Were therapeutic shoes and inserts furnished under a Medicare demonstration exempt in California?

Plain-English summary

California treated the custom-molded shoes, extra-depth shoes, and inserts described for the Medicare Therapeutic Shoe Demonstration as taxable on the facts provided. A physician's prescription and the supplier's agreement to accept the Medicare amount as full payment did not by themselves make the products exempt medicines.

The letter assumed the products did not meet the narrower historical exemption for custom-made biomechanical foot orthoses or property integral to a leg brace or artificial leg. It also concluded that a Part B reimbursement claim assigned to the supplier was not an exempt sale to the United States Government. Because neither route applied, authorized suppliers were required to treat the sales as taxable.

Common questions

Did the physician's prescription make the shoes exempt?

No. The product still had to satisfy the statutory orthopedic or prosthetic criteria.

Did Medicare's payment make the transaction a federal-government sale?

No under the described Part B assignment structure. The letter did not treat the supplier's sale as a sale to the United States.

Did the source have complete billing facts?

No. It asked whether the patient filed the Medicare claim or the supplier was reimbursed directly, so its conclusion was expressly based on the limited information supplied.

Citations and references

• California Revenue and Taxation Code section 6369 — prescription-medicine framework and orthopedic/prosthetic criteria discussed in the letter

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/425-0883.pdf

Original ruling text

425.0883

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
PO BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001
TELEPHONE (916) 324-5589

October 26, 1990

S--- T---, Director
Division of Health Systems and Special Studies
Office of Demonstrations and Evaluations
--- --- --- --- --- --- [A---]
XXXX --- Boulevard
---, Maryland XXXXX
Re:

Therapeutic Shoe Demonstration

Dear Mr. T---:
This is in response to your letter of August 15, 1990. You have requested clarification of the correct application of tax to therapeutic shoes supplied under the Medicare Therapeutic Shoe Demonstration. As we understand it, currently, Medicare is conducting a congressionally mandated Demonstration to investigation whether Medicare should cover therapeutic shoes for diabetic patients with foot problems. The Medicare Therapeutic Shoe Demonstration requires that the patient be certified as a diabetic by the physician who manages the diabetic conditions, and a physician must prescribe the therapeutic shoes prior to admittance into the Demonstration. Further, to become an authorized shoe supplier in the Medicare Therapeutic Shoe Demonstration, the shoe supplier must agree to accept the Medicare payment as full payment of benefits. Recently an authorized shoe supplier for the Medicare Therapeutic Shoe Demonstration called because the California Board of Equalization was requesting that sales tax be levied on therapeutic shoes supplied to Medicare beneficiaries in the demonstration. According to the copy of the enabling legislation you enclosed in your letter, the Demonstration provides for the furnishing of custom molded shoes and extra depth shoes and inserts. The California Sales and Use Tax Law specifically provides the following: “Orthopedic shoes and supportive devices for the foot are not exempt unless they are custom-made biomechanical foot orthoses or are an integral part of a leg brace or artificial leg.”

Mr. S--- T---

-2-

October 26, 1990
425.0883

“The term ‘custom-made biomechanical foot orthoses’ means an individually prescribed foot orthosis which is custom fabricated over a neutral or near neutral subtalar joint with a pronated midtarsal joint position positive plaster model of the patient’s food, which model, when cast, is modified to support the osseous position of the forefoot in relationship to the rear foot, embodies the angular osseous relationships of the anterior and posterior portions of the foot.” We are assuming for purposes of this analysis that the shoes and inserts furnished by the therapeutic shoe demonstration do not meet the above criteria. As such, even though the shoes are furnished under a physician’s prescription, tax will apply to the sale of such shoes and inserts absent another provision of law. We have previously determined that the sale of an item insured pursuant to Part B of the Medicare Act where the claim of the person for reimbursement is assigned to the supplier and the supplier files a claim with a carrier are not exempt sales to the United States. It is unclear from the facts presented how the shoes and inserts are billed. Does the patient file a claim with Medicare? You state the suppliers may only charge the amount set by the Demonstration project. Are they reimbursed directly by Medicare? In summary, based on the information you have provided, it does not appear that the sale of the therapeutic shoes and inserts in question qualifies as either the sale of an exempt medicine under Revenue and Taxation Code section 6369 or an exempt sale to the United States Government. As such, tax properly applies to the sale of the shoes and inserts by authorized shoe suppliers. We trust this answers your questions. If we can be of further assistance, please write this office again. Very truly yours,

Mary C. Armstrong
Senior Tax Counsel
MCA:wk
2547C