Was mandrill wire used to shape catheters exempt as a manufacturing material in Florida?

Subject

Mandrill Wire Used to Manufacture Catheters

Plain-English summary

The catheter manufacturer's purchase of mandrill wire was subject to Florida tax. The wire was essential to the manufacturing process: catheter material was extruded over it, it maintained the tube's internal diameter, and it supported the tube during braiding. But the manufacturer removed and discarded the wire before the catheter was used, so it was not part of the finished product.

Florida's cited component-material rule excluded industrial materials from taxable retail sale only when they were intended to and actually did become a component or ingredient of the finished product for resale. Materials used and consumed in fabrication without remaining in the finished product did not qualify.

The ruling therefore treated the wire as a taxable manufacturing input even though it directly affected the catheter's dimensions and performance.

What this means for you

A manufacturing material is not exempt merely because production cannot occur without it or because it determines the finished product's characteristics. Under this ruling, the decisive point was physical incorporation: the material had to be intended to and actually remain as a component or ingredient of the product sold.

Manufacturers should distinguish component materials from tools, supports, forms, and other inputs that are removed, discarded, dissipated, or consumed during production.

Common questions

Q: Why was the mandrill wire important in production? It established the catheter's internal diameter and supported the tube during braiding so it would not collapse.

Q: Did that importance make the wire tax-exempt? No. The wire was removed and discarded, so it did not become a component or ingredient of the finished catheter.

Q: What materials qualified for the cited component exemption? Materials intended to and actually becoming a component or ingredient of the finished product for sale.

Q: Did the ruling decide whether the catheter itself was taxable? No. It addressed the manufacturer's purchase of mandrill wire, not the tax treatment of the finished catheter sale.

Q: Can another manufacturer rely on this ruling? No. The advisement binds the Department only for the requester and the specific production facts described.

Citations and references

• Fla. Stat. § 212.05(1)(a)1.a, (b) — sales and use tax on tangible personal property
• Fla. Stat. § 212.02(4), (14)(a), (14)(c), (20) — cost price, retail sale, component materials, and use
• Fla. Admin. Code r. 12A-1.043(1)(a), (b)1, (d) — direct materials
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 98A-012

Original ruling text

SUMMARY

Rule 12A-1.043(1)(a)(b)1., and (d), F.A.C., states that
direct materials are those that are consumed in producing
the property, or that become a component or ingredient of
the finished product. Section 212.02(14)(c), F.S.,
provides an exemption from tax for materials which are
intended to and do become a component or ingredient of the
finished product for sale. However, the statute does not
provide an exemption for materials which are used in the
fabrication, converting, or processing of tangible personal
property for sale which do not become a component or
ingredient of the finished product for sale. The purchase
of wire, which is used in the manufacture of catheters, is
subject to tax.

Mar 13, 1998

Re: TAA 98(A)-012
Purchase of Wire Used in Manufacturing Catheters
Sections 212.02(4), (14), and (20), 212.05(1)(a)1.a., and
(b), F.S.

Dear :

This is in response to your letter of December 2, 1997, in
which you requested the issuance of a technical assistance
advisement on behalf of your client XXX [hereinafter
"Taxpayer"], regarding the taxability of its purchase of
mandrill wire used in the manufacture of catheters.

You explained that a catheter is a medical device which is
used in the diagnosis or treatment of patients. Your letter
provides in part:

A catheter is a flexible tube, or small hose, that is
formed when the base material, after being mixed and cooked
in an oven, is coated, or extruded, over a mandrill wire to

create the first layer of a catheter tube. In terms of
quality control, the catheters manufactured by [Taxpayer]
allow virtually no margin for error in the size, smoothness
or flexibility of each and every catheter made. This
control is aided by the use of high quality mandrill wire
in the manufacturing process.

Mandrill wire comes on a spool, hundreds of feet long,
which is used uncut in each manufacturing run for whatever
catheter size is being made. With the mandrill wire still
inside, the catheter is run through another machine wherein
very thin braiding wire is woven around the tube. Over
this, yet another layer of materials is extruded to
complete the body of the catheter. The entire process is
completed for one long catheter from the same original
spool of wire. After various quality inspections, the
catheter is then cut into its specific product links and
the mandrill wire removed. The mandrill wire is an
integral component in the manufacture of these catheters,
but is discarded before the catheter's use. The mandrill
wire is not a part of the final product. The manufacturing
process described here is the same for each type or model
of catheter made by [Taxpayer].

