A company provides mobile surgical units (installed in vehicles), disposable supplies, and sometimes a technician, to patients directly or to hospitals/physicians. How is this taxed for Texas sales, use, and motor vehicle tax purposes?

Plain-English summary

A company that provides mobile medical surgical units — including disposable items, tools used in surgery, and (in some arrangements) a technician who monitors and adjusts the equipment — asked the Comptroller how its sales/use and motor vehicle taxes work. The company operates two ways: (1) it contracts directly with a patient to provide medical services for a procedure, or (2) it contracts with a hospital, surgical center, or physician to provide equipment and supplies, which are then turned over to that facility or physician to use.

The Comptroller first flagged a limit on the therapeutic device exemption (Tax Code 151.313): that exemption does not extend to devices used by health care providers. To qualify, a therapeutic device must be sold to a patient under a prescription — a health care provider billing a patient for a procedure is providing a health care service, not selling supplies or equipment to the patient, even if the patient's itemized bill separately lists equipment charges.

With that limit in place, the Comptroller answered three questions:

1. Devices/services provided to physicians, hospitals, or surgical centers: If the company also provides a technician or surgical support, that arrangement is a non-taxable service to the facility, even if equipment or supplies are separately stated on the invoice — but the company still owes tax on any supplies and equipment that don't qualify for the 151.313 exemption. If the units are provided without a technician or surgical support, and the units are installed in a vehicle, taxability instead depends on the billing method and rental/lease duration:
   • If equipment and supplies are invoiced separately from the motor vehicle, sales tax (not motor vehicle tax) applies to the equipment/supplies charge, and an exemption may be taken if the customer is an exempt entity.
   • If the company charges one combined amount for the vehicle and the equipment/supplies, the motor vehicle tax statute controls. If the vehicle is provided with a driver, motor vehicle tax is due on the vehicle and sales tax is due on the non-exempt supplies/equipment — but the charge to the customer itself is not taxable.
   • If the vehicle is provided without an operator for 180 days or less, the company should collect motor vehicle rental tax: 10% on rentals of 30 days or less, and 6.25% on rentals of more than 30 days up to 180 days (see Rule 3.348 on motor vehicle accessories).
2. Medical services billed directly to patients, insurance companies, or hospitals: Not taxable, because the company provides surgical support and technicians who monitor the equipment — that's a medical service. Tax is still owed on any supplies/equipment that don't qualify for the 151.313 exemption.
3. Use tax on equipment used to perform a non-taxable medical service: Yes — tax is due on all equipment and supplies that don't qualify for the 151.313 exemption, even though the medical service itself isn't taxed.

What this means for you

Mobile surgical/medical equipment providers

Whether you owe tax turns heavily on how you structure and bill the arrangement. Bundling a technician with your equipment converts the charge into a non-taxable service (though the equipment/supplies underneath can still generate a separate tax liability). Providing equipment alone, installed in a vehicle, shifts the analysis to billing structure — separately invoiced equipment/supplies vs. a single combined charge — and to the motor vehicle rental tax rules if there's no combined technician/driver service.

Hospitals, surgical centers, and physicians contracting for equipment

If you're the customer receiving equipment or a technician from an outside provider, understand that the vendor's invoice structure (separately stated equipment vs. one lump sum, driver vs. no driver) can change whether you're being charged sales tax, motor vehicle tax, both, or neither — and whether an exemption certificate from your organization (if it's an exempt entity) is even usable.

Accountants and tax professionals

This letter is a useful illustration of the narrow scope of the Tax Code 151.313 therapeutic device exemption — it only reaches devices sold to patients under prescription, not equipment used by the provider to render a service. It also shows how the presence/absence of a technician and the billing structure (separate vs. combined charges, with or without an operator) route the same underlying equipment through different tax regimes: ordinary sales/use tax vs. motor vehicle tax vs. motor vehicle rental tax under Rule 3.348.

Common questions

Q: Does the Tax Code 151.313 therapeutic device exemption cover equipment used by a mobile surgical unit provider?
A: No. The exemption only applies to therapeutic devices sold to a patient under a prescription. A health care provider billing a patient for a procedure — even with an itemized equipment charge — is providing a health care service, not selling the equipment to the patient.

Q: Is it taxable to provide medical equipment and a technician together to a hospital or physician?
A: No, that arrangement is not taxable as a service, even if the equipment/supplies are separately stated on the invoice. However, tax is still owed on any supplies and equipment that don't qualify for the 151.313 exemption.

