Are surgically implanted items like pacemakers, hip/knee/shoulder replacements, bone, and cornea implants exempt from Utah sales tax as 'medicine' or as 'home medical equipment'?

Plain-English summary

During an audit of a for-profit hospital, a question arose about whether the hospital owed sales tax on implanted items like hip plates and pacemakers. Seeking clarity, the hospital called the Tax Commission and was told over the phone that permanently placed, non-detachable items qualified as exempt "medicine." When the hospital called back for documentation, a Commission employee faxed over an existing advisory opinion (96-112DJ, about the separate home medical equipment exemption) and told the hospital that hip, knee, and shoulder replacement parts and pacemakers all met the standards described in it — reiterating that any remedial item permanently placed in the body, prescribed by a physician and administered under the physician's supervision, would qualify. Relying on this, the hospital had continued paying sales tax on such implants (bone, cornea, hip, shoulder, knee implants and hardware, and pacemakers) and formally requested a written advisory opinion to confirm the exemption.

The Commission's formal answer reversed the informal phone guidance on both fronts.

Medicine exemption (§ 59-12-104(10)/§ 59-12-102(16)): "Medicine" is defined narrowly — insulin, syringes, and any medicine prescribed for treating human ailments that's dispensed via a registered pharmacist's filled prescription, OR supplied/administered directly by a physician, surgeon, or podiatric physician in place of a written prescription. The Commission emphasized that "medicine" for this exemption is not simply any item a medical provider happens to prescribe — it must specifically be the type of substance that's commonly filled or dispensed by a pharmacist. Since none of the listed implants are ever dispensed by a pharmacist, they don't qualify as "medicine," even though a physician clearly prescribes and administers them during surgery.

Home medical equipment exemption (§ 59-12-104(39)/§ 59-12-102(12)): This exemption also failed, for two independent reasons. First, it requires the item to be listed as eligible for direct payment under Medicare (Title 18 of the Social Security Act) or Medicaid (Title 19). Pacemakers, surgical implants, and joint replacements aren't paid for directly under these programs — instead, Medicare/Medicaid pay for the surgical procedure to implant the item, with the item's cost simply embedded in that procedure's payment. Second, and separately, the exemption specifically excludes equipment/supplies purchased by or for a health care facility, doctor, or other health care provider for use in their professional practice. The Commission reasoned that once an item is permanently implanted into a patient's body, it "loses its identity as tangible personal property" and is effectively "consumed" by the medical provider in delivering its professional service — meaning it falls squarely within this professional-practice exclusion, on top of failing the Medicare/Medicaid-payment-eligibility requirement.

Bottom line: neither exemption covers surgical implants, and the hospital's prior sales tax payments on these items were correct — the informal phone guidance it received was wrong.

What this means for you

Hospitals and surgical centers

Don't rely on informal phone guidance from Tax Commission staff for exemption determinations on significant recurring purchases — get it in writing via a formal advisory opinion request, as this hospital ultimately did. Surgical implants (pacemakers, joint replacements, bone/cornea implants, and their attachment hardware) are taxable purchases, not exempt medicine or home medical equipment.

Medical device suppliers selling implantable devices to Utah hospitals

Continue collecting sales tax on implantable devices sold to hospitals and medical providers — neither the medicine exemption nor the home medical equipment exemption applies to items that get surgically implanted and consumed in a provider's professional practice.

Accountants advising healthcare providers on Utah tax compliance

Two exemptions are commonly confused for medical purchases: the narrow pharmacist-dispensed "medicine" exemption and the separate home medical equipment exemption (tied to Medicare/Medicaid direct-payment eligibility and excluding professional-practice purchases). Check both definitions carefully — an item prescribed by a physician doesn't automatically qualify for either.

Common questions

Q: Are pacemakers exempt from Utah sales tax as "medicine"?
A: No. "Medicine" for this exemption is limited to items commonly dispensed by a registered pharmacist or administered directly by a physician/surgeon/podiatrist in place of a prescription — pacemakers and similar implants don't fit that definition even though a physician prescribes and implants them.

Q: Does the home medical equipment exemption cover surgical implants?
A: No. Implants aren't listed as eligible for direct Medicare/Medicaid payment (those programs pay for the implantation procedure instead), and permanently implanted items are treated as consumed by the provider in professional practice — a category the exemption specifically excludes.

Q: Can a hospital rely on informal phone advice from Tax Commission staff?
A: This ruling shows that informal phone guidance can be wrong and gets superseded by a formal, written advisory opinion — hospitals should request formal guidance for significant or recurring tax questions rather than relying solely on a phone call.

Q: What kinds of items typically DO qualify for Utah's medicine exemption?
A: Insulin, syringes, and prescription medicine filled by a pharmacist or supplied/administered directly by a physician, surgeon, or podiatrist, plus certain hospital-dispensed medicine and prescribed oxygen/stoma supplies — not surgically implanted devices.

Q: Does this ruling apply to my hospital's or medical practice's implant purchases?
A: Not automatically. This is a private letter ruling binding only on the Commission as to this taxpayer's specific facts. It can't be relied on as binding by anyone else, though it may carry weight if your facts closely match.

