Is a prescribed, at-home ophthalmic monitoring device — and the monitoring, data-processing, and call-center services that go with it — subject to Colorado sales tax?
Plain-English summary
A for-profit company provides a prescribed ophthalmic monitoring device plus data-processing and call-center services to patients at risk of eye disease. A doctor examines the patient and prescribes the device, which is uniquely calibrated for that patient and used at home: it scans the patient's eyes and sends the data over the internet to the company's out-of-state headquarters, where it's analyzed; doctor and patient view results online, and a call center alerts them if the condition worsens. The company charges a one-time qualifying fee plus a monthly service fee for the data processing, call center, and hosting; the device stays the company's property and patients must return it (the invoices don't call it a sale or rental). The company asked whether its service charges are taxable and, if everything is exempt, whether it must register for a Colorado sales tax account. The Department's (non-binding) answer was favorable on all counts.
The device is exempt durable medical equipment. Colorado exempts durable medical equipment (DME) dispensed pursuant to a prescription (§ 39-26-717(1)(j), effective for purchases on/after August 10, 2011). DME must (a) withstand repeated use, (b) be primarily/customarily used for a medical purpose, (c) generally not be useful absent illness or injury, and (d) not be worn in or on the body (§ 39-26-717(2)(a)). The ophthalmic device — prescribed, durable, medical in purpose, useless to a healthy person, and used next to rather than worn in/on the body — appears to meet the DME definition, so its sale and use are exempt. (This is the same four-part test that defeated the worn-on-the-body cold cuff and shoe-insert devices in other rulings; here the device clears prong (d).)
The services are non-taxable. Colorado does not tax medical-related services, so the monitoring, data-processing, call-center, and physician-reimbursement charges are exempt. The company said there was no charge for renting the device; the Department added that even if there were a rental charge, it would be exempt as DME — so it didn't need to untangle the bundle of goods and services. (It noted, though, that it scrutinizes arrangements where a retailer claims it isn't charging for taxable goods while bundling them with non-taxable services.)
No registration needed. A retailer that sells only products and services that are exempt from sales and use tax isn't required to open a Colorado sales tax account. The company should still check with home-rule cities and counties (whose taxes the Department doesn't administer) about their treatment and any registration requirements.
What this means for you
Medical-device companies and digital-health/remote-monitoring providers
A prescribed device that meets all four DME criteria — including not worn in or on the body — is exempt, and the monitoring/data/call-center services wrapped around it are non-taxable medical services. If everything you sell is exempt, you don't need a Colorado sales tax account. But the "not worn on the body" prong is decisive: a device worn in/on the body can fail DME even if prescribed.
Patients and prescribing doctors
A prescribed at-home monitoring device like this is exempt from Colorado sales/use tax, and the recurring service fees aren't taxed as a sale of goods.
Accountants and tax professionals
Two independent grounds keep this tax-free: DME exemption on the device (§ 39-26-717) and the non-taxability of services. Watch the bundling caveat — the Department reserves the right to examine "we're only charging for services" structures — but here even a rental charge would have been exempt DME. And note the exempt-only-seller registration relief, subject to home-rule check.
Common questions
Q: Is a prescribed at-home medical monitoring device exempt from Colorado sales tax?
A: If it meets the durable-medical-equipment criteria — dispensed by prescription, withstands repeated use, serves a medical purpose, isn't useful absent illness, and isn't worn in or on the body — yes. The Department found this ophthalmic device appears to qualify.
Q: Are the monthly monitoring and call-center fees taxable?
A: No. Colorado doesn't tax medical-related services, so those charges are exempt. And even a charge to rent the device itself would be exempt as durable medical equipment.
Q: If everything I sell is exempt, do I still need a Colorado sales tax license?
A: No. A business that sells only exempt products and services isn't required to open a state sales tax account — though you should check home-rule cities/counties separately.
Q: Can I rely on this letter?
A: It's a General Information Letter — non-binding general guidance. It states the Department's view, but a binding answer on your facts would require a private letter ruling.
Citations and references
Statutes and references:
- § 39-26-104(1)(a), C.R.S. (sales tax on TPP); § 39-26-202, C.R.S. (use tax)
- § 39-26-717(1)(j), C.R.S. (DME exemption, effective for purchases on/after 8/10/2011)
- § 39-26-717(2)(a), C.R.S. (definition of DME; four criteria)
- DR 1002 (home-rule cities and counties)
Related rulings
- [[gil-12-009-durable-medical-equipment]] — DME four prongs; worn-on-body prong defeats the cold cuff
- [[gil-12-002-bio-engineered-medical-device-orthotic]] — prosthetic vs. therapeutic; worn-on-body
- [[gil-12-017-products-for-the-blind-and-legally-blind]] — DME requires medical purpose + prescription
Source
- Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
- Original PDF: https://tax.colorado.gov/sites/tax/files/documents/GIL-11-011.pdf
Original ruling text
Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]
GIL-11-011
June 7, 2011
XXXXXXXXXXXXXX
ATTN: XXXXXXXXX
XXXXXXXXXXXXXX
XXXXXXXXXXXXXX
Re: Taxability of medical-related services providers
Dear XXXXXXXXXX,
You submitted on behalf of your client (“Company”) a request for guidance on the application of
sales tax for the provision of medical-related services. The department issues general information
letters and private letter rulings. A general information letter provides a general overview of the
relevant tax issues and is not binding on the department. A private letter ruling provides a specific
determination for a specific set of facts, is binding on the department but not the taxpayer, and
requires payment of a fee. For more information about general information letters and private letter
rulings, please see Department regulation 24-35-103.5 at www.taxcolorado.org > FYI/Publication >
Rulings.
