Are external fixators used to stabilize open bone fractures exempt from Tennessee sales tax, and does a patient prescription have to be on file for the exemption to apply?

Plain-English summary

A medical device company sells external fixators — devices made of pins screwed into the bone and connected to an adjustable external rod or tube, used primarily on open fractures of the arms and legs. They stay attached anywhere from a few days to the full healing period, correcting the deformity from the fracture and supporting the bone while it heals. The FDA regulates them as prescription devices (labeled for sale "by or on the order of a physician"), but as a matter of standard hospital practice, prescriptions live in the patient's operative notes rather than being sent to the vendor — a practice the taxpayer explained is driven by HIPAA's restrictions on disclosing individually identifiable health information. The taxpayer asked (1) whether external fixators are sales-tax exempt, and (2) whether it needs a prescription on file for the exemption to apply. This ruling issued the same week as, and closely parallels, the taxpayer's companion K-Wire ruling.

Exemption question: Like K-Wires, the exemption's LEGAL basis shifted with the January 1, 2008 statutory amendment:

• Through December 31, 2007: exempt as "orthotics." External fixators support and align the skeletal system to achieve traction/immobilization of a fracture — squarely within the old orthotics exemption's coverage of corrective/support devices for the skeletal or muscular system.
• From January 1, 2008: exempt as a "prosthetic device," but only for HUMAN use. The new prosthetic-device test (replacement/corrective/supportive device, worn in/on the body, correcting a deformity or malfunction) is satisfied the same way — but the new category adds a human-use gate that didn't exist under the old orthotics rule. Sales to veterinarians for animal use became taxable starting January 1, 2008.

Prescription question: No, a prescription is NOT required for either version of the exemption. Neither the old orthotics exemption nor the new prosthetic-device exemption conditions tax-exempt status on the seller having a prescription on file — so the taxpayer's HIPAA-driven practice of not receiving prescriptions directly doesn't put the exemption at risk.

What this means for you

Medical device manufacturers selling implants to hospitals and veterinary practices

The same January 1, 2008 statutory shift that reclassified K-Wires from "orthotics" to "human-use-only prosthetics" applies across this whole category of corrective/support implant devices — if you sell similar implants to both human and veterinary markets, confirm your veterinary sales became taxable on that date even if your human-use sales stayed exempt.

Hospitals, medical device vendors, and their accountants navigating HIPAA and sales tax documentation

This ruling directly confirms that HIPAA-driven gaps in prescription paperwork between hospitals and device vendors don't create a sales-tax exemption problem — for these particular exemption categories (orthotics and prosthetic devices), no prescription documentation requirement exists in the statute at all, unlike some other medical exemptions (e.g., the prescription-drug exemption) that do require one.

Accountants and tax professionals

Note the recurring bundling rule across this taxpayer's rulings: when external fixators are sold together with other items but each is separately itemized and priced, each item's taxability is determined independently; an unitemized bundle that includes any taxable item makes the whole bundle taxable.

Common questions

Q: Are external fixators exempt from Tennessee sales tax?
A: Yes, when sold individually — as orthotics through 2007, and as prosthetic devices sold for human use from January 1, 2008 onward.

Q: Does the vendor need a copy of the patient's prescription to sell tax-exempt?
A: No. Neither the pre-2008 orthotics exemption nor the post-2008 prosthetic device exemption requires a prescription on file for the exemption to apply.

Q: Are external fixators sold to veterinarians for animal use exempt?
A: Not after January 1, 2008 — the prosthetic device exemption specifically requires human use, so veterinary sales became taxable starting that date (they may have been exempt as orthotics before then, since the old exemption had no human-use limitation).

Q: Can another medical device company 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 product's classification and sales practices with a tax professional.

