Are orthopedic implants (screws and plates made in standard sizes, not fitted to one person) exempt from Colorado sales tax, even if they don't meet the 'prosthetic device' definition?

Plain-English summary

A company sells orthopedic implants — screws and plates used to correct bone breaks and fractures — to hospitals and surgery centers. The implants come in various standard sizes but are not adjusted to fit a particular individual. The company thought they were prosthetic devices but was unsure they qualify, because FYI Sales 68 defines a prosthetic device as one "designed, manufactured or adjusted to fit a particular individual." It had been charging sales tax while some customers refused to pay, claiming exemption.

The Department's helpful move: don't get stuck on the prosthetic-device label. Colorado has at least three medical exemptions under § 39-26-717 — therapeutic devices, prosthetic devices, and materials a doctor furnishes as part of professional services to a patient — and the doctor-furnished-materials exemption (§ 39-26-717(1)(a)) is the better fit:

• To qualify, the material must leave the doctor's office with the patient. A splint furnished to treat a fracture is exempt because the doctor furnishes it as part of treating the patient and it leaves with the patient (FYI Sales 68). An implanted screw/plate likewise stays with the patient.
• No custom-fit requirement. Unlike the prosthetic exemption, this one does not require the item to be specifically designed, manufactured, or adjusted to the particular patient — so standard-size implants aren't disqualified for being off-the-shelf.
• The hospital/clinic buying it is fine. It's enough that the material is furnished as part of the doctor's professional service, even though a hospital, clinic, or the doctor's professional entity (PC, partnership, LLC) actually buys it. The Department has agreed that selling items like fracture splints to hospitals and clinics, furnished as part of the doctor's service, falls within this exemption (though provisioning could occasionally be too attenuated from the doctor's service).

The Department also flagged two more possible exemptions: sales to charitable organizations (§ 39-26-718, typically 501(c)(3)) and sales to government entities performing governmental functions (§ 39-26-704, e.g., a county-owned hospital). It stopped short of formally ruling that these specific implants qualify.

What this means for you

Medical-device and implant sellers (and the hospitals that buy from you)

If you've been taxing items because they don't fit the strict prosthetic-device definition, look at the doctor-furnished-materials exemption instead. For things that go into or home with the patient — implants, splints, casts, and similar — that exemption is usually the right path, and it doesn't require custom fitting and isn't defeated by the fact that a hospital or clinic is the purchaser. Don't let the wrong label cause you to over-collect.

Implants vs. things the doctor keeps

The dividing line that runs through Colorado's medical letters: does it leave with the patient? An implant that stays in the patient is on the exempt side. Contrast the surgical equipment and single-use tools the doctor uses and keeps — those are taxable (see the LASIK-laser letter). Same statute, opposite results, decided by who ends up with the item.

Also check charitable and government status

Beyond the medical exemptions, a sale may be exempt simply because the buyer is a qualifying charity (501(c)(3)) or a government entity (like a county hospital). Verify the buyer's exemption documentation.

If you over-collected, you can seek a refund

If implants were exempt but you charged and remitted tax, the path to recover is a refund claim — and going forward, document the exemption rather than taxing.

Common questions

Q: My orthopedic implants aren't custom-fit — does that kill the exemption?
A: Not under the doctor-furnished-materials exemption (§ 39-26-717(1)(a)). It doesn't require custom fitting. It applies to materials a doctor furnishes that leave with the patient — which an implant does.

Q: Does it matter that the hospital, not the doctor, buys the implant?
A: Generally no. The exemption still applies when the material is furnished as part of the doctor's professional service, even though a hospital, clinic, or the doctor's professional entity makes the purchase.

Q: What's the key test for the medical exemption?
A: Whether the item leaves with the patient. Implants, splints, and casts do (exempt); equipment and tools the doctor keeps/uses up don't (taxable).

Q: Are there other ways these sales could be exempt?
A: Yes — sales to a charitable organization (501(c)(3)) under § 39-26-718, or to a government entity (e.g., a county hospital) under § 39-26-704.

Q: Can I rely on this letter?
A: No. It's a General Information Letter — general guidance, not binding on the Department, and not a determination that these specific implants qualify. Consider a private letter ruling for a binding answer.

Citations and references

Statutes and publications:
- § 39-26-717(1)(a), C.R.S. — exemption for materials furnished by a doctor as part of professional services to a patient (must leave with the patient; no custom-fit requirement)
- § 39-26-717, C.R.S. — medical exemptions generally (therapeutic devices, prosthetic devices, doctor-furnished materials)
- § 39-26-718, C.R.S. — exemption for sales to charitable organizations (typically 501(c)(3)); FYI Sales 2
- § 39-26-704, C.R.S. — exemption for sales to governmental entities performing governmental functions
- Department FYI Sales 68 (Medical and Dental Equipment and Supplies)

Related Colorado medical-exemption letters:
- [[gil-08-014-taxability-of-medical-equipment]] — LASIK laser/interface taxable (consumed by the doctor, don't leave with the patient) — the contrast to implants
- [[gil-08-006]] — dermal filler exempt as a doctor-furnished material
- [[gil-08-013-taxability-of-name-products]] — therapeutic-device limits (equipment, treat-not-prevent)

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/GIL-08-026.pdf

Original ruling text

Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]

