Are prescription catheter, drainage, vertebroplasty, and kyphoplasty procedure kits exempt from Georgia sales tax as prosthetic devices?

Plain-English summary

The taxpayer sold three kinds of prescription-only, single-patient procedure kits: a one-time temporary catheter system for draining fluid around the lungs or abdomen, a two-kit long-term catheter and drainage system, and a vertebral-augmentation system used to place bone cement during vertebroplasty or kyphoplasty.

The Department ruled that the kits were exempt because their principal components were prescribed prosthetic devices permanently transferred to the patient:

• catheters, tubing, and collection containers prevented or corrected bodily malfunction or supported the body; and
• bone cement supported a weak portion of the spine.

The kits also included procedure tools such as scalpels, drapes, preparation materials, dressings, and other items that were not independently exempt prosthetic devices. Those items did not make the kits taxable because they were necessary to deploy the prosthetic devices and were essentially useless and valueless on their own after the procedure.

What this means for you

Medical-device kit sellers

The exemption analysis can consider the kit as a whole when nonexempt tools are merely inconsequential to delivering a qualifying prescribed prosthetic device. Document both the prosthetic function and permanent transfer to the prescribed patient.

Hospitals and clinics

The cited regulation allowed an entity transferring a prescription-only prosthetic device permanently to the prescribed natural person to purchase it tax-free without Form ST-5. The facts must support that permanent transfer.

Common questions

Q: Which components were prosthetic devices?

A: The catheters, related tubing and collection containers, and the vertebral bone cement.

Q: Why did disposable procedure tools not make the kits taxable?

A: They were necessary for deployment and were considered inconsequential because they were useless and valueless afterward.

Q: Did the temporary catheter have to remain inside the body permanently?

A: No. The system was removed after drainage. The ruling's permanent-transfer requirement concerns transfer of the prescribed device to the patient, not permanent implantation of every component.

Q: Were all three listed systems exempt?

A: Yes: the short-term temporary catheter system, the long-term permanent catheter system with drainage kit, and the vertebral-augmentation system.

Q: Can another device seller rely on this ruling?

A: No. It is limited to the requesting seller's specific prescription-only kits, components, uses, and transfer facts.

Citations and references

Authorities:

• O.C.G.A. § 48-8-3(54) -- prescribed prosthetic-device exemption
• O.C.G.A. § 48-8-2(3)(D)(iii) -- de minimis bundled products cited by analogy
• Ga. Comp. R. & Regs. r. 560-12-2-.30(2)(h), (5)(a) -- prosthetic-device definition, examples, and permanent transfer

Source

• Landing page: Georgia Sales & Use Tax Letter Rulings
• Original PDF: LR SUT-2016-22

Original ruling text

Date Issued: November 9, 2016
Georgia Letter Ruling: LR SUT-2016-22
Topic: Medical Devices

This letter is in response to your request for guidance on the application of Georgia sales and use tax
to certain medical items sold by [Redacted] (Taxpayer”).
Facts as Presented by Taxpayer
Taxpayer sells prescription-only, single-patient use pleural and peritoneal catheter kits (used to drain
fluid from around lungs or abdomen) and prescription-only, single-patient use pleural and peritoneal
drainage kits (used with long term catheters to drain fluid at a medical facility or at a patient’s home).
Each kit contains all of the components a clinician needs in order to perform the associated procedure.
The kits are described in detail below.
Short Term Temporary Catheter System:
These trays are prescription-only and for single-patient, one-time use, and the trays come with their
own drainage kits. The relevant medical procedure requires inserting a temporary catheter in the body
cavity, draining the fluid from the cavity, and removing the catheter after drainage, while leaving
nothing permanent in the body. The process of inserting the catheter only requires a very small incision,
which does not require suture to close. This procedure is done all in one step at a medical facility. The
kit has all of the components a clinician needs in order to do this procedure.
Each tray has the following five component sections in order to do the complete procedure:

1. Preparation components: Prepares patient and procedure area before catheter insertion.
2. Placement components: Makes incision in chest or abdominal area for catheter insertion.
3. Closing components: A small incision is made that does not need to be closed with suture.
   Only gauze is used to dry the area where a bandage will be placed after drainage.
4. Drainage components: Attach to catheter to drain chest or abdominal fluid into a fluid
   collection bag or other container. Post drainage, the catheter and drainage components are
   removed and discarded.
5. Dressing components: Bandage and wrap to cover and protect the catheter incision point after
   the procedure is finished.
   Long Term Permanent Catheter System (which uses two kits)
   These kits are prescription-only and for single-patient, one-time use. Two kits have to be used together:
   one kit to place the catheter in the body and one kit to drain it. The relevant medical procedure requires
   inserting a permanent catheter in the body cavity (Kit One). Because this procedure is permanent, it
   requires a much larger incision in the chest which has to be closed with suture. Once the permanent
   catheter is in place, fluid can be drained at that time or in the future (Kit Two). The benefit of this
   system is that fluid can be drained in a medical facility or in a patient’s home. The kits have all of the
   components a doctor needs in order to do each of these procedures.
   Kit One has the following five component sections:
6. Preparation components: Prepares patient and procedure area before catheter insertion.
7. Placement components: Makes incision in chest or abdomen area for catheter insertion.