Citations and references

Statutes and rules:

• Utah Code Ann. § 59-12-104(10) (medicine sales tax exemption)
• Utah Code Ann. § 59-12-102(16) (definition of "medicine")
• Utah Code Ann. § 59-12-104(39) (home medical equipment and supplies exemption)
• Utah Code Ann. § 59-12-102(12) (definition of "home medical equipment and supplies")
• Utah Code Ann. § 26-21-2 (referenced definition of "health care facility")
• Utah Tax Commission Advisory Opinion 96-112DJ

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original PDF: https://files.tax.utah.gov/tax/commission/ruling/01-005.pdf

Original ruling text

REQUEST LETTER

01-005

Response 5/2/01

During our audit of a for-profit
hospital the question arose regarding the sales tax exemption under
59-12-104(10) as to what is considered medicine in the definition listed in
59-12-102(16).

In order to obtain more guidance
on the question, I called the Utah State Tax Commission and asked if items such
as hip plates and pacemakers that are permanently placed in the body qualified
for the exemption referenced above. I
was told that if the item was permanently placed inside of the body and was not
detachable that the item qualified for the exemption and no sales tax should
have been paid. At that time I did not
obtain any documentation regarding the issue.
I phoned back to get some documentation to support the position taken by
the state employee that the items were exempt as medicine, and asked him to fax
me backup for that position. He faxed
me the attached �Advisory Opinion� and stated that hip, knee, shoulder
replacement parts and pacemakers met the 3 standards listed in the advisory
opinion. He then reiterated that any
remedial item permanently placed in the body prescribed by a physician and
administered under his supervision for the treatment of human ailments would
qualify for the exemption.

The hospital has been paying sales
tax on implants such as: bone, cornea, hip, shoulder, knee and accompanying
attachment hardware and pacemakers. All
of these items remain permanently in the body and are administered by a
physician.

We would therefore like the Utah
State Tax Commission to issue an advisory opinion directly to us regarding this
matter.

If you have any additional
questions regarding the fact and circumstances of this request please do not
hesitate to contact us.

Thank you for your help in this
matter.

NAME

RESPONSE LETTER

May 1, 2001

COMPANY

ADDRESS

RE: Advisory Opinion � Application of Sales Tax on Hip Plates, Pacemakers, Etc.

Dear NAME,

We have received your request for an advisory opinion concerning the taxability of medical items permanently placed into the human body. These items include pacemakers; bone and cornea implants; and hip, shoulder, and knee replacements and their accompanying attachment hardware. Your letter states that you called the Tax Commission and asked if these items qualify for the tax exemption on sales of medicine as provided in Utah Code Ann. �59-12-104(10). You indicate that a Tax Commission employee informed you the transactions were nontaxable and, to document this conclusion, sent you a copy of Tax Commission Advisory Opinion 96-112DJ concerning the tax exemption for home medical equipment, as provided in Section 59-12-104(39). We shall address both exemptions in order to answer your question.

I. Exemption on Sales of Medicine

For purposes of the exemption on sales of medicine, Utah Code Ann. �59-12-102(16) defines �medicine� as:

(a) "Medicine" means:

(i) insulin, syringes, and any medicine prescribed for the treatment of human ailments by a person authorized to prescribe treatments and dispensed on prescription filled by a registered pharmacist, or supplied to patients by a physician, surgeon, or podiatric physician;

(ii) any medicine dispensed to patients in a county or other licensed hospital if prescribed for that patient and dispensed by a registered pharmacist or administered under the direction of a physician; and

(iii) any oxygen or stoma supplies prescribed by a physician or administered under the direction of a physician or paramedic.

(b) "Medicine" does not include:

(i) any auditory, prosthetic, ophthalmic, or ocular device or appliance; or

(ii) any alcoholic beverage.

�Medicine,� for purposes of this exemption, is not
any item of tangible personal property that a medical provider
prescribes for a patient. To qualify,
the item must be a type of medicine that treats human ailments and is commonly
filled or dispensed by a registered pharmacist. This type of medicine still qualifies for the exemption if a
physician, surgeon, or podiatrist supplies or administers it directly to a
patient instead of providing a written prescription.

All of the items you list are incorporated into the human body during surgery. None of them is regularly dispensed by a registered pharmacist to a patient. Accordingly, even though a medical provider prescribes them, such items are not considered �medicine� for purposes of this exemption.

II. Exemption on Sales of Home Medical
Equipment and Supplies

For purposes of the exemption on sales and rentals of home medical equipment and supplies, Section 59-12-102(12) provides the following definition:

(a) "Home medical equipment and supplies" means equipment and supplies that:

(i) a licensed physician prescribes or authorizes in writing as necessary for the treatment of a medical illness or injury or as necessary to mitigate an impairment resulting from illness or injury;

(ii) are used exclusively by the person for whom they are prescribed to serve a medical purpose; and

(iii) are listed as eligible for payment under Title 18 of the federal Social Security Act or under the state plan for medical assistance under Title 19 of the federal Social Security Act.

(b) "Home medical equipment and supplies" does not include:

(i) equipment and supplies purchased by, for, or on behalf of any health care facility, as defined in Subsection (12)(c), doctor, nurse, or other health care provider for use in their professional practice;

(ii) eyeglasses, contact lenses, or equipment to correct impaired vision; or

(iii) hearing aids or hearing aid accessories.

(c) For purposes of Subsection (12)(b)(i), "health care facility" includes:

(i) a clinic;

(ii) a doctor's office; and

(iii) a health care facility as defined in Section 26-21-2.

Pacemakers, surgical implants, and joint replacements are not items that Medicare or Medicaid will pay for directly under Titles 18 and