Did an orthodontist owe Tennessee sales or use tax when purchasing corrective appliances attached to patients' teeth?

Plain-English summary

Tennessee ruled that the orthodontist did not owe sales or use tax on corrective appliances attached to patients' teeth. Although a dentist was generally treated as the user and consumer of tangible property used in the practice—and therefore normally paid tax when buying it—the Department also had to apply any separate exemption covering the item.

The medical-device exemption covered orthotics and similar corrective or support appliances. The Department treated teeth as part of the skeletal system and the appliances as devices that aligned or repositioned them. That made the appliances exempt orthotics. The ruling added that even if they were not technically orthotics, their function was close enough to the listed exempt devices to qualify as similar medical corrective or support appliances.

The orthodontist also did not collect sales tax from patients on the transfer of the appliances because the cited dentist provision treated the dentist as the consumer.

What this means for you

A practitioner-consumer rule and a product exemption can operate together. The dentist ordinarily pays tax on practice property, but no tax was due here because the orthodontic appliances themselves qualified for an exemption.

Common questions

Q: Were dentists generally consumers of property used in their practices? A: Yes, under the cited rule, but separate product exemptions still applied.

Q: Why did braces or similar appliances count as orthotics? A: They aligned or repositioned teeth, and the ruling treated teeth as part of the skeletal system.

Q: Did the orthodontist charge sales tax to the patient? A: No. The ruling said the dentist was treated as the user and consumer of the transferred property.

Citations and references

• Tenn. Code Ann. §§ 67-6-203, 67-6-314(5), and 67-6-335

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/98-01.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
LETTER RULING #98-01

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
Sales and use taxability of orthodontic appliances and devices. 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
[THE TAXPAYER] operates an orthodontic practice whose main office is located in
[CITY], Tennessee. There are other satellite offices located within Tennessee. The taxpayer purchases corrective orthodontic appliances and devices (hereinafter “appliances”) which she attaches to the teeth of her patients. ISSUE Is the taxpayer required to pay sales or use tax on her purchases of orthodontic appliances or devices which are to be attached to the teeth of the taxpayer’s patient? RULINGS No. ANALYSIS T.C.A. § 67-6-335 states: A dentist shall be considered the user and consumer of the tangible personal property used in the practice of the dentist's profession, and the tax imposed by this chapter shall not be applicable to all or any part of the charges made by a dentist to the dentist's patients in connection with the sale or transfer of such tangible personal property. While under this provision the taxpayer is not liable to collect the sales tax on the transfer of tangible personal property to her patient, as the user and consumer, she is liable for payment of sales or use tax on the purchase of tangible personal property used in her practice. See T.C.A. § 67-6-203. However, the provisions of T.C.A. § 67-6-335 must be considered together with any other exemption which would exempt the tangible personal property being consumed. T.C.A. § 67-6-314 states, in pertinent part: There is exempt from the sales tax imposed by this chapter:
... (5) The sale or repair of prosthetics, orthotics, special molded orthopedic shoes, walkers, crutches, surgical supports of all kinds, and other similarly medical corrective or support appliances and devices. (Emphasis supplied.) As explained in the following, the appliances which are the subject of this ruling are covered by this exemption. “Orthodontia” is defined as “the dental specialty and practice of correcting abnormally aligned or positioned teeth.” AMERICAN HERITAGE DICTIONARY (2d College Ed. 1985). The purpose of the appliances is obviously to align or reposition

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the patient’s teeth. The Department has applied the exemption for orthotics1 to devices used to brace, support, or align the skeletal or muscular system. The teeth are a part of the skeletal system2 and an appliance used to align or reposition the teeth is exempt as an orthotic. Even if it were argued that such appliances are not orthotics, their function is so close to the other items of property specifically listed in the statute so as to constitute “similarly medical corrective or support appliances and devices.” Under the preceding analysis, sales or use tax is not due on the taxpayer’s purchases of the appliances in question.

________
Owen Wheeler
Tax Counsel 3

APPROVED: ________
Ruth E. Johnson

DATE:

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1-7-98

“Orthotics” is defined as “a branch of medicine that deals with the use of specialized mechanical devices to support or supplement weakened joints or limbs.” AMERICAN HERITAGE DICTIONARY (2d College Ed. 1985). In the context of T.C.A. § 67-6-314(5), the term no doubt is intended to refer to orthotic devices. 2 “Tooth” is defined as “...one of a set of hard, bonelike structures rooted in sockets in the jaws...” AMERICAN HERITAGE DICTIONARY (2d College Ed. 1985). Since teeth are bonelike and rooted in the jaws, it is logical, for the purpose of the sales tax exemption, to consider them a part of the skeletal system.

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