Is a biotechnology company's purchase of cell, organ, or tissue taken from a cadaver exempt from Texas sales and use tax?

Subject

Tissue/Bone/Cell/Organ Taken From Cadaver — Is Exempt

Plain-English summary

This letter is a correction. The Comptroller's Tax Policy Division had told a biotechnology company, in a June 25, 1996 letter, that its purchases of cell, organ, and tissue for research would be taxable. This August 30, 1996 letter walks that back.

The Tax Policy Division realized that back in 1984, the Comptroller had already exempted sales of cadaver tissue and bone from sales tax. So, to the extent the cell, organ, and tissue purchased or sold by the company is taken from cadavers, it is exempt from sales tax after all.

The rest of the original June 25 ruling still stands: the company (described as engaged in cell/organ/tissue procurement and banking, sales of cell culture media and supplements for research, and biotechnology services for research and clinical applications) was told that:

• Sales of tangible personal property such as culture media and supplements are taxable, and the company must collect sales tax unless it accepts a valid resale or exemption certificate from the customer.
• Hospitals and research facilities are not automatically exempt from tax just because of what they are.
• A charge for banking or storage of cell, organ, and tissue is not taxable.

Both letters emphasize that the opinion is based on the facts presented, and different facts could lead to a different result.

What this means for you

Biotechnology and tissue-procurement companies

If your business buys or sells cell, organ, or tissue taken from cadavers, those transactions are exempt from Texas sales tax. But sales of other tangible personal property you provide, such as cell culture media and research supplements, remain taxable, and you must collect sales tax on them unless the customer gives you a valid resale or exemption certificate.

Hospitals and research facilities purchasing these products

Being a hospital or research facility does not by itself make your purchases exempt. You need to provide a properly completed exemption certificate (or resale certificate, if applicable) to the seller if you want to buy tax-free.

Accountants and tax professionals

Note the split treatment: banking/storage charges for cell, organ, and tissue are not taxable; purchases or sales of cadaver-sourced cell, organ, and tissue are exempt; but sales of culture media, supplements, and other tangible personal property remain taxable absent a valid exemption or resale certificate. This letter shows the Comptroller correcting its own prior written guidance once it identified a conflicting 1984 exemption, which is a useful reminder that STAR letters can be superseded or revised.

Common questions

Q: Are purchases of cell, organ, and tissue always exempt from Texas sales tax?
A: No. This letter exempts them only to the extent the cell, organ, or tissue is taken from a cadaver, based on a 1984 exemption for cadaver tissue and bone.

Q: Is the sale of cell culture media and research supplements exempt too?
A: No. Those sales remain taxable, and the seller must collect sales tax unless it receives a valid resale or exemption certificate from the customer.

Q: Are hospitals and research facilities automatically exempt from tax on these purchases?
A: No. The letter specifically says such entities are not automatically exempt; a valid exemption certificate is required.

Q: Is a charge for banking or storing cell, organ, or tissue taxable?
A: No, the letter states that a charge for banking/storage of cell, organ, and tissue is not taxable.

Q: Could this answer change under different facts?
A: Yes. Both letters state the opinion is based on the facts presented, and other facts, even if similar, may produce a different result.

Citations and references

Rules:

• 34 Tex. Admin. Code § 3.287 (Exemption Certificates) — enclosed with the June 25, 1996 letter as the rule addressing exemption certificate requirements.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9608L1426B01

Original ruling text

August 30, 1996

Dear ***:

This is in to restate my earlier response to you of June 25, 1996, with
respect to the purchase of cell, organ and tissue for your research.
In my response I stated that these purchases would be taxable.

It has been brought to my attention that back in 1984 we had exempted
the sale of cadaver tissue and bone from sales tax. Therefore, to the
extent that the cell, organ and tissue purchased or sold by your company
is taken from cadavers, it would likewise be exempted from sales tax.

This opinion is based on the facts presented. Other facts though
similar may provide a different result.

You may call me toll-free at 1-800-531-5441, extension 3-4502. The direct
line is 512/463-4502. You may also write to Tax Policy Division,
Comptroller of Public Accounts. My Internet address is:
[email protected].

Sincerely,

Gilbert Zamora
Tax Policy Division

June 25, 1996

Dear ***:

This is in response to your request for a determination of sales tax liability
for your company. You are a biotechnology company engaged in: cell, organ and
tissue procurement and banking; sales of cell culture media and supplements
for research; and the providing of biotechnology services for research and
clinical applications. You are requesting a determination of what, if any of
these functions would require you to charge a sales tax to your customers
under the current laws of the State of Texas.

Response: Sales of tangible personal property such as culture media and
supplements are taxable. Accordingly, you must collect sales tax on your sale
of these products. However, you may accept a valid, properly completed resale
certificate or exemption certificate from your customer in lieu of sales tax
if the product will be resold or used in an exempt manner. You should note
that entities such as hospitals or research facilities aren't automatically
exempt from tax. I have enclosed Comptroller's Rule 3.287 (Exemption
Certificates) which addresses the requirements for exemption certificates.

A charge for banking/storage of cell, organ and tissue is not taxable.
Your purchase of cell, organ and tissue for your research would be taxable.

This opinion is based on the facts presented. Other facts though similar
may provide a different result.

You may call me toll-free at 1-800-531-5441, extension 3-4502. The direct
line is 512/463-4502. You may also write to Tax Policy Division,
Comptroller of Public Accounts. My Internet address is:
[email protected].

Sincerely,

Gilbert Zamora
Tax Policy Division