Is a transprostatic implant that corrects a urinary-tract deformity exempt from Connecticut sales tax as a correction for a functioning part of the body?

Plain-English summary

A medical device company makes a permanent, adjustable implant used to treat benign prostatic hyperplasia — an enlargement/deformation of the male urinary tract that restricts urine flow. A surgeon implants the device to correct that deformity. The implant comes inside its own sterile, single-use housing — a handle, needle, and tensioning spring that the surgeon needs to position and deploy the implant. The FDA approved the implant and housing to be used, and sold, only together as one indivisible unit. The company asked whether the product is exempt from Connecticut sales tax.

The Department of Revenue Services ruled the product is exempt under Conn. Gen. Stat. § 12-412(19)(C), which exempts "artificial limbs, artificial eyes and other equipment worn as a correction or substitute for any functioning portion of the body." Because the implant is placed into the urinary tract to correct a deformation of the urethra, it is a correction for a functioning portion of the body and falls squarely within the exemption.

DRS also addressed the delivery housing. On its own, the housing wouldn't be exempt. But because the implant can only be sold as an indivisible unit with the housing — the housing is required to place and deploy the implant, and the FDA approved them only as a single product — the exemption covers the housing too, as an inseparable component of the exempt product.

What this means for you

Medical device makers and surgical suppliers

Connecticut's medical exemptions reach beyond external prosthetics: an implanted device that corrects a functioning portion of the body can qualify under § 12-412(19)(C). And where a component that wouldn't be exempt standing alone (like a single-use delivery/deployment housing) is inseparable from the exempt device and can only be sold with it, the exemption can extend to the whole indivisible unit. Keep documentation of the FDA-approved "sold only as one unit" configuration — that's what carried the housing into the exemption here.

Hospitals and providers purchasing implants

An implant that corrects or substitutes for a functioning body part is generally exempt in Connecticut, and the required single-use delivery apparatus sold as one unit with it can ride along exempt. If a device is billed as separable components, the analysis may differ — the exemption for the accessory here depended on it being an indivisible part of the product.

Accountants and tax professionals

The exemption is Conn. Gen. Stat. § 12-412(19)(C) (implemented by Conn. Agencies Regs. § 12-426-14(5)), a different subdivision than the "individually designed/altered braces and supports" exemption in § 12-412(19)(B). The notable move is extending the exemption to a non-exempt component (the housing) on an indivisibility theory grounded in the FDA's single-unit approval. Watch that theory: it turns on the product genuinely being sold only as one unit.

Common questions

Q: Are implants exempt from Connecticut sales tax?
A: An implant that serves as a correction or substitute for a functioning portion of the body is exempt under § 12-412(19)(C). Here, a transprostatic implant correcting a urinary-tract deformity qualified.

Q: What about the disposable housing used to insert it?
A: It's exempt too — not on its own merits, but because the FDA-approved product can only be sold as one indivisible unit with the implant, so the exemption covers the whole unit.

Q: Would the housing be taxable if sold separately?
A: Yes. DRS said the housing would not be exempt if sold on its own; it qualified only as an indivisible component of the exempt product.

Q: Does this ruling apply to my device?
A: Not automatically. A Connecticut Ruling addresses specific facts. Whether a device qualifies depends on whether it corrects or substitutes for a functioning part of the body and, for any accessory, whether it's genuinely inseparable from the exempt device.

Citations and references

Statutes:

• Conn. Gen. Stat. § 12-407; § 12-408 (imposition of sales and use tax)
• Conn. Gen. Stat. § 12-412(19)(C) (correction or substitute for a functioning portion of the body)

Regulations:

• Conn. Agencies Regs. § 12-426-14(5) (artificial limbs, eyes, and body-function corrections)

Source

• Landing page: Connecticut DRS Rulings
• Ruling: Ruling 2017-7

Original ruling text

Ruling 2017-7, Sales and Use Taxes - Medical Equipment

FACTS:

A medical device (the “Product”) is designed to correct “benign prostatic hyperplasia,” a physical deformity in the male urinary tract that can increase resistance to the flow of urine from the bladder. A health care provider corrects this deformity using the Product as a permanent adjustable transprostatic implant. The Product consists of an implant that is contained within its own sterile, single-use housing that is essential to the placement and deployment of the implant into the patient. Each housing includes a handle for positioning the implant and coupling to an urethroscope, a retractable needle for puncturing the capsule of the prostate gland, and a tensioning spring within the handle for adjusting the implant during placement. The Food and Drug Administration approved the implant and housing to be used together as an indivisible unit, and the Product can only be sold as an indivisible unit.

ISSUE:

Are sales of the Product exempt from sales and use taxes pursuant to the exemption set forth in Conn. Gen. Stat. § 12-412(19)?

RULING:

Sales of the Product are exempt from sales and use taxes under Conn. Gen. Stat. § 12-412(19)(C) because the Product is a correction for a functioning portion of the body.

DISCUSSION:

Retail sales of tangible personal property in Connecticut are subject to sales and use tax, unless specifically exempt. Conn. Gen. Stat. §§ 12-407 and 12-408. Gross receipts from the sale of “artificial limbs, artificial eyes and other equipment worn as a correction or substitute for any functioning portion of the body” are specifically exempt from tax. Conn. Gen. Stat. § 12-412(19)(C); Conn. Agencies Regs. § 12-426-14(5). The Product is implanted into the male urinary tract to correct a deformation of the urethra. Therefore, the Product qualifies for the sales and use tax exemption because it is “a correction or substitute for any functioning portion of the body.” [1]

LEGAL DIVISION

October 2, 2017

[1] Although the housing would not be exempt if sold on its own, the implant can only be sold as an indivisible unit with the housing, which is required for the placement and deployment of the implant. As a result, the exemption of the Product includes the housing as an indivisible component of the Product.