How did Florida tax the computers, clinic setup package, software licenses, and patient fees used in a computerized vision-therapy program?

Plain-English summary

Florida split the vision-therapy program into taxable equipment and clinic sales, but nontaxable patient professional-service fees. The provider owed tax on the computerized therapy devices it bought, while clinic setup packages and standard diagnostic-software licenses were taxable unless sold to a properly documented exempt organization.

The therapy used a dedicated computer, display, proprietary patient software, and headrest for individualized in-home visual rehabilitation after stroke or traumatic brain injury. Devices were sent to patients after prescription, returned after treatment, and redeployed to other patients.

The provider owed tax on retained therapy devices

A prescribed medical device sold or leased to a patient could qualify for the medical exemption. But the provider did not sell or lease its device to the patient. Instead, the patient paid one fee for the course of therapy, including device use, technical support, and monthly progress reports.

Because the provider retained and reused the equipment, Florida treated it as the consumer and required tax on its device purchases.

Clinic setup packages and training were taxable

Partner clinics paid a one-time setup fee covering a device loaded with diagnostic software, onsite training, and manuals. Florida treated sales of medical products to healthcare providers as taxable even when used in treatment.

Onsite training was a service included in the sale and therefore joined the taxable sales price.

Standard diagnostic-software licenses were taxable

The annual diagnostic-software license was taxable because the program did not appear customized. Under the cited computer rule, prepackaged software usable without customer-specific modification was tangible personal property, while a genuinely customized software package could be treated differently.

If a qualifying section 501(c)(3) organization provided its consumer's certificate of exemption, the provider could accept that certificate instead of collecting tax on the clinic sale.

Per-patient therapy fees were exempt

Florida treated the flat per-patient charge as an exempt professional service whether the provider billed the partner clinic or billed the patient directly. The fee covered the therapy course rather than a sale or lease of the device.

What this means for you

Digital-health and therapy providers

Determine whether hardware is transferred to the patient or merely used while you retain ownership. Reusable provider-owned equipment can remain taxable even when a prescribed patient sale or lease would be exempt.

Hospitals and rehabilitation clinics

Medical purpose alone does not exempt equipment, standard software, training, or setup packages sold to a provider. Supply current exemption documentation if your organization qualifies.

Accountants and tax professionals

Separate patient professional-service revenue from clinic-facing property and software sales. Review whether software is truly customized and whether training or support is part of a taxable sale.

Common questions

Q: Was the provider's purchase of the therapy computer exempt?
A: No. The provider retained and reused it rather than selling or leasing it to the prescribed patient.

Q: Was onsite clinic training taxable?
A: Yes. It was part of the taxable setup sale.

Q: Was the annual diagnostic-software license taxable?
A: Yes, because the software did not appear customized.

Q: Were patient therapy fees taxable?
A: No. Florida treated them as professional-service fees whether billed through a clinic or directly.

Citations and references

• Fla. Stat. § 212.02(16) and § 212.05 — sales price and tax on tangible personal property
• Fla. Stat. § 212.08(2) — medical-product exemptions
• Fla. Stat. § 212.08(7)(p) — qualifying exempt-organization sales
• Fla. Stat. § 212.08(7)(v) — professional-service transactions
• Fla. Admin. Code r. 12A-1.002 — practitioner purchases and professional-service fees
• Fla. Admin. Code r. 12A-1.020(6) — medical products sold to patients and providers
• Fla. Admin. Code r. 12A-1.032 — computer hardware and customized versus prepackaged software

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 04A-038

Original ruling text

SUMMARY

QUESTION 1: Is Taxpayer's purchase of an electronic
delivery device for use in providing vision therapy exempt
from tax?

ANSWER - Based on Facts Below: No. The sale or lease of a
medical device (such as the computer or similar device, and
the therapy software) to a patient pursuant to a
prescription from a licensed medical practitioner is exempt
from tax. See Rule 12A-1.020(6), Florida Administrative
Code. Taxpayer's correspondence does not indicate that the
medical device is sold or leased to the patient.
Therefore, Taxpayer owes tax on its purchase of the
devices.

QUESTION 2: Are the fees received from partner clinics for
set-up and software licenses exempt from tax?

ANSWER - Based on Facts Below: No. Sales of medical
products and supplies (such as the computer or similar
device, and the therapy software) to medical providers are
subject to tax even though such medical products may be
used in connection with medical treatment. See Rules 12A1.002(1) and 12A-1.020(6), Florida Administrative Code.
Therefore, the sale of these items to the partner clinics,
including services that are part of the sale (i.e., onsite
training), is subject to tax. The annual license for the
diagnostic software is also subject to tax, since the
diagnostic software does not appear to be "customized," and
it is therefore classed as tangible personal property. If
the sales are made to exempt organizations holding a
501(c)(3) organization, Taxpayer can accept a copy of the
organization's consumer's certificate of exemption in lieu
of collecting tax on these sales.

