Was surgical autotransfusion taxable, and could the provider buy disposable supplies tax-free when serving an exempt hospital?

Plain-English summary

The Comptroller classified surgical autotransfusion as a nontaxable medical service provided to hospitals or patients. Like hospitals and doctors performing medical services, the autotransfusion company had to pay tax when buying taxable equipment, supplies, and disposable products used to perform the service.

An exempt hospital could buy its own taxable medical-service inputs under an exemption certificate, but it could not pass that exemption to the autotransfusion provider. The provider also could not give its supplier an exemption certificate merely because its customer was exempt.

The letter distinguished autotransfusion from plasmapheresis. Autotransfusion served the patient during surgery; plasmapheresis gathered plasma for later manufacturing. Disposable products used in plasmapheresis could qualify for manufacturing exemptions because the purpose was making products for sale.

What this means for you

The purpose of the process controlled. A nontaxable service provider was still the taxable consumer of its supplies, while a similar process used in manufacturing could receive different treatment.

Common questions

Was autotransfusion taxable to the hospital or patient? No.

Did the provider owe tax on disposable products? Yes.

Could an exempt hospital extend its exemption to the provider? No.

Why was plasmapheresis different? It was a manufacturing step for products intended for sale.

Citations and references

The letter did not cite a statute or rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9104L1097G04

Original ruling text

April 3, 1991

Dear ***:

Thank you for your letter of March 8, 1991, regarding the
taxability of autotransfusion service.

For sales tax purposes, this agency considers hospitals and
doctors to be providing a service to patients, not making sales of
items used to provide the service. Taxable items used to provide
nontaxable medical services are taxable to the hospitals and
doctors at the time of purchase.

Likewise, your company is providing a nontaxable medical service
(autotransfusion) to the hospitals and/or to the patients. Your
company must pay tax on taxable items used to provide these ser-
vices in the same manner as hospitals or doctors. This includes
the disposable products.

A hospital that has qualified as an exempt organization may issue
a properly completed exemption certificate in lieu of tax on
taxable items used to provide medical services to their patients.
However, these hospitals may not issue an exemption certificate to
you, nor may you issue an exemption certificate to your supplier.
You are providing nontaxable services and must pay tax to your
supplier at the time of purchase even though your customer may be
an exempt entity.

In an effort to clear up the confusion, I'd like to explain that
autotransfusion performed during surgery is different from plasma-
pheresis. Autotransfusion is a part of the service to the patient,
while plasmapheresis is the gathering of plasma for later use in
manufacturing products for sale. Plasmapheresis is in effect a step
in the manufacturing process. The disposable products used in
plasmapheresis qualify for manufacturing exemptions.

Granted, autotransfusion and plasmapheresis are almost identical
processes and use similar products, etc. However, the taxability
of the disposable products does not rest on the name of the pro-
cess or the actions taken, rather on the purpose of the process:
providing medical services versus manufacturing items for sale.

I will forward this information to our tax assistance personnel.

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

You may write to Tax Administration Division,Comptroller of
Public Accounts.

Sincerely,

Tax Administration Division