Is a hydro coil embolization system used to block abnormal blood flow in a blood vessel exempt from Missouri sales and use tax as medical equipment?

Subject

Medical Device Used in Blood Vessel Subject to Tax

Plain-English summary

The Missouri Department of Revenue ruled that a medical corporation's sales of hydro embolization coils are subject to Missouri sales and use tax. Applicant sells a range of medical products, including a hydro coil system used for embolization -- a catheter-based procedure in which a metallic occluding coil is threaded through an artery (usually the femoral artery in the groin) and released into an abnormal blood vessel. Once in place, the coil causes a blood clot to form, blocking abnormal blood flow, and eventually a permanent scar seal forms. Applicant's coils are used for endovascular embolization of intracranial aneurysms, arteriovenous malformations, arteriovenous fistulae, and other vascular abnormalities.

Applicant argued (implicitly, by requesting the ruling) that the coils might qualify for Missouri's sales tax exemption for durable medical equipment, prosthetic devices, or orthopedic devices under Section 144.030.2(18), RSMo. The Department disagreed on all three fronts:

• Not a prosthetic device. Under 12 CSR 10-110.013(2)(D), a prosthetic device replaces all or part of the function of a permanently inoperative or malfunctioning internal body organ. The coils don't replace an organ's function -- they occlude blood flow.
• Not an orthopedic device. Under 12 CSR 10-110.013(2)(A), an orthopedic device is a rigid or semi-rigid leg, arm, back, or neck brace, or casting material, used to support a weak or deformed body member or restrict motion in a diseased body part. The coils are neither bracing nor casting material and don't restrict motion.
• Not durable medical equipment. Section 144.030.2(18), RSMo, incorporates the federal Medicare definition of durable medical equipment as it existed on January 1, 1980 (42 U.S.C. Section 1395(s)(6)), which lists items such as iron lungs, oxygen tents, hospital beds, and wheelchairs used in a patient's home. Embolization coils are not among the items on that list.

Because none of the three exemption categories applied, the Department concluded Applicant's sales of hydro embolization coils are fully taxable under Section 144.020.1, RSMo (sales tax), and Section 144.610.1, RSMo (use tax).

What this means for you

Sellers of implantable or catheter-delivered medical devices

If your business sells devices that are implanted or delivered via catheter -- such as embolization coils, stents, or similar vascular products -- don't assume they qualify for Missouri's medical equipment exemptions just because they're used in a medical procedure. This ruling shows the Department reads the three exemption categories (prosthetic device, orthopedic device, durable medical equipment) narrowly and by their specific regulatory or statutory definitions, not by whether the product is generally "medical" in nature. Unless a device replaces an organ's function, functions as rigid/semi-rigid bracing or casting, or appears on the 1980-era Medicare durable medical equipment list, it is likely taxable.

Accountants and tax professionals

When evaluating whether a client's medical product qualifies for the Section 144.030.2(18), RSMo, exemption, walk through each of the three definitions separately using 12 CSR 10-110.013(2)(A) and (D), and remember the durable medical equipment definition is frozen to the federal Medicare definition as it existed on January 1, 1980 -- not current Medicare rules. A product can be cutting-edge and clearly medical while still failing all three tests, as happened here.

Applicant and similarly situated device sellers

This particular ruling only binds the Department with respect to this Applicant, for three years, and only while the facts and law remain unchanged. A different device -- even one used in a similar vascular procedure -- could reach a different result if it more closely matches one of the exemption definitions (for example, a device that functions as a permanent internal replacement for organ function). Sellers should not assume this outcome extends automatically to other products without their own analysis or ruling request.

Common questions

Q: Are Applicant's hydro embolization coils subject to Missouri sales and use tax?
A: Yes. The Department ruled the coils are taxable because they don't qualify for any of the exemptions under Section 144.030.2(18), RSMo.

Q: Why don't the coils count as a prosthetic device?
A: Because they don't replace the function of a permanently inoperative or malfunctioning internal body organ -- they instead occlude (block) abnormal blood flow in a vessel, which the Department found doesn't meet the 12 CSR 10-110.013(2)(D) definition.

Q: Why don't the coils count as an orthopedic device?
A: Because an orthopedic device under 12 CSR 10-110.013(2)(A) is a rigid or semi-rigid brace or casting material that supports a body member or restricts motion in a diseased body part -- the coils are neither bracing nor casting material and don't restrict motion.

Q: Why don't the coils count as durable medical equipment?
A: Because Section 144.030.2(18), RSMo, ties the durable medical equipment definition to the federal Medicare list in effect on January 1, 1980, which covers items like iron lungs, oxygen tents, hospital beds, and wheelchairs used in a patient's home -- embolization coils aren't on that list.

Q: Does this ruling mean all medical devices are taxable in Missouri?
A: No. It means these specific hydro embolization coils, under the facts presented, didn't fit any of the three narrow exemption categories. Other devices -- such as true prosthetics that replace organ function, rigid orthopedic braces, or items matching the 1980 Medicare durable medical equipment list -- can still qualify for exemption.

