Is a home-use physical therapy machine exempt from Tennessee sales tax when a doctor prescribes it, and does it matter whether insurance, Medicaid, or the government pays for it?

Plain-English summary

A manufacturer sells a physical therapy machine used by people with disabilities from stroke, spinal cord injury, traumatic brain injury, cerebral palsy, MS, and similar conditions. It's sold both to physical therapy providers and directly to individuals for home use, usually with a physician's prescription and letter of medical necessity, and sometimes reimbursed by Medicaid, Workers' Comp, TRICARE, or the VA. The manufacturer asked the Department to sort out when sales of the machine are exempt from Tennessee sales tax.

1. Is it exempt as "durable medical equipment"? Yes, when sold for home use pursuant to a prescription for human use, under Tenn. Code Ann. § 67-6-314(2). The machine has to meet Tennessee's four-part "durable medical equipment" test: it can withstand repeated use, is primarily and customarily used for a medical purpose, isn't generally useful absent illness or injury, and isn't "worn in or on the body" (the Department found simple bodily contact during use doesn't count as "worn," distinguishing it from clothing-like items). The machine cleared all four. But two other requirements must ALSO be met on top of that: the specific sale must be (a) for home use and (b) pursuant to a prescription. That means sales to physical therapy providers don't qualify -- Tennessee treats home health care providers and similar businesses as the actual taxable "consumer" of equipment they buy to deliver care, regardless of where the equipment is later used. And any sale made without a prescription doesn't qualify either.

2. Does health insurance coverage matter? No. The exemption's text has no insurance-coverage requirement, so whether a private insurer covers the purchase is irrelevant to whether it's tax-exempt.

3. Does direct government payment (Medicaid, TRICARE, VA) matter? Also no, for the durable-medical-equipment exemption specifically -- that exemption doesn't turn on who pays. But there's a separate exemption path: sales made DIRECTLY to a government entity (state, county, municipality, or the federal government/its agencies) are independently exempt. The key word is "direct" -- a sale to an individual who is later reimbursed by Medicaid, TRICARE, or another government program is NOT a "direct sale to the government" and doesn't qualify under this separate exemption.

4. Any other exemptions? No, based on the facts given, nothing else applied (the ruling specifically noted the machine did NOT qualify as "mobility enhancing equipment," a different, narrower exempt category for equipment that helps a person move from place to place).

What this means for you

Medical device manufacturers and distributors selling in Tennessee

Structure your sales carefully around who the actual buyer is. A prescription-and-home-use sale directly to a patient is exempt as durable medical equipment; the identical machine sold to a physical therapy clinic or home health care provider is taxable, because Tennessee deems that business (not the eventual patient) the taxable consumer. If you also sell to government entities, remember the exemption only reaches sales made directly to the government -- not sales to individuals who happen to get reimbursed by a government program.

Home health care providers and physical therapy clinics

You generally owe Tennessee sales/use tax on durable medical equipment you purchase to provide care, even though the same equipment sold directly to a patient with a prescription for home use would be tax-exempt -- unless you separately qualify for a religious/educational/charitable exemption under Tenn. Code Ann. § 67-6-322.

Accountants and tax professionals

Note the ruling's clean distinction between "durable medical equipment" (the general home-use category, § 67-6-314(2)) and "mobility enhancing equipment" (a narrower, separately defined and separately exempt category for equipment that helps a person move, § 67-6-102(56)/§ 67-6-314(6)) -- confirm which bucket a given product falls into, since the machine here was durable medical equipment but explicitly not mobility enhancing equipment.

Common questions

Q: Is home medical equipment always exempt from Tennessee sales tax?
A: Only when it meets the statutory "durable medical equipment" definition AND is sold for home use pursuant to a prescription. Sales to clinics or providers, or sales without a prescription, are taxable.

Q: Does it matter if my insurance or Medicaid pays for the equipment?
A: No, for the durable-medical-equipment exemption -- it doesn't depend on the payment source. A separate government-purchase exemption exists, but only for sales made directly to a government entity, not for individual purchases later reimbursed by a government program.

