Are custom single-use surgical instruments a manufacturer sells to hospitals and surgery centers subject to Colorado sales or use tax?

Plain-English summary

A company described custom disposable instruments made for individual patients undergoing joint-replacement surgery. It sells them to hospitals, surgery centers, and distributors and asked whether they are subject to Colorado sales or use tax. The Department treated the request as a General Information Letter and did not make a specific determination.

The letter explains the general medical-supply rules. A material supplied by a doctor in professional services to a patient must leave the doctor's office or medical facility with the patient to fit the described exemption. The letter uses a bone splint or fixator as an example of an item that typically leaves with the patient, and syringes as an example of material consumed by the doctor. Materials that remain at the facility are treated as consumed by the doctor or hospital, which must pay sales or use tax when acquiring them.

The letter also discusses exemptions for therapeutic devices sold by a doctor and purchases by charitable or governmental organizations. It does not apply those rules to the company's instruments or decide whether any particular sale is taxable.

What this means for you

Medical-equipment sellers and facilities

The GIL describes the general distinction between materials that leave with the patient and materials consumed at the facility. It does not determine the taxability of the company's custom instruments, or of a particular hospital or surgery-center purchase.

Buyer status and device rules

The letter separately discusses therapeutic devices sold by a doctor and purchases by charitable or governmental organizations. The availability of those provisions depends on the facts and the applicable requirements; the GIL does not decide them for the described products.

Common questions

Q: Does this GIL decide that the company's custom instruments are taxable?
A: No. It gives general guidance and says a private letter ruling is available for a specific determination. It explains that materials remaining at a medical facility are generally treated as consumed by the doctor or hospital.

Q: What is the leaves-with-the-patient rule described in the letter?
A: The letter says material supplied by a doctor in professional services must leave the doctor's office or medical facility with the patient to qualify under that discussion. It gives a bone splint or fixator as an example and treats syringes as provider-consumed material.

Q: Can an organization's status affect a purchase?
A: The letter says purchases by charitable and governmental organizations are generally exempt and that some hospitals may qualify. It does not determine whether a particular hospital qualifies.

Q: Can I rely on this letter for a specific product?
A: No. It is general, nonbinding guidance and does not make a specific determination.

Citations and references

Statutes and publications:

• §§ 39-26-104 & 202, C.R.S. (sales/use tax on tangible personal property)
• § 39-26-717, C.R.S. (therapeutic devices/medical supplies provided by a doctor to a patient; leaves-with-patient rule; under-$100 / $100+ written-recommendation thresholds)
• FYI Sales 68 (Medical and Dental Supplies and Materials); FYI Sales 1 (sales to charitable/governmental organizations)

Related rulings

• [[plr-10-004-private-letter-ruling-dear]] — provider is the consumer of a single-use device used on the patient; true object
• [[gil-13-012-sutures-and-iv-catheters]] — item-specific medical-supply taxability
• [[gil-09-009-enteral-feeding-pump]] — medical-device taxability via FYI Sales 68

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/GIL-09-022.pdf

Original ruling text

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

GIL-09-022
May 13, 2009
XXXXXXXXXXXXX
Attn: XXXXXXXXX
XXXXXXXXXXXXX
XXXXXXXXXXXXX
Re: medical equipment / sales tax
Dear Mr. XXXXXXXXX,
You request guidance regarding the taxability of certain medical equipment sold by XXXXXXXX (the “Company”). The department issues general information letters and private letter rulings. A general information letter provides a general overview of the applicable tax law, does not provide a specific determination, and is not binding on the department. A private letter ruling is a determination of the applicability of tax to a specific set of circumstances and is binding in the department. A party requesting a private letter ruling must provide certain information and remit a fee. For more information about general information letters and private letter rulings, please refer to the Department’s regulation 24-35-103.5, C.R.S., which is available on our web site at: www.taxcolorado.org > FYI/Publications > Rulings. We will initially treat your request as one for a general information letter. You may resubmit your request as a private letter ruling. Issue Is medical equipment sold by the Company subject to sales or use tax? Background The Company is in the business of manufacturing and selling custom disposable instruments for patients undergoing joint replacement surgery. These instruments are not commercial offthe-shelf products, but are made for each patient using their own anatomy and cannot be reused on another patient. All of the products are sold directly to hospitals, surgery centers, and distributors. Discussion. Colorado imposes sales and use tax on the sale, use, storage, or consumption of tangible personal property. §§39-26-104 and 202, C.R.S. Colorado exempts therapeutic devices and

related accessories and medical supplies provided by a doctor in the course of professional services to a patient. §39-26-717, C.R.S. See, FYI Sales 68. In order to qualify as an exempt material supplied by a doctor in the course of providing professional services to a patient, the material must leave the doctor’s or medical facility with the patient. For example, a bone splint or fixator typically leaves with the patient and, therefore, is exempt. Materials that do not leave the doctor’s office or medical facility are considered consumed by the doctor or hospital and the doctor or hospital must pay sales tax when the material is purchased from suppliers or use tax if the material is purchased without paying sales tax. For example, syringes are considered consumed by the doctor, not the patient, and, therefore, the doctor must either pay sales tax when he or she acquires the syringe or pay use tax if purchased without paying sales tax. Therapeutic devices sold by a doctor are exempt if the device is used to correct or treat a human physical disability or abnormality and if it is less than one-hundred dollars. Therapeutic devices that are sold for one-hundred dollars or more are also exempt, but only if sold in accordance with a written recommendation from a license doctor. Please note that purchases by charitable and governmental organizations are generally exempt from tax. Some hospitals may qualify as either charitable organizations or as governmental organizations (e.g., a county hospital). See, FYI Sales 1. For more information about these exemptions, please visit our website at www.taxcolorado.org
> FYI/Publications.
As noted earlier, you can submit your request as a private letter ruling if you would like a specific determination regarding the circumstances set forth above. Miscellaneous Enclosed is a redacted version of this ruling. Pursuant to statute and regulation, this redacted version of the ruling will be made public within 60 days of the date of this letter. Please let me know in writing within that 60 day period whether you have any suggestions or concerns about this redacted version of the ruling.

Sincerely,

Office of Tax Policy
Colorado Department of Revenue

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