Q: Can another medical device company rely on this ruling for its own products?
A: Not automatically. This is a Missouri letter ruling, binding on the Department only with respect to the requesting Applicant, only for three years from its date, and only so long as the facts and underlying law remain unchanged. Other sellers should confirm their own product's characteristics against the regulatory definitions and consult a tax professional before relying on this result.

Source

• Landing page: Missouri DOR Rulings Search
• Ruling: LR 8208

Original ruling text

Dear Applicant:

This is a letter ruling issued by the Director of Revenue under Section 536.021.10, RSMo, and Missouri Code of State Regulations 12 CSR 10-1.020, in response to your letter dated July 19, 2022.

The facts as presented in your letter ruling request and subsequent email conversation are summarized as follows:

Applicant is a medical corporation that offers a wide range of products from entry site management and lesion access; devices for injection and infusion therapy; drug delivery devices, and various consulting services to enhance patient outcomes and operation efficiencies.

One of the products Applicant sells is a hydro coil system used for embolization. Generally, coil embolization is a catheter-based procedure that allows precise occlusion of abnormal blood flow in a blood vessel. A catheter with a metallic occluding coil is inserted into an artery, usually in the groin (the femoral artery). It is then advanced to the abnormal blood vessel. Once properly positioned, the metal coil is released, springing into position within the vessel. It remains firmly in place by the expansion of the metal coils. A blood clot will form on the coil, completely obstructing the abnormal blood flow beyond the coil. Eventually a scar will form, creating a permanent seal.

Applicant's coil system is intended for the endovascular embolization of intracranial aneurisms and other neurovascular abnormalities such as arteriovenous malformations and arteriovenous fistulae. It is also intended for vascular occlusion of blood vessels within the neurovascular system to permanently obstruct flow to an aneurysm or other vascular malformation and for arterial and venous embolizations in the peripheral vasculature.

ISSUE :

Are Applicant's sales of their hydro embolization coils subject to sales and use tax?

RESPONSE :

Yes. Applicant's sales of hydro embolization coils are subject to sales and use tax.

Section 144.020.1, RSMo, provides: "A tax is hereby levied and imposed [...] upon all sellers for the privilege of engaging in the business of selling tangible personal property or rendering taxable service at retail in this state."

Section 144.610.1, RSMo, imposes a use tax "for the privilege of storing, using or consuming within this state any article of tangible personal property[.]"

Section 144.030.2(18), RSMo, in relevant part, provides a sales tax exemption for "[a]ll sales of insulin, and all sales, rentals, repairs, and parts of durable medical equipment, prosthetic devices, and orthopedic devices as defined on January 1, 1980, by the federal Medicare program pursuant to Title XVIII of the Social Security Act of 1965, including the items specified in Section 1862(a)(12) of that act..."

Missouri Code of State Regulations 12 CSR 10-110.013(2)(D) defines a prosthetic device as "a device that replaces all or part of the function of a permanently inoperative or malfunctioning internal body organ and is medically required."

Missouri Code of State Regulations 12 CSR 10-110.013(2)(A) defines orthopedic device as "a rigid or semi-rigid leg, arm, back or neck brace and casting materials which are directly used for the purpose of supporting a weak or deformed body member or restricting or eliminating motion in a diseased part of the body."

Finally, On January 1, 1980, the federal Medicare program under 42 U.S.C. section 1395(s)(6) defined durable medical equipment to include:

[I]ron lungs, oxygen tents, hospital beds, and wheelchairs (which may include a power-operated vehicle that may be appropriately used as a wheelchair, but only where the use of such a vehicle is determined to be necessary on the basis of the individual's medical and physical condition and the vehicle meets such safety requirements as the Secretary may prescribe) used in the patient's home (including an institution used as his home)...whether furnished on a rental basis or purchased[.]

Applicant's hydro embolization coils do not qualify as a prosthetic or orthopedic device, and it is not among the items listed as durable medical equipment. The coils are used to allow precise occlusion of abnormal blood flow in a blood vessel. These coils are not a prosthetic device because they do not replace the function of a permanently inoperative or malfunctioning internal body organ. An embolization product is not an orthopedic device because it is not a rigid or semi-rigid casting material that is used to support a body member, and it does not restrict or eliminate motion in a diseased or injured part of the body.

It does not qualify as durable medical equipment because it is not among the items listed as durable medical equipment. Section 144.030.2(18), RSMo, incorporates the federal definition in effect on January 1, 1980. Therefore, applicant's sales of its hydro embolization coils do not qualify for the exemption under section 144.030.2(18), RSMo.

This letter ruling is binding upon the Department of Revenue with respect to the Applicant for three (3) years from the date of this letter and is subject only to statutory changes by the General Assembly and to changes in the interpretation of law by the courts or administrative tribunals. If a change occurs, the taxpayer who relies upon an outdated interpretation may be subject to additional taxes, interest and penalties, which may be imposed prospectively from the date of the change. For this reason, the interpretation set forth should be reviewed on a regular basis. Please note that any change or deviation from the facts as presented will render this ruling inapplicable.

Should additional information be needed, please contact Legal Counsel J. Ross Shelton, General Counsel's Office, Post Office Box 475, Jefferson City, Missouri 65105-0475, phone (573) 751-0961.

Sincerely,

Wayne Wallingford