Is a permanent transprostatic implant sold to hospitals exempt from Colorado sales tax as a prosthetic device or as material furnished by a provider?
Plain-English summary
A company sells a permanent implant that corrects Benign Prostatic Hyperplasia (BPH) — an enlarged prostate that deforms the urethra and blocks urine flow. The device places "permanent adjustable transprostatic implants" (a nitinol tab, a stainless-steel urethral tab, and connecting suture) during a cystourethroscopy; it's prescribed and implanted by a physician and sold as an indivisible unit to hospitals, surgery centers, and medical facilities. The company asked whether it's exempt. The Department concluded yes — exempt on two independent grounds.
1. Prosthetic device — exempt (a "close question"). A prosthetic device is "an artificial device that replaces a missing or defective human part or function" and is fitted to a particular individual (Reg 39-26-717(1)(d)). The Department called this a close call: before 2011, Colorado had a separate exemption for "therapeutic devices" (devices that treat an injury or disease), repealed by Senate Bill 11-263, and this product might be described more as treating a condition (like a shoe insert for high arches) than as a classic prosthetic. But the Department concluded the product "does, in some real sense, 'replace' the blocked portion of the urinary tract or replaces the function of that part of the tract," so it's exempt as a prosthetic device — consistent with how other states treat stents. (It is not durable medical equipment, because it's worn in the body.)
2. Material furnished by a licensed provider — also exempt. Colorado separately exempts "materials furnished by a licensed provider as part of their professional services to patients" (§ 39-26-717(1)(a)) — and to qualify, "the material must leave the licensed provider's office with the patient" (the Department's example: a take-home catheter). Because this product is permanently implanted, it leaves with the patient, and it's provided as part of the physician's professional service — so it's exempt on this ground too.
Key practical point — sales to hospitals still qualify. The product is sold to hospitals/surgery centers, not to the physician personally. The Department said it "would be an unwarranted limitation … to limit its application only to those licensed providers who actually purchase the material." So the exemption "also applies to materials purchased by hospitals, medical centers, or surgery centers, so long as the material is furnished by a licensed provider to a patient as part of the provider's professional service." The company's sales to hospitals and surgery centers are therefore exempt.
Because this is a private letter ruling, it binds the Department only as to this taxpayer and these facts and cannot be relied on by anyone else.
What this means for you
Medical device makers and distributors
Two separate Colorado exemptions can apply to an implantable or take-home medical product: the prosthetic-device exemption (for devices that replace a missing/defective part or function — read broadly enough here to cover a stent-like implant) and the provider-furnished-materials exemption (for items a licensed provider gives a patient as part of care, so long as the item leaves the office with the patient — permanent implants satisfy this). Crucially, selling to a hospital or surgery center rather than to the physician does not defeat the provider-furnished exemption.
Hospitals and surgical facilities
Purchases of qualifying implants/materials that a licensed provider furnishes to a patient as part of professional services can be exempt even though the facility is the buyer.
Accountants and tax professionals
Framework under § 39-26-717: prosthetic-device exemption keyed to Reg 39-26-717(1)(d)'s "replaces a missing or defective human part or function" — the Department resolved the post-SB 11-263 gap (loss of the separate therapeutic-devices exemption) by reading "function" to reach this device, citing multistate stent treatment. Provider-furnished-materials exemption (§ 39-26-717(1)(a)) requires the item to leave the office with the patient (Reg 39-26-717); permanent implantation satisfies it, and the exemption extends to facility purchasers. Not DME (worn in the body). Compare CO GIL 17-020 (orthodontic supplies) and GIL 17-007 (fluoride varnish) on licensed-provider materials.
Common questions
Q: Is the prostatic implant taxable in Colorado?
A: No. The Department ruled it exempt on two independent grounds — as a prosthetic device and as material furnished by a licensed provider as part of professional services.
Q: How is an implant a "prosthetic device"?
A: A prosthetic device replaces a missing or defective human part or function. The Department found the implant replaces the blocked portion or function of the urinary tract, so it qualifies — similar to how other states treat stents.
Q: Does it matter that it's sold to a hospital, not the doctor?
A: No. The Department said limiting the provider-furnished exemption to materials the provider personally buys would be unwarranted, so it also covers materials bought by hospitals and surgery centers, as long as a licensed provider furnishes them to the patient as part of professional services.