Date Issued: November 9, 2016
Georgia Letter Ruling: LR SUT-2016-22
Topic: Medical Devices
Page 2 of 3

3. Closing components: Closes incisions with suture after catheter insertion.
4. Drainage components: Attach to catheter to drain chest fluid when needed and consists of
   drainage tubing, which is coiled and adhered to the chest with bandages and capped.
5. Dressing components: Bandage and wrap to cover and protect the catheter area after the
   procedure is finished.
   Kit Two contains preparation items and a plastic vacuum bottle with attached drainage line.
   Vertebral Augmentation System:
   Taxpayer sells kits for vertebroplasty and kyphoplasty (i.e., surgeries to relieve pain from compression
   fractures of the spine due to osteoporosis, tumors, or cancer). The Vertebral Augmentation System has
   all the components necessary to insert bone cement (radiopaque PMMA) into the vertebral body of the
   spine.
   The Vertebral Augmentation System procedure tray includes the following:
   1.
   2.
   3.
   4.
   5.
   6.
   7.
   8.
   9.

Injector handle
Mixing motor
Mallet
Stainless steel forceps, 14"
Mixing barrel with radiopaque PMMA
Monomer in ampoule breaker
Cement delivery tube
Cement tube (1)
Cement tube (2)

Issue
What is the proper application of Georgia sales and use tax to Taxpayer’s sales of its Short Term
Temporary Catheter System, Long Term Permanent Catheter System, and Vertebral Augmentation
System procedure kits?
Analysis
Georgia levies and imposes a tax (subject to certain specific exemptions) on the retail purchase, retail
sale, storage, use, or consumption of tangible personal property, certain enumerated services, and
utilities.1 The Georgia Code provides an exemption from the tax for the sale or use of a prosthetic
device that is sold or used pursuant to a prescription.2
A “prosthetic device” is a replacement, corrective, or supportive device – including repair and
replacement parts for the device – worn on or in the body to either artificially replace a missing portion
of the body, prevent or correct a physical deformity or malfunction, or support a weak or deformed
portion of the body.3
1

O.C.G.A. §§ 48-8-1, 48-8-2(31)(A), 48-8-30(a).
O.C.G.A. § 48-8-3(54).
3
Ga. Comp. R. & Regs. r. 560-12-2-.30(2)(h)(1).
2

Date Issued: November 9, 2016
Georgia Letter Ruling: LR SUT-2016-22
Topic: Medical Devices
Page 3 of 3

If a prosthetic device can be sold or used only pursuant to a prescription under federal
or state law, and title and possession will be permanently transferred to the person to
whom a prescription for the device is issued, the entity (including hospitals, clinics,
and medical practice groups) transferring the device may purchase the item tax exempt
without furnishing form ST-5 (Sales and Use Tax Certificate of Exemption). The entity
subsequently may transfer the device tax exempt pursuant to O.C.G.A. § 48-8-3(54) to
a natural person to whom a prescription for the device is issued.4
Here, the catheters, including tubing and collection containers, and the bone cement sold by Taxpayer
meet the definition of prosthetic device. They are devices that are in or on the body to either prevent
malfunction, replace a missing portion of the body, or support a weak portion of the body. 5 Further,
since the prosthetic devices sold by Taxpayer can be used only pursuant to a prescription and are
permanently transferred to the persons to whom prescriptions are issued, such devices are tax exempt.
In addition to prosthetic devices, the kits contain items, such as scalpels and drapes, that are not
prosthetic devices and that do not fall under a specific tax exemption. Although these items are tools
necessary for the proper use of the prosthetic devices, they are essentially useless and valueless when
considered on their own and are useless and valueless after delivery and deployment of the prosthetic
device. Such items represent an inconsequential element of the kit as a whole. As such, inclusion of
these items in the kits do not cause the kits, in part or in whole, to be subject to tax.6
Ruling
Taxpayer’s Short Term Temporary Catheter System, Long Term Permanent Catheter System, and
Vertebral Augmentation System procedure kits consist of prosthetic devices and tools necessary for
the proper use of the prosthetic devices. These prosthetic devices are tax exempt because they are
prescription-only and will be permanently transferred to the patient. The additional tools included in
each kit are inconsequential since they are useless and valueless after the delivery and deployment of
each prosthetic devices. Consequently, sales of the listed kits are exempt from sales and use tax.
The opinions expressed in this ruling are based upon the information contained in your request and
limited to the specific transactions, facts, circumstances, and taxpayer in question. Should the
circumstances regarding the transactions change or differ materially from those represented, this ruling
may become invalid. Subsequent statutory or administrative rule changes or judicial interpretations of
the statutes or rules upon which this ruling is based may subject similar future transactions to different
tax treatment than that expressed in this ruling.
4

Ga. Comp. R. & Regs. r. 560-12-2-.30(5)(a).
See Ga. Comp. R. & Regs. r. 560-12-2-.30(2)(h)(3) (providing similar examples of prosthetic devices, including
bone cement, urinary collection systems, and colostomy appliances along with necessary equipment for attachment).
6
Although not directly on point, the Georgia General Assembly has implied that sales tax does not apply to
inconsequential or de minimis elements of a nontaxable transaction even though such elements would be taxable if
sold separately. See O.C.G.A. § 48-8-2(3)(D)(iii) (“A transaction that otherwise meets the definition of bundled
transaction as provided under this paragraph shall not be a bundled transaction if such transaction is . . . [a] transaction
that includes taxable products and nontaxable products and the purchase price or sales price of the taxable products is
de minimis. As used in this subparagraph, the term ‘de minimis’ means the seller’s purchase price or sales price of the
taxable product is 10 percent or less of the total purchase price or sales price of the bundled products.”).
5