Does Colorado sales or use tax apply to charging third parties for non-transplantable human tissue?

Plain-English summary

The Colorado Department of Revenue ruled that charging third parties for non-transplantable human tissue is a taxable sale of tangible personal property — not a tax-free service. The taxpayer supplies human tissue (obtained from donors) to hospitals, universities, medical-training organizations, and device manufacturers for research, training, and similar non-transplantation uses. It argued that what it sells is a service — acquiring, processing, preserving, and delivering tissue — because federal and state law and social norms forbid selling human tissue, and because (it said) the tissue itself has no value. The Department rejected the argument at every step.

Why it's a taxable sale of goods:
- Labor doesn't turn a sale of goods into a service. Every sale of goods includes the cost of acquiring, preparing, preserving, and delivering the product. Colorado law expressly puts the cost of labor "to bring the goods to market" into the taxable price (§ 39-26-102(12)). A charity that sells donated goods at a price covering only its labor still makes a taxable sale — even though it paid nothing for the goods.
- Tissue is corporeal, tangible personal property (§ 39-26-102(15)). There is a robust multi-billion-dollar market in human tissue, and a person can hold a property interest in it. Colorado's definition of "sale" reaches the transfer of "all or part" of an interest in tangible personal property (Rule 39-26-102.10/.11) — like a software license or an equipment rental — and the taxpayer transfers most of its ownership rights to clients.
- The true object is the tissue itself. A research lab needs the tissue to do its work; how the supplier acquired and shipped it is no more the object of the purchase than how a grocery store sourced a steak. The tissue is the point, not incidental.

Why the "it's illegal, so it must be a service" argument failed:
- Illegality doesn't block taxation. Department of Revenue v. Kurth Ranch, 511 U.S. 767 (1994) — "the unlawfulness of an activity does not prevent its taxation." A drug dealer can't recast a drug sale as a "service."
- The federal ban is narrow. The National Organ Transplant Act (42 U.S.C. § 274e) bars selling human tissue only "for transplantation." The taxpayer goes out of its way — in donor contracts, client contracts, and public materials — to provide tissue only for non-transplantation purposes, so NOTA doesn't even apply. (The one true prohibition is on human fetal tissue, 42 U.S.C. § 289g-2 — but even there, illegality wouldn't create a tax exemption.)
- A non-tax statute doesn't govern the tax. Colorado's Uniform Anatomical Gift Act (§ 12-34-116) only echoes the federal transplantation ban and says nothing about taxes. Whether a sale is taxable is answered by Colorado's tax statutes, not by the Gift Act. Other states' courts agree (e.g., Parkridge Hospital v. Woods (Tenn. 1978); Community Blood Bank v. Russell (Fla. 1967); Alabama Plasma (Ala. DOR 2000) all taxed blood/tissue).

The Department closed by noting it has no authority to create an exemption the legislature didn't enact — though it flagged that many of these sales will still be exempt because of the buyer's status (nonprofit hospitals and schools under § 39-26-718, government under § 39-26-704).

Cross-state contrast — Utah reached the opposite result. On nearly identical facts, Utah PLR 17-008 held a non-transplantable tissue bank's charges were nontaxable services, because Utah's Anatomical Gift Act expressly lets a tissue bank charge a "reasonable amount" for removal/processing/storage/etc., and Utah treated those as service charges. Colorado refuses to let a non-tax statute drive the tax answer and reads taxability straight from its own tax code — so the same business model is taxable in Colorado but not in Utah. A vivid example of why a ruling in one state can't be relied on in another.

What this means for you

Tissue banks, blood/plasma processors, and biospecimen suppliers

In Colorado, expect the Department to treat your charges for tissue or biological specimens as taxable sales of tangible personal property, regardless of how your pricing or contracts describe the "service." Separately stating labor or processing costs won't carve them out — the Department has repeatedly rejected that. Your realistic relief is buyer-based: sales to nonprofit hospitals, nonprofit educational/charitable institutions (§ 39-26-718), or government bodies (§ 39-26-704) can be exempt, so collect and document exemption certificates.

Processors, fabricators, and sellers of low-cost or donated goods

The broader lesson applies far beyond tissue: acquiring raw material for free (or processing it heavily) doesn't convert a later sale into a service. If you transfer the goods to a buyer who wants the goods, it's a taxable sale even if your price is "all labor."

Multi-state operators

This ruling is the textbook case for the home-state-only nature of rulings: identical facts, opposite answers in Colorado and Utah. Don't port a favorable ruling across state lines.

Accountants and tax professionals

Watch the chain: corporeal property (§ 39-26-102(15)) + a "sale" that transfers part of an interest (Rule 39-26-102.10/.11) + labor in the base (§ 39-26-102(12)) + true object = the tissue. Non-tax statutes (the Gift Act, NOTA) don't override the tax code, and illegality is irrelevant (Kurth Ranch). Pivot the analysis to buyer-status exemptions.

