How did Texas tax inherently exempt medical equipment, prescribed therapeutic appliances, institutional purchases, and kits containing both taxable and exempt medical items?

Plain-English summary

Some medical equipment identified in Rule 3.284(c) was exempt because of its nature, regardless of the buyer or whether a prescription was issued.

Therapeutic appliances were exempt when sold, leased, or rented to individuals under a licensed practitioner's prescription. The same appliances and supplies were taxable when bought by hospitals, nursing homes, or other institutions unless the institution independently qualified under section 151.310(a)(1) or (2).

A kit containing taxable and exempt medical items followed predominant cost. If taxable components cost more, the entire kit was taxable; if exempt components cost more, the kit was exempt.

The attached questionnaire classified enteral-feeding items, ostomy products, tracheostomy products, urinary catheters, drain bags, and irrigation solutions as exempt. Insert trays, closed drainage or bladder-care kits, and irrigation trays required the predominant-cost test. Surgical dressings were classified as therapeutic.

Common questions

Could medical equipment be exempt without a prescription? Yes, for equipment exempt by its nature under the rule.

Prescribed therapeutic appliance sold to an individual exempt? Yes.

Same appliance bought by a hospital automatically exempt? No.

How were mixed kits classified? By whether taxable or exempt components had the greater cost.

Citations and references

• Tex. Tax Code § 151.310(a)(1) and (2).
• Comptroller Rule 3.284(a) and (c).

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9006L1023F11

Original ruling text

June 5, 1990

Dear **:

We received your letter concerning the taxability of medical drugs and
medicines, medical equipment, prosthetic devices, therapeutic appliances and
food supplies. You enclosed a questionnaire with a description of the medical
products you were concerned about.

Certain medical equipment is exempt from sales tax because of the nature of the
equipment regardless of who is purchasing the equipment or whether a doctor's
prescription has been issued. Section (c) of the enclosed Rule 3.284 relating
to health care supplies identifies medical equipment which is exempt even
without a doctor's prescription.

Therapeutic appliances are exempt when sold, leased, or rented to individuals
under a prescription of a licensed practitioner of the healing arts. However,
the same appliances, devices and related supplies are taxable when purchased by
hospitals, nursing homes, or other institutions unless the hospital, nursing
home or other institution qualifies for exemption under Texas Tax Code
151.310(a)(1) or (a)(2). See Rule 3.284(a)(11) and (c)(6).

When a kit or package of medical items are sold, the predominant cost of the
entire kit will determine the taxability of the kit. If the cost of the taxable
items is greater than the cost of the exempt items, the kit is taxable. If the
cost of the exempt items is greater, the kit will be exempt.

Beside each medical product described in your list I have made a notation of
either taxable, exempt, therapeutic, or predominant cost and a reference to our
Rule 3.284.

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

If you have any questions you may call or white Tax Correspondence. You may
call toll free 1-800-252-5555, or our regular number is 512/463-4600. My
extension is 3-4658.

Sincerely,

Sherry Buckley
Tax Correspondence

Sales/Use Tax Questionnaire
Taxable Status of Selected Medical Products
State of Texas

Enteral (Tube-Feeding) Products -

Enteral feeding is the ingestion of nutrition through a tube inserted into an
opening in the body. Naso-gastric feeding is administered through a tube in the
nose. Gastro-intestinal feeding is administered through a catheter inserted in
a surgical opening in the stomach. Examples of the types of enteral products
are:

nutrients (tube-feeding formulas of life sustaining prescription food products)

naso-gastro tubes

catheters for gastro-intestinal feeding

administration kits which include a set of feeding bags and gavages

purchase or rental for a sophisticated pump that is used to ingest
doctor-prescribed quantities and timely doses of nutrients through a tube and
into the patient's body

Taxable Status: Exempt

Reference: Rule 3.284 (a)(10)&(c)(1)

Ostomy Products - Products used by patients who have had ostomy surgery. These
products include such items as ostomy bags used to collect body waste, skin
protectors and gels to dress the ostomy site.

Taxable Status: Exempt

Reference: Rule 3.284 (a)(8)&(c)(2)

Tracheostomy Products - Products used by patients who have had tracheostomy
surgery. These products include such items as tracheostomy tubes, tracheostomy
care kits, solutions and other related tracheostomy products used for cleansing
and maintenance after the surgery.

Taxable Status: Exempt

Reference: Rule 3.284 (a)(10)&(c)(1)

Permanent Urinary Incontinence Products

Catheter - a flexible tubular device used to drain urine from the bladder
through the urinary tract and to inject medications into the urinary bladder.
These catheters include in-dwelling catheters and male external catheters
(condom catheters).

Taxable Status: Exempt
Reference: Rule 3.284 (a)(10)&(c)(1)

Insert Tray - A sterile tray (or kit) containing the items needed for urinary
catheterization, such as sterile gloves, an underpad to protect the linens and
maintain sterility, paper drape to cover the body, rayon balls and cleansing or
disinfecting solution, forceps, lubricating gel and a syringe.

Taxable Status: Predominant Cost

Reference: None

Drain Bag - Used with a catheter to collect the urine as it drains. There are
two types. Bedside bags are used for patients confined to bed. Leg bags are
used for ambulatory patients.

Taxable Status: Exempt

Reference: Rule 3.284 (a)(10)&(c)(1)

Closed Drainage System Kits or Bladder Care Kits - Contain all the items in an
insert tray plus a catheter and pre-connected drain bag.

Taxable Status: Predominant Cost

Reference: None

Irrigation Products - Products used to cleanse the bladder and also to remove
clots and sediment and thereby lengthen the life of the catheter. Bladder
irrigation is a sterile procedure.

Irrigation Tray - Contains a syringe and all of the other items necessary for
irrigation -underpad, solution container, alcohol swab, etc.

Taxable Status: Predominant Cost

Reference: None

Irrigation Solution - Solutions commonly used for bladder irrigation are
sterile water, normal saline, urological G or renacidin.

Taxable Status: Exempt

Reference: Rule 3.284 (a)(10)&(c)(1)

Surgical Dressings - Products used to assist in the patient's healing process
after surgery in which a scalpel was used.

Taxable Status: Therapeutic

Reference: None