Q: What's the "leaves the office with the patient" requirement?
A: For the provider-furnished-materials exemption, the item must leave the provider's office with the patient (like a take-home catheter). A permanent implant satisfies this because it stays in the patient.
Q: Can other device makers rely on this ruling?
A: No. A private letter ruling binds the Department only as to the taxpayer and facts it was issued to and cannot be relied upon by anyone else.
Q: Does this cover city sales tax?
A: No. The Department administers state and state-collected local taxes only; self-collected home-rule cities and counties set their own rules.
Citations and references
Statutes, rules, and legislation:
- § 39-26-104(1)(a), § 39-26-202, C.R.S. (sales/use tax on tangible personal property)
- § 39-26-717, C.R.S. (medical exemptions); § 39-26-717(1)(a), C.R.S. (materials furnished by a licensed provider as part of professional services)
- 1 CCR 201-4, Reg 39-26-717(1)(d) (definition of prosthetic device — replaces a missing or defective part or function); Reg 39-26-717 (material must leave the office with the patient)
- Senate Bill 11-263 (repealed the separate "therapeutic devices" exemption, effective 2011)
Source
- Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
- Original PDF: https://tax.colorado.gov/sites/tax/files/documents/PLR-16-008.pdf
Original ruling text
Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]
PLR-16-008
April 12, 2016
XXXXXXXXXXXXXX
Attn: XXXXXXXXXX
XXXXXXXXXXXXXX
XXXXXXXXXXXXXX
Re: Material Furnished by a Licensed Provider
Dear XXXXXXXXXXX,
You submitted on behalf of XXXXXXXXXXXXX ("Company") a request for a private letter
ruling to the Colorado Department of Revenue ("Department") pursuant to Department
Rule 24-35-103.5. This letter is the Department's private letter ruling. This ruling is binding
on the Department to the extent set forth in Department Rule 24-35-103.5. This ruling
cannot be relied upon by any taxpayer other than the taxpayer to whom the ruling is made.
Issues
Is Product exempt from Colorado sales tax?
Conclusion
Product is exempt from sales and use tax as a prosthetic device.
Background
XXXXXXXXXXXXX ("Product") is designed to correct a physical deformity in the male
urinary tract known as Benign Prostatic Hyperplasia ("BPH"), which involves hyperplasia
(an increase in number) of certain cells in the prostate gland that surrounds the urethra.
This increase in cells results in the formation of large nodules in the transition zone of the
prostate. When sufficiently large, the nodules deform the urethra and increase resistance
to flow of urine from the bladder.
Product corrects this deformation with permanent adjustable transprostatic implants
placed by a health care provider during a cystourethroscopy. Each permanent adjustable
transprostatic implant is sold in its own sterile, individual housing, which is designed to
couple to a urethroscope. The housing is single use; it is not reloadable or reuseable.
The housing includes a handle for positioning the implant and coupling to the
urethroscope, a retractable needle for puncturing the capsule of the prostate gland, and a
DR 4010A (06/11/14)
tensioning spring within the handle to allow adjustment of the implant during placement to
fit a particular individual. Product is a permanent implant made up of standard surgical
implantable materials: a nitinol capsular tab, a stainless steel urethral tab, and polyester
suture that connects the two tabs.
Product is sold to hospitals or medical facilities to correct a physical deformity. Product
must be prescribed and implanted by a physician. The implant and its housing are sold
together as an indivisible unit. The urethroscope is sold separately.
Structure of Analysis
To determine whether Company's product is subject to tax, the Department will examine
the following questions:
1. Is the item taxable under§ 39-26-104(1), C.R.S.?
a. Is the item tangible personal property sold or purchased at retail?
2. Is the item eligible for any exemptions?
a. Is the item exempt under§ 39-26-717, C.R.S. (medical exemption)?
Discussion
Colorado levies sales and use tax on the sale or use of tangible personal property.1
However, sales and use of certain medical products are exempt. There are at least two
exemptions2 under which Product could be exempt: (1) prosthetic devices and (2) medical
supplies furnished to a patient as part of a licensed provider's3 professional services.4
a. Prosthetic Device.