Common questions

Q: Is selling human tissue taxable in Colorado?
A: In this ruling, charging for non-transplantable human tissue was a taxable sale of tangible personal property. Colorado has no exemption for tissue as such, though sales to exempt buyers (nonprofit hospitals/schools, government) can be exempt by the buyer's status.

Q: The company called it a processing "service." Why didn't that work?
A: Because the labor to acquire, process, and ship goods is part of the cost of nearly every sale of goods and doesn't convert it into a service; the true object of the purchase is the tissue itself. Separately stating those costs doesn't help.

Q: Isn't selling human tissue illegal — doesn't that make it tax-free?
A: No. Illegality doesn't block taxation (Kurth Ranch). And the federal ban (NOTA) covers only tissue sold for transplantation; this tissue is sold for non-transplantation uses, so the ban doesn't even apply (fetal tissue is the narrow exception).

Q: Utah said a tissue bank's charges were a nontaxable service. Which is right?
A: Both — for their own states. Utah (PLR 17-008) leaned on a Utah non-tax statute authorizing "reasonable" service charges; Colorado refuses to let a non-tax statute govern the tax and reads its own tax code. Same facts, opposite results — which is exactly why a ruling binds only the state and taxpayer it was issued to.

Q: Does this ruling apply to my business?
A: Not automatically. A private letter ruling binds the Department only for the taxpayer and facts it was issued to and cannot be relied on by anyone else. It shows the Department's reasoning; your facts may differ.

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 — check with each.

Citations and references

Statutes, rules, and cases:
- § 39-26-104(1), C.R.S. (sales tax on tangible personal property, generally not services)
- § 39-26-202, C.R.S. (use tax)
- § 39-26-102(15), C.R.S. (tangible personal property means corporeal property)
- § 39-26-102(12), C.R.S. (labor to bring goods to market is in the taxable purchase price)
- 1 CCR 201-4, Rule 39-26-102.10 and .11 (definition of "sale" — transfer of all or part of an interest in TPP)
- § 12-34-116, C.R.S. (Colorado Uniform Anatomical Gift Act — bars only sales for transplantation; non-tax statute)
- § 39-26-718, C.R.S. (exemption for charitable/educational nonprofit buyers)
- § 39-26-704, C.R.S. (exemption for government buyers)
- 42 U.S.C. § 274e (National Organ Transplant Act — bars sale only "for transplantation")
- 42 U.S.C. § 289g-2 (bars sale of human fetal tissue)
- Department of Revenue v. Kurth Ranch, 511 U.S. 767 (1994) (unlawfulness of an activity does not prevent its taxation)
- Parkridge Hospital v. Woods, 561 S.W.2d 754 (Tenn. 1978); Community Blood Bank v. Russell, 196 So.2d 115 (Fla. 1967); Alabama Plasma v. State, 2000 Ala. Tax LEXIS 83 (out-of-state cases taxing blood/tissue)
- Cross-reference: Utah PLR 17-008 (opposite result — tissue bank charges nontaxable services under Utah's Anatomical Gift Act)

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/PLR-17-003.pdf

Original ruling text

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

PLR-17-003
May 11, 2017
XXXXXXXXXXXXXXXXX
Attn: XXXXXXXXXXXXX
XXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXX
Re: Non-Transplantable Human Tissue
Dear XXXXXXXXXXXX,
You submitted on behalf of XXXXXXXXXXXXXX (“Taxpayer”) 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. It cannot be
relied upon by any taxpayer other than the taxpayer to whom the ruling is made.
Issue
Is the charge by Taxpayer for provisioning non-transplantable human tissue to third parties
subject to sales and use taxes.
Conclusion
The charge by Taxpayer for provisioning non-transplantable human tissue to third parties
is subject to sales and use taxes.
Structure of Analysis
To determine whether non-transplantable human tissue provisioned to third parties is
subject to tax, the Department will examine the following question:
1. Is the transaction subject to sales and use tax pursuant to §§ 39-26-104(1) and 202,
C.R.S.
a. Is the money paid by Taxpayer’s customers in exchange for the tissue pursuant
to § 39-26-104 C.R.S.?
b. Is the tissue tangible personal property pursuant to §§ 39-26-104(1) and 202,
C.R.S.?
c. Is the true object of the transaction the sale of tangible personal property or the
sale of a service?