QUESTION 3: Is the per patient fee charged to the clinic
exempt from tax?

ANSWER - Based on Facts Below: Yes. The patient fee
charge, either to the clinic or directly to the patient, is

exempt from tax as a professional service.

QUESTION 4: Are direct patient billing exempt from tax?

ANSWER - Based on Facts Below: Yes. The patient fee
charge, either to the clinic or directly to the patient, is
exempt from tax as a professional service.

Jun 28, 2004

Re: Technical Assistance Advisement 04A-038
Sales and Use Tax - Vision Therapy
Sections: 212.02, 212.05, 212.08, F.S.
Rules: 12A-1.002, 12A-1.020, 1A-1.032, F.A.C.
Petitioner: XXX (herein "Taxpayer")
FEI: XX

Dear :

This letter is a response to your petition dated May 20, 2004,
for the Department's issuance of a Technical Assistance
Advisement ("TAA") concerning the above referenced party and
matter. Your petition has been carefully examined and the
Department finds it to be in compliance with the requisite
criteria set forth in Chapter 12-11, F.A.C. This response to
your request constitutes a TAA and is issued to you under the
authority of s. 213.22, F.S.

FACTS

Your petition sets forth the following information:

Vision Restoration Therapy (VRT)

Vision Restoration Therapy is a clinically proven, FDAcleared technology designed to improve quality of life by
restoring a level of vision. The therapy does not require
surgery or medication of any kind.

Vision requires that structures in the brain properly
process information received from the eye. The structures
are made of networks of cells called neurons. These
networks can be damaged by a stroke or traumatic head
injury. When these networks are damaged, the ability to
process visual information can be lost.

Neuroplasticity is the newly discovered ability of neurons
in the brain to compensate for injury and adjust their
activity in response to stimulation from the environment.
This proven self-repair capability of the brain is the
foundation of [Taxpayer] VRT.

After stroke or traumatic brain injury, an area of residual
vision exists between seeing and non-seeing regions. In
most cases, this area of residual vision may be improved
using precise patterns of stimulation. Healthy neurons may
also be stimulated to restore their activity to process
visual information, an adaptation that contributes to
vision improvement.

More than 65 percent of patients completing the initial
six-month phase of VRT have experienced improvements in
their vision that have significantly improved their quality
of life.

VRT is a clinically proven, in-home therapy, performed on a
computerized device. The device consists of three major
components: a dedicated computer processor and display,
loaded with the [Taxpayer] proprietary software, and a
headrest framework.... The computer unit utilizes the
chassis and operating system of an IBM G40 or R40. The
computer is capable only of delivering the VRT, and does
not support any other programs. Although the current
method of delivery for the therapy is via IBM computer,
future delivery methods may include a PDA device, goggles,
or some other technology. [Taxpayer] currently purchases
the computers from an out of state vendor who does not
charge [Taxpayer] sales or use tax on the purchase.

The U.S. Food & Drug Administration granted 510(k)
clearance to [Taxpayer's] Vision Restoration Therapy on
April 22, 2003.

Description of the [Taxpayer] Software

[Taxpayer software] consists of two computer software
programs:

(1) One intended for health care professionals - for
the precise diagnosis of patients' visual
deficiencies, the development of patient-specific
therapy programs, and the analysis of results of
patient therapy....
(2) One intended for patients - therapeutic software
for use by patients in their homes to train and
improve impaired visual functions....

How new patients learn of the Therapy

The patient's physician refers the patient to one of
[Taxpayer's] external partner clinics. [Taxpayer]
currently partners with two university based hospitals.
Future partner clinics will consist primarily of university
based hospitals, teaching centers, and rehabilitation
facilities. The Therapy is dispensed or ordered only by
licensed professionals.

The patient is evaluated by [Taxpayer] doctors using
[Taxpayer's] diagnostic programs. Clinical interpretations
create an individualized stimulation therapy targeted at
the patient's area of residual vision. Using a
computerized device, the patient performs an initial sixmonth in-home rehabilitation therapy program (internally
developed by [Taxpayer], individualized for each patient's
particular impairment) for sessions totaling approximately
one hour per day. The individualized stimulation pattern
activates neural pathways promoting vision restoration.

