Were a clinical laboratory's diagnostic test kits, calibrators, controls, chemicals, and reusable analytical columns exempt from Florida sales tax?

Plain-English summary

Florida exempted the laboratory's consumable diagnostic kits and materials but taxed its reusable analytical columns. Section 212.08(2)(a) exempted chemical compounds and test kits used to diagnose or treat human disease, illness, or injury.

The disposable kits contained test media, reagents, biochemical or antimicrobial compounds used on patient specimens. Florida also treated calibration and control materials as exempt chemical compounds because federal and Florida laboratory requirements made them part of validating patient results before those results could be reported.

Reusable equipment remained taxable

Analytical columns were reusable medical devices or equipment, and the ruling found no specific exemption for them. They remained taxable even when packaged with otherwise exempt products if the columns represented the preponderance of the package's value.

What this means for you

Clinical laboratories should classify each item by composition, diagnostic function, disposability, and package value. A product's connection to medical testing did not automatically exempt reusable equipment.

Common questions

Q: Were disposable diagnostic test kits exempt?
A: Yes, when used in diagnosing human disease or injury as described.

Q: Why did calibrators and controls qualify?
A: They were chemical compounds required to validate patient test results before reporting.

Q: Were analytical columns exempt medical products?
A: No. Florida treated the reusable columns as taxable equipment.

Q: Did packaging a column with exempt chemicals change the result?
A: Not when the column accounted for the preponderance of value.

Citations and references

• Fla. Stat. § 212.08(2)(a) — medical products, chemical compounds, and diagnostic test kits
• Fla. Admin. Code r. 12A-1.020(7) — diagnostic compounds and test kits
• Fla. Admin. Code r. 59A-7.029(7)(b) — control samples discussed in the ruling
• 42 C.F.R. § 493.1218 — calibration and control requirements discussed in the ruling
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 03A-043

Original ruling text

SUMMARY

QUESTION: What is the taxable status of diagnostic test
kits, and certain related lab supplies?

ANSWER - Based on Facts Below: The described consumable
diagnostic test kits, calibration and control materials,
and chemical compounds and substances would be exempt from
tax when used in the diagnosis of human disease or injury.
Reusable equipment, such as the "analytical columns," would
be taxable.

Aug 29, 2003

Re: Technical Assistance Advisement 03A-043
XXX ("Taxpayer")
Sales and Use Tax
Diagnostic Test Kits and Related Medical Products
Section 212.08(2), F.S.
Rule 12A-1.020, F.A.C.

Dear :

This is in response to your letter of May 6, 2003, received in
this office on July 11, 2003, in which you request the issuance
of a Technical Assistance Advisement regarding the application
of Florida sales and use tax to purchases by your client of
diagnostic test kits, testing supplies, calibration and control
materials, and, chemical compounds and substances. These items
are purchased for the diagnosis of human disease, illness, or
injury. The taxpayer is an independent clinical laboratory
company providing diagnostic medical tests that are used by
physicians in testing, in patient diagnosis, and in the
monitoring and treatment of disease. Your letter further
provides:

Diagnostic Test Kits

A significant category of clinical testing supplies
purchased by [Taxpayer] are diagnostic test kits. In order
to perform certain diagnostic analyses, disposable test
kits are often utilized by the laboratory. These test kits
may contain cards, spurs, strips and other growth test
media, in small tubes or enclosed containers which contain
pre-assembled reagent solutions, bio-chemicals,
antimicrobial compounds or other chemical compounds. The
test kits are used under the overall direction of a
licensed physician to test the patient's specimen for
susceptibility to various agents. Each kit is utilized
after the physician orders a specific diagnostic test(s) be
performed on the patient's bodily fluids or tissue samples
to determine if there is evidence suggesting the presence
of disease, illness or injury. The patient's specimen is
introduced into the test kit on the test media and is then
combined with the appropriate reagent, chemical compound or
substance. After this combining process, microbiological
growths may occur on the card, spur, strip, or within the
solutions. These microbiological growths are then analyzed
by manual or automatic instrumentation which concludes with
either positive or negative results or identification of
specific microorganisms. Based on these test results, the
physician makes a diagnosis of the ailment from which the
patient suffers and determines the appropriate medical
treatment or pharmaceuticals to be prescribed.

Pursuant to the provisions of section 212.08(2)(a), F.S.,
we believe that the purchase of test kits by [Taxpayer]
which contain pre-assembled test media and reagent
solutions, chemical compounds, biochemicals or antimicrobial compounds and which are used in the diagnosis of
human disease, illness and injury should be exempt from
Florida sales and use tax.

