Were lump-sum per-use charges for diagnostic-imaging equipment supplied with a technician taxable in Texas?

Plain-English summary

A provider installed MRI, CT, ultrasound, or nuclear-medicine equipment at hospitals and clinics. Its technician stayed with the equipment and performed scans for patients under the hospital radiologist's care, with one lump-sum fee per use for both the equipment and technician.

The Comptroller treated that arrangement as a service rather than an equipment rental under Rule 3.294(d)(2). The provider's lump-sum charge was therefore not taxable.

The provider was the consumer of the equipment used to perform the service and had to pay tax on that equipment. The letter separately noted that Rule 3.294's provisions on installation and transportation charges for rentals and leases were being revised after a statutory change; that historical note did not change the service holding for these facts.

Common questions

Was the provider's per-use scanning fee taxable? No, on the described facts.

Why was this a service rather than a rental? The provider's technician remained with the equipment and provided the scanning service, and the charge was one combined fee.

Did the provider owe tax on the equipment? Yes.

What imaging systems did the letter cover? MRI, computed axial tomography, ultrasound, and nuclear medicine.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8908L0953A01

Original ruling text

August 28, 1989

Dear *****:

Thank you for your inquiry regarding the taxability of various medical
equipment that you rent.

You state that you rent the equipment with a technician to various hospitals
and clinics on a fee per use basis. The terms of the "rental" agreements are
generally long-term (5 years) or short-terms (1 years or less). You install
the equipment at the hospital location. Your technician remains with the
equipment and provides scanning services for those persons under the care of
the hospital radiologist.

In our phone conversation of August 28, you and a member of your staff
indicated that the equipment is imaging equipment used to diagnose diseases.
That is, the equipment is used to scan various parts of the body for disease,
disorders, etc. The particular equipment used depends on the part of the body
to be scanned. Although each piece of equipment is used in diagnosis, the
equipment uses different means to accomplish this function as follows:

1. Magnetic resonance imaging (MRI) uses magnetism.
2. Computed axial tomography (CAT or CT) uses x-ray beams.
3. Ultrasound (US) uses sound waves.
4. Nuclear medicine (NM) uses nuclear isotopes.

You also stated (in our phone conversation) that the fee per use basis is a
lump-sum fee (i.e. there is no separate charge for the technician and the
equipment).

Your charges (fees) for the equipment and technician aren't taxable. Under
these circumstances, you are providing a service for sales and use tax purposes
as indicated in subsection (d)(2) of the enclosed Comptroller's Rule 3.294
(Rental and Lease of Taxable Items). Although your fees aren't taxable, you
must pay tax on the equipment that you use in providing this service (Rule
3.294(d)2)).

You should note that subsections (e)(2) and (e)(3) of Rule 3.294 are currently
being revised to reflect a statutory change which subjects installation and all
transportation charges in connection with the rental and lease of tangible
personal property to sales and use tax.

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

If you have any questions, please contact Tax Correspondence. You may call
toll fee 1-800-2552-5555, or our regular number is 512/463-4600. My extension
is 3-4662.

Sincerely,

Bob Jeffcoat
Tax Correspondence