Q: If a physical therapy clinic buys the machine and uses it only for home health visits, is that sale exempt?
A: No. Home health care providers (and similar businesses) are treated as the taxable consumer of equipment they purchase to deliver care, regardless of where or how the equipment is ultimately used.

Q: Can another equipment seller 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. Whether a different product meets the four-part durable-medical-equipment test should be independently confirmed.

Citations and references

Tennessee statutes and rules (Tenn. Code Ann. unless noted):

• § 67-6-314(2) (Supp. 2010) (durable medical equipment exemption -- home use, sold pursuant to a prescription)
• § 67-6-102(36)(A), (B) (Supp. 2010) ("durable medical equipment" definition and repair/replacement parts)
• § 67-6-102(56) ("mobility enhancing equipment" definition -- a distinct category); § 67-6-314(6) (Supp. 2010) (mobility enhancing equipment exemption)
• § 67-6-352(a) (Supp. 2010) (pharmacies/home health care providers are the taxable consumer of equipment purchased to provide health care)
• § 67-6-322 (Supp. 2010) (religious/educational/charitable institution exemption)
• § 67-6-329(a)(4) (Supp. 2010) (exemption for direct sales to state/county/municipality)
• § 67-6-308 (2006) (exemption for direct sales to the United States or a federal agency)
• Tenn. Comp. R. & Regs. 1320-5-1-.55(3) (1983) (sales to a contractor for the government's later benefit stay taxable -- must be a direct sale to the government to qualify)

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/11-32.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
LETTER RULING # 11-32
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 certain equipment used for physical
therapy.
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 the taxpayer’s
detriment.
FACTS
[TAXPAYER] manufactures and distributes the [MACHINE], a piece of physical therapy
equipment consisting of [REDACTED DESCRIPTION OF THE MACHINE].
The
[MACHINE] is used by persons with disabilities caused by stroke, spinal cord injury, traumatic
brain injury, cerebral palsy, multiple sclerosis, and other diseases. To use the [MACHINE], the
individual [REDACTED DESCRIPTION OF THE MACHINE’S USE].

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[REDACTED DESCRIPTION OF THE MACHINE’S USE].
The Taxpayer sells the [MACHINE] to both physical therapy providers and to individuals for
home use. Physicians often write a prescription for the [MACHINE] as well as a letter of
medical necessity. The [MACHINE] may be covered by insurance such as Medicaid, Worker’s
Compensation, TRICARE (i.e., military service insurance), and the Veterans Administration.
QUESTIONS
1.

Are sales of the [MACHINE] exempt from the Tennessee sales and use tax as sales of
durable medical equipment if a physician writes a prescription for the equipment and the
equipment is for home use?

2.

Does the answer to Question #1 depend on whether the [MACHINE] is covered by the
purchaser’s health insurance?

3.

Does the answer to Question #1 change if the [MACHINE] is paid for directly by
Medicaid, Tricare, or other form of government payment?

4.

Do any other Tennessee sales and use tax exemptions apply to the [MACHINE]?
RULINGS

1.

Yes. The [MACHINE] is exempt from the Tennessee sales and use tax as durable
medical equipment, provided it is for home use and is sold pursuant to a prescription for
human use.

2.

No. The Tennessee sales and use tax exemption for durable medical equipment does not
depend on whether a particular sale is covered by the purchaser’s health insurance.

3.

No. The Tennessee sales and use tax exemption for durable medical equipment does not
depend on whether a particular sale is paid for directly by Medicaid, TRICARE, or other
form of governmental payment. However, regardless of whether the exemption for
durable medical equipment applies, sales of the [MACHINE] may be exempt from the
Tennessee sales and use tax where such sales are made directly to a governmental entity.

4.

No. If a particular sale of the [MACHINE] does not meet the requirements to be exempt
as a sale of durable medical equipment or a sale to a governmental entity, the sale will be
subject to the Tennessee sales and use tax.
ANALYSIS

1.

