Does hemodialysis equipment qualify for Colorado's durable medical equipment or prosthetic device exemption?

Plain-English summary

Hemodialysis replaces the work of the kidneys for patients with End Stage Renal Disease (ESRD) — it removes the waste products that build up in the blood when the kidneys can't. A company that sells/provides hemodialysis equipment (and says every treatment is backed by a nephrologist's written standing order) asked whether the equipment qualifies for Colorado's durable medical equipment or prosthetic device exemption.

Durable medical equipment (DME) — appears to qualify. Colorado exempts DME, statutorily defined as equipment (including repair and replacement parts) dispensed pursuant to a prescription that:

1. can withstand repeated use;
2. is primarily and customarily used to serve a medical purpose;
3. is generally not useful to a person in the absence of illness or injury; and
4. is not worn on the body (§ 39-26-717(1)(j)).

Hemodialysis equipment checks every box: a prescription is required before a patient can use or obtain it, it withstands repeated use, it's not worn in or on the body, and it's not useful to people who aren't seeking ESRD treatment. So it appears to qualify as exempt DME. The Department added that a licensed provider's standing order counts as the required prescription when it's a written order or stored as electronic data (§ 39-26-717(1)(k)(2)(a)(III)). It also noted this view is consistent with the Streamlined Sales and Use Tax Agreement, which treats kidney-dialysis equipment (not worn on the body, including repair/replacement parts) as DME unless specifically excluded.

One limit: the Department flagged that the technology is evolving toward portable/ambulatory hemodialysis equipment, and its views do not extend to that kind of equipment (which could be worn on the body and fail the DME test).

Prosthetic device — doubtful. Hemodialysis equipment does perform a function the kidneys would normally perform, but a prosthetic device is usually understood as something worn on the body (an artificial arm or leg). The Department was hesitant to read the prosthetic exemption beyond its usual meaning and declined, in a general information letter, to suggest such a broad interpretation.

What this means for you

Dialysis providers and medical suppliers

Prescribed hemodialysis equipment that sits beside the patient (not worn on the body) lines up with the DME exemption. Keep the prescription / standing order in the record — a nephrologist's written or electronic standing order satisfies the prescription requirement (§ 39-26-717(1)(k)(2)(a)(III)). Don't assume the same answer for portable/ambulatory units; the Department expressly left those out.

Healthcare providers

The exemption hinges on the four-part DME test and a prescription. The "not worn on the body" factor is what lets hemodialysis equipment through where body-worn devices (an infusion pump, an IUD) fail the DME route. The prosthetic-device label is the wrong door here — the Department won't extend it to a machine that isn't worn.

Accountants and tax professionals

This is a clean illustration of Colorado's DME definition (§ 39-26-717(1)(j)) applied to a borderline-sounding device. The "not worn on the body" prong is decisive across the Department's medical letters: it lets hemodialysis equipment in but keeps body-worn devices out. Note the Department's reliance on the Streamlined Sales and Use Tax Agreement characterization and its carve-out for future portable units. Watch the home-rule-city caveat below.

Common questions

Q: Is hemodialysis equipment taxable in Colorado?
A: It appears to be exempt as durable medical equipment when prescribed, because it withstands repeated use, serves a medical purpose, isn't useful absent kidney disease, and is not worn on the body.

Q: Does a standing order count as a prescription?
A: Yes. A licensed provider's standing order qualifies as a prescription if it's a written order or stored as electronic data (§ 39-26-717(1)(k)(2)(a)(III)).

Q: Does this cover portable or wearable dialysis equipment?
A: No. The Department expressly limited its view to equipment not worn on the body and said it does not extend to evolving portable/ambulatory hemodialysis equipment.

Q: Is hemodialysis equipment a "prosthetic device"?
A: The Department doubted it. A prosthetic device is usually understood as something worn on the body, and the Department declined to stretch that exemption to cover dialysis equipment in a general information letter.

Q: Can I rely on this letter?
A: No. A General Information Letter is general guidance, is not binding on the Department, and makes no determination on any specific facts. It also doesn't cover self-collected home-rule city taxes.