While not physically present in the final catheter, the
mandrill wire establishes the critical I. D. of the
catheter. It alone supports the stress associated with the
braiding operation, for without it, the extruded tube would
collapse, destroying the catheter. Subsequent layers that
are built around the mandrill wire establish a foundation
for unique characteristics such as torque control, uniform
radial support, felt "pushability" and monitored laminar
flow of the diagnostic media. All these critical issues
are affected by the mandrill wire in the manufacture of the
catheter.

You offered Rule 12A-1.043(1)(b)1., and (d), F.A.C., as
authority to exempt your client's purchase of mandrill wire used
in the manufacture of catheters.

APPLICABLE AUTHORITY

Section 212.05(1)(a)1.a., and (b), F.S., provides in part:

212.05 Sales, storage, use tax.--It is hereby declared to
be the legislative intent that every person is exercising a
taxable privilege who engages in the business of selling
tangible personal property in this state....
(1) For the exercise of such privilege, a tax is levied on
each taxable transaction or incident, which tax is due and
payable as follows:
(a).1.a. At the rate of 6 percent of the sales price of
each item or article of tangible personal property when
sold at retail in this state, computed on each taxable sale
for the purpose of remitting the amount of tax due the
state, and including each and every retail sale....
(b) At the rate of 6 percent of the cost price of each item
or article of tangible personal property when the same is
not sold but is used, consumed, distributed, or stored for
use or consumption in this state.

Section 212.02(20), F.S., provides:

(20) "Use" means and includes the exercise of any right or
power over tangible personal property incident to the
ownership thereof, or interest therein, except that it does
not include the sale at retail of that property in the
regular course of business.

Section 212.02(4), F.A.C., provides:

(4) "Cost price" means the actual cost of articles of
tangible personal property without any deductions there
from on account of the cost of materials used, labor or
service costs, transportation charges, or any expenses
whatsoever.

Section 212.02 (14)(a), and (c), F.S. provides:

(14)(a) "Retail sale" or a "sale at retail" means a sale
to a consumer or to any person for any purpose other than
for resale in the form of tangible personal property or

services taxable under this chapter, and includes all such
transactions that may be made in lieu of retail sales or
sales at retail.
(c) "Retail sales," "sale at retail," "use," "storage,"
and "consumption" do not include materials, containers,
labels, sacks, or bags intended to be used one time only
for packaging tangible personal property for sale or for
packaging in the process of providing a service taxable
under this chapter and do not include the sale, use,
storage, or consumption of industrial materials, including
chemicals and fuels except as provided herein, for future
processing, manufacture, or conversion into articles of
tangible personal property for resale when such industrial
materials, including chemicals and fuels except as provided
herein, become a component or ingredient of the finished
product. However, said terms include the sale, use,
storage, or consumption of tangible personal property,
including machinery and equipment or parts thereof,
purchased electricity, and fuels used to power machinery,
when said items are used and dissipated in fabricating,
converting, or processing tangible personal property for
sale, even though they may become ingredients or components
of the tangible personal property for sale through
accident, wear, tear, erosion, corrosion, or similar means.
(Emphasis Supplied)

DEPARTMENT RESPONSE

Rule 12A-1.043(1)(a)(b)1., and (d), F.A.C., cited in your
request, addresses direct materials and states that such
materials are those that are consumed in producing the property,
or that become a component or ingredient of the finished
product. For authority on this issue, we look to section
212.02(14)(c), F.S., which provides an exemption from tax for
materials which are intended to and do become a component or
ingredient of the finished product for sale. However, the
statute does not provide an exemption for materials which are
used in the fabrication, converting, or processing of tangible
personal property for sale which do not become a component or
ingredient of the finished product for sale as outlined in your
letter quoted above. Therefore, your client's purchase of

mandrill wire, which is used in the manufacture of catheters, is
subject to tax.

This response constitutes a Technical Assistance Advisement
under s. 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 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 and your request
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 notify the undersigned in
writing within 15 days of any deletions you wish made to the
request or the response.

Sincerely,

Richard S. Harrod
Senior Tax Specialist
Technical Assistance & Dispute
Resolution

RSH/h
Control No.32094