Does a Texas healthcare provider owe sales tax on polysomnographic sleep units (equipment used to diagnose and treat sleep disorders and sleep apnea)?

Plain-English summary

The Texas Comptroller's Tax Policy Division responded to a company that had purchased several diagnostic and therapeutic sleep units — equipment technically called a polysomnograph — used to diagnose sleep disorders and to confirm that treatment (such as use with continuous positive airway pressure machines) is working. The letter describes a polysomnographic system as a type of biofeedback unit important to achieving good outcomes for sleep apnea treatment.

The Comptroller confirmed that the company correctly paid sales tax on the sleep units. The general rule is that healthcare providers owe sales tax on all supplies, materials, equipment, and services they purchase and use to provide their services, unless the items are otherwise exempt. Therapeutic appliances and devices are only exempt from tax when they are sold to an individual with a doctor's prescription. Separately, some items are exempt by statute no matter what — the letter mentions prosthetic devices, orthopedic appliances, and braces as examples — and those stay exempt with or without a prescription. Because the sleep units here were equipment purchased by the company itself (not sold to an individual patient under a prescription, and not one of the specifically statute-exempt item types), the purchase was taxable.

The letter points the taxpayer to 34 Tex. Admin. Code Rule 3.284 (Drugs, Medicines, Medical Equipment, and Devices) and Texas Tax Code Section 151.313 for the full exemption rules, and notes that the opinion is based on the facts presented — different facts, even if similar, could produce a different answer.

What this means for you

Healthcare providers and medical centers buying diagnostic/therapeutic equipment

If your practice buys equipment like polysomnographic sleep units to use in diagnosing or treating patients, expect to pay Texas sales tax on that equipment. Being a healthcare provider does not, by itself, exempt the equipment you use to deliver care — the exemption is tied to how and to whom the item is sold, not to who ultimately benefits from it.

Sellers and buyers of therapeutic appliances and devices

Under this letter, a therapeutic appliance or device is exempt only when it is sold directly to an individual who has a doctor's prescription for it. If a device is instead purchased by a business or facility (rather than sold to the patient under a prescription), that prescription-based exemption doesn't apply.

Anyone relying on the statutory item exemptions (prosthetics, orthopedic appliances, braces)

Some items are exempt by statute regardless of a prescription — the letter lists prosthetic devices, orthopedic appliances, and braces as examples. If your equipment doesn't fall into one of those specifically exempt categories, you're back to the general rule that it's taxable unless sold to a patient with a prescription.

Common questions

Q: Are polysomnographic sleep units exempt from Texas sales tax because they're used for medical treatment?
A: No. According to this letter, the healthcare provider that purchased the units owed sales tax on them, and correctly paid it.

Q: When are therapeutic appliances and devices exempt from Texas sales tax?
A: Only when sold to an individual with a doctor's prescription, per this letter.

Q: Are there devices that are exempt even without a prescription?
A: Yes — the letter says items that are exempt by statute (such as prosthetic devices, orthopedic appliances, and braces) are exempt with or without a prescription.

Q: Where can I find the specific rules on medical equipment taxability?
A: The letter cites 34 Tex. Admin. Code Rule 3.284 (Drugs, Medicines, Medical Equipment, and Devices) and Texas Tax Code Section 151.313.

Q: Can another taxpayer rely on this letter?
A: The letter states its opinion is based on the facts presented and current law, and that different facts, although similar, may result in different answers.

Citations and references

Statutes and rules:

• 34 Tex. Admin. Code Rule 3.284 (Drugs, Medicines, Medical Equipment, and Devices)
• Tex. Tax Code § 151.313

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9508L1366C03

Original ruling text

August 28, 1995

Dear **:

Thank you for your letter dated August 3, 1995, concerning the
taxability of the medical equipment described below.

Facts: Your company recently purchased several diagnostic and
therapeutic sleep units. The equipment is technically referred
to as a polysomnograph. The equipment is required to diagnose sleep
disorders and is required to ensure effective treatment has been
achieved when used in conjunction with other respiratory devices,
such as continuous positive airway pressure machines.

A polysomnographic system is a type of biofeedback unit that is
critical in providing optimum treatment outcomes for sleep apnea.

Response: Healthcare providers owe sales tax on all supplies,
materials, equipment, and services purchased and used to provide
the service unless the items are otherwise exempt. Your company
correctly paid the sales tax on the sleep units.

Therapeutic appliances and devices are only exempt when sold to
an individual with a doctor's prescription.

Items that are exempt by statute would be exempt with or without
a prescription. The systems include (but not limited to) such items
as prosthetic devices, and orthopedic appliances, braces. Please
refer to the enclosed Rule 3.284, Drugs, Medicines, Medical
Equipment, and Devices. Texas Tax Code Section 151.313 is also
enclosed.

This opinion is based on the facts presented and current law.
Different facts although similar, may result in different answers.

If you have any questions or need more information, you may call me
toll free at 1-800-531-5441, ext. 50330. The direct line is
512/475-0330. You may also write to Tax Policy Division,
Comptroller of Public Accounts.

Sincerely,

Bettie Peterson
Tax Policy Division

NOTE: Previous Accession Number 9508419L