Were prescription cardiac-monitoring fees taxable when the provider sent an EKG strip to the physician?

Plain-English summary

A medical-electronics company placed specialized equipment with hospitals and physicians. Under a doctor's prescription, an independent monitoring service used that equipment to receive heart-arrhythmia or syncope data over telephone lines. The resulting EKG strip was faxed or mailed to the physician.

California concluded that the customer's true object was the monitoring information, not the strip of paper. The EKG strip was merely the means of conveying the information produced by the monitoring service, so sales and use tax did not apply to the monitoring fee.

The requester already understood that tax applied to its use of the equipment and accessories such as batteries and electrodes. The opinion addressed only the service fee and did not exempt those inputs.

What this means for you

Medical monitoring providers

An incidental physical report did not turn this information-centered monitoring arrangement into a taxable property sale.

Accountants and tax professionals

Analyze the customer's true object separately from tax on equipment and consumables used to provide the service.

Common questions

Q: Was the cardiac-monitoring fee taxable?

A: No.

Q: Did delivery of an EKG strip make the transaction taxable?

A: No. The strip was incidental to the monitoring information.

Q: Did the opinion exempt the equipment and accessories?

A: No.

Citations and references

• California Revenue and Taxation Code §§ 6051 and 6201
• California Sales and Use Tax Regulation 1501

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 515.0015.800
• Original supporting opinion: 515.0015.800 PDF

Original ruling text

515.0015.800

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

(916) 445-6450
October 29, 1990
REDACTED TEXT
REDACTED TEXT
Dear REDACTED TEXT:
This is in reply to your August 30, 1990 letter regarding the application of California sales and use tax to fees charged by REDACTED TEXT for monitoring services under the following facts you provided: “REDACTED TEXT is an electronics manufacturer of medical equipment. A separate department of our company, REDACTED TEXT is allocated equipment inventory which is then shipped to hospitals/physicians throughout the United States for use in the REDACTED TEXT monitoring service. This service uses REDACTED TEXT equipment to transmit medical data over the telephone to an independent monitoring service (under contract to REDACTED TEXT and using the REDACTED TEXT name) located outside California. “The monitoring services are always performed under a doctor’s prescription and billed directly either to the patient’s insurance company or the doctor. The service covers heart arrythmia/syncope monitoring and transmissions result in an EKG strip which is then either faxed or mailed to the physician depending on established protocols.” You indicated that, although you understand the application of tax to the use of the equipment and accessories (batteries, electrodes, etc.), you wish an opinion as to the application of tax to the fees charged for the monitoring services. The California sales tax is imposed upon retailers at the applicable rate of the gross receipts from the retail sale of tangible personal property in this state. (Rev. & Tax. Code § 6051.) The use tax is imposed upon the storage, use, or other consumption of tangible personal property purchased from a retailer for storage, use, or other consumption in this state. (Rev. & Tax. Code
§ 6201.) We believe that the true object of the contract between REDACTED TEXT and its customers is the performance of a service rather than the furnishing of tangible personal property. See Sales and Use Tax Regulation 1501, Service Enterprises Generally. REDACTED TEXT’ customers contract with the REDACTED TEXT department to receive the information which results from the monitoring rather than the tangible personal property (EKG strip) which is incidentally transferred to the physician or hospital to convey the information obtained through the

515.0015.800

-2-

October 29, 1990

monitoring and transmission equipment. Accordingly sales and use tax does not apply to REDACTED TEXT charge for the monitoring service. We hope this answers your question; however, if you need further information, feel free to write again. Very truly yours, Ronald L. Dick Senior Tax Counsel RLD:sr Enc. bc:

REDACTED TEXT District Administrator