Background

Taxpayer supplies non-transplantable human tissue to medical facilities, hospitals,
universities, academic medical centers, medical training organizations, and medical device
manufacturers, among others. Taxpayer obtains the tissue from donors or donors’
representatives in various venues, such as hospitals, funeral homes, and hospices. The
process of obtaining, processing, storing, preparing, and transporting human tissue is
labor intensive. Taxpayer charges its clients (the recipients of the tissue) a fee, which
Taxpayer characterizes as a fee for the service of processing and handling of human
tissue. Taxpayer represents that this characterization of the transaction as a service is
common in this industry.
Discussion
Colorado imposes sales tax on the sale of tangible personal property but generally not on
the sale of services.1 Tangible personal property means corporeal property.2 Corporeal
property is defined as a thing that has a physical existence.3 A sale of corporeal property
occurs when a buyer pays money or other consideration “in exchange for” an interest, or
part of an interest, in corporeal property.4 In this ruling, we examine each of these
elements, focusing particularly on the “in exchange for” requirement, the classification of
tissue as “property”, and the “true object” of the transaction.
1. Payment “in exchange for” tangible personal property or services.
Taxpayer states that the payment it receives from clients is not “in exchange for” the tissue
itself but, instead, for the service of acquiring, preparing, preserving, and delivering the
tissue to the client.5 Taxpayer asserts that this characterization is necessary because
federal and state law prohibit the sale of human tissue and social norms disfavor the sale
of transplantable human tissue.6
It is worth noting at the outset of our discussion that every sale of taxable goods has labor
and other service-related cost components that are recovered in the purchase price.
These service-related costs include such things as the costs of acquisition, preparation,
preserving the product, and delivering the product to the buyer: the very same cost
components identified by Taxpayer. These cost components are often large and can
exceed the cost of the raw material itself.
1
2

3
4

5
6

2

§ 39-26-104(1), C.R.S.
§ 39-26-102(15), C.R.S. and Department Rule 1 CCR 201-4, 39-26-102.15 (““Tangible personal property”
embraces all goods, wares, merchandise, products and commodities, and all tangible or corporeal things
and substances which are dealt in, capable of being possessed and exchanged, except newspapers
excluded by the law.”).
Black’s Law Dictionary 368 (8th ed. 2004), corporeal property.
Department Rule 1 CCR 201-4, 39-26-102.10 (““Sale” or “sale and purchase” shall mean any transaction,
except as provided in 26-102.7(b), whereby a person, in exchange for any consideration, such as money
or its equivalent, property, the rendering of a service, or the promise of any of these things: (a) transfers
or agrees to transfer all or part of his interest, or the interest of any other for whom he is acting as an
agent, in any tangible personal property to any other person; or (b) performs or furnishes, or agrees to
perform or furnish, or contracts to have another perform or furnish, any service taxable under this Act for
any other person.” (emphasis added)).
It is common in this industry to characterize the transaction as the sale of a service in order to avoid the
legal and social issues surrounding human tissue donation.
National Organ Transplant Act of 1984, 42 U.S.C. §274e(a), which outlaws the acquisition, transfer, or
receipt of human organ for consideration for use in human transplantation, and §289g-2(a), which relates
to the transfer of human fetal tissue..
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Moreover, Colorado tax statutes expressly contemplate that taxable sales of goods have
service-related costs reflected in the purchase price.7 For example, the statutory definition
of a taxable “sale” of goods states that the costs of labor must be included in the
calculation of the taxable purchase price.8 Indeed, a retailer may have absolutely no
material costs in the goods it sells, as in the case of goods donated to a retailer (e.g., a
charitable organization selling donated goods for fundraising) and may expend
considerable labor resources to acquire, prepare, store, and deliver, these goods to the
buyer. These sales are clearly subject to sales tax.9 The fact that the retailer obtains the
goods or raw materials at no cost does not convert the subsequent sale of goods into a
sale of services. Moreover, the Department has consistently rejected on several
occasions efforts by retailers and buyers to avoid tax on these service components by
separately stating them on the invoice or in the contract.10
These principles apply equally to the sale of organic tissue in all its forms. For example,
animal or plant tissue, whether for consumption or research, is a sale of tangible personal
property and the labor incurred in each instance to acquire, process, prepare, and
transport the material is undoubtedly significant, if not in excess of the cost of the original
material, and yet these labor costs do not convert the transaction into a sale of services.
More importantly, a contrary position would fundamentally undermine sales tax law
applicable to all retailers. A retailer could assert, under the theory proposed by Taxpayer,
that it is not selling goods but merely providing the service of obtaining, preparing, and
delivering goods to the buyer. Or stated another way, Taxpayer’s argument would permit a
retailer to avoid sales tax by characterizing its transaction as one of providing the service
of moving tangible property from the supplier who holds the material to the buyer who
wants the product.
We also think it simplifies the nature of the transaction to say that Taxpayer is merely
providing a service of matching the donee with the donor. This is not, for example, a
broker relationship where the broker is merely providing the non-taxable service of finding
a willing seller and buyer. A broker does not take any ownership interest in the property
and does not engage in an intermediary use of the property. As we discuss below,
Taxpayer has an ownership interest in the tissue, processes the tissue, and uses that
interest to control the use and disposition of the tissue.
A common example of this is the application of sales and use taxes to those engaged in
the processing and fabrication of goods.11 A processor is one who takes material, either in
its raw state or in a partially processed state, and, by such activities as cutting, heating,
freezing, molding, mixing and combining it with other components, such as water, dyes,
chemicals, and preservatives, processes the material into a different, and sometimes only
7

