Was a disposable coronary atherectomy system used during surgery exempt medicine in California?

Plain-English summary

The manufacturer sold a directional coronary atherectomy system whose one-use catheter used a balloon and micro-cutter to remove plaque from a coronary artery and retain the tissue in a collection nosecone.

California treated the system as a temporary surgical appliance or device. It removed and collected obstructing lesion tissue and preserved that tissue for analysis, so Regulation 1591(c)(2) excluded it from medicine. Sales were taxable.

Common questions

Did being disposable make the catheter exempt?

No. The opinion focused on the system's function as a temporary surgical device.

Did removing plaque make it medicine?

No. California treated the equipment performing the procedure as an excluded appliance or device.

Citations and references

• California Revenue and Taxation Code sections 6051 and 6091 — general taxable-sales rule and presumption
• California Revenue and Taxation Code section 6369 — prescription-medicine exemption
• California Sales and Use Tax Regulation 1591(c)(2) — appliances and devices excluded from medicine

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/425-0908.pdf

Original ruling text

425.0908

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

MEMBER
First District

1020 N STREET, SACRAMENTO, CALIFORNIA
PO BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001
TELEPHONE (916) 920 - 7445

BRAD SHERMAN
Second District, Los Angeles
ERNEST J. DRONENBURG, JR.
Third District, San Diego
MATTHEW K. FONG
Fourth District, Los Angeles
GRAY DAVIS
Controller, Sacramento

April 15, 1994

BURTON W. OLIVER
Executive Director

X----------------------------

Re:

X----------------------------Vascular Intervention Devices

Dear X------------------------,
I am responding to your letter to the State Board of Equalization dated March 9, 1994 regarding the application of sales tax to X----------------’s sales of its primary product, a directional coronary atherectomy system. You describe X--------------’s operations as follows: “X----------- develops, manufactures and sells a coronary atherectomy system. The system is used to excise and retrieve plaque from disease coronary arteries. All X--------catheters are intended for one time use only and are disposable.” You attached to your letter a brochure detailing how the system is used. It consists of a head on one side of which is a balloon and the other side is a micro-cutter. The head is inserted into the blood vessel through the blockage and is positioned over the lesion. The balloon inflates to hold it against the vessel wall and the cutter retracts. The system is pulled back, resecting the lesion and pushing it into the collection nosecone. The balloon is then deflated, the head repositioned over another lesion, and the process repeated. 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. Ry. 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. C.

Tax Consequences to X---------------

The system, as described in the brochure, is used temporarily during surgery to remove and collect lesion tissue which is blocking the blood vessel. It also retains the tissue for analysis. It is thus an appliance or device excluded from the definition of "medicine" under Regulation 1591(c) (2). Sales of this device are thus subject to tax. For your information I have enclosed a copy of Regulation 1591. I hope the above discussion answered your questions. If you need anything further, please do not hesitate to write again. Sincerely,

John L. Waid
Tax Counsel
JLW:es
Enclosure: Reg. 1591