Exemption for durable medical equipment

The [MACHINE] is exempt from the Tennessee sales and use tax as durable medical equipment
under TENN. CODE ANN. § 67-6-314(2) (Supp. 2010), provided it is for home use and is sold
pursuant to a prescription for human use.

2

Under the Retailers’ Sales Tax Act, TENN. CODE ANN. § 67-6-101 et seq., the sale of tangible
personal property, which includes equipment such as the [MACHINE], is generally subject to the
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.
TENN. CODE ANN. § 67-6-314(2) exempts from the Tennessee sales and use tax “[d]urable
medical equipment for home use sold pursuant to a prescription for human use.”
TENN. CODE ANN. § 67-6-102(36)(A) (Supp. 2010) defines “durable medical equipment” as
equipment that (1) can withstand repeated use; (2) is primarily and customarily used to serve a
medical purpose; (3) is generally not useful to a person in the absence of illness or injury; and (4)
is not worn in or on the body. In addition, “durable medical equipment” includes “repair and
replacement parts for the equipment,” provided that the “repair and replacement parts do not
include parts, components, or attachments that are for single patient use.”1 TENN. CODE ANN.
§ 67-6-102(36)(B).2
Accordingly, the [MACHINE] will qualify as durable medical equipment if it (1) can withstand
repeated use; (2) is primarily and customarily used to serve a medical purpose; (3) is generally
not useful to a person in the absence of illness or injury; and (4) is not worn in or on the body.
The [MACHINE] satisfies each of these requirements. It is designed to withstand repeated use,
primarily serves a medical purpose, and is generally not useful to a person in the absence of
illness or injury. In addition, the [MACHINE] is not “worn in or on the body.” The commonly
understood meaning of the term “worn” is “to bear or have on the body” (for example, to wear a
coat). (See, e.g., MERRIAM-WEBSTER’S COLLEGIATE DICTIONARY 1417 (11th ed. 2003)). Here,
the [MACHINE] merely comes into contact with the user’s body; it is not “worn on the body” as
the phrase is commonly understood.
The [MACHINE] thus qualifies as “durable medical equipment” for purposes of the Tennessee
sales and use tax. However, to be exempt for purposes of the Tennessee sales and use tax, the
[MACHINE] must also be (1) for home use; and (2) sold pursuant to a prescription for human
use.

1

Note that “single patient use” means that the parts, components, or attachments are used only by one patient. It
does not mean that the parts, components, or attachments are only used a single time.
2

Note that mobility enhancing equipment is specifically excluded from the definition of “durable medical
equipment.” “Mobility enhancing equipment” is defined as “equipment, including repair and replacement parts to
the equipment, but does not include durable medical equipment that: (A) Is primarily and customarily used to
provide or increase the ability to move from one place to another and that is appropriate for use either in a home or a
motor vehicle; (B) Is not generally used by persons with normal mobility; and (C) Does not include any motor
vehicle or equipment on a motor vehicle normally provided by a motor vehicle manufacturer.” TENN. CODE ANN.
§ 67-6-102(56). Mobility enhancing equipment is exempt from Tennessee sales and use tax pursuant to TENN. CODE
ANN. § 67-6-314(6) (Supp. 2010), provided that the equipment is sold pursuant to a prescription for human use.
However, the [MACHINE] clearly does not fall within the above definition of “mobility enhancing equipment” and
is thus not exempt as such.