See, for example, § 39-26-102(12), C.R.S. which states that sales tax applies not only to the materials
used but also to the labor expended in bringing the goods to market.
8
§ 39-26-102(12), C.R.S. See also, Department Regulation 1 CCR 201-4, 39-26-102.12
9
For example, the sale of donated goods by a charity are clearly taxable even though the charity has
absolutely no cost related to the goods.
10
See, for example, GIL 16-018, GIL 11-002, and PLR 10-004.
11
Colorado’s tax code is replete with examples of the taxability of processed, fabricated, and manufactured,
products, from the definition of “sale”, which includes goods made to order and custom orders, to
exemptions for machinery used to process, fabricate, or manufacture property.
3

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slightly different, version of the original product.12 A food processor is a common and
perhaps the best example of a business engaged in processing. A food processor takes
plant or animal tissue in its raw form and cuts, freezes, mixes with preservatives or dyes,
molds, reshapes, and otherwise modifies the product in some fashion to produce a
modified product. The food processor stores, often by refrigeration, the material and,
when an order is placed for the product, ships the product to the end user. This
processing may be substantial or it may be relatively rudimentary. This is precisely what
Taxpayer does. Taxpayer describes its process as follows: “processing, storage,
preparation, and transportation” of human tissue.
To distinguish itself from these common tax situations, Taxpayer argues that the sale of
human tissue is illegal and, therefore, the transaction must be characterized as a sale of
services. Except for the relatively limited area of human fetal tissue, we disagree with the
basic premise that federal and state law prohibit the sale of human tissue for purposes
engaged in by Taxpayer. We also disagree with the notion that illegal sales must be recast
as sales of services.
First, with respect to Taxpayer’s primary argument that federal and state law prohibit sales
of human tissue, we have extensively researched and examined the relevant statutes,
commentaries, and other materials and conclude that Taxpayer’s assertion is not
supported, with the exception of human fetal tissue.13 The federal law most often raised in
this context and cited to us by Taxpayer is the National Organ Transplant Act (“NOTA”).14
This act prohibits the sale of human tissue “for purposes of transplantation”. The plain
terms of this statute make only the sale of tissue for transplantation illegal. In pertinent
part, this federal law states,
(a) Prohibition
It shall be unlawful for any person to knowingly acquire, receive, or otherwise
transfer any human organ for valuable consideration for use in human
transplantation if the transfer affects interstate commerce. The preceding
sentence does not apply with respect to human organ paired donation.
(emphasis added)
...
(c) Definitions.
For purposes of subsection (a) of this section:
(1) The term "human organ" means the human (including fetal) kidney,
liver, heart, lung, pancreas, bone marrow, cornea, eye, bone, and skin or
any subpart thereof and any other human organ (or any subpart thereof,
including that derived from a fetus) specified by the Secretary of Health
and Human Services by regulation.

12

We do not imply here that Taxpayer must be engaged in processing in order for tax to apply.
42 U.S.C. § 289g-2 (“It is unlawful for any person to knowingly acquire, receive, or otherwise transfer any
human fetal tissue for valuable consideration if the transfer affects interstate commerce.”).
14
National Organ Transplant Act, Pub. L. No. 98-507, 98 Stat. 2339 (1984), 42 U.S.C. § 274(e).
13

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DR 4010A (06/11/14)

(2) The term "valuable consideration" does not include the reasonable
payments associated with the removal, transportation, implantation,
processing, preservation, quality control, and storage of a human organ or
the expenses of travel, housing, and lost wages incurred by the donor of a
human organ in connection with the donation of the organ.
Taxpayer itself recognizes this distinction between unlawful sales for transplantation and
lawful sales for non-transplantation purposes in its business operations. Taxpayer goes to
great length in its documentation with donors, clients, and in the informational material
made available to the public to make clear that it is not providing human tissue for
transplantation purposes. For example, Taxpayer’s contract with clients (those receiving
the tissue) states that the tissue is provided for non-transplantation purposes.
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Taxpayer’s website discloses in multiple places that it provides human tissue only for “nontransplantation” purposes. These affirmative statements of what it does and does not
provide reflect, we think, the reach and limits of NOTA.
Taxpayer has also not cited to us any Colorado law that prohibits the sale of human tissue
for non-transplantation purposes. Taxpayer points us to Colorado’s Uniform Anatomical
Gift Act, §12-34-102, et seq., C.R.S., which Taxpayer asserts prohibits the sale of human
tissue. This Act creates rules governing how and when donations of human tissue can be
made. The only provision of this Act that relates to a prohibition against the sale of human
tissue is §12-34-116, C.R.S., which states that the sale of human tissue “for
transplantation” purposes is unlawful. In fact, this provision does not even create any
state prohibition against the sale of human tissue; it simply refers to the federal prohibition
in NOTA.
(a) Except as otherwise provided in subsection (b) of this section, a person
that knowingly acquires, receives, or otherwise transfers a part for valuable
consideration for transplantation may be liable as specified in 42 U.S.C. sec.
274e.
(b) A person may charge a reasonable amount for the removal, processing,
preservation, quality control, storage, transportation, implantation, or disposal
of a part.
Moreover, this statute does not purport, implicitly or explicitly, to govern the application of
Colorado sales and use taxes. State legislatures that have addressed the taxability of
sales of human tissue have expressed their intention to do so by explicitly enacting an
exemption in the appropriate tax statute. Colorado’s legislature has not. Moreover, an
implicit authorization to do so cannot be inferred from a non-tax statute, particularly when
the statute, itself, does not proscribe sales for non-transplantation purposes.15
15

