permanence, body-worn design, and relationship to a qualifying procedure or device.

Are the attached lists current classifications?

The source presents them as 1985 general guidance. Current law and product facts must be checked.

Citations and references

• California Revenue and Taxation Code section 6369 — historical prescription-medicine definition and inclusions discussed in the letter
• California Sales and Use Tax Regulation 1591 — enclosed by the agency as detailed guidance

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/425-0741.pdf

Original ruling text

425.0741
STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
916/ 445-2641

September 20, 1985

Ms. H--- L--Controller
M--- C--- Hospital
XXXXX --- --- Road
--- ---, California XXXXX

Dear Ms. L---:
Your letter of August 26, 1985 has been referred to the undersigned for reply. You request our opinion as to the correct sales tax status, i.e., “medicine” or non-“medicine,” of the items which are sold to M--- C--- Hospital. You have enclosed a copy of your computer printout, “Charge Description Master,” for our review. The computer printout you have sent to us contains many abbreviations and lacks descriptions of the items listed. Without a description as to the exact nature and use of the items sold to M--- C--- Hospital, we are unable to give you a definite answer as to whether or not sales tax applies to the sale of these items. We have agreed with Mr. Hillard Lewis, District Principal Auditor of our --- --- District Office, to have his staff contact and work with you in deciding which items on the computer printout require study and an opinion by this legal staff. We shall send Mr. Lewis the computer printout. However, we can state our interpretation of Revenue and Taxation Code Section 6369, “Prescription Medicines,” and provide you with some general guidelines to follow in determining whether an item is an exempt medicine. California Sales and Use Tax Law imposes tax on the sale or use of tangible personal property in this state, unless such sale or use is otherwise exempt from taxation. Revenue and Taxation Code Section 6369 exempts from tax the gross receipts from the sale, the storage, the use or other consumption in this state of medicines. “Medicines” as defined in Section 6369 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.”

M--- C--- Hospital

-2-

September 20, 1985
425.0741

Section 6369(c)(1) and (2) provides that the term “medicines” includes sutures, whether or not sutures are permanently implanted, bone screws, bone pins, pacemakers, and other articles permanently implanted in the body to assist the function of all or any part of any natural organ, artery, vein or limb. Section 6369(c)(3) and (4) provides that the term “medicines” also includes orthotic devices or replacement parts for such devices, designed to be worn on the person of the user as a brace, support, or correction for the body structure; prosthetic devices and replacement parts for such devices, designed to be worn on or in the person of the user to replace or assist the functioning of a natural part of the human body; (see listing attached). Furthermore, mammary prosthesis and any 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 are deemed to be dispensed on prescription within the meaning of Revenue and Taxation Code Section 6369. Notwithstanding the above analysis, as to tax exempt medicines, the following items are excluded from the term “medicines”: splints, bandages, pads, compresses, supports, non-medicated dressings, instruments, apparatus, contrivances, appliances, devices or other mechanical, electronic, optical or physical equipment or component parts thereof. Also excluded from the term “medicines” are orthopedic shoes and supportive devices for the foot unless they are an integral part of a leg brace or artificial leg; and any auditory, ophthalmic, and ocular devices or appliances. For your convenience, pages 4, 5, 6 and 7 contain a list of items used frequently used by hospitals, considered to be exempt or taxable. Sales and Use Tax Regulation 1591 “Prescription Medicines” and our brochure “Tax Tips for Hospitals” are also enclosed to provide further detailed information. We will be happy to furnish you with a more definite answer regarding sales tax to items which are sold to M--- C--- Hospital following receipt of a description of the items in question. Very truly yours,

Donald J. Hennessy
Tax Counsel

DJH:ba
bc:

Orange County – District Administrator
Ms. Vickie Owen

425.0741

The following items are classified as taxable non-medicines within the definition of Revenue and Taxation Code Section 6369:

TAXABLE “NON-MEDICINES”
Arch Supports

Exercise Weights

Auditory Devices

Foot Orthoses

Bacteriological Culture Medium

Hospital Beds

Bandages (other than those used
for ostomy patients)

Hypodermic Needles
Instruments

Bed Pads
Bed Traction Units

Intravenous Equipment and
Tubing

Blood Pressure Kits

Mechanical Equipment

Cervical Pillows

Microlert Devices

Compresses

Mucolytic Reagents for
Vitra Testing

Contrivances
Dental Prosthetic Devices
and Appliances
Distilled Water used for
Drinking
Non-medicated Dressings
(other than those used for
ostomy patients
Electronic Equipment
Electrocardiographs,
Metabulators and related
Accessories

Ocular Devices or
Appliances
Ophthalmic Devices or
Appliances
Orthodontic Devices and
Appliances
Orthopedic Shoes and
Supportive Devices for
the Foot
Physical Equipment
Plastazote Shoes

425.0741

Pollen Extract
Seven-Up and other Carbonated
Drinks
Space Blankets
Spinal Anesthetic Trays
Splints (not otherwise qualifying
as osthotic devices for exempt
foot splints are taxable)
Stethoscopes
Surgical Soap for Sterilizing
Surgeons’ Hands
Syringes
Thermometers
Traction Units (other than
those fully worn on the
patient)
Uroscreen
Water Conditioning Systems

425.0741

The following items are classified as exempt medicines within the definition of Revenue and Taxation Code Section 6369: EXEMPT “MEDICINES” Abduction Pillows

Elastic Bandages

Alcohol (Ethyl)

Enema Preparations in
Disposable Container

Anesthetic Gases
Anti-Embolism Stockings
Artificial Kidney Dialysis
Machines and Supplies

Evacuators (Post
Operative)
Glucose and Substances
used of Glucose Tolerance
Tests

Artificial Limbs or Replacement Parts

Humidification Kits

Baby Oil

Immobilizers

Baby Powder

Influenza Vaccine

Blood Plasma

Insulin

Bone Screws

Intrauterine Contraceptive
Devices

Cast Materials
Intravenous Solutions
Catheters (used as a result of
an artificial opening in the
human body)

Lubricating Jelly
Mammary Prostheses

Colostomy Bags and Supplies
Measles Vaccine
Contraceptive Pills, Creams
Liquids, Tablets, and Capsule
Preparations

Medicated Dressings

Corsets

Opaques given internally
for Diagnostic X-Ray
Photography

Diaparene Powder
Orthotic Devices
Distilled Water, Sterile
Nonpyrogenic and Sterile
Pyrogenic (specially processed

Oxygen
Pacemakers

425.0741
Dyes given internally for X-Ray
Diagnosis
Phisohex – for Patient’s
Treatment
Prosthetic Devices
Radiopaques
Rib Belts
Rubbing Alcohol
Sabin Oral Polio Vaccine
Slings
Splints, Plastic or Other
Stump Socks
Stump Shrinkers
Supports
Support Hose
Surgical Cellulose Hemostats
Sutures
Tracheostomy Tubes
(Post-Operative)
Transcutaneous Nerve
Stimulators (only if
fully worn on or in the
body of the user)
Trusses
Vaccines
Vitamins for Treatment of
Human Beings
Walking Heels