Is a prescribed cold-therapy band/cuff that wraps around the body and is connected to a cooling device exempt from Colorado sales tax as durable medical equipment?
Plain-English summary
A company that rents and sells durable medical equipment to individuals was considering adding a cold-therapy product — a band wrapped around an injured area and connected to a separate, relatively large cooling device that holds the area at a set temperature. This therapy is common in orthopedic-surgery recovery and is prescribed by the operating physician. The company believed it qualified as durable medical equipment (DME) and asked the Department. The Department walked through the test but, as a GIL, made no determination.
Colorado exempts durable medical equipment dispensed pursuant to a prescription under § 39-26-717(2)(a). DME must meet all four criteria — it:
- a. can withstand repeated use;
- b. is primarily and customarily used to serve a medical purpose;
- 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.
For this product, three criteria clearly fit (durable, medical purpose, useless without injury). The only one in doubt is (d) — the cuff is worn on the body. The Department noted it was considering a regulation with examples of devices that do and don't qualify, including devices "in some fashion, worn on the body," and pointed to a private letter ruling for a specific answer.
One more requirement matters regardless: the product is exempt only when sold pursuant to a prescription. That means sales to hospitals, clinics, and medical providers are not exempt unless they're wholesale sales for resale; but those entities' sales to patients are exempt if made pursuant to a prescription.
What this means for you
Medical-equipment sellers and rental companies
A prescribed therapeutic device can be exempt DME, but the "not worn in or on the body" rule is the usual stumbling block. A cuff, brace, or wrap that sits on the body lands in the gray zone the Department itself flagged — so don't treat "prescribed + medical" as automatically exempt. When the body-worn question is close, a private letter ruling buys certainty.
The prescription gate
Even a qualifying device is only exempt when dispensed on a prescription. Selling to a hospital or clinic is taxable (unless it's a wholesale-for-resale), while the provider's prescribed sale to the patient is exempt. Track who you're selling to and whether a prescription is in play.
Accountants and tax professionals
Run § 39-26-717(2)(a)'s four-part DME test; here only the body-worn prong (d) is contested, and the Department signaled future rulemaking on body-worn devices. Layer the prescription requirement on top: provider-level purchases are taxable absent resale; patient-level prescribed sales are exempt. Compare the orthotic-insert analysis in [[gil-12-002-bio-engineered-medical-device-orthotic]], where the same body-worn prong defeated the exemption. GIL — no determination.
Common questions
Q: Is a prescribed cold-therapy cuff exempt from Colorado sales tax?
A: Possibly, as durable medical equipment, if it meets all four DME criteria. Three are satisfied here; the open question is whether it's "not worn in or on the body," since the cuff is worn on the body. The Department made no determination and pointed to a private letter ruling.
Q: Why does "worn on the body" matter so much?
A: It's one of the four mandatory DME criteria — equipment that is worn in or on the body generally fails to qualify. The Department was considering a regulation to clarify which body-worn devices do and don't qualify.
Q: Does a prescription guarantee the exemption?
A: A prescription is required, but not sufficient — the device must also meet the four DME criteria. And the prescription rule means provider/hospital purchases are taxable (unless wholesale for resale), while the provider's prescribed sale to the patient is exempt.
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:
- § 39-26-104, 202, C.R.S. — imposition of sales and use tax
- § 39-26-717(2)(a), C.R.S. — durable medical equipment exemption (four criteria; dispensed pursuant to a prescription)
Department procedure:
- Reg. 24-35-103.5 (general information letters vs. private letter rulings)
Related Colorado rulings (medical exemptions §39-26-717):
- [[gil-12-002-bio-engineered-medical-device-orthotic]]
- [[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-12-009.pdf
Original ruling text
Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]
GIL-12-009
November 6, 2012
XXXXXXXXXXXXXXX
ATTN: XXXXXXXXXX
XXXXXXXXXXXXXXX
XXXXXXXXXXXXXXX
Re: Durable Medical Equipment
Dear XXXXXXXXXX,
You submitted on behalf of your client ("Company") a request for guidance to determine
the applicability of Colorado sales and use tax on X X X X X X X X X X .
The Colorado Department of Revenue ("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 on 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.colorado.gov/revenue/tax > Tax Library > 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
Is the sale of XXXXXXXX ("Product”) exempt as a durable medical equipment in Colorado?
Background
Company rents and sells durable medical equipment to private individuals and is
c o n s i d e r i n g the addition of Product to its inventory. Product is a band that allows the
controlled application of cooling to selected areas of the body. Product is wrapped around
the affected area and is connected to a device that allows the area to be cooled to a set
temperature. The device that cools the cuff is not attached to the body, is relatively large, and
not easily mobilized. This type of therapy is commonly used in the recovery of orthopedic
surgery and is prescribed by the operating physician. Company believes Product meets the
definition of durable medical equipment and is, therefore, exempt from sales tax if sold
pursuant to a prescription.
Discussion
The Department does not have a regulation or publication that specifically addresses your
inquiry. The following is a general discussion of the tax issues surrounding your request.
Colorado imposes sales and use tax on the sale of tangible personal property. §39-26- 104
and 202, C.R.S. Colorado has several exemptions for medical equipment and supplies.
The exemption most applicable to Product is the exemption for durable medical
equipment. §39-26-717(2)(a), C.R.S. Durable medical equipment which qualifies for this
exemption must meet four criteria.
(I)
"Durable medical equipment" means equipment, including repair and replacement
parts for such equipment, dispensed pursuant to a prescription, that:
a.
b.
c.
d.
can withstand repeated use;
is primarily and customarily used to serve a medical purpose;
is generally not useful to a person in the absence of illness or injury,
is not worn in or on the body.
Of the four criteria listed above, the only criterion that is in some doubt is whether the
equipment "is not worn in or on the body." The Department is considering promulgating a
regulation that includes examples of medical devices that qualify and do not qualify as
durable medical equipment, including devices that are, in s o m e
fashion, worn on the body. If you would like a more specific ruling on the facts set forth in the
request, you can request a private letter ruling.
Finally, it is important to note that, in addition to the four listed criteria, Product must be sold
pursuant to a prescription in order to qualify for the exemption. This means that sales of
Product to hospitals, medical clinic, and medical providers are not exempt unless the sale
qualifies as a wholesale for resale. Sales of Product by these entities to patients are
exempt if sold pursuant to a prescription.
Miscellaneous
This letter represents the good faith opinion of Department staff who are knowledgeable ofstate
taxes issues. However, the Department does not make a specific determination here on any of
the issues raised and the Department is not bound by this general information letter.
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The Department administers state and state-administered local sales and use taxes. This letter
does not address sales and use taxes administered by home-rule cities and home- rule
counties. You may wish to consult with local governments which administer their own sales or
use taxes about the applicability of those taxes. Visit our web site at
www.colorado.gov/revenue/tax for more information about state and local sales taxes.
Enclosed is a redacted version of this letter. Pursuant to statute and regulation, this redacted
letter 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
letter.
Sincerely,
Office of Tax Policy
Colorado Department of Revenue
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