5

This is particularly true given that the rationale for restriction on the sale of transplantable human tissue in
the Uniform Anatomical Gift Act was not solely a response to the social value and norms cited by
Taxpayer in its Private Letter Ruling Request. Rather, the Comment to the Uniform Anatomical Gift Act
expressly states that the rationale for the prohibition on sale is: “Any perception on the part of the public
DR 4010A (06/11/14)

The one limited exception where we agree that the sale of tissue is illegal is set forth in the
Public Health Services Act,16 which prohibits the purchase of human fetal tissue for any
purpose. Specifically, this Act states, in pertinent part,
(a) Purchase of tissue. It is unlawful for any person to knowingly acquire, receive, or
otherwise transfer any human fetal tissue for valuable consideration if the transfer
affects interstate commerce.
We discuss in more detail immediately below the implication of this limited prohibition on
the application of state sales and use taxes.
The second step in Taxpayer’s two-pronged argument is that the purported unlawful sale
of human tissue requires that these transactions be construed as the sale of services. To
this end, Taxpayer represents that its pricing model uses cost components related to its
preparation, storage, and delivery of tissue.17 Taxpayer further represents that the tissue
itself has no value18 because, again, it is purportedly unlawful to sell it for nontransplantation purposes.
Whether the sale of property is illegal under federal or state law simply has no bearing on
whether the sale is taxable. See, e.g., Dep’t of Revenue v. Kurth, 511 U.S. 767, 777
(1994) (“the unlawfulness of an activity does not prevent its taxation”; case involving state
tax on storage and possession of illegal drugs); Simpson v. Bouker, 249 F.3d 1204, 121013 (10th Cir. 2001) (Kansas’ stamp tax on possession and sale of marijuana valid). If such
were the case, then a seller of illicit drugs could argue with success that he or she is not
selling illicit drugs because such sales are illegal and, therefore, the dealer is simply
providing a non-taxable service of procuring, preparing, and delivering illicit drugs. The
Department has never accepted such a characterization and assesses sales tax on the
unlawful sales of controlled substances because the dealer is selling tangible personal
property and not simply providing the services to bringing together a willing supplier and
buyer.19
In Alabama Plasma v State of Alabama, S. 99-329, 2000 Ala. Tax LEXIS 83 (AL
Department of Revenue 10/13/2000), the state rejected the same arguments advanced
here by Taxpayer. In that case, the taxpayer argued that its sale of blood products was
the sale of a service because state law prohibited the sale of blood used for injection into
humans (i.e., transplantation). The taxpayer collected blood, processed it into its
that transplantation unfairly benefits those outside the community, those who are wealthy enough to
afford transplantation, or that it was undertaken primarily with an eye toward profit rather than therapy will
severely imperil the moral foundations, and thus the efficacy of the system.” Unif. Anatomical Gift Act
§ 10 cmt (1987). Those concerns do not apply with equal force to Taxpayer’s sales of nontransplantable
for “research, training and overall medical advancement.” (PLR Req. at 1).
16
42 U.S.C. § 289g-2
17
Taxpayer’s invoices do not show this cost structure. In the sample invoice provided us, the invoice state
a single price for the tissue, together with separate pricing for packing material. Taxpayer has not
demonstrated in any verifiable manner that its pricing is as represented. Nevertheless, we accept as true
for purposes of this discussion, that Taxpayer’s pricing model is as represented.
18
In the next two sections of this ruling, we examine the claim that human tissue has no value. Suffice it to
say at this point, that human tissue, and particularly the tissue at issue in this ruling, has enormous value.
19
Eggleston v. Colo., 636 F. Supp. 1312 (D. Colo. 1986).
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constituent parts, and then sold the blood products to research facilities for research
purposes and not for injection into humans. The state rejected taxpayer’s arguments both
that the state made its sales illegal and, even assuming the sale were unlawful, the nontax statute governed or superseded the state’s tax statutes. First, the department noted
that the state prohibited the sale of blood applied only if the blood was injected into a
person. The blood products produced by the taxpayer were expressly made for noninjection purposes, similar to Taxpayer’s provisioning of human tissue for nontransplantation purposes. The department then cited with approval Community Blood
Bank, Inc. v. Russell, 196 So.2d 115 (Fla. 1967), in which the Florida Supreme Court held
that the sale of blood clearly fell within the ambit of the sales tax statute and the transfer of
blood for consideration was a taxable sale. We think the same sound analysis applies to
this case.
More generally, the proper frame of reference for determining whether a transaction is a
taxable sale is by reference to Colorado’s tax statutes and not by reference to non-tax
statutes. In Parkridge Hospital v. Jayne Ann Woods, Tennessee Comm’r of Revenue, 561
S.W.2d 754 (TN 1978), the taxpayer argued that the sale of blood was the sale of a
service because the sale of blood under the state’s commercial code was classified as the
sale a service (presumably to foreclose claims based on warranties of merchantability and
fitness for a particular purpose). The court first noted that the sale of human blood clearly
fell within the ambit of state’s tax statutes. In rejecting the taxpayer’s next argument that a
non-tax statute governed the tax code, the Court stated,
[i]t is the fundamental rule of statutory construction to ascertain and give effect
to the intention or purpose of the Legislature as expressed in the statute. The
purposes of the Uniform Commercial Code as enumerated in T.C.A. 47-1-102
are "to simplify, clarify and modernize the law governing commercial
transactions." The purpose of the sales and use tax is to derive revenue for the
State. Both laws are inclusive and are sufficient to regulate the subject matter
their enactment is purported to cover and regulate. The issue thus becomes
whether the enactment by the Legislature in the Uniform Commercial Code, to
the effect that human blood "shall not be considered commodities subject to
sale or barter *," excludes human blood from taxation under the sales and
use tax law. The Court concludes it does not.20
It is worth noting here that the Tennessee commercial code provision at issue is much
more specific than the Colorado statute relied on by Taxpayer.
Finally, and accepting for purposes of argument Taxpayer’s assertion that the tissue has
no value, a retailer who sells goods obtained by donation or otherwise without cost and
sells those goods at a price measured by its labor costs to acquire, store, and deliver the
goods has engaged in a taxable sale. For example, a company that sells various gases
will acquire the raw material (air), which has no value in and of itself, and then processes it
into its constituent parts (oxygen, nitrogen, carbon dioxide, helium). The company cannot
recast its transactions as the sale of services by constructing a pricing scheme that
identifies only the service-related costs, even if, as it will, assign no cost to the air itself.
And as we have noted elsewhere, this act of processing is, itself, not a requisite to
20