Q: If the mobile unit (installed in a vehicle) is leased without a technician, how is it taxed?
A: It depends on billing. Equipment/supplies invoiced separately from the vehicle are subject to sales tax (with a possible exemption if the customer is exempt). A single combined charge is analyzed under the motor vehicle tax statute — with a driver, motor vehicle tax applies to the vehicle and sales tax to non-exempt equipment/supplies, and the customer's charge itself isn't taxed; without an operator, for terms of 180 days or less, motor vehicle rental tax applies (10% for 30 days or less, 6.25% for 31-180 days).

Q: Are medical services billed directly to patients, insurers, or hospitals taxable?
A: No, when the company provides surgical support and technicians to monitor the equipment, that's a non-taxable medical service. Tax is still owed on non-exempt supplies/equipment used to provide it.

Q: Is use tax due on equipment used to perform a non-taxable medical service?
A: Yes. Tax is due on all equipment and supplies used that don't qualify for the 151.313 exemption, even though the medical service itself is not taxed.

Q: What rule governs the rental tax rate when a vehicle is leased without an operator?
A: Rule 3.348 (motor vehicle accessories) — the letter cites it for the 10%/30-day-or-less and 6.25%/31-to-180-day rental tax rates.

Citations and references

• Tax Code 151.313 (therapeutic device exemption — limited to devices sold to a patient under a prescription; does not extend to devices used by health care providers)
• Rule 3.348 (motor vehicle accessories — cited for motor vehicle rental tax rates on vehicles leased without an operator)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9607L1428A11

Original ruling text

July 10, 1996

Dear ***:

Thank you for your letter of June 24, 1996 requesting a ruling with regard
to the sales and use tax responsibilities of a company that provides
surgical devices and medical services.

I understand that your client provides mobile medical surgical units and all
disposable items and tools used in the surgery, the surgical support and a
technician who monitors and adjusts the operation of the equipment.

Your client provides its services pursuant to two types of arrangements.
First, your client will contract with a patient to provide medical services
for a particular procedure. Using the second method your client will contract
with a hospital, surgical center or a physician to provide its equipment and
supplies. In these instances, the equipment is turned over to the physician
or facility to be utilized by them.

Before I answer your questions, I must point out that the exemption for
therapeutic devices under Tax Code 151.313 does not extend to devices used
by health care providers. To qualify for the exemption a therapeutic device
must be sold to a patient under a prescription. Although, a patient receives
an itemized bill for a surgical procedure, the health care provider has not
sold supplies or equipment to its patient; it has provided a health care service.

1. Is the provision of specialized medical surgical devices and services to
   physicians, hospitals or surgical centers taxable in Texas?

Answer: If your client provides technicians or surgical support, the service
is not taxable to the physicians, hospitals or surgical centers even if the
equipment or supplies are separately stated. Your client will owe tax on all
supplies and equipment that do not qualify for exemption under 151.313.

Assuming the units are provided without technicians or surgical support:

If these units are installed in a vehicle, the taxability of the units will
be determined by the rate and method of billing and the amount of time the
units are rented or leased to the physicians, hospitals or surgical center.

First, if the equipment and supplies are invoiced
separately from the motor vehicle, then the equipment and supplies will be
subject to sales tax rather than motor vehicle tax, and an exemption may be
taken on the equipment and supplies from an exempt entity. Given that the
equipment and supplies are invoiced separately, sales tax will be due on the
charge for the rental of any equipment and the sale of any supplies that do not
qualify for exemption under Tax Code 151.313.

If your client charges its customers one amount
including the motor vehicle and the equipment and supplies, then we must look
at the motor vehicle statute to determine the correct amount of tax. If the
unit is provided with a driver, your client will owe motor vehicle tax on the
vehicle and sales tax on all supplies and equipment that do not qualify for
exemption under 151.313. The charge to the customer will not be taxable.

If the vehicle is provided without an operator for a period of 180 days or
less, your client should collect motor vehicle rental tax on its charges 10
percent on rentals of 30 days or less and 6.25 percent on rentals for more
than 30 days up to 180 days. See Rule 3.348 on motor vehicle accessories.

2. Are the medical services provided to patients taxable when insurance
   companies, hospitals or patients are billed directly.

Answer: No, in this situation, your client will provide surgical support
and technicians to monitor the equipment, and these medical services are not
taxable. Your client will owe tax on any supplies and equipment that do not
qualify for exemption under 151.313.

3. If the answer to question 2 is no, is use tax due on the equipment used
   in performing a non-taxable medical service?

Answer: Yes, tax is due on all equipment and supplies that do not qualify
for exemption under 151.313.

I hope this satisfactorily answers your inquiry.

Sincerely,

Wade Anderson
Director, Tax Policy

NOTE: Previous Accession Number 9607510L