Testing Supplies

Two other products purchased by [Taxpayer] are a piece of
equipment, called a DIAMAT analyzer, and a reorder pack.
This test system uses blood samples which are taken and
sent at the request of the patient's physician to a

clinical laboratory for diabetes monitoring. The purpose of
the diabetes monitoring is the diagnosis and treatment of a
human disease or illness. The blood sample is prepared by
adding a chemical reagent and the mixture is injected into
an analytical column along with a mixture of buffers and
diluents. The buffers and diluents are used to separate the
blood sample inside the analytical column so that the
sample will emerge from the column in a distinct series of
parts for analysis by the DIAMAT analyzer's wavelength
detector.

The results are printed out on a patient report and are
sent to the physician. The blood sample as well as the
reagent and buffers are usable only once and must be
discarded after the test has been completed. The analytical
column can be used for approximately 1,000 tests and then
it must be discarded as well. The reorder pack contains one
analytical column and enough of all the reagents, buffers,
sample cups, wash solution and diluents to perform 1,000
diabetes tests. The most costly component of the reorder
pack is the analytical column.

All of these items are each consumed in a single usage as
components of the reorder pack which, in essence, is a test
kit used for the diagnosis and treatment of human illness.
Occasionally, [Taxpayer] may purchase separately on an
individual basis, the items making up the reorder pack. The
reason [Taxpayer] may purchase these items separately is to
replace items from the standard reorder pack which they may
have misplaced or may be using in a different ratio from
the recommended standard test. For example, if the
analytical column is purchased separately, its only use
would be to perform this same diagnostic test using the
above referenced reagents, buffers and diluents on the
DIAMAT diabetes monitoring machine.

Pursuant to the provisions of section 212.08(2)(a), F.S.,
we believe that the purchase of these testing supplies
which make up the reorder packs by [Taxpayer], each
containing an analytical column, reagents, buffers, sample
cups, wash solution and diluents to perform numerous tests

in the diagnosis of human disease, illness and injury
should be exempt from Florida sales and use tax.
Furthermore, such exemption should apply regardless of
whether the testing supplies are purchased aggregately as
part of the reorder pack, or separately on an individual
basis, since the usage of these items remains the same.

Calibration & Control Materials

Federal and State clinical laboratory procedural guidelines
require testing laboratories that report patient specific
results must include at least two samples of either
calibration materials or control materials not less
frequently than once each run of patient samples in order
to assess the accuracy and precision of patient test
results. Calibrators and controls are defined as a device
or chemical intended for medical purposes for use in a test
system to establish points of reference, or a benchmark, in
the determination of acceptable vs. unacceptable values in
the measurement of substances in human specimens. As part
of the testing procedure, these calibration and control
materials may be used in a test kit, an enclosed container,
or in an analyzer machine.

Rule 59A-7.029(7)(b), F.A.C., states that control samples
must be included at least once with each run of patient
specimens; must be tested in the same manner as patient
specimens; must be processed through each step of patient
testing; and must meet the laboratory's criteria for
acceptability prior to reporting patient test results.

Since the federal and the state regulations both require
that a batch of patient test results must be validated by
the use of calibration material or a control sample, such
as the ones in question, before the test results can be
reported to the prescribing physician, these calibrators
and controls are a necessary part of the procedure which is
used in the diagnosis or treatment of human disease,
illness, or injury. Therefore, the controls and calibrators
in question should fit the description of "chemical
compounds" under s. 212.08(2)(a), F.S. used for the

diagnosis of human disease and should therefore be exempt
from Florida sales and use tax.

Chemical Compounds and Substances

In order to prepare the specimen of human tissue or bodily
fluids for testing, chemical compounds and substances
comprised of various components which are prepared by a
chemical process are introduced to the specimen. These
products have measurable values that can be used in the
production of the desired chemical effect, depending upon
the diagnostic test to be performed. These chemical
compounds and substances include:

Stains, dyes, tumor markers -- various chemicals used to
color bacteria for microscopic examination, e.g., osmium
tetroxide, phosphotungstic acid, uranyl acetate and certain
chromium compounds. These products are used in the testing
process to detect and allow visualization of nanogram
quantities of protein, DNA and other bands.