7

See also, In re: A Finding Concerning A Claim for Refund Filed by XYZ Blood Center, Inc., 1992 S.C. Tax
LEXIS 58 (S.C. Comm’n Decision No. 92-26 Feb. 28,1992).
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taxability. A retailer of sea shells found lying on a beach is as much a seller of taxable
goods as is a retailer who fabricates the sea shells into pieces of jewelry.
For purposes of completeness, we think it is important to discuss two areas that we
considered but were not raised by Taxpayer. We discussed above the prohibitions in both
NOTA and the Public Health Services Act against the transfer of human tissue. Both
prohibitions require a transfer for “valuable consideration.” “Valuable consideration” is
defined to exclude payments for the type of activities that are engaged in by Taxpayer.
For example, NOTA21 defines “valuable consideration” to exclude,
the reasonable payments associated with the removal, transportation,
implantation, processing, preservation, quality control, and storage of a
human organ or the expenses of travel, housing, and lost wages incurred by
the donor of a human organ in connection with the donation of the organ.
We note that the activities described in that definition are services. One possible inference
that can be drawn from this definition is that the federal statute is assuming that the
transactions at issue are the sale of services. This inference is consistent with Taxpayer’s
view that this industry has adopted a view that it is providing a service and not the sale of
tissue. However, this federal statute neither expressly nor implicitly requires states also
accept this characterization of the transaction for purposes of state tax law. Moreover,
and as concluded in Parkridge Hospital, it is simply incorrect to resolve a tax issue by
inferring that a non-tax federal statute is intended to override a state tax statute.
2.
Human tissue as property.
We next turn to the question of whether a person can have a property interest in human
tissue. In recent years and with the advancements in science and medicine, there has
been substantial growth in the human tissue industry. There is, in fact, a robust market for
human tissue that has developed into a multi-billion dollar industry.22 People routinely sell
a variety of human tissue23: human blood (up to $1,000 for blood with rare antibodies),
human eggs ($25,000-$50,000 for eggs in a single cycle), bone, skin, and hair (for wigs).
A single human cadaver can generate between $100,000 to $300,000 in revenue for
companies such as Taxpayer.24 The commercialization of human tissue has prompted a
closer examination of the question whether one can have an ownership interest in human
tissue.25
21

