Were prescribed therapeutic devices exempt when sold to individuals but paid for by insurance, and could doctors or hospitals buy the devices tax-free?

Plain-English summary

The product described in the body qualified as a therapeutic device. A sale to an individual was exempt when supported by a prescription from a licensed practitioner of the healing arts, even if an insurance company paid the seller. The seller had to retain a copy of the prescription.

The result differed for sales to doctors and related health-service organizations. The Comptroller corrected any contrary oral advice and said doctors, hospitals, nursing homes, and other health-care providers furnished services rather than acting as retailers. They could not buy the therapeutic appliances or devices tax-free.

Common questions

Did insurance payment defeat the individual's exemption? No.

What record did the seller need? A copy of the prescription.

Could doctors buy the devices tax-free for resale or rental? No under the letter's health-care-provider analysis.

Did the same restriction apply to hospitals and nursing homes? Yes.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8605L0738E13

Original ruling text

May 22, 1986

Dear ***:

Thank you for your letter concerning the taxability of ***
products when sold to individuals, but paid for by insurance companies,
or when sold to doctors.

The *** products qualifies as a therapeutic device and is exempt
when sold to an individual under prescription by a licensed practitioner of
the healing arts.

Therefore, when your company sells prescribed *** products to
individuals, but is paid by the insurance company, it will qualify for
exemption. You must maintain a copy of the prescription in your records
to substantiate the exemption.

When selling to doctors, or other related health service organizations,
we have a different problem. If I related to you in our phone conversation
that sales to doctors who resell or rent the devices to individuals also
qualifies for exemption, I was wrong and I apologize. We consider doctors to
be providing health care services and not acting as retailers. This means
they may not purchase therapeutic appliances and devices tax free. This is
true for hospitals, nursing homes and other health care providers.

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change.

If you have any questions or need more information, please call us at
1-800-252-5555 toll free from anywhere in Texas. You may write us at
the Tax Administration Division.

Sincerely,

Tax Policy Section
Tax Administration Division