Is a wearable continuous glucose monitoring system for diabetics exempt from Tennessee sales tax as a prosthetic device or durable medical equipment?

Plain-English summary

A manufacturer makes a prescription continuous glucose monitoring system for diabetics: a sensor worn under the skin measures glucose in tissue fluid every five minutes, a transmitter sends the reading wirelessly to a receiver, and the device sounds alerts when glucose runs dangerously high or low. It doesn't deliver insulin or otherwise treat the patient — it just detects and reports trends so the patient and physician can adjust treatment. The manufacturer asked whether sales of the device are exempt from Tennessee sales tax as a medical device, and (because a relevant statutory amendment took effect January 1, 2008, close to the ruling date) the Department analyzed it under both the old and new versions of the exemption.

Before January 1, 2008: not exempt as a "prosthetic." The old exemption covered prosthetics, orthotics, and similar corrective/support devices. The Tennessee Supreme Court had defined "prosthetic" broadly — a device qualifies if it substitutes for a missing/non-functioning body part OR augments a natural function, even without a missing part (the court's example: a valve system that physically helped drain cerebral spinal fluid counted, because it performed the function itself). The glucose monitor didn't clear that bar: it's a measuring/reporting device, more like a thermometer or blood pressure cuff than a functional substitute. It gives the patient and doctor information to manage diabetes, but it doesn't itself perform or augment any bodily function the failed pancreas would normally perform.

On or after January 1, 2008: not exempt as either a "prosthetic device" OR "durable medical equipment." A 2008 statutory amendment redefined "prosthetic device" as a device worn on/in the body that prevents or corrects a physical deformity or malfunction — but the glucose monitor still fails this narrower functional test for the same reason: it reports information rather than correcting the body's malfunction. The same 2008 amendment created a new "durable medical equipment" category, which the glucose monitor DOES fit descriptively — but that category is only exempt when the equipment is specifically for HOME use and prescribed. Because the glucose monitor is designed to be worn continuously, including outside the home (it's not a "leave it at home" device), it fails that home-use requirement too. Result: fully taxable under both the pre- and post-2008 legal regimes, just for two different specific reasons.

What this means for you

Manufacturers and sellers of diagnostic/monitoring medical devices in Tennessee

A device that MEASURES or MONITORS a bodily condition — even one essential to managing a serious chronic disease — is treated very differently from a device that PERFORMS or CORRECTS a bodily function. Tennessee's prosthetic/DME exemptions are built around devices that substitute for, correct, or support a malfunctioning body part or function; diagnostic and monitoring devices generally fall outside that, and even where a newer "durable medical equipment" category might otherwise capture them, a strict home-use requirement can independently defeat the exemption for anything designed to be worn or used away from home.

Accountants and tax professionals

Compare this ruling directly against Letter Ruling 08-06 (K-Wires), issued around the same time and analyzing the same 2007-to-2008 statutory transition: K-Wires qualified as exempt because they physically perform a corrective function (traction/immobilization) inside the body, while this glucose monitor failed because it only reports data. The Cordis Corp. v. Taylor "substitutes for or augments a bodily function" test is the key dividing line to apply to any new medical device question under this exemption.

Common questions

Q: Are medical monitoring devices generally exempt from Tennessee sales tax?
A: Not automatically. A device has to substitute for, correct, or augment a bodily function to qualify as a "prosthetic," or otherwise be genuinely for home use to qualify as exempt "durable medical equipment." A device that only measures and reports information typically fails both tests.

Q: Would the glucose monitor be exempt if it were only used at home?
A: This ruling suggests it still wouldn't qualify as a "prosthetic device" (because it doesn't correct the body's malfunction), but it could potentially qualify under the separate "durable medical equipment" exemption if it were specifically for home use rather than designed for continuous, outside-the-home wear.

Q: How is this different from the Kirschner Wire ruling that found a similar-era device WAS exempt?
A: K-Wires physically perform a corrective function (holding a fracture in traction) inside the body. This glucose monitor only measures and reports data — it doesn't perform or substitute for any bodily function itself.

Q: Can another device manufacturer rely on this ruling?
A: No. A Tennessee letter ruling binds the Department only as to the specific taxpayer and facts it was issued to, and it can be revoked or modified by the Commissioner. Confirm your own device's function and use pattern with a tax professional.

Citations and references

Tennessee statutes (Tenn. Code Ann.):

• § 67-6-314(5) (2006) (orthotics/prosthetics exemption, through December 31, 2007)
• § 67-6-314(1) (2007) (prosthetic device exemption for human use, effective January 1, 2008)
• § 67-6-102(62)(A)(ii) (2007) ("prosthetic device" definition)
• § 67-6-314(2) (2007) (durable medical equipment exemption -- home use, prescribed)
• § 67-6-102(29) (2007) ("durable medical equipment" definition)
• § 67-6-101 et seq., § 67-6-102 (Retailers' Sales Tax Act; "tangible personal property")
• 2007 Tenn. Pub. Acts, Public Chapter 602, §§ 68, 89 (effective January 1, 2008) (added/revised these definitions)

