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 manufactures custom, single-use surgical instruments for joint-replacement surgery — made for each patient's own anatomy, not reusable on another patient — and sells them to hospitals, surgery centers, and distributors. It asked whether the instruments are subject to Colorado sales or use tax. Applying Colorado's medical exemption, the framework points to taxable.

The exemption requires the item to leave with the patient. Colorado taxes the sale/use of tangible personal property (§§ 39-26-104, 202) but exempts therapeutic devices, related accessories, and medical supplies provided by a doctor in the course of professional services to a patient (§ 39-26-717; FYI Sales 68). The critical test for a doctor-supplied material: it must leave the doctor's office or medical facility with the patient. A bone splint or fixator typically leaves with the patient → exempt. Materials that don't leave — that are used and consumed by the doctor or hospital — make the doctor/hospital the consumer, who must pay sales tax when buying them from suppliers (or use tax if bought without tax). The Department's example: syringes are consumed by the doctor, not taken by the patient → taxable to the provider. Surgical instruments used during the operation fall on the same side as syringes — they're used by the surgeon and don't go home with the patient, so they're taxable, and the hospital/surgery center is the consumer.

The "device sold by a doctor" path doesn't fit either. A therapeutic device a doctor sells can be exempt if it treats a human disability/abnormality and is under $100, or $100 or more only if sold on a doctor's written recommendation. Custom intra-operative instruments aren't devices the patient buys to treat a disability, so this path doesn't help.

The real exception — exempt buyers. Purchases by charitable and governmental organizations are generally exempt, and some hospitals qualify as charitable organizations or as governmental entities (e.g., a county hospital) (FYI Sales 1). So a sale of these instruments to a qualifying charitable/governmental hospital can be exempt — but a sale to a for-profit hospital or surgery center is taxable.

(The Department framed this as general guidance and noted a private letter ruling is available for a determination on specific facts.)

What this means for you

Manufacturers and distributors of surgical instruments

Treat sales of instruments used during procedures (single-use or not) as taxable — the buyer (hospital/surgery center) is the consumer, because the instruments don't leave with the patient. Collect Colorado tax unless the buyer provides a valid charitable or governmental exemption. Being "custom" or "single-use" doesn't make an instrument exempt.

Hospitals and surgery centers

You're generally the taxable consumer of instruments and supplies your clinicians use and that stay in the facility — pay sales tax on purchase (or use tax if you bought untaxed). Items that go home with the patient (splints, fixators, take-home supplies) can qualify for the medical exemption. If your facility is a charitable or governmental hospital, your purchases may be exempt with proper documentation.

Accountants and tax professionals

The decisive question is who consumes the item — patient vs. provider — proxied by the "leaves with the patient" test (§ 39-26-717; FYI Sales 68). Surgical instruments pattern with syringes (provider-consumed, taxable), not with splints (patient-retained, exempt). The biggest swing factor is the buyer's charitable/governmental status (FYI Sales 1).

Common questions

Q: Are custom single-use surgical instruments taxable in Colorado?
A: Yes, when sold to a for-profit hospital or surgery center. They're used by the surgeon and don't leave with the patient, so the facility is the taxable consumer. "Custom" and "single-use" don't change that.

Q: Why are instruments taxable but a bone splint exempt?
A: The medical exemption requires the item to leave the facility with the patient. A splint goes home with the patient (exempt); surgical instruments stay behind and are consumed by the provider (taxable), like syringes.

Q: Is there any way these sales are exempt?
A: Yes — if the buyer is a charitable or governmental organization. Some hospitals (e.g., county hospitals) qualify, making their purchases exempt with proper documentation.

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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