The patient sends therapy session data directly to
[Taxpayer] monthly. The current method of providing data

is the use of a "memory stick" mailed directly to
[Taxpayer]. In the future, the data may be transmitted
electronically as well.

The data is analyzed and the therapy is adjusted to
maximize the effectiveness of the stimulation pattern. The
updated VRT is then supplied to the prescribing physician
and reviewed with the patient. Progress reports allow the
physician and patient to discuss the patient's progress
monthly. After six months of in-home therapy, the
patient's progress is evaluated, and if indicated, a more
advanced module of therapy may begin.

The Therapy devices are generally sent directly to patients
after therapy has been prescribed. They are returned to
[Taxpayer] for deployment to other patients when treatment
has been completed. The same Therapy devices are also
provided to partner clinics (with Diagnostic software).

Revenue Streams for [Taxpayer]

Partner Clinics - [Taxpayer] bills the partner clinic a
one-time set up fee which currently includes the device
with diagnostic software, onsite training, and manuals.
The clinic also pays an annual software license fee.

Patients - [Taxpayer] currently bills the partner clinic a
flat per patient fee. The clinic in turn bills a fee
(generally at a mark-up) to the patient. Future clinic
relationships may require that [Taxpayer] bill the patient
directly for the Therapy. The patient fee includes use of
the device for the course of the therapy, technical
support, and patient monthly progress reports.

REQUESTED ADVISEMENT

The petition poses the following questions:

1) Is the purchase of the electronic delivery device
(computer, or other device in the future) exempt from
Florida sales and use taxes? Is so, must [Taxpayer]

render a resale certificate to its vendor?

2) Are the fees received from the partner clinic for setup and software licenses exempt from Florida sales and
use taxes? [Taxpayer] anticipate[s] that most partner
clinics will be 501(c)(3) organizations. If the
clinic is not a 501(c)(3) organization, will the
taxability be different?

3) Is the per patient fee billed to the clinic subject to
Florida sales and use taxes? Does it qualify as
exempt under the resale exemption, regardless of the
tax exempt status of the purchasing clinic?

4) Will direct patient billings be exempt from sales and
use taxes?

APPLICABLE STATUTES AND RULES

Section 212.05, Florida Statutes, generally imposes tax on sales
of tangible personal property, unless a specific exemption
exists. The tax is based on the "sales price" of the tangible
personal property, which term is defined in section 212.02(16),
Florida Statutes, to include all amounts paid for tangible
personal property, including any services that are part of the
sale.

Section 212.08(2), Florida Statutes, provides in pertinent part
as follows:

(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....

(b) For the purposes of this subsection:

1. "Prosthetic and orthopedic appliances" means any
   apparatus, instrument, device, or equipment used to replace
   or substitute for any missing part of the body, to
   alleviate the malfunction of any part of the body, or to
   assist any disabled person in leading a normal life by
   facilitating such person's mobility. Such apparatus,
   instrument, device, or equipment shall be exempted
   according to an individual prescription or prescriptions
   written by a physician licensed under chapter 458, chapter
   459, chapter 460, chapter 461, or chapter 466, or 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.

4. "Prescription" includes any order for drugs or medicinal
   supplies written or transmitted by any means of
   communication by a duly licensed practitioner authorized by
   the laws of the state to prescribe such drugs or medicinal
   supplies and intended to be dispensed by a pharmacist. The
   term also includes an orally transmitted order by the
   lawfully designated agent of such practitioner. The term
   also includes an order written or transmitted by a
   practitioner licensed to practice in a jurisdiction other
   than this state, but only if the pharmacist called upon to
   dispense such order determines, in the exercise of his or
   her professional judgment, that the order is valid and
   necessary for the treatment of a chronic or recurrent
   illness. The term also includes a pharmacist's order for a
   product selected from the formulary created pursuant to s.
   465.186. A prescription may be retained in written form, or
   the pharmacist may cause it to be recorded in a data
   processing system, provided that such order can be produced
   in printed form upon lawful request.

Rule 12A-1.002, Florida Administrative Code, provides in
pertinent part:

(1) All licensed practitioners of the healing arts are the

consumers of the various items of tangible personal
property which they use in the rendition of their
professional services and the tax will apply upon their
purchases of items of tangible personal property, including
equipment except such items as are exempt under Rule 12A1.020, F.A.C.