Tennessee case cited by the ruling:

• Cordis Corp. v. Taylor, 762 S.W.2d 138 (Tenn. 1988) (a device is a "prosthetic" if it substitutes for a missing/non-functioning bodily part or augments a natural function, even without a missing part; example: a hydrocephalus valve system that physically moved cerebral spinal fluid)

Source

• Landing page: https://www.tn.gov/revenue/tax-resources/legal-resources/tax-rulings.html
• Original PDF: https://www.tn.gov/content/dam/tn/revenue/documents/rulings/sales/08-11.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
LETTER RULING # 08-11

WARNING
Letter rulings are binding on the Department only with respect to the individual taxpayer
being addressed in the ruling. This presentation of the ruling in a redacted form is
informational only. Rulings are made in response to particular facts presented and are not
intended necessarily as statements of Department policy.

SUBJECT
Whether sales of a blood glucose monitoring device are exempt for purposes of Tennessee sales
and use taxation pursuant to Tenn. Code Ann. § 67-6-314 (2006).
SCOPE
This letter ruling is an interpretation and application of the tax law as it relates to a specific set of
existing facts furnished to the Department by the taxpayer. The rulings herein are binding upon
the Department, and are applicable only to the individual taxpayer being addressed.
This letter ruling may be revoked or modified by the Commissioner at any time. Such revocation
or modification shall be effective retroactively unless the following conditions are met, in which
case the revocation shall be prospective only:
(A) The taxpayer must not have misstated or omitted material facts involved in
the transaction;
(B) Facts that develop later must not be materially different from the facts upon
which the ruling was based;
(C) The applicable law must not have been changed or amended;
(D) The ruling must have been issued originally with respect to a prospective or
proposed transaction; and
(E) The taxpayer directly involved must have acted in good faith in relying upon
the ruling and a retroactive revocation of the ruling must inure to his detriment.
FACTS
[TAXPAYER] produces the [GLUCOSE MONITORING SYSTEM], which is used by persons
suffering from diabetes. Due to a malfunctioning or destroyed pancreas,1 a diabetic’s body does
1

The pancreas is a gland organ in the digestive and endocrine systems of vertebrates. The pancreas produces several
important hormones, including insulin, which plays a role in the regulation of blood glucose levels.

not sense when blood sugar levels are high, and does not correspondingly produce insulin to
lower blood sugar to normal levels.2 Additionally, many people with diabetes have diminished
sensitivity to the signs and symptoms of dangerously low blood glucose. This is known as
hypoglycemia unawareness, and is due to dysfunction of the patient’s central and autonomic
nervous system. Affected tissues include the glucose-sensitive neurons of the hypothalamus, and
both sympathetic and parasympathetic systems. Without normal warning symptoms of
dangerously low glucose, these patients are vulnerable to seizures, loss of consciousness, or even
death. With respect to high glucose levels, patients typically have no symptoms until glucose
values are well above target ranges and are approaching hazardous levels.
According to the Taxpayer’s Glucose Monitoring System package insert,3 the Glucose
Monitoring System is a prescription glucose-monitoring device indicated for detecting and
tracking trends and patterns in blood glucose levels in adults with diabetes. The Glucose
Monitoring System aids in the detection of episodes of both hyperglycemia and hypoglycemia
(high and low blood sugar levels), facilitating acute and long-term therapy adjustments. The
Glucose Monitoring System is comprised of a number of components, including a sensor probe
that is inserted under the patient’s abdominal skin to monitor glucose levels in the surrounding
tissue fluid. The sensor works through an electrochemical reaction with glucose. An enzyme on
the sensor is used to convert glucose into an electronic signal, which is measured by a transmitter
and continuously sent to a wireless receiver. The receiver converts the sensor signal into a
glucose reading that is displayed to the user. The transmitter adheres to the patient’s abdomen,
and must be within a certain distance of the receiver for the system to function properly.
The Glucose Monitoring System automatically measures glucose levels every five minutes, even
while the user is sleeping. The continuous nature of the glucose values provided by the Glucose
Monitoring System allows a patient to set alerts (via vibratory and audible alarms) to warn him
or her of dangerously high or low blood glucose levels.
QUESTION
Are sales of the Glucose Monitoring System exempt from the Tennessee sales and use tax under
Tenn. Code Ann. § 67-6-314?
RULING
No. Sales of the Glucose Monitoring System are not exempt from the Tennessee sales and use
tax.

2

Abnormally high blood glucose (hyperglycemia) is one of the primary characteristics of diabetes. Type 1 diabetes
is characterized by loss of the insulin-producing beta cells of the pancreas, leading to a deficiency of insulin and
hyperglycemia. Type 2 diabetes is generally due to a combination of defective insulin secretion and insulin
resistance or reduced insulin sensitivity, both of which lead to hyperglycemia.
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Available at [WEBSITE].

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ANALYSIS
Under the Retailers’ Sales Tax Act, Tenn. Code Ann. § 67-6-101 et seq., the sale of tangible
personal property is generally subject to sales and use tax. Medical devices such as the Glucose
Monitoring System come within the definition of “tangible personal property” under Tenn. Code
Ann. § 67-6-102, and sales of such devices are accordingly subject to taxation unless specifically
exempt.
1.

