Did legally reprocessing and reselling single-patient Rx devices remain exempt when customers could receive equivalent devices?

Plain-English summary

A Florida-registered company reprocessed single-patient prescription medical devices. Under one method it returned the customer's exact cleaned, repaired, tested, repackaged, and sterilized device. Under a newer, limited method, the company took title to incoming products, reprocessed and inventoried them, and later shipped an equivalent device rather than the same unit.

Florida found that legal reprocessing and resale did not eliminate the exemption. If the products were qualifying one-time-use prescription devices, carried the required federal restriction, and were dispensed for a patient's benefit, they remained exempt after reprocessing.

The ruling applied the same holding despite the equivalent-product method and the company's acquisition of title for those product lines.

What this means for you

Florida focused on the reprocessed product's qualifying prescription and single-patient-use status. Returning the identical unit was not essential to the exemption under these facts; a legally reprocessed equivalent unit could qualify too.

Common questions

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

Did the customer have to receive the exact same device? No. The ruling also covered the described equivalent-product method.

Who owned devices in the equivalent program? The company accepted title and ownership when the customer sent them for the converted product lines.

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

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-041

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-041
xxx. (d.b.a. xxx, Inc.) ["Company"]
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 xxx devices that your client's company
"reprocesses" and then sells in Florida. Your letter provides as follows:
[Company] reprocesses and sells various types of medical devices and products for customers throughout the United
States. [Company] is 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.
[Company] has two methodologies of obtaining from and selling products to its customers. Under the first
methodology, [Company] receives the products 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.
In the later part of 200X [Company] incorporated the second methodology into its business practice. [Company]
started selling "equivalent" products to customers for a very, very small portion of its business. In 200X, other product

lines were added throughout the year to this new way of doing business for the [Company]. As it pertains to
[Company's] business, an equivalent is a device or product that is received by [Company] which is reprocessed or
serviced and then inventoried for delivery to a customer. The customer no longer necessarily receives the exact (own)
same device back that was sent to [Company] for reprocessing. A change was also made to the written agreements
between [Company] and its customers in the first part of 200X to reflect the change in business practice with regard to
equivalents. This change which was added to the customer agreement stipulates that "once the products are sent
from the customer's business location, Vendor will accept title and ownership of such Products and will assume
responsibility for the same." This change is strictly as it relates to product lines that have been converted to
equivalents.
[Company's] pricing and billing of its equivalents is the same as when the customer gets back the exact device or
product that was sent in for reprocessing. 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 UPS to the
[Company]'s facilities located in XXX Florida for reprocessing. The charge for items is made as a lump sum amount
per device or product. In the case of equivalents, once the products or devices are cleaned, repaired and prepared for
delivery they are inventoried for shipment via UPS, to a customer. For those product lines that have not been
converted, the customer receives their own product back once reprocessing is completed.
...
The medical products and devices [Company] 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 labeling specifications for each of the products [Company] reprocesses. The product labeling
specifications 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 xxx 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 your [Company] 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.
   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 #23398