Clarifiers -- chemical flocculating agents used to assist
in the removal of bulk water from a dilute suspension of
solids (e.g. specimens) by gravity sedimentation.
Clarifiers are used during the diagnostic testing process
to maintain solution levels within required parameters.

Antigen/antibody -- an antibody is a blood serum protein of
the globulin fraction that is formed in response to
introduction of an antigen. An antigen is an infective
organism which is able to induce formation of an antibody
in an organism into which it is introduced (by injection).
Thus a human being is able to resist infections to which it
has previously been exposed. The entire science of
immunology is based on antigen-antibody reactions, the most
outstanding feature of which is their specificity. The
antibodies produced in the bloodstream can react only with
those of a similar molecular structure. As a result, the
animal can destroy a particular virus or bacterium and
become immune. Antigens are used in diagnostic testing as a
catalyst to induce the formation of an antibody.

Serum -- human or animal blood from which corpuscles,
platelets, etc., have been removed, often prepared with
chemicals or antigenic bacteria for introduction to the
specimen. Serums are used in a manner similar to control
materials in verifying the accuracy of human diagnostic
tests.

Substrate -- a test media or substance upon which an enzyme
or ferment acts, usually a surface on which a chemical or
microbiological coating of a different material is
deposited to form a desired reaction. Substrates may be
included in a test kit, created in a petri dish or
introduced into an analytical column or test tube. These
substrates form the structure or platform on which the
diagnostic test is performed.

Buffer -- a chemical solution containing both a weak acid
and its conjugate weak base, whose pH changes only slightly
on the addition of acid or alkali. The weak acid becomes a
buffer when alkali is added, and the weak base becomes a
buffer when acid is added. Buffers are used during the
diagnostic testing process to maintain pH levels within
required parameters. Additionally, buffers help standardize
electrophoresis runs to provide consistent, reproducible
results.

Diluents -- an ingredient used to reduce the concentration
of an active material to achieve a desirable and beneficial
effect. Diluents are used during the diagnostic testing
process to maintain solution levels within required
parameters. Typical diluents include sterile water,
buffered peptone water and salt solutions.

Electrolyte -- a substance that will provide ionic
conductivity when dissolved in water or when in contact
with it. Such compounds may be either solid or liquid, e.g.
sodium chloride. Various electrolyte substances are used to
monitor the measurement of pH, pCO2, PO2 in blood products

Conjugates -- two compounds of a liquid system, each

composed of a different ternary mixture and in equilibrium
with one another. Conjugates are used during diagnostic
testing as part of a chemical system characterized by a
transmission of chemical reactivity from one atom to
another. Conjugates are also used to control the
concentration of a desired substance in a test solution
until the desired reaction is completed. Certain conjugates
increase assay sensitivity by creating greater dilutions
and increasing the measurable response of the assay.

Hemoglobin -- the respiratory protein of the red blood
cells, which transfers oxygen from the lungs to the tissues
and carbon dioxide from the tissues to the lungs.
Hemoglobin is used in testing for diabetes monitoring,
sickle cell screening, thalassemia testing and
hemoglobinopathy screening.

Pursuant to section 212.08(2)(a), F.S., we believe that the
purchase of the aforementioned items [that] meet the
definition of chemical compounds which are used in the
diagnosis of human disease, illness and injury should be
exempt from Florida sales and use tax.

APPLICABLE AUTHORITY

Section 212.08(2)(a), F.S., provides in part:

(2) EXEMPTIONS; MEDICAL.(a) There shall be exempt from the tax imposed by this
chapter any medical products and supplies or medicine
dispensed according to an individual prescription or
prescriptions written by a prescriber authorized by law to
prescribe medicinal drugs; hypodermic needles; hypodermic
syringes; chemical compounds and test kits used for the
diagnosis or treatment of human disease, illness, or
injury; and common household remedies recommended and
generally sold for internal or external use in the cure,
mitigation, treatment, or prevention of illness or disease
in human beings, but not including cosmetics or toilet
articles, notwithstanding the presence of medicinal
ingredients therein, according to a list prescribed and

approved by the Department of Health, which list shall be
certified to the Department of Revenue from time to time
and included in the rules promulgated by the Department of
Revenue.... (Emphasis Supplied)

Rule 12A-1.020, F.A.C., provides in part:

(7)(a) The chemical compounds and test kits specified in
this paragraph which are used for the diagnosis or
treatment of disease, illness or injury are specifically
exempt. Examples of chemical compounds and test kits
include, but are not limited to the following: Albustix
reagent strips and tablets; blood pressure units;
cholesterol tests; clinistix reagent strips; clinitest
tablets; combistix reagent strips; dextrostix, reagent
strips; dextrotest kit and refills; diabetic test kits;
galatest; ictotest reagent tablets; sugar test tablets for
diabetics; thermometers for human use; tuberculin patch
test; urine testing kits; urograph test.