The Public Health Service Act has a similar definition. See, 42 U.S.C. 289g-2(e)
Wharton, University of Pennsylvannia, The Billion-Dollar Body Parts Industry: Medical Research
alongside Greed and Corruption, August 9, 2006 at http://knowledge.wharton.upenn.edu/article/thebillion-dollar- body-parts-industry-medical-research-alongside-greed-and-corruption-2/.
23
There is some debate about what constitutes human tissue. For example, some argue that gametes,
which are related to sperm and egg cells, are not human tissue. In this context, we use human tissue
simply to mean a part of a human body.
24
Lisa Milot, What are We - Laborers, Factories, or Spare Parts? The Tax Treatment of Transfers of
Human Body Materials, 67 Wash. & Lee Law Review 1053 (2010); Michele Goodwin, Black Markets: The
Supply and Demand of Body Parts 178 (2006) (estimating a cadaver to have a value of $220,000);
Brenda Reddix-Smalls, Assessing the Market for Human Reproductive Tissue Alienability: Why Can We
Sell Our Eggs But Not Our Livers?, 10 Vand., J. Ent & Tech. L., 643 (2008); Gina Kolata, Price of Donor
Eggs Soars, Setting Off a Debate on Ethics, N.Y. Times, Feb. 25, 1998); USA Today, There’s Money in
the business of body parts, April 7, 2004 (cadavers valued at $100,000 to $300,000).
25
See, e.g., E. Richard Gold, Body Parts: Property Rights and the Ownership of Human Biological Materials
3 (1996). In Washington University v. Catalona, 490 F.3d 667 (8th Cir. 2007), cert denied, 552 U.S. 1165
22

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It is also important when examining this question to recognize a fundamental premise of
property law that property ownership is not a single right of ownership but rather a bundle
of several rights in property. For example, a seller may sell the right to use the property
but not sell the title to the property. Colorado tax statutes do not require that the seller sell
the entire bundle of rights in goods in order to incur tax liability. This is made clear in
Department Rule 1 CCR 201-4, 39-26-102.11, which defines a “sale” as,
any transaction, except as provided in 26-102.7(b), whereby a person, in
exchange for any consideration …: (a) transfers or agrees to transfer all or
part of his interest, or the interest of any other for whom he is acting as an
agent, in any tangible personal property to any other person;… ...[A]
transaction ... shall be considered a sale if it transfers from a seller to a
buyer the ownership or possession of tangible personal property ….
(emphasis added)
Common examples of this principle include companies that rent equipment or license
computer software. Possession and the right to use are only some of the “sticks in the
bundle of property rights”26 that constitute the rights of ownership. A buyer of computer
software or person who rents property incurs sales and use tax liability even though the
consumer obtains only some of the rights of ownership (e.g., a license to possess and use
software or the contractual right to possess and use property in the case of rental
companies). This discussion is important, as we will discuss below, because Taxpayer
transfers most, but not all, of its ownership rights to the tissue to clients.
Taxpayer acquires both a right to possess and right to dispose, as well as other ownership
interests in the human tissue when it takes a donation. This is made clear by, among
other things, the fact that Taxpayer has no possessory or other interest in the tissue
unless and until the donor or donor’s representatives gives Taxpayer consent to possess
and use the tissue.27 The donor releases Taxpayer from losses related to the human
tissue.
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX28

(2008), the court held that a donor who donated human tissue to a medical school for research
relinquished his ownership interest in the tissue because the donation was an inter vivos gift. Missouri
law defined an “inter vivos gift as “a voluntary transfer of property by the owner to another, without any
consideration or compensation as an incentive or motive for the transaction.” Inter vivos transfers are
transfers of ownership in property. If the donor had no ownership interest in his human tissue then an
inter vivos transfer would not be possible and the research institution would have not received an
ownership interest in the tissue. See also, See I.R.S. Gen. Couns. Mem. 36418, 1975 GCM LEXIS 112,
at *1 (Sept. 15, 1975) (declaring that the fair market value of mother’s milk donated to a charitable
organization is deductible as a charitable contribution under Int. Rev. Code of 1954, § 170).
26
Dukeminier, et al., Property 80 (7th ed. 2010)
27
§12-34-102, et seq., C.R.S.
28
Taxpayer’s Donor’s Consent form.
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This release of claims implies the donor has a legal interest in the tissue that can be
protected by law. Moreover, Colorado law makes it clear that the donor, donor’s
representative, and Taxpayer each have interests in the tissue at different stages in the
donation process. Donor and the donor representatives have the right to not transfer
tissue to anyone under Colorado’s Uniform Anatomical Gift Act. Taxpayer, in turn,
acquires the right to use the donated tissue once the donation is made. These are
effectively rights of ownership.
This ownership interest in human tissue is also reflected in Taxpayer’s contract with clients
(the buyers of tissue). When Taxpayer sells tissue to a client, the terms of the contract
expressly state that Taxpayer is granting the client a license to use the tissue in certain
explicitly defined ways.
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX29
If Taxpayer did not have an ownership interest in the tissue, then Taxpayer would have no
legal basis to assert control and possession over the tissue. Client, in turn, acquires by
this transaction the right to use and dispose of the tissue subject only to certain limitations.
The transfer of these property interests in the tissue from Taxpayer to a client creates a
taxable event.
Finally, asserting that neither Taxpayer nor its clients has a property right in the tissue
would lead to what is clearly an absurd result. If neither Taxpayer nor the client has an
ownership interest in the tissue, then neither could maintain a judicial proceeding to
recover human tissue stolen from their premises and no criminal action could be instituted
against such a person for theft, because both require that the Taxpayer or client have an
ownership interest in the tissue. We are not inclined to adopt such a view.
3.
The true object of Taxpayer’s transaction with clients.
We began the discussion of this issue by noting that sales tax applies to the transfer of
tangible personal property even though the retailer has engaged in labor-related activities
and that these labor-related activities do not convert the transaction from a sale of goods
to a sale of services. Taxpayer’s activities of preparing, storing, and shipping the tangible
personal property are common activities of almost every retailer.30 Nevertheless, and for
sake of completeness, we also evaluate Taxpayer’s transactions as if Taxpayer were
providing clients a service together with the transfer of the tissue.
To evaluate the tax implications of mixed transactions involving both services and goods,
we must refer to Colorado tax statutes and regulations. Colorado law has well established
legal principles for analyzing transactions involving both the provisioning of services and
29
30