(2) The tax does not apply to the fees for professional
services rendered by such licensed practitioners. If such
licensed practitioners, apart from their professional
services, are engaged in selling to the public tangible
personal property subject to tax, they are dealers and must
procure dealer's certificates of registration and collect
the tax on all such sales. (Emphasis Supplied)

Rule 12A-1.020, Florida Administrative Code, provides in
pertinent part:

(6)(a) Medical products and supplies used in the cure,
mitigation, alleviation, prevention or treatment of injury,
illness, disease or incapacity are taxable, unless:

1. Temporarily or permanently incorporated into a patient
   or client by a practitioner of the healing arts licensed by
   the State of Florida.

2. Ordered and dispensed by or on the prescription of a
   duly licensed practitioner authorized by the laws of the
   state to prescribe medicinal drugs; or

3. Ordered and dispensed by a pharmacist pursuant to the
   established dispensing procedures determined by the joint
   committee of medical, osteopathic and pharmacy professions
   as created by Section 465.186, F.S.

(b) The sale of medical products or supplies to physicians,
dentists, veterinarians and hospitals is taxable even
though the medical products or supplies may be used in
connection with medical treatment, unless the products and
supplies are specifically exempt from tax under this rule
or in Rule 12A-1.021, F.A.C.

(c) "Medical products and supplies" shall mean and include,
but is not limited to, such items as cotton, knives, sewing
and surgical needles, scissors, microscopes, x-ray
machines, I.V. administration sets, laboratory apparatus,
surgeons' gloves, ear syringes, and hospital beds.
(Emphasis Supplied)

Section 212.08(7)(v), Florida Statutes, states in pertinent part
as follows:

Professional services.-

1. Also exempted are professional, insurance, or personal
   service transactions that involve sales as inconsequential
   elements for which no separate charges are made....

Section 212.08(7)(p), Florida Statutes, exempts sales or leases
to 501(c)(3) organizations.

Rule 12A-1.032, Florida Administrative Code, provides in
pertinent part as follows:

(2) The sale to a consumer of a computer and its related
components is taxable when delivered to a customer in this
state. The rental of a computer and its related components,
including terminal equipment (hardware) which is physically
located in this state, is taxable.

(4) The charge which a computer technician makes for a
customized software package which includes such items as
instructional material, pre-punched cards or programmed
tapes is construed to be a service charge and exempt.
Retail sales of pre-packaged programs for use with
audio/visual equipment or other computer equipment, where
the programs are fully useable by the customer without
modifications and the vendor does not perform a detailed
analysis of the customer's requirements in selecting or
preparing the programs, are taxable as sales of tangible
personal property. However, where the vendor, at the
customer's request, modifies or alters a pre-packaged

program to the customer's specification and charges the
customer for a single transaction, the charge is for a
customized software package and is exempt as a service
transaction.

DETERMINATION

The sale or lease of a medical device (such as the computer or
similar device, and the therapy software) to a patient pursuant
to a prescription from a licensed medical practitioner is exempt
from tax. See Rule 12A-1.020(6), Florida Administrative Code.
Taxpayer's correspondence does not indicate that the medical
device is sold or leased to the patient. Instead, the patient
is charged a fee for the course of the therapy, which fee
includes a variety of services. Since Taxpayer is not selling
or leasing the device to the patient, Taxpayer owes tax on its
purchase of the devices. The patient fee charge, either to the
clinic or directly to the patient, is exempt from tax as a
professional service.

Sales of medical products and supplies (such as the computer or
similar device, and the therapy software) to medical providers
are subject to tax even though such medical products may be used
in connection with medical treatment. See Rules 12A-1.002(1)
and 12A-1.020(6), Florida Administrative Code. Therefore, the
sale of these items to the partner clinics, including services
that are part of the sale (i.e., onsite training), is subject to
tax. The annual license for the diagnostic software is also
subject to tax, since the diagnostic software does not appear to
be "customized," and it is therefore classed as tangible
personal property. If the sales are made to exempt
organizations holding a 501(c)(3) organization, Taxpayer can
accept a copy of the organization's consumer's certificate of
exemption in lieu of collecting tax on these sales.

This response constitutes a Technical Assistance Advisement
under Section 213.22, F.S., which is binding on the department
only under the facts and circumstances described in the request
for this advice, as specified in Section 213.22, F.S. Our
response is predicated upon 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 from that which is 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., and are subject to disclosure to the public under the
conditions of s. 213.22, F.S. Confidential information must be
deleted before public disclosure. In an effort to protect
confidentiality, we request you provide the undersigned with an
edited copy of your request for Technical Assistance Advisement,
the backup material and this response, deleting names, addresses
and any other details which might lead to identification of the
taxpayer. Your response should be received by the Department
within 15 days of the date of this letter.

Sincerely,

Sara D. Faulkenberry
Tax Law Specialist
Technical Assistance and Dispute Resolution

Control #60314