Can a tissue-distribution business buy its surgical equipment and supplies tax-free as medical exemptions, and is the rent it charges for meeting space taxable?

Plain-English summary

A for-profit business that procures and distributes human tissue to clients for medical, research, and educational use asked two questions: (1) is its purchase of various equipment and supplies taxable, and (2) is the rent it charges third parties for meetings and educational events at its facility taxable? It sorts its purchases into medical equipment (surgical saws, autoclaves, gurneys), medical supplies (gauze, bandages, surgical instruments), cleaning supplies, and shipping supplies (cardboard boxes, foam, dry ice).

The Department's guidance:

• Medical equipment and supplies — likely taxable here. Colorado does exempt certain medical equipment and supplies, but only if the item is either purchased pursuant to a prescription or furnished by a licensed provider as part of professional services to a patient or client. Although the company's items "often qualify" for the medical exemptions in the right context, they likely do not qualify here because the company neither buys them under a prescription nor furnishes them to a patient as a licensed provider's professional service. So those purchases are likely taxable.
• Cleaning supplies — taxable. They are flatly not exempt.
• Shipping boxes — likely exempt. Containers and shipping cases used by manufacturers and compounders are exempt. The company's shipping boxes appear to be exempt, but the Department reads this exemption narrowly and may not extend it to dry ice or even foam packing materials.
• Renting out meeting space — not taxable. Colorado generally does not tax the rental or lease of real property. The only exception is short-term living accommodations (30 days or less) — which event/meeting space is not — so the rent the company charges is not subject to sales tax.

What this means for you

Medical suppliers, labs, and tissue/research businesses

The medical exemptions aren't keyed to the nature of the item — they're keyed to how it's acquired and used. Even bona fide surgical equipment and supplies are taxable to a buyer that isn't purchasing them on a prescription or furnishing them to a patient as a licensed provider's professional service. A research, distribution, or wholesale operation generally can't claim the medical exemption on its own equipment purchases. Cleaning supplies are always taxable.

Businesses shipping product

If you're a manufacturer or compounder, your containers and shipping cases can be exempt. But the Department reads that exemption narrowly — protective fillers like foam and consumables like dry ice may not be covered, even if the cardboard box is.

Landlords and facility operators

Charging rent for real property — offices, meeting rooms, event space — is not a taxable sale in Colorado. The lone exception is short-term lodging of 30 days or less, so ordinary event/meeting-space rentals aren't taxed.

Accountants and tax professionals

The pivot for § 39-26-717 is the prescription-or-furnished-by-a-provider gate (and Reg. 39-26-717). Containers/shipping cases ride on § 39-26-102(20)(a), limited to manufacturers and compounders and read narrowly. Real-property leases are outside the sales tax base except short-term accommodations. Compare the prescription analysis in [[gil-15-017-replacement-batteries-in-electric-wheelchairs]].

Common questions

Q: Is medical equipment automatically tax-exempt in Colorado?
A: No. The exemptions apply only when the item is purchased pursuant to a prescription or furnished by a licensed provider as part of professional services to a patient. Buying the same equipment for a distribution or research business generally doesn't qualify.

Q: Are cleaning supplies exempt as medical supplies?
A: No. The Department says cleaning supplies are not exempt from sales or use tax.

Q: Are my shipping boxes and packing materials exempt?
A: Containers and shipping cases used by manufacturers and compounders can be exempt, and the company's shipping boxes appeared to qualify. But the Department reads this narrowly and may not extend it to dry ice or foam packing.

Q: Do I owe sales tax on rent I charge for meeting or event space?
A: No. Colorado doesn't tax leases or rentals of real property, except short-term living accommodations of 30 days or less.

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 equipment, supplies, and devices exemptions; prescription / licensed-provider requirement)
- § 39-26-102(20)(a), C.R.S. (containers and shipping cases used by manufacturers and compounders)

Rules:
- 1 CCR 201-4, Department Regulation 39-26-717 (medical exemption requirements)
- Department Rule 24-35-103.5 (GIL / PLR procedure)

Source

• Landing page: Colorado Sales & Use Tax Letter Rulings
• Original PDF: GIL-15-021.pdf

Original ruling text

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

GIL-15-021
September 9, 2015
XXXXXXXXXXXXXX
Attn: XXXXXXXXXXX
XXXXXXXXXXXXXX
XXXXXXXXXXXXXX
Re: Medical Equipment and Supplies
Dear XXXXXXXXXXXX,
You submitted on behalf of XXXXXXXXXXXXX (“Company) a request for guidance on medical
equipment and supplies. 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 but 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 treats this request as one for a general information letter. It is important to
remember that general information letters, such as this one, are general discussions of tax law and
are not binding on the Department. If Company would like the Department to issue a private letter
ruling on the issue raised here, the retailer can resubmit a request and fee in compliance with
Department Regulation 24-35-103.5.
Issue
1. Is the purchase of various types of equipment subject to sales or use tax?
2. Is the lease of real property by a lessee who uses it to conduct business activities subject to
sales or use tax?
Background
Company is a for-profit business that procures and distributes human tissue to clients who use the
tissue for medical, research and educational purposes. Company utilizes a variety of equipment
and supplies and categorizes these as either “medical equipment” (e.g., surgical saws, autoclaves,
gurneys), “medical supplies” (e.g., gauze, bandages, surgical instruments), “cleaning supplies”,
and “shipping supplies” (e.g., cardboard boxes, foam, dry ice). Company also charges rent to third
parties for client meetings and educational events at Company’s facility.
Discussion
Colorado exempts from sales and use tax certain types of medical equipment and supplies.
However, in order to qualify for the exemptions, the property must be either purchased pursuant to
a prescription or furnished by a licensed provider as part of professional services to a patient or

client.1 Although the equipment and supplies listed by Company often qualify for these
exemptions, they likely do not qualify in this context because they are neither purchased by
Company pursuant to a prescription nor are they furnished by a licensed provider as part of their
professional service to a patient.
Cleaning supplies are not exempt from sales or use tax.
Containers and shipping cases used by manufacturers and compounders are exempt from tax.2
Company’s shipping boxes appear to be exempt. However, we read this exemption narrowly and
may not extend it to dry ice or even foam packing materials.
In general, Colorado does not impose sales or use tax on the rental or lease of real property. The
only exception is for charges for short term living accommodations (thirty days or less).
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/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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2

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See generally § 39-26-717, C.R.S. and Department Regulation 39-26-717.
§ 39-26-102(20)(a), C.R.S.
DR 4010A (06/11/14)