Sales of the Glucose Monitoring System occurring before January 1, 2008

Tenn. Code Ann. § 67-6-314(5) (2006) exempts from Tennessee sales and use tax the sale of
“prosthetics, orthotics, special molded orthopedic shoes, walkers, crutches, surgical supports of
all kinds, and other similarly medical corrective or support appliances and devices.” Sales of the
Glucose Monitoring System occurring before January 1, 2008,4 are not exempt from the
Tennessee sales and use tax under Tenn. Code Ann. § 67-6-314(5) (2006), because they do not
qualify as a prosthetic device.
The Tennessee Code does not define the term “prosthetics” for purposes of Tenn. Code Ann.
§ 67-6-314(5). However, the Tennessee Supreme Court has held that a device is a “prosthetic” as
the term is used in Tenn. Code Ann. § 67-6-314(5) if it substitutes for the missing function of a
bodily part, whether the part is missing, non-functioning, or has reduced function. Cordis Corp.
v. Taylor, 762 S.W.2d 138, 139 (Tenn. 1988). Significantly, the term “prosthetic” includes a
device that augments the performance of a natural function, even where no bodily part is
missing. Id. For example, the court held that a hydrocephalus valve system was a prosthesis
because it augmented the performance of a natural function (the flow of cerebral spinal fluid
from the brain into the bloodstream) even though the patient was missing no bodily part related
to the function. Id.
Standing alone, the Glucose Monitoring System acts as a measuring device similar to
thermometers and blood pressure monitors that read the body’s status. However, unlike
thermometers and blood pressure monitors, the Glucose Monitoring System is used exclusively
by diabetics to manage blood glucose levels. While the Glucose Monitoring System is used to
manage blood glucose levels and is part of the overall regime that substitutes for a properly
functioning pancreatic system, alone it does not substitute for or augment the performance of a
dysfunctional pancreatic system. While the Glucose Monitoring System provides important
information to the patient and physician about episodes of both hyperglycemia and
hypoglycemia, it does not help the body perform any function. Instead, the device is used to
prescribe the proper treatment for diabetes. Therefore, the Glucose Monitoring System does not
fall within the definition of “prosthetics” for Tennessee sales and use tax purposes.
2.

Sales of the Glucose Monitoring System occurring on or after January 1, 2008

Sales of the Glucose Monitoring System occurring on or after January 1, 2008, are not exempt
from the Tennessee sales and use tax pursuant to Tenn. Code Ann. § 67-6-314(1) (2007), which
4

Note that Tenn. Code Ann. § 67-6-314 has been amended effective January 1, 2008. Please refer to the next section
for details.

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provides an exemption for sales of “prosthetic devices for human use.”5 Therefore, beginning
January 1, 2008, sales of the Glucose Monitoring System are subject to Tennessee sales and use
taxation.
2007 Tenn. Pub. Acts, Public Chapter 602, Section 68 amended the sales and use tax definitions
under Tenn. Code Ann. § 67-6-102 to define the term “prosthetic device” as “a replacement,
corrective, or supportive device” that is “worn on or in the body to . . . [p]revent or correct
physical deformity or malfunction.” See Tenn. Code Ann. § 67-6-102(62)(A)(ii) (2007). The
Glucose Monitoring System is not a replacement, corrective, or supportive device because it
does not replace, correct, or support the function of the pancreas. Although it is worn on or in the
body, the Glucose Monitoring System does not correct the physical malfunction of the body to
regulate blood glucose levels. It provides important information to the patient and physician that
is used to prescribe the proper treatment for diabetes. Accordingly, the Glucose Monitoring
System is not a prosthetic device.
Rather, the Glucose Monitoring System will fall under the definition of “durable medical
equipment,” as added by 2007 Tenn. Pub. Acts, Public Chapter 602, Section 68. See Tenn. Code
Ann. § 67-6-102(29) (2007). Pursuant to Tenn. Code Ann. § 67-6-314(2) (2007), durable
medical equipment will be taxable unless it is specifically for home use and dispensed pursuant
to a prescription for human use. The Glucose Monitoring System, as described in the facts, is
intended to be worn by the diabetes patient continuously, including when the patient is outside
the home. As such, the Glucose Monitoring System is not specifically for home use, because it is
intended to be used outside the home. Thus, the Glucose Monitoring System does not qualify for
the exemption for durable medical equipment for home use.
The sale of the Glucose Monitoring System is therefore subject to Tennessee sales and use
taxation.
CONCLUSION
Sales of the Glucose Monitoring System are not exempt for purposes of Tennessee sales and use
taxation pursuant to Tenn. Code Ann. § 67-6-314 (2006).

Kristin Husat
Senior Tax Counsel

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APPROVED:

Reagan Farr
Commissioner of Revenue

DATE:

2/22/08

2007 Tenn. Pub. Acts, Public Chapter 602, Sections 68 and 89 came into effect on January 1, 2008.

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