GIL-2008-26
October 15, 2008
XXXXXXXXXXX
XXXXXXXXXXX
XXXXXXXXXXX
Attention:

XXXXXXXX

Re: Sales Tax Exemption
Dear XXXXXXXXXX,
This letter is in response to your undated letter to the Colorado Department of
Revenue. I apologize that it has taken so long to reply to your request. The
department recently acquired the staff needed to respond to these types of requests.
The department also recently enacted a regulation governing requests for tax advice.
We issue both private letter rulings and general information letters. See, §24-35-103.5,
C.R.S. and Department regulation 24-35-103.5. Private letter rulings are issued in
response to tax questions relating to specific factual settings and are binding on the
department. General information letters are issued in response to general tax
questions and are not binding on the department. You can view this regulation on-line
at:
http://www.revenue.state.co.us/taxstatutesregs/3921reg24-35-103.5.html
I am initially treating your request as a request for a general information letter. As
noted above, general information letters are general discussions of tax law and are not
a determination with respect to any particular factual setting. For this reason, this letter
is not a determination that the company’s products fall within any exemption. If you
would like a private letter ruling, please take a moment to review the regulation and
resubmit your request with the necessary information.

Issue
1. Are orthopedic implants consisting of screws and plates manufactured to
various sizes exempt from sales tax?
Background
Your company sells orthopedic implants to hospitals and surgery centers. Implants
consist of screws and plates used to correct bone breaks and fractures. Implants are
manufactured in various sizes, but they are not adjusted to fit a particular individual.
You believe that these items are prosthetic devices, but you are unclear whether they
qualify as such in Colorado. Specifically, you ask whether they qualify as prosthetic
devices in light of Department publication FYI Sales 68 (Medical and Dental Supplies
and Equipment), which states, in part, that prosthetic devices are, “designed,
manufactured or adjusted to fit a particular individual. ‘Adjusted to fit a particular
individual’ means that the prosthetic device must be altered solely for the use of a
particular person.” You state that you are currently charging sales tax, but some
companies are refusing to pay tax because they believe the items are exempt.
Discussion
1. Materials furnished by a doctor as part of the professional services to the patient are
exempt.
There are at least three exemptions specifically related to the sale of medical
equipment: therapeutic devices, prosthetic devices, and medical supplies furnished as
part of a doctor’s professional service to a patient. See, generally, §39-26-717, C.R.S.
Given the great variety of medically-related products, it sometimes difficult to determine
where a particular product falls on the gradations from the archetype exemption
established by statute.
Regardless of whether the products your company sell fall within the prosthetic or
therapeutic device exemptions, you may wish to consider the applicability of the
exemption for the sale of materials furnished by a doctor as part of professional
services to a patient. §39-26-717(1)(a), C.R.S. In order to qualify for this exemption,
the material must leave the doctor’s office with the patient. For example, a splint
furnished by the doctor to treat a fractured bone is exempt because it is furnished as
part of the doctor’s professional services to the patient and the splint leaves with the
patient. See, FYI Sales 68. There is no requirement under this exemption that the
material be specifically designed, manufactured, or adjusted to the particular patient.
Moreover, it is sufficient that the material be furnished as part of the doctor’s
professional services, even though a hospital or clinic actually purchased the product.
Doctors typically do not work as sole proprietors. Rather, they often work as
employees/partners/members of professional corporations, corporations, partnerships,
or limited liability companies. It is these business entities, not the doctor, that purchase
the materials which are ultimately used by the doctor as part of his or her professional
service to the patient. Although there may be some situations where the provisioning
of material by a hospital or clinic to the patient may be too attenuated from the
professional services of a doctor so as to deny this particular exemption, the
department has agreed that the sale of materials such as splints for treatment of

fractured bones to hospitals and health clinics and furnished as part of the doctor’s
professional service to the patient falls within this exemption.
In addition to these specific exemptions for medical goods, you may also wish to
consider the exemption for sales to charitable organizations. Colorado exempts sales
of goods to entities that qualify as a charitable organizations (typically those entities
that hold a 501(c)(3) certificate from the Internal Revenue Service). §39-26-718,
C.R.S., Department FYI Sales 2 (Sales to Charitable Organizations). Similarly, sales
to governmental entities performing governmental functions are also exempt. §39-26704, C.R.S. For example, a county owned hospital or health clinic may qualify for this
exemption. Compare, e.g., Nebraska Attorney General Opinion, 223, 03/28/1978
(county owned hospital is a government entity operating in a governmental capacity).
Please note that the Department of Revenue administers state and state-collected city
and county sales taxes and special district sales and use taxes, but does not
administer sales and use taxes for self-collected home rule cities and counties. I urge
you to contact these entities for information about the applicability of their taxes. You
can visit our web site at www.revenue.state.co.us for more information about state and
local sales taxes.
Pursuant to state law and department regulation 24-35-103.5, noted above, the
Department will make public a redacted version of this letter. Your letter requesting
this general information letter is not made public. I enclose a proposed redacted
version of this letter. Please contact me within 60 days from the date of this letter if
you have any questions, comments, or objection concerning the redacted letter.
I hope this is helpful. Please feel free to contact me if you have any questions.
Sincerely,

Office of Tax Policy
Colorado Department of Revenue