Citations and references

Statutes:
- § 39-26-717, C.R.S. (medical device and supply exemptions)
- § 39-26-717(1)(f), C.R.S. (prosthetic devices)
- § 39-26-717(1)(j), C.R.S. (durable medical equipment — exemption and four-part definition)
- § 39-26-717(1)(k)(2)(a)(III), C.R.S. (written/electronic standing order qualifies as a prescription)

Authority referenced: Streamlined Sales and Use Tax Agreement (characterizes kidney-dialysis equipment as durable medical equipment).

Related rulings: [[gil-14-012-infusion-pumps]] (body-worn → DME fails, but exempt other ways), [[gil-14-007-intrauterine-devices]] (worn in the body → not DME), [[gil-15-021-medical-equipment-and-supplies]], [[gil-17-010-medical-imaging-equipment]].

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/GIL-14-014.pdf

Original ruling text

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

GIL-14-014

May 29, 2014
XXXXXXXXXXXXX
Attn: XXXXXXXXX
XXXXXXXXXXXXX
XXXXXXXXXXXXX
Re: Hemodialysis Devices
Dear XXXXXXXXXXX,
You submitted on behalf of XXXXXXXXXXXXXX ("Company") a request for guidance
to determine whether hemodialysis equipment is subject to Colorado sales or use tax.
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 Rule 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 Department Rule 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.
Issues
Does hemodialysis equipment qualify for the exemptions for durable medical
equipment or prosthetic devices?

Background
Hemodialysis is a medical treatment that replaces the function of the kidneys in
patients suffering from End Stage Renal Disease (ESRD). Company asserts that every
dialysis treatment has a nephrologist's written standing order (prescription).
Discussion
Colorado exempts a number of medical devices and supplies from state and state­
administered sales and use taxes.1 Specifically, Colorado exempts all sales of durable
medical equipment and prosthetic devices.2 Durable medical equipment is statutorily
defined as:
Equipment, including repair and replacement parts for such equipment,
dispensed pursuant to a prescription, that:
1) Can withstand repeated use;
2) Is primarily and customarily used to serve a medical purpose;
3) Is generally not useful to a person in the absence of illness or injury; and
4) Is not worn on the body.3
Hemodialysis equipment is equipment that is used to remove waste products that build
up in the blood when the kidneys are not able to do so on their own. A prescription for
dialysis treatment employing the use of hemodialysis equipment must be issued by a
licensed provider before the equipment may be used or obtained by the patient.
Hemodialysis equipment is able to withstand repeated use in order to service a
patient's needs and is not worn in or on the body. In addition, hemodialysis equipment
does not generally serve a purpose to individuals who are not seeking treatment for
ESRD or other related illnesses. Therefore, it appears hemodialysis equipment may
qualify for the durable medical equipment exemption.
It should be noted that a standing order by a licensed provider for hemodialysis
qualifies as a prescription if it is entered into a written order or stored as electronic
data.4
We note that this view is consistent with the Streamlined Sales and Use Tax
Agreement (Streamlined), which characterizes hemodialysis equipment as durable
medical equipment. It is the position of Streamlined that kidney dialysis equipment not
worn on the body, including repair and replacement parts, is considered durable
medical equipment unless specifically excluded from the definition.

1
2
3
4

§39-26-717, C.R.S.
§39-26-717(f) and §39-26-7170), C.R.S.
§39-26-7170), C.R.S.
§39-26-717(k)(2)(a)(III), C.R.S.

2

We understand that the technology in this area is evolving and may result in portable,
ambulatory hemodialysis equipment. The views expressed in this letter do not extend
to such equipment.
The issue of whether hemodialysis equipment qualifies as a prosthetic is more difficult.
Hemodialysis equipment is performing a function that would normally be performed by
the kidneys. However, a prosthetic device is typically understood to refer to equipment
that is worn on the body, such as an artificial arm or leg. We are hesitant to interpret
this exemption beyond its usual and customary meaning. We decline in the context of
a general information letter to suggest such a broad interpretation.
Miscellaneous
This letter represents the good faith opinion of Department personnel who are
knowledgeable on state 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.
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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