10

Taxpayer’s License Agreement form.
Department Special Regulation 1 CCR 201-5, SR (Sales) 40. We note again that the true object test
applies only to a bundled transaction where the retailer performs a service in connection with the transfer
of goods. In this case, the labor-related activities engaged in by Taxpayer are those incurred before the
goods are brought to market and are similar to those activities engaged in by nearly every retailer of
taxable goods.
DR 4010A (06/11/14)

tangible personal property. The proper tax analysis is to determine the buyer’s “true
object” in entering into the transaction.
The true object of some mixed transactions is the sale of services, even though incidental
tangible personal property is transferred to the customer. For example, an accountant
sells the service of accountancy and this service is not subject to sales tax, even though
the accountant gives the client a paper tax return or an opinion letter. The true object of
the transaction is the accountant’s expertise. The paper tax return or opinion letter, which
embodies the result of the accountant’s intangible intellectual services, is incidental to that
service.
This cannot be said, in any reasonable sense, to be the case for the sale of human tissue.
The research laboratory’s true object is the tissue itself. Researchers require the human
tissue to perform their work. The research facility’s interest in Taxpayer’s efforts to acquire
and deliver the tissue is irrelevant in the same way that they are irrelevant to a buyer of
food from a grocery store. How a grocery store acquires, transports, processes, and
stores, for example, beef steak is in no sense the true object of the consumer’s purchase,
although each activity is clearly essential to getting the animal tissue to the buyer and,
perhaps, is even of great interest and concern to the consumer. The labor costs incurred
to bring tissue to the customer is, as in any sale of goods, simply a necessary cost
component of the “sale” of the product but certainly not the true object, in and of itself, of
the consumer. Moreover, and for the reasons previously discussed, human tissue is in no
sense incidental to the transaction – it is the true object of the transaction.
We note that the application of these tax principles to the case at hand is neither
debatable nor unclear. What animates any debate here is Taxpayer’s premise that the
sale of tissue for non-transplantation is unlawful and, therefore, the transaction must be
recast as a sale of services, or that by pricing the transaction by identifying labor costs and
reducing the value of the tissue to zero that the transaction is for the sale of a service. For
the reasons set forth above, we conclude that Taxpayer is engaging in transactions that
are subject to Colorado sales and use taxes.
Finally, we want to acknowledge that the sale of human tissue raises important social and
ethical questions. Whether the sale of human tissue should be exempt from sales and use
tax, for example, is an important policy question. This is a large industry that will
undoubtedly continue to grow with advancements in science and with increases in
demand for human tissue. Taxpayer’s request is, in essence, a request that these
transactions be exempt from sales taxation where no such exemption exists. State
legislatures that have addressed this issue have done so directly and unambiguously by
adopting specific exemptions for the sale of human tissue.31 The Colorado legislature has
not exempted the sale of human tissue, either directly or implicitly, and the Department
has no authority to create such an exemption.32 33 What the Colorado legislature has
required of the Department is that it assess tax on the sale of corporeal property.
31

See, e.g., Virginia Public Document Ruling, No. 90-25, 03/05/1990. Legislatures grant exemptions with at
least an implicit understanding that the property at issue is otherwise subject to tax.
32
Indeed, rules of statutory interpretation direct us not to imply exemptions and to interpret and apply
exemptions narrowly. Security Life & Accident Co. v. Heckers, 177 Colo. 455, 458 , 495 P.2d 225, 226-27
(1972) and LWD Equipment, Inc. v. Revenue Cabinet, 136 S.W.3d 472 (Ky. 2004)
33
It is also worth noting that the Colorado legislature has adopted a specific statutory exemption for all
purchases made by non-profit charitable and educational institutions (§ 39-26-718 C.R.S.) and
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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/revenue/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. This ruling is null and void if any
such representation is incorrect and has a material bearing on the conclusions reached in
this ruling. This ruling is subject to modification or revocation in accordance to Department
Regulation 24-35-103.5.
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.

government entities (§ 39-26-704 C.R.S.). Thus, while we conclude that the sale of human tissue is not
exempt as a function of its status as human tissue, many sales of this tissue will nevertheless be exempt
from sales tax as a result of the buyer’s status as a public or nonprofit educational institution or as a
nonprofit hospital.
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