Is a custom 'bio-engineered' orthotic shoe insert exempt from Colorado sales and use tax as a prosthetic device or durable medical equipment?
Plain-English summary
A company sells a custom "bio-engineered orthotic" — described as made to fit the individual and to place a person's feet "in proper alignment based on their unique body requirements." The Department understood this to be a shoe insert and was asked whether it's exempt from sales and use tax. The Department laid out the two possible exemptions but, as a GIL, made no determination — and it leaned skeptical.
Colorado taxes tangible personal property but exempts certain medical items under § 39-26-717, including prosthetic devices and durable medical equipment (DME).
Prosthetic device. A prosthetic device is an artificial device that aids or replaces a bodily function and is "designed, manufactured, or adjusted to fit a particular individual" (Reg. 39-26-717.1) — artificial limbs, a glass eye, teeth implants (replace), or eyeglasses and a pacemaker (aid). A device that merely treats or cures an injury is a therapeutic device, which Colorado does not exempt as a class. The Department was openly cautious about treating a shoe insert as a prosthetic: many ordinary shoes, pillows, and mattresses claim posture, arch-support, or alignment benefits without qualifying, and the Department doesn't think the prosthetic exemption reaches those. Its research found most states extend the orthotic-insert exemption only where there's a demonstrated medical necessity, and noted that Medicare excludes supportive devices for flatfoot, treatment of foot subluxations, and routine foot care. Because exemptions are narrowly construed (Security Life), doubt is resolved against exemption.
Durable medical equipment. DME is exempt only if it meets all five conditions: (1) withstands repeated use; (2) is primarily and customarily used for a medical purpose; (3) is generally not useful to a person without illness or injury; (4) is not worn in or on the body; and (5) is prescribed by a licensed medical provider. A shoe insert is worn on the body, which sits squarely against condition (4).
The Department closed by saying it "do[es] not determine here" whether the product fits either exemption — both because a GIL doesn't decide specific facts and because the company's description lacked the particulars needed.
What this means for you
Orthotics and foot-care product sellers
Don't assume a "custom" or "bio-engineered" label makes a shoe insert tax-exempt. Colorado treats most arch-support/alignment products like ordinary footwear unless they clearly function as a prosthetic (aiding/replacing a bodily function) or there's demonstrated medical necessity — typically backed by a prescription. A general wellness or comfort claim won't carry the exemption.
Why the DME route usually fails for inserts
Even a medically marketed insert tends to flunk the DME test on two points: it's worn on the body (condition 4 disqualifies it) and it must be prescribed by a licensed provider (condition 5). DME is built for things like hospital beds and wheelchairs, not items worn inside a shoe.
Accountants and tax professionals
Run both exemptions and expect a hard road. Prosthetic (Reg. 39-26-717.1): does it aid/replace a bodily function, individually fitted — and is it more than a comfort/posture claim? Therapeutic devices aren't exempt as a class. DME (§ 39-26-717): all five conditions, with "not worn in/on the body" and "prescribed" being the usual fails for inserts. Narrow construction governs (Security Life); persuasive context includes other states' medical-necessity limits and Medicare's foot-care exclusions. GIL — no determination.
Common questions
Q: Are custom orthotic shoe inserts exempt from Colorado sales tax?
A: Not clearly. They might qualify as exempt prosthetic devices if they genuinely aid or replace a bodily function and are individually fitted, but the Department is cautious and most jurisdictions require demonstrated medical necessity. The Department made no determination here.
Q: Could the insert be exempt as durable medical equipment?
A: Unlikely. DME must meet all five conditions, including that it is not worn in or on the body and is prescribed by a licensed provider. A shoe insert is worn on the body, so it generally fails.
Q: What would make an insert more likely to be exempt?
A: Evidence that it functions as a true prosthetic (aiding/replacing a bodily function) and a demonstrated medical necessity — typically a prescription — rather than a general posture, comfort, or wellness claim. Even then, exemptions are narrowly construed.
Q: Can I rely on this letter?
A: No. This is a General Information Letter — a general good-faith discussion that makes no specific determination and binds no one. For a binding answer, request a private letter ruling under Reg. 24-35-103.5.
