Does Tennessee sales tax apply to a single-use vein-ablation catheter and its bundled treatment supply packs sold to treat venous reflux disease (varicose veins)?

Plain-English summary

A medical device and supply company sells two things to treat venous reflux disease (the condition behind varicose veins): a single-patient-use catheter that's inserted into the diseased vein and heated to seal it shut, then removed during the same procedure; and three "Packs" of bundled disposable supplies for the procedure (First, Second, and Third). The catheter and a Pack are usually sold together for one price, but the catheter is sometimes sold alone. The company asked whether Tennessee sales and use tax applies. The Department ruled: the catheter is taxable, and the Packs are taxable in most circumstances.

Why the catheter is taxable. Tennessee's main medical exemption that could apply here is the prosthetic device exemption (Tenn. Code Ann. § 67-6-314(1)), covering "prosthetic devices for human use." A prosthetic device is defined as a device "worn in or on the body" to replace a missing body part, correct a malfunction, or support a weak or deformed part (§ 67-6-102(72)(A)). The catheter meets three of the four requirements — it's for human use, a corrective device, and used to correct a venous malfunction — but fails the third: it is not worn in or on the body. It's inserted and immediately removed within a single medical procedure, so it doesn't qualify, and the sale is taxable.

Why the Packs are taxable (mostly). When a Pack is sold together with the catheter for a single charge, the whole charge is taxable, because Tennessee taxes the full "sales price" of a bundled transaction with no carve-out for the nontaxable items when a taxable item (here, the catheter) is mixed in (§ 67-6-102(81)(A); TomKats Catering, Inc. v. Johnson). Even sold on their own, the First Pack and Second Pack are taxable, because each independently contains taxable items. Only the Third Pack can be exempt when sold alone — and only if every single item inside it independently qualifies for an exemption; if even one item in the Third Pack is taxable, the Department said the entire charge for the Third Pack is taxable.

What this means for you

Medical device and supply sellers

A device that treats or corrects a medical condition isn't automatically tax-exempt in Tennessee — the "worn in or on the body" requirement is a real, separate hurdle, distinct from being corrective or for human use. Disposable, insert-and-remove devices like ablation catheters generally won't qualify, even when medically necessary and prescribed.

Sellers who bundle taxable and nontaxable items

If you sell a kit or pack mixing any taxable item with otherwise-exempt items for one combined price, the whole charge is taxable — there's no partial exemption for the nontaxable pieces. To preserve an exemption on a bundle, every item in it must independently qualify, and (per this ruling) it generally needs to be sold separately from any taxable companion item.

Healthcare providers and clinics purchasing these items

Expect sales tax on these supplies unless your supplier can show that a specific item independently meets all four prosthetic-device elements: for human use; a replacement, corrective, or supportive device; worn in or on the body; and used to replace, correct, or support. Ask your supplier how they've classified each component.

Common questions

Q: Is a vein-ablation catheter exempt as a "prosthetic device" in Tennessee?
A: No. Even though it's for human use and corrects a vein malfunction, it fails the requirement that a prosthetic device be "worn in or on the body" (§ 67-6-102(72)(A)) — it's inserted and removed within the same procedure.

Q: If a supply pack is sold together with a taxable catheter for one price, is the whole pack taxable?
A: Yes. Bundling a taxable item with nontaxable items for a single charge makes the entire charge taxable (§ 67-6-102(81)(A); TomKats Catering, Inc. v. Johnson).

Q: Are the supply packs taxable if sold on their own, without the catheter?
A: It depends on the pack. The First and Second Packs are taxable on their own because each independently contains taxable items. The Third Pack is exempt sold alone only if every item in it independently qualifies for an exemption.

Q: Can I rely on this letter 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. Confirm your own situation with a tax professional.

Citations and references

Tennessee statutes (Tenn. Code Ann.; 2011 codification):

• § 67-6-101 et seq. (Retailers' Sales Tax Act — retail sales of TPP, including medical devices/supplies, taxable absent an exemption)
• § 67-6-314(1) (prosthetic device exemption); § 67-6-102(72)(A) (definition of "prosthetic device" — four elements)
• § 67-6-102(81)(A) (sales price = total consideration; bundled taxable + nontaxable items taxed on the full charge)

Cases cited by the ruling:

• TomKats Catering, Inc. v. Johnson, 2001 WL 1090516 (Tenn. Ct. App. Sept. 19, 2001) (bundled taxable and nontaxable items sold for a single charge — entire charge subject to tax)

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/12-09.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
LETTER RULING # 12-09
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
The application of the Tennessee sales and use tax to items used in the treatment of venous
reflux disease.
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 NAME] (the “Taxpayer”) is a provider of medical devices and supplies. Among
the Taxpayer’s products are medical devices and disposable medical supplies for the treatment of
venous reflux disease, a condition in which vein valves that are supposed to stop blood from
flowing backwards do not function properly and blood becomes pooled in the legs. This causes
the veins to expand, a condition known as varicose veins.
The Taxpayer sells the [BRAND NAME CATHETER], which is a minimally invasive single
patient use catheter that allows for rapid and uniform ablation of the vein. The [BRAND NAME
CATHETER] is inserted into the diseased vein to seal it shut using heat. The [BRAND NAME
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CATHETER] does not remain in the body; rather, it is inserted and removed during the same
medical procedure.
The Taxpayer also sells three different types of surgery-based procedure packs (the “Packs”) that
combine all supplies necessary for venous reflux disease treatment procedures into a single use,
sterile package with an Rx label.
The first type of pack (the “First Pack”) includes the following items: [ITEMS].
The second type of pack (the “Second Pack”) includes the same items as the first pack, as well as
some combination of additional accessories such as [ITEMS]. The third type of pack (the “Third
Pack”) contains only a combination of additional accessories (such as [ITEMS]).
The [BRAND NAME CATHETER] and one of the Packs are typically sold as a unit, for a single
charge. However, certain customers may purchase the [BRAND NAME CATHETER]
separately, without a Pack.
RULINGS
1.