Company argues that Product is a prosthetic device. A prosthetic device is an artificial
device that replaces a missing or defective human part or function and is designed,
manufactured or adjusted to fit a particular individual.5 It is a close question whether
Product is a prosthetic device. Prior to 2011, Colorado had a separate and general
statutory exemption for "therapeutic devices", which were devices that treated an injury or
disease.6 This is a close question because Product may have been more accurately
described as a device that treats or heals an injury or disease, such as a shoe insert that
treats high arches, rather than a device we normally think of when discussing prosthetic
devices. However, we acknowledge that Product does, in some real sense, "replace" the
blocked portion of the urinary tract or replaces the function of that part of the tract. For
this latter reason, we conclude that the sale of Product is exempt from tax as a prosthetic
device. We note that this view is consistent with how other states view stents of various
kinds.7
1
2
§§ 39-26-104(1)(a) and 202, C.R.S.
Although the exemption for durable medical equipment may seem applicable, Product does not
qualify as durable medical equipment because it is worn in the body.
3
”License provider" means any person authorized to prescribe drugs under the provisions of title
12, C.R.S.. and includes, but is not limited to: physicians. dentists, podiatrists, advanced
practical nurse, physician assistants, and veterinarians.
4
See generally,§ 39-26-717, C.R.S.
5
Department Regulation 1 CCR 201-4, 39-26-717(1)(d), C.R.S.
6
7
2
Colorado Senate Bill 11-263.
Many states treat medical stents as prosthetic devices for sales tax purposes. See, eg., Ga.
Comp. R. & Regs. 560-12-2-.30 Drugs, Durable Medical Equipment, Prosthetic Devices, and
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b. Materials Furnished as Part of a Licensed Provider's Professional Setvice.
Product may also be exempt as material furnished as part of a licensed provider's
professional service. Sales of materials furnished by a licensed provider as part of their
professional services to patients are exempt from sales and use tax.8 In order to qualify
for this exemption, the material must leave the licensed provider's office with the patient.9
For example, a licensed provider who provides a catheter for a patient to take home after
staying in a hospital is exempt because it is furnished as part of the doctor's professional
service to the patient and the catheter leaves the office with the patient.
Product is permanently implanted into patient and, thus, Product leaves the licensed
provider's office with the patient. In addition, Product is provided to the patient as part of
the licensed provider's professional services. For these reasons, we find that Product is
exempt as material furnished to a patient by a licensed provider as part of the provider's
professional services to the patient.
Finally, you state that Product is sold to hospitals, surgery centers, and medical facilities.
We believe it would be an unwarranted limitation of this exemption to limit its application
only to those licensed providers who actually purchase the material. As a result, this
exemption also applies to materials purchased by hospitals, medical centers, or surgery
centers, so long as the material is furnished by a licensed provider to a patient as part of
the provider's professional service. Thus, Company's sales of Product to hospitals and
surgery centers under the circumstances described above are exempt.
Miscellaneous
This ruling applies only to sales and use taxes administered by the Department. Please
note that the Department administers state and state-collected city and county sales taxes
and special district sales and use taxes, but does not administer sales and use taxes for
self-collected home rule cities and 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.
This ruling is premised on the assumption that Company has completely and accurately
disclosed all material facts. The Department reserves the right, among others, to
independently evaluate Company's representations. The ruling is null and void if any such
representation is incorrect and has a material bearing on the conclusions reached in this
ruling and is subject to modification or revocation in accordance to Department Regulation
24-35-103.5.
This ruling is binding on the Department to the extent set forth in Department Regulation
24-35-103.5. It cannot be relied upon by any taxpayer other than the taxpayer to whom the
ruling is made.
Other Medical Items; Arizona Private Taxpayer Ruling No. LR05-002, 06/13/2005; Tex. Admin.
Code 3.284 Drugs, medicines, medical equipment and devices (Tax Code§ 151.313).
8
§ 39-26-717(1)(a), C.R.S.
9
Department Regulation 1 CCR 201-4, 39-26-717.
3
DR 4010A (06/11/14)
Enclosed is a redacted version of this ruling. Pursuant to statute and regulation, this
redacted version of the ruling 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 version of the ruling.
Sincerely,
Office of Tax Policy
Colorado Department of Revenue
This ruling cannot be relied upon by any other taxpayer other than the taxpayer to whom
the ruling is made.
4
DR 4010A (06/11/14)