(b) Likewise exempt is any chemical compound and test kit
used for the diagnosis or treatment of disease, illness, or
injury, ordered and dispensed in a retail establishment by
a pharmacist licensed by the State of Florida, according to
an individual prescription or prescriptions written by a
duly licensed practitioner authorized by the laws of the
state to prescribe medicinal drugs.

DISCUSSION

Section 212.08(2)(a), F.S., exempts from tax chemical compounds
and test kits which are used for the diagnosis or treatment of
human disease, illness, or injury. The term "chemical compound"
is not defined for purposes of this statutory exemption, so the
plain and ordinary meaning of the words must be considered. The
term "chemical" is defined as "a substance ... obtained by a
chemical process, prepared for use in chemical manufacturing or
used for producing a chemical effect." Webster's Third New
International Dictionary of the English Language, Unabridged
(hereafter referred to as "Webster's"), page 384. The term
"compound" is defined as "composed of or produced by the union

of several elements, ingredients, parts or things." Webster's
at page 466. A chemical compound would be a mixture or product,
comprised of various components and prepared via a chemical
process, having as a purpose the production of a chemical
effect.

Controls are reagents which are used for quality control of the
particular test being done. Calibrators contain reagents which
are used to calibrate the particular test. Therefore, the
controls and calibrators in question fit the description of
"chemical compounds" under s. 212.08(2)(a), F.S.

It must be determined whether these reagents or chemical
compounds are used for the diagnosis or treatment of human
disease, illness, or injury. Federal Regulation section
493.1218 requires that, for quantitative testing, testing
laboratories that report patient specific results must include
at least two samples of either calibration materials or control
materials not less frequently than once each run of patient
samples in order to assess the accuracy and precision of patient
test results.

In Rule 59A-7.029(7)(b), F.A.C., implemented by the Agency for
Health Care Administration, it states that control samples must
be included at least once with each run of patient specimens;
must be tested in the same manner as patient specimens; must be
processed through each step of patient testing; and must meet
the laboratory's criteria for acceptability prior to reporting
patient test results. Since the Federal regulations and the
Florida regulations both require that a batch of patient test
results must be validated by the use of calibration material or
a control sample, such as the ones in question, before the test
results can be reported to the prescribing physician, these
calibrators and controls are a necessary part of the procedure
which is used in the diagnosis or treatment of human disease,
illness, or injury. As such, they would be exempt from tax as
chemical compounds used for the diagnosis of human disease
pursuant to section 212.08(2)(a), F.S.

Reusable medical devices, machinery, and equipment that are
purchased by healthcare practitioners are generally taxable,

absent a specific exemption. There is no specific exemption for
the "analytical columns," and thus they would be taxable. This
would be so even when they are packaged with otherwise exempt
products, where the preponderance of value is with the
"analytical columns."

SUMMARY

The consumable diagnostic test kits, calibration and control
materials, and chemical compounds and substances described in
your letter would be exempt from tax when used in the diagnosis
of human disease or injury. Reusable equipment, such as the
"analytical columns," would be taxable.

CLOSING STATEMENT

This response constitutes a Technical Assistance Advisement
under s. 213.22, F.S. which is binding on the department only
under facts and circumstances described in the request for this
advice as specified in s. 213.22, F.S. Our response is
predicated on those facts and the specific situation summarized
above. You are advised that subsequent statutory or
administrative rule changes or judicial interpretations of the
statutes or rules upon which this advice is based may subject
similar future transactions to a different treatment than
expressed in this response.

You are further advised that this response, your request and
related backup documents are public records under Chapter 119,
F.S., which are subject to disclosure to the public under the
conditions of s. 213.22, F.S. Your name, address, and any other
details which might lead to identification of the taxpayer must
be deleted by the Department before disclosure. In an effort to
protect the confidentiality of such information, we request you
provide the undersigned with an edited copy of your request for
Technical Assistance Advisement, backup material and response
within fifteen days of the date of this advisement.

Sincerely,

Jonathan E. Swift

Tax Law Specialist
Technical Assistance and Dispute Resolution
(850) 922-4840

Control #55924