Does the Tennessee sales and use tax apply to the [BRAND NAME CATHETER]?
Ruling: Yes. The [BRAND NAME CATHETER] is subject to the Tennessee sales and
use tax.

2.

Does the Tennessee sales and use tax apply to the Packs?
Ruling: The Packs are subject to the Tennessee sales and use tax when sold along with
the [BRAND NAME CATHETER] for a single charge.
If the First Pack or the Second Pack is sold separately from the [BRAND NAME
CATHETER], the charge for the Pack is subject to the Tennessee sales and use tax.
If all of the items in the Third Pack qualify for an exemption from the sales and use tax,
then the Third Pack will be exempt from the Tennessee sales and use tax when sold
separately from the [BRAND NAME CATHETER]. However, if any item contained in
the Third Pack is taxable, the entire charge for the Third Pack is subject to the Tennessee
sales and use tax.
ANALYSIS

Under the Retailers’ Sales Tax Act, TENN. CODE ANN. § 67-6-101 et seq., the retail sale in
Tennessee of tangible personal property, including medical devices and supplies, is subject to
sales and use tax unless an exemption from taxation applies.
1.

[BRAND NAME CATHETER]

The [BRAND NAME CATHETER] is subject to the Tennessee sales and use tax.

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In the case of catheters, the most commonly applicable exemption is the exemption for prosthetic
devices, found under TENN. CODE ANN. § 67-6-314(1) (2011).1 However, the [BRAND NAME
CATHETER] does not come within the scope of this exemption.
TENN. CODE ANN. § 67-6-314(1) exempts from the sales and use tax “prosthetic devices for
human use and repair services for the repair and maintenance of those prosthetic devices.” The
term “prosthetic device” is defined as “a replacement, corrective, or supportive device … worn
in or on the body to: (i) artificially replace a missing portion of the body; (ii) prevent or correct
physical deformity or malfunction; or (iii) support a weak or deformed portion of the body.”
TENN. CODE ANN. § 67-6-102(72)(A) (2011).
Accordingly, for the retail sale of the [BRAND NAME CATHETER] to be exempt from sales
and use tax under TENN. CODE ANN. § 67-6-314(1), the [BRAND NAME CATHETER] must:
(1) be for human use; (2) constitute a replacement, corrective or supportive device; (3) be worn
in or on the body; and (4) be used to artificially replace a missing portion of the body, prevent or
correct physical deformity or malfunction, or support a weak or deformed portion of the body.
The first requirement is met because the [BRAND NAME CATHETER] is for human use. The
second requirement is also met because the [BRAND NAME CATHETER] is a device used to
correct venus reflux disease. The fourth requirement is met because the [BRAND NAME
CATHETER] is used to correct a malfunction in the valve of the diseased vein.
However, the third requirement is not met because the [BRAND NAME CATHETER] is not
worn in or on the body. The catheter is inserted and used to ablate the varicose vein, then
removed during the same medical procedure. It does not remain “in or on the body” in order to
correct the malfunctioning vein. Accordingly, the [BRAND NAME CATHETER] is not exempt
from Tennessee sales and use tax as a prosthetic device.
2.

Packs

All Packs are subject to the Tennessee sales and use tax when sold along with the [BRAND
NAME CATHETER] for a single charge.
If the First Pack or the Second Pack is sold separately from the [BRAND NAME CATHETER],
the charge for the Pack is subject to the Tennessee sales and use tax because each Pack contains
items that are taxable.
The facts do not definitively state what may be contained in the Third Pack. If all of the items in
the Third Pack qualify for an exemption from the sales and use tax, then the Third Pack will be
exempt from the Tennessee sales and use tax when sold separately from the [BRAND NAME
CATHETER]. However, if any item contained in the Third Pack is taxable, the entire charge for
the Third Pack is subject to the Tennessee sales and use tax.
1

Some types of catheters may qualify for other medical-related exemptions. This letter ruling will address only the
exemption for prosthetic devices, since this is the only one for which the [BRAND NAME CATHETER] potentially
qualifies.

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TENN. CODE ANN. § 67-6-102(81)(A) provides that the sales price of a good or service equals the
“total amount of consideration . . . for which personal property or services are sold.” Thus, if
taxable items are bundled with nontaxable items and sold for a single charge, the entire charge is
subject to taxation. See TomKats Catering, Inc. v. Johnson, 2001 WL 1090516 (Tenn. Ct. App.
Sept. 19, 2001).
As explained above, the [BRAND NAME CATHETER] is subject to the Tennessee sales and
use tax. Accordingly, when the Taxpayer sells the [BRAND NAME CATHETER] and the Pack
as a unit for a single charge, the sales price equals the total consideration paid. Similarly, if the
Taxpayer sells a Pack separately from the [BRAND NAME CATHETER], and the Pack contains
any taxable items, the sales price will include all consideration paid for the Pack.

Abigail Sparks
Tax Counsel
APPROVED:

Richard H. Roberts
Commissioner of Revenue

DATE:

July 10, 2012

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