Citations and references
Statutes and regulation:
- § 39-26-717, C.R.S. — exemptions for prosthetic devices and durable medical equipment
- Reg. (39)-26-717.1 — definition of prosthetic device (aids/replaces a bodily function; fitted to a particular individual)
Authorities referenced:
- Security Life & Accident Co. v. Heckers, 177 Colo. 455, 495 P.2d 225 (1972) — exemptions narrowly construed
- 42 U.S.C. § 1395y(13) — Medicare exclusion of flatfoot supports, foot-subluxation treatment, and routine foot care
- Out-of-state authorities cited as persuasive (Cal. Code Regs. 1591; Fla. Admin. Code 12A-1.020; Ill. PLR ST 95-0059-PLR; Mo. PLR L6177; RCW 82.08.0283)
- Reg. 24-35-103.5 (general information letters vs. private letter rulings)
Related Colorado rulings (medical exemptions §39-26-717):
- [[gil-13-012-sutures-and-iv-catheters]]
- [[gil-14-012-infusion-pumps]]
- [[gil-14-014-hemodialysis-devices]]
- [[gil-14-024-walk-in-bathtubs-wheelchair-lifts-modular-ramps]]
- [[gil-15-021-medical-equipment-and-supplies]]
Source
- Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
- Original PDF: https://tax.colorado.gov/sites/tax/files/documents/GIL-12-002.pdf
Original ruling text
Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]
GIL-12-002
February 14, 2012
xxxxxxxxxxxx
ATTN:XXXXXXX
xxxxxxxxxxxx
xxxxxxxxxxxx
Re: Bio-engineered Medical Device/Orthotic
Dear XXXXXXXX,
You submitted on behalf of XXXXXXXXX ("Company") a request for guidance on the
application of sales tax on the sale of your Bio-engineered Medical Device/Orthotic (Product).
The department issues general information letters and private letter rulings. A general
information letter provides a general overview of the relevant tax issue, but does not provide
a determination regarding a specific set of facts and is not binding on the department. A
private letter ruling provides a 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 24-35103.5 at www.taxcolorado.org > FYI/Publication > Rulings.
The department initially treats your request as one for 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, not determinations of the tax consequences on any specific circumstance and are not
binding on the department.
Issue
Is the sale of Product exempt from sales and use tax?
Background
Company sells what is characterized as "bio-engineered orthotics." The correspondence
does not describe the specifics of the product other than to stress "it is custom made to fit the
individual" (purchaser) and aids the function of an individual's feet by placing a "person's feet
in proper alignment based on their unique body requirements." We assume from this
description that the product is manufactured for insertion into an individual's footwear (shoe
insert).
Discussion
Colorado imposes sales tax on the sale of tangible personal property. Certain medical
devices and supplies are exempt from sales and use tax. Insofar as relevant to Company's
Product, Colorado exempts prosthetic devices and durable medical equipment, which we
discuss below. §39-26-717, C.R.S.
The department defines a prosthetic device as an artificial device which aids or replaces a
bodily function and which is designed, manufactured, or adjusted to fit a particular individual.
Department regulation (39)-26-717.1 Prosthetic devices that replace a body part of function
include such things as artificial limbs, glass eye, and teeth implants. Prosthetic devices that
do not replace a body part or function, but which aid in the functioning of a body part include
such items as eyeglasses and a cardiac pacemaker. In contrast, devices that treat or cure
an injury are generally classified as a therapeutic device and not prosthetic device. Colorado
does not exempt the sale of therapeutic device as a class, although Colorado does exempt
certain therapeutic devices. §39-26-717, C.R.S.
Your correspondence describes the Product as "aiding" a person's foot by placing the foot "in
proper alignment based upon their individual body requirements." Colorado is cautious in
extending the prosthetic exemption to shoe inserts. For example, many shoe manufacturers
represent that their shoe design will have ameliorative effects on posture, spine alignment,
arch support, muscle tone, and on other foot related issues. Manufacturers of bed pillows
and mattresses make similar claims. However, we do not believe that the prosthetic device
exemption extends to these types of products.
Our research suggests that many, if not most, states that have addressed orthotic shoe
inserts have restricted the exemption only to cases where there is a demonstrated medical
necessity. See, e.g., Cal. Code of Regs. 1591, Fla. Admin. Code Ann. 12A-1.020, Illinois
Private Letter Ruling No. ST 95-0059-PLR, 02/02/1995 , Missouri Private Letter Ruling No.
L6177, 08/24/1992, RCW 82.08.0283 We also note that the Federal Medicare program
excludes similar products from coverage.1
When there is some ambiguity whether a product falls within an exemption, courts and the
Department are guided by rules of statutory construction. In general, exemptions are
narrowly construed and are not applied unless the product clearly falls within the exemption.
Security Life & Accident Co. v. Heckers, 177 Colo. 455,495 P. 2d 225, 226 (1972).
Colorado also exempts durable medical equipment. §39-26-717, C.R.S. However, in order
to qualify for this exemption, the equipment must meet the following conditions: (1) withstand
repeated use; (2) is primarily and customarily used to serve a medical purpose; (3) is
1 The Federal Medicare Program will not cover as medially necessary:
- the treatment of flatfoot conditions and the prescription of supportive devices therefore;
- the treatment of subluxations [incomplete or partial dislocation of a bone or joint] of the foot; or
- routine foot care (including the cutting or removal of corns or calluses.42 U.S.C. Section
1395(y)(13)
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generally not useful to a person in the absence of illness or injury, (4) is not worn in or on the
body; and (5) is prescribed by a licensed medical provider.
Because this is a general information letter, we do not determine here whether the Product
falls within either exemption. A general information provides an overview of the tax
provisions that may apply. Moreover, the information provided on the Product is lacking in
particulars which would be necessary for such a determination. As noted above, you may
apply for a private letter ruling to request such a determination.
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 is not made public. I enclosed 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
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