The department initially treats your request as one of a general information letter. If you would like
the department to issue a private letter ruling on the issues you raise, you can resubmit a request
and fee in compliance with regulation 24-35-103.5. It is important to remember that general
information letters, such as this one, are general discussions of tax law and are not a determination
of the tax consequence of any particular action or inaction.
Issue
Does Colorado sales tax apply to charges for services related to Company’s medical device? If the
services rendered are tax exempt, does Company still need to register for a sales tax account?
Background
Company is a for-profit corporation that provides medical devices and data processing services to
patients who are diagnosed with the possibility of contracting an eye disease. To obtain Company’s
services, patients must undergo an examination by their doctor, who then prescribes for the patients
the use of Company’s medical equipment. The medical equipment, which is purchased from a
foreign-based subsidiary, is an ophthalmic device which continually monitors and detects visual
distortions that may lead to eye diseases.
Doctors must order the equipment directly from Company when a patient qualifies for use of the
medical equipment. Company ships the medical equipment to the doctor’s office through a thirdparty carrier such as UPS or FedEx. Machines can be used only by the patient who was prescribed
the machine because each devise is uniquely calibrated for that specific patient.
Patient obtains the equipment from their doctor and uses the device in their own homes. The device
scans and collects data from the patient’s eyes and the data is transferred through the Internet to
Company’s headquarters, which is located outside of Colorado. The data is converted to usable
data and analyzed by computers. After the data is analyzed, both the doctor and patient are able to
view the results of each scan through an online interface, allowing the doctor to monitor the progress
of the patient’s eyes between examinations. Based on a patient’s profile, Company will have experts
analyze the data if the data collected is abnormal. In addition, Company employs a call center, also
located outside Colorado, that will notify the doctor and patient if results of eye conditions worsen.
Company charges a monthly service fee for its data processing, call center, and online hosting
services. Company also charges an initial one-time fee that qualifies the patient for the services.
Doctors do not receive a commission or referral fee, but receive a portion of the initial fee that will
reimburse the doctor for the initial examination of their patients.
Patients using the equipment are not subject to a contract1 and, at the end of usage, must return the
medical equipment to Company. While the devise is used by patients, the device remains the
property of Company. The invoices do not refer to the agreement as a sale or rental of the medical
equipment.
The Company’s only presence in Colorado is when a salesman from outside Colorado enters the
state to give demonstrations on Company’s product to doctors and physicians at trade shows and
medical conventions. No sales are made during these visits, as sales are only made when a doctor
prescribes the medical devise to a patient. In addition, Company has no property in Colorado, other
than medical devices prescribed to patients within Colorado.
Discussion
Colorado levies sales and use tax on the sale, use, storage, or consumption of tangible personal
property. §§39-26-104(1)(a) and 202, C.R.S. Colorado exempts a variety of medical-related
products. One such exemption, which is effective for purchases on or after August 10, 2011, is the
exemption for durable medical equipment. §39-26-717(1)(j), C.R.S.2
“Durable Medical Equipment” means equipment, including repair and replacement parts for such
equipment, dispensed pursuant to a prescription by a licensed physician, physician’s assistant or
advanced practice nurse with prescriptive authority that:
A. Can withstand repeated use;
B. Is primarily and customarily used to serve a medical purpose;
1 The department assumes that this means the Company dose not require a patient to sign a document which would
constitute a contract. However, the absence of such a document does not mean that there is not a contractual
relationship between the patient and Company. For example, a patient has an obligation to pay Company a fee and to
return the device – both which constitute contractual terms.
2 Although there are other exemptions that apply to medical equipment and may apply here, it is not necessary to address
these exemptions because the ophthalmic device falls within the definition of durable medical equipment exemption.
C. Is generally not useful to a person in the absence of illness or injury, and
D. Is not worn in or on the body.
§39-26-717(2)(a), C.R.S. The ophthalmic device described by Company appears to meet the
definition of durable medical equipment and, therefore, the sale and use of this equipment is exempt
from sales and use tax.
You ask whether the charges for services, such as monitoring, call center assistance, and
reimbursement for physician services, are exempt. You state that there is no charge for the rental of
the device.3 Colorado does not impose sales tax on the provisioning of medical-related services.
Therefore, these charges are exempt from sales tax.
Finally, retailers who sell products and services that are exempt from sales and use tax are not
required to open a sales tax account with the Department. You may want to consider contacting
home rule cities and counties, whose taxes are not administered by the department, to determine
whether they levy sales or use taxes on the products and services you describe or require
registration. For a list of home rule cities and counties, you can go to www.taxcolorado.org > Forms
Sales Taxes > Form DRP 1002.
Miscellaneous
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
3 The department will closely examine transactions in which a retailer asserts that it is not charging for the sale or rental of
taxable goods when the retailer provides both non-taxable services and taxable goods bundled in one transaction.
However, such an examination is not required here because, even if there were a charge for the rental of the device, such
charge would be exempt as durable medical equipment.