Did legally reprocessing and reselling single-patient Rx medical devices eliminate their Florida sales-tax exemption?

Plain-English summary

An out-of-state company cleaned, repaired, tested, repackaged, and sterilized single-patient medical devices, then returned the exact device to the customer that had sent it. The customer retained title throughout. The products were used to treat or prevent illness, bore the federal prescription restriction, and had to be reprocessed or destroyed after patient use.

Florida concluded that legal reprocessing did not remove the sales-tax exemption. If the products remained one-time-use prescription devices with the required labeling and were dispensed for a patient's benefit, their later resale remained exempt.

The company was not registered as a Florida dealer. The ruling stated that a business whose sales were all exempt generally did not need sales-tax registration, but registration would be necessary if it had use-tax exposure.

What this means for you

The exemption followed the product's qualifying medical and prescription characteristics, not whether it had previously been used and lawfully reprocessed. Registration was a separate question tied to the company's actual sales and use-tax obligations.

Common questions

Did reprocessing make the devices taxable? No, assuming they were legally reprocessed qualifying single-patient prescription devices.

What labeling mattered? The federal “Rx only” legend or equivalent restriction limiting sale to or on the order of an authorized practitioner.

Did the customer keep ownership during reprocessing? Yes. Under these facts, the exact device was returned and the customer retained title.

Did the company have to register for sales tax? Not merely because it made exempt sales, according to the ruling. Use-tax exposure could still require registration.

Citations and references

• Fla. Stat. § 212.08(2)(a) (medical products dispensed under prescription)
• Fla. Admin. Code r. 12A-1.020(6) (medical products and supplies)
• Fla. Stat. § 213.22 (Technical Assistance Advisements)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 06A-040

Original ruling text

SUMMARY
QUESTION: What is the taxable status of certain one-time use "RX" medical products that are "reprocessed" and
subsequently resold.
ANSWER - Based on Facts Below: One-time use "RX" medical products that are legally allowed to be reprocessed
and sold again do not lose their tax exemption because of the reprocessing.

December 12, 2006

Re: Technical Assistance Advisement 06A-040
XXX. (f.k.a. XXX) ["Taxpayer"]
Sales Tax - Medical Products
Section 212.08(2), F.S.
Rule 12A-1.020(6), F.A.C.
Dear :
This is a response to your letter of August 2, 2006, requesting a Technical Assistance Advisement regarding the
above-referenced matter. This response to your request constitutes a TAA under Chapter 12-11, Florida
Administrative Code (F.A.C.), and is issued to you under the authority of Section 213.22, Florida Statutes (F.S.).
You are requesting advice regarding the taxable status of certain medical devices that your client's company
"reprocesses" and then sells in Florida. Your letter provides as follows:
[Taxpayer] reprocesses and sells various types of medical devices and products for customers throughout the United
States. [Taxpayer] is not registered as a dealer with the State of Florida to collect and remit sales tax. Taxpayer's
sales are to distributors as well as end use sales to hospitals, medical centers and clinics with the vast majority of end
use sales to not-for-profit organizations.
[Taxpayer] receives the products at its out of state location to be reprocessed from its customer and after cleaning,
making any repairs, testing, repackaging and sterilization, it returns the exact device or product to the customer that
was sent in for reprocessing. Only in the case of a device or product that could not be reprocessed or repaired would
it not be returned to the customer. The customer retains all title to the devices.
It should also be pointed out that the cost of any tangible personal property that is used in the repair of a device or
product is very minimal and all products are shipped via XXX to the company's facilities located in XXX for
reprocessing. The charge for items is made as a lump sum amount per device or product. The only contact [Taxpayer]

has with the state of Florida, other than sales activities, is a sorting facility located in... Florida.
...
The medical products and devices [Taxpayer] reprocesses and sells are used exclusively on a single patient for the
cure, mitigation, treatment, or prevention of illness or disease, and contain the Federal warning restricting the sale of
said products to a sale by or on the order of a licensed physician or other licensed practitioner. Included in Exhibit A
are the product instructions for use ("IFUs") for each of the products [Taxpayer] reprocesses. The IFUs show the
mentioned Federal warning on each product and the instructions for use of the product which indicates the
reprocessed device is for single patient use. Once the products have been used on a patient, the items have to be
reprocessed or destroyed.
LAW
Section 212.08(2), 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;....
Rule 12A-1.020, F.A.C., provides, in 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....
   [Rule 12A-1.021, F.A.C., deals with certain exempt prosthetic and orthopedic appliances, which are not at issue here.]
   Discussion and Conclusion

Medical products dispensed to a patient pursuant to a doctor's prescription or orders are generally exempt from tax.
Included in this category are one-time use medical devices dispensed on behalf of or for the benefit of a patient when
the medical devices are required under federal law to bear a prescription legend that reads either "RX only," or
"CAUTION: Federal law restricts this device to sale by or on the order of a physician [or other licensed and authorized
healthcare practitioner]." Therefore, if the products that Taxpayer reprocesses and sells in Florida are in the category
of one-time use prescription devices, and are so labeled, they would be exempt from tax. The fact that these products,
after one-time use, are legally allowed to be reprocessed and then sold again does not negate the exemption.
Normally when all of a company's sales are going to be exempt from sales tax the company does not have to register
for sales tax purposes. However, if a company will have exposure to use tax, registration to report the use tax would
be necessary.
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 #23399