3

All sales of the [MACHINE] that are made for home use pursuant to a prescription for human
use will be exempt from the Tennessee sales and use tax. However, the Taxpayer has indicated
that it sells the [MACHINE] to physical therapy providers as well as to individuals for home use.
The Taxpayer has also indicated that physicians often write a prescription for the [MACHINE].
Sales to physical therapy providers and/or sales that are not made pursuant to a prescription do
not meet the requirements for the durable medical equipment exemption under TENN. CODE ANN.
§ 67-6-314(2) and will be subject to the Tennessee sales and use tax.
In addition, when a home health care provider purchases the [MACHINE], the sale will be
subject to the Tennessee sales and use tax regardless of whether the [MACHINE] will ultimately
be used in a patient’s home. TENN. CODE ANN. § 67-6-352(a) (Supp. 2010) provides that
“pharmacies and home health care providers engaged in the business of rendering outpatient
healthcare services to human beings are the consumers or users of all tangible personal property
or taxable services purchased for use, consumption or rental in providing the health care
service.” Accordingly, home health care providers are considered the users of products such as
the [MACHINE] and must pay sales and use tax on such purchases.3
In summary, the [MACHINE] is exempt from the Tennessee sales and use tax as durable medical
equipment provided it is for home use and is sold pursuant to a prescription for human use.
2.

Health insurance coverage

The Tennessee sales and use tax exemption for durable medical equipment does not depend on
whether a particular sale is covered by the purchaser’s health insurance.
As discussed above, TENN. CODE ANN. § 67-6-314(2) exempts from the Tennessee sales and use
tax “[d]urable medical equipment for home use sold pursuant to a prescription for human use.”
The exemption for durable medical equipment contains no requirement that the equipment be
covered by the purchaser’s health insurance. The use of health insurance to pay for the
[MACHINE] is therefore irrelevant in the determination of whether a particular sale will be
exempt from the Tennessee sales and use tax as a sale of durable medical equipment.
3.

Direct government payment

The Tennessee sales and use tax exemption for durable medical equipment does not depend on
whether a particular sale is paid for directly by Medicaid, TRICARE, or other form of
governmental payment. However, regardless of whether the exemption for durable medical
equipment applies, sales of the [MACHINE] may be exempt from the Tennessee sales and use
tax pursuant to TENN. CODE ANN. § 67-6-329(a)(4) (Supp. 2010) or TENN. CODE ANN. § 67-6308 (2006), where such sales are made directly to a governmental entity.
TENN. CODE ANN. § 67-6-329(a)(4) exempts from the Tennessee sales and use tax “[a]ll sales
made to the state or any county or municipality within the state.” In addition, TENN. CODE ANN.
§ 67-6-308 exempts from the Tennessee sales and use tax “any direct sale or lease of tangible
3

However, a home health care provider or pharmacy that is exempt from paying sales and use tax under TENN.
CODE ANN. § 67-6-322 (Supp. 2010) as a religious, educational, or charitable institution may make tax-exempt
purchases of tangible personal property such as the [MACHINE]. TENN. CODE ANN. § 67-6-352(a) (Supp. 2010).

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personal property or services to the United States, or any agency thereof created by congress, for
consumption or use directly by it through its own government employees.”
TENN. COMP. R. & REGS. 1320-5-1-.55(3) (1983) clarifies that “[s]ales of tangible personal
property and taxable services to a contractor or other person for the use and later benefit of the
State or a County, or Municipality in this State, are subject to the appropriate Sales or Use Tax.”
Thus, in order for the exemption found in TENN. CODE ANN. § 67-6-329(a)(4) to apply, the sale
must be “made to” the state; sales made to individuals and later reimbursed by the state do not
fall within the exemption. Similarly, in order for the exemption found in TENN. CODE ANN.
§ 67-6-308 to apply, the sale must be a “direct sale… of tangible personal property” to the
federal government. Sales made to individuals and later reimbursed by the federal government
through Medicare or other forms of government payment do not constitute “direct sales” and are
therefore not exempt.
Accordingly, where the [MACHINE] is sold directly to a state or federal governmental entity,
such sale is exempt from the Tennessee sales and use tax. However, the government exemption
does not apply where an individual purchases the [MACHINE] and is reimbursed through
Medicare, TRICARE, or other form of governmental payment.
4.

Other exemptions

Based on the facts presented, no other Tennessee sales and use tax exemption is applicable to
sales of the [MACHINE].

Abigail Sparks
Tax Counsel

APPROVED:

Richard H. Roberts
Commissioner of Revenue

DATE:

7/12/11

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