Is providing a portable surgical laser with an operating technician a taxable equipment rental in Texas?

Plain-English Summary

A company bought portable ophthalmic (eye) surgical lasers and offered them to licensed physicians for use during procedures at health care facilities. When a physician needed the laser, the company's technician drove it to the facility, carried it into the procedure room, set it up and tuned it for the specific surgery, positioned the patient, and activated the laser. The physician performed the actual surgical procedure. Once finished, the technician — who never left the room — packed up the laser and moved on to the next appointment.

The company asked the Comptroller whether this arrangement was a nontaxable service (because a trained technician handled the setup and operation) or a taxable rental of tangible personal property (because the customer was really just paying to use the company's laser equipment).

The Comptroller ruled that the entire charge is taxable as a rental of tangible personal property. The technician's presence, setup work, and hands-on operation of the laser did not convert the transaction into a nontaxable service — the substance of the deal was that the health care provider paid to use the company's equipment. The only relief available is for exempt entities: an exempt hospital or similar exempt organization can give the company an exemption certificate instead of paying tax on the rental.

What This Means For You

• Medical equipment providers: If you supply specialized equipment (like a portable surgical laser) along with a technician who sets it up and even operates it, that doesn't automatically make your charge a nontaxable service. Texas looks at the transaction as a rental of tangible personal property when the customer is essentially paying to use your equipment for their own procedure.
• Hospitals and health care facilities: If your organization qualifies for a sales tax exemption (such as certain nonprofit or exempt hospitals), you can issue an exemption certificate to the equipment provider instead of paying tax on the rental charge. Without a valid certificate on file, expect the vendor to charge tax on the full amount.
• Physicians and practices renting equipment: Even if you never take physical possession of the laser outside the procedure room, and even if a company employee operates the machine, the charge is still treated as equipment rental for sales tax purposes — not a professional service you're purchasing.

Q&A

Q: Does having a technician operate the laser instead of the customer change the tax result?
A: No. Even though the technician set up, tuned, and activated the laser (with the physician performing the surgery itself), the Comptroller still treated the whole charge as a taxable rental of tangible personal property.

Q: Can any customer avoid the tax on this kind of arrangement?
A: Only exempt entities. An exempt hospital or similar organization may issue an exemption certificate in lieu of paying tax on the rental of the laser equipment. Non-exempt physicians and practices would owe tax on the full charge.

Q: Does this ruling apply to any equipment-plus-technician arrangement?
A: Not automatically — this is a private determination based on the specific facts submitted, and the ruling itself notes that "other facts, though similar, may yield different results." Businesses with comparable arrangements should confirm their own tax treatment rather than rely on this letter.

Citations

No specific statutes or administrative rules were cited in the text of this letter ruling.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9408L1332D05

Original ruling text

August 10, 1994

Dear ***:

Thank you for your letter dated July 28, 1994, regarding sales and use tax as
it applies to the service provided to health care providers by your business.

FACTS: *** has begun to offer services to health care providers
within the state of Texas. Specifically, the company has purchased portable
ophthalmic lasers that it intends to make available to licensed physicians
for use in surgical procedures.

When the health care provider contacts your business, a licensed technician
from your company will transport the company owned laser(s) by motor vehicle
to the health care provider's facility. The technician will take the laser
into the designated room of the facility, set-up and tune the laser for the
specific procedure in the presence of the physician. The technician will
position the physician's patient for the laser procedure. Next, the
technician activates the laser and the physician performs the procedure(s).
The company's technician, who has not left the room, will then return the
laser to his vehicle and go on to his next appointment. The laser procedure
will normally take a few minutes per patient.

QUESTION: In the scenario above, is a nontaxable service being provided by
our company technician or is this a taxable rental of tangible personal
property?

RESPONSE: The entire charge to the health care provider is taxable as a
rental of tangible personal property. An exempt hospital, etc. may issue
an exemption certificate in lieu of tax on the rental of the laser
equipment.

This opinion is based on the facts you submitted. Other facts, though
similar, may yield different results.

You may call me toll free at 1-800-531-5441, ext. 5-0330. The direct line
is 512/475-0330. You may also write to Tax Administration, Comptroller
of Public Accounts.

Sincerely,

Bettie Peterson
Tax Administration Division

NOTE: Previous Accession Number 9408862L