Citations and references

Tennessee statutes (Tenn. Code Ann.):

• § 67-6-314(5) (2006) (orthotics exemption, in effect through December 31, 2007)
• § 67-6-314(1) (Supp. 2007) (prosthetic device exemption for human use, effective January 1, 2008)
• § 67-6-102(62) (Supp. 2007) ("prosthetic device" definition)
• § 67-6-101 et seq. (Retailers' Sales Tax Act)
• 2007 Tenn. Pub. Acts, Chapter 602 (effective January 1, 2008) (statutory amendment reclassifying the applicable exemption)

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/08-13.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
LETTER RULING # 08-13

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
Application of the Tennessee sales and use tax to the sale of external fixators as medical
implants.
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] is a company that manufactures and sells medical implants and medical
instruments primarily to hospitals, surgical centers and veterinarians. One of the products the
Taxpayer sells is external fixators. The external fixator is composed of pins screwed into the
bone, which are attached to an external rod or tube that can be adjusted to various angles. The

external fixators come in several different shapes and sizes, allowing for use in supporting
fractures in the arms and legs, as well as with smaller fractures, and they are used primarily with
open fractures. The external fixators correct the deformity created by the fracture and support
the bone during healing.
The amount of time an external fixator implant remains attached to the body varies from a few
days (when removed to use a different implant) to the entire period for which the injury takes to
heal. Based on materials provided by Taxpayer, external fixators are medical corrective devices
used in open fracture cases to achieve internal traction or immobilization of bone fractures.
The Taxpayer does not require prescriptions for the external fixators, as its products are
regulated by the FDA and are shipped containing a label that states: “Caution: Federal law
restricts this device to sales by or on the order of a physician.” The prescriptions for the external
fixators are part of the operative notes in a patient’s file, and, pursuant to prevailing business
practices, hospitals do not submit prescriptions to the Taxpayer, a vendor of prosthetic devices,
due to provisions related to nondisclosure of individually identifiable health information
contained in the Health Insurance Portability and Accounting Act of 1996 (“HIPAA”).
QUESTIONS

1. Is the sale of external fixators exempt for Tennessee sales and use tax purposes?
2. Is a prescription required for an exemption to apply?
   RULINGS
3. Yes, provided that as of January 1, 2008, the external fixators are sold for human use.
   The sale of external fixators to veterinarians for animal use is not included within the
   exemption, and thus, is taxable for sales and use tax purposes.
4. No.
   ANALYSIS
   Under the Retailers’ Sales Tax Act, Tenn. Code Ann. § 67-6-101 et seq., the sale of tangible
   personal property, which includes external fixators, is generally subject to sales and use tax. An
   item of tangible personal property is exempt for purposes of the Tennessee sales and use tax only
   if the item is specifically included within the scope of a statutory exemption. The Retailers’
   Sales Tax Act has been amended by 2007 Tenn. Pub. Acts, Chapter 602, effective January 1,
5. Accordingly, the exemption provisions applicable to the sale of external fixators change
   as of January 1, 2008. The analysis provided below for the sale of external fixators is divided
   into three sections, the first discussing the Tennessee sales and tax use laws in effect through
   December 31, 2007, the second explaining the exemption provisions applicable as of January 1,
   2008, and the third discussing whether prescriptions are required.

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In addition, the Taxpayer indicated that the external fixators are sold individually as well as in
conjunction with other related items.1 However, pursuant to the Taxpayer’s ruling request, the
scope of this letter ruling is limited only to the sale of external fixators individually for sales and
use tax purposes.
1.

The Sales and Use Tax Laws in effect through December 31, 2007

The sale of external fixators is exempt from the Tennessee sales and use tax as orthotics through
December 31, 2007.
Tenn. Code Ann. § 67-6-314(5) (2006) provides an exemption from the sales and use tax for the
sale of “orthotics… and other similarly medical corrective or support appliances and devices.”
“Orthotics” is generally defined as “a branch of mechanical and medical science that deals with
the support and bracing of weak or ineffective joints or muscles.” MERRIAM-WEBSTER MEDICAL
DICTIONARY. The exemption for orthotics includes devices used to brace, support or align the
skeletal or muscular system. The Taxpayer sells external fixators as medical corrective devices
for use in open fracture cases to achieve internal traction or immobilization of bone fractures.
“Traction” is generally defined as “a pulling force exerted on a skeletal structure (as in a
fracture) by means of a special device or apparatus.” MERRIAM-WEBSTER MEDICAL
DICTIONARY. The purpose of the external fixators is to support or align the skeletal system,
which falls within the exemption for orthotics. Accordingly, through December 31, 2007, the
sale of external fixators is exempt from the sales and use tax as orthotics.
2.

The Sales and Use Tax Laws as of January 1, 2008

Effective January 1, 2008, the sale of external fixators is exempt from the sales and use tax as
prosthetics, provided that the external fixators are sold for human use.
Tenn. Code Ann. § 67-6-314(1) (Supp. 2007) provides an exemption from the sales and use tax
for prosthetic devices for human use. Tenn. Code Ann. § 67-6-102(62) (Supp. 2007) defines the
term “prosthetic device” in part as “a replacement, corrective or supportive device including
repair and replacement parts for same worn on or in the body,” which is used to “correct a
physical deformity or malfunction” or to “support a weak or deformed portion of the body.” In
other words, to qualify for an exemption from the sales and use tax as a prosthetic device, an
item must be: (1) a replacement, corrective or supportive device; (2) worn in or on the body;
(3) used to correct a deformity or malfunction or to support a weak or deformed part of the body;
and (4) sold for human use.
In this case, the Taxpayer sells external fixators, which are implanted temporarily in a patient in
open fracture cases. The external fixators act as a corrective device worn in the body to correct
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Note that when several items are sold together, but each item is itemized and priced separately, the taxability of
each item is determined independently of the other items. Accordingly, if the sale of external fixators individually is
exempt from the sales and use tax, then the sale of external fixators included with other items is also exempt,
provided that the external fixators are itemized and priced separately. However, if the external fixators are sold in
conjunction with other items where each item is not itemized and priced separately, and group of items includes
taxable items, then every item, including the external fixators, is subject to the sales and use tax.

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the skeletal system after a bone fracture, thus satisfying the first three requirements. In addition,
external fixators perform a similar function as “traction devices” worn on the body to correct
large fracture cases, and the exemption for prosthetic devices includes such traction devices worn
on the body. Accordingly, the sale of external fixators is exempt from the sales and tax laws as
prosthetic devices, provided that the external fixators meet the fourth requirement and are sold
for human use.2
3.

Prescriptions

A prescription is not required for the sale of external fixators to be exempt from the sales and use
tax.
Neither the exemption for orthotics under Tenn. Code Ann. § 67-6-314(5) (2006), effective
through December 31, 2007, nor the exemption for prosthetic devices under Tenn. Code Ann.
§ 67-6-314(1) (Supp. 2007), effective January 1, 2008, require a prescription for the exemption
to apply. Accordingly, a prescription is not required for the sale of external fixators to be
exempt.
CONCLUSION
Through December 31, 2007, the sale of external fixators is exempt from the sales and use tax as
orthotics under Tenn. Code Ann. § 67-6-314(5) (2006) because the external fixators are used to
support or align the skeletal system. Furthermore, as of January 1, 2008, the sale of external
fixators is exempt from the sales and use tax as prosthetic devices under Tenn. Code Ann. § 676-314(1) (Supp. 2007), provided that they are sold for human use, because the external fixators
are corrective devices worn in the body used to correct a bone fracture. Additionally, regardless
of when the external fixators are sold, a prescription is not required for the appropriate
exemption to apply.

Rachel Wheeler
Tax Counsel

APPROVED:

Reagan Farr
Commissioner of Revenue

DATE:

2/22/08

2

Note that because the exemption for prosthetic devices under Tenn. Code Ann. § 67-6-314(1) (Supp. 2007)
requires the devices to be sold “for human use,” the sale of external fixators to veterinarians for animal use is not
included within the exemption, and thus, is taxable for sales and use tax purposes.

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