Which cardiovascular surgical products (mesh, grafts, blood bags, chest drains, catheters, software) are exempt from Texas sales tax as implanted medical devices?

Plain-English summary

A manufacturer and distributor of cardiovascular blood management products — including chest drains used after open-heart surgery, thoracic catheters, autotransfusion devices, and synthetic artery products — asked the Comptroller for a product-by-product taxability determination for sales to Texas healthcare organizations.

The Comptroller's answers, one product at a time:

• Atrium Polypropylene Mesh (used for hernia repair, chest wall reconstruction, and other reinforcement procedures, generally implanted into the patient): EXEMPT, under Rule 3.284(a)(10)(C)'s exemption for items implanted in the body.
• Atrium Hybrid PTFE Grafts (used in arterial vascular reconstruction, bypass, and vascular access, generally implanted): EXEMPT, same implanted-item exemption.
• Atrium ATS Blood Bags (for blood reinfusion or transferring drainage from a chest drain): TAXABLE.
• Atrium Chest Drainage Units (reestablish thoracic vacuum pressure, collect drainage): TAXABLE.
• Atrium Thoracic Catheters (inserted during surgery to aid fluid drainage): TAXABLE.
• Atrium Patient Database Software (off-the-shelf outcome-analysis/reporting software): TAXABLE.

The bright line is simple: items actually implanted in the patient's body qualify for the Rule 3.284(a)(10)(C) exemption; items that assist the procedure or manage fluids/data without being implanted — blood bags, drainage units, catheters, and software — do not.

The Comptroller also flagged a separate but important point: being a nonprofit healthcare organization does not automatically create a sales tax exemption. A purchasing entity must have separately applied to the Comptroller and received a letter confirming its own exempt status; exempt entities can then issue an exemption certificate in lieu of tax on any of the taxable items above.

Currency note: This particular STAR record carries its own attached note flagging that these products could now be analyzed under Tax Code Sec. 151.313(e)'s amended "IV system" definition, added by House Bill 3169 (effective September 1, 2013) — but that definition specifically excludes wound drains, so the 1998 taxable/exempt breakdown above appears to remain the applicable analysis even after the 2013 amendment. Confirm current treatment before relying on this for a present-day purchase.

What this means for you

Medical device manufacturers and distributors

Whether your cardiovascular or surgical device is exempt in Texas depends specifically on whether it's implanted in the patient's body, not on its general medical purpose. Devices that manage fluid, blood, or data around a procedure — without themselves being implanted — are generally taxable even in the same product family as an exempt implanted item.

Hospitals and healthcare organizations

Nonprofit status alone doesn't exempt your purchases — you need your own Comptroller-issued exemption letter to give a supplier an exemption certificate on otherwise-taxable items like blood bags, drainage units, catheters, and off-the-shelf software.

Common questions

Q: Are all cardiovascular surgical products exempt in Texas?
A: No, per this letter — only items actually implanted in the body (like mesh and vascular grafts) are exempt; blood bags, drainage units, catheters, and software are taxable.

Q: Does being a nonprofit hospital automatically exempt medical device purchases?
A: No, per this letter — the organization must separately apply to and be approved by the Comptroller as an exempt entity.

Q: Does a later law (HB 3169, 2013) change this 1998 analysis?
A: The record itself notes these items could now be considered under the amended IV-system definition, but that definition excludes wound drains, so the original taxable/exempt determinations appear to still apply — verify current treatment before relying on it.

Citations and references

Statutes and rules:

• 34 Tex. Admin. Code Rule 3.284(a)(10)(C) (exemption for items implanted in the body)
• Tex. Tax Code § 151.313(e), as amended by HB 3169 (eff. 2013-09-01) (IV system definition, excludes wound drains — referenced in a currency note on this record)
• 34 Tex. Admin. Code Rule 3.286(f) (sales tax permit reporting)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9805660L

Original ruling text

NOTE: Although these items could now be considered as a component of an IV system as defined in amended Tax Code Section 151.313(e) (House Bill 3169, effective Sept 1, 2013), the term specifically does not include a wound drain.

May 28, 1998

Dear **:

Thank you for your letter dated May 18, 1998, concerning the taxability of

certain medical products. Thank you for the descriptive information on each

item.

Your company is engaged in the manufacture and distribution of cardiovascular

blood management products such as chest drains used after open-heart surgery,

thoracic catheters, autotransfusion devices and synthetic artery products. From

time to time you may sell your products to for-profit or not-for-profit

healthcare organizations within Texas. This letter is sent in an effort to

determine the sales tax laws governing our products in each of the many states

your company operates in.

Atrium Polypropylene Mesh: The Atrium Polypropylene Mesh is intended for use in

hernia repair, chest wall reconstruction, traumatic or surgical wounds and

other fascial surgical intervention procedures requiring reinforcement with a

nonabsorbable supportive material. This product is generally implanted into the

patient. Response: Items that are implanted in the body are exempt under

enclosed Rule 3.284(a)(10)(C).

Atrium Hybrid PTFE Grafts: The Atrium Hybrid PTFE Graft is intended for use in

arterial vascular reconstruction, segmental bypass and for arteriovenous

vascular access. This product is generally implanted into the patient.

Response: Items that are implanted in the body are exempt under enclosed Rule

3.284(a)(10)(C).

Atrium ATS Blood Bags: The Atrium Blood Bag is intended for use in either

procedures where blood loss is considered suitable for reinfusion and it is not

necessary to wash and pack red blood cells or for immediate transfer of patient

drainage from an Atrium ATS Chest Drain without patient tube disconnection.

Response: Taxable.

Atrium Chest Drainage Units: All Atrium Chest Drain units are intended to

reestablish normal vacuum pressures in the thoracic cavity by removing air and

fluid in a closed, one-way fashion. The chest drains are intended to collect

and measure drainage volume; let air out of the pleural space, while preventing

outside air from getting in; and deliver a controlled amount of active suction

to facilitate quicker evacuation of air and fluid. Response: Taxable.

Atrium Thoracic Catheters: The Atrium Thoracic Catheters are intended for

insertion through an open chest during surgery to aid in the fluid drainage

from a patient. Response: Taxable.

Atrium Patient Database Software: The Atrium Patient Database Software provides

patient outcome analysis with automated reporting for both the office and

vascular lab. This software product is packaged, "off-the-shelf" software.

Response: Taxable.

Only those items that are exempt by statute may be purchased tax free by health

care providers unless the purchaser is otherwise exempt. Nonprofit does not

automatically mean an entity is exempt. The entity must have applied to this

agency for exemption and have received a letter stating that it is exempt.

Exempt entities may issue an exemption certificate in lieu of tax for any of

the above taxable items.

There is no charge for a Texas sales and use tax permit. Reports are filed

based on the amount of tax collected, refer to Rule 3.286(f). An application

package will be mailed to you under separate cover.

This opinion is based on the facts you submitted and current law. Other facts

though similar, may yield different results.

If you have any questions or need more information, I'll be glad to help you.

Please call me toll free at 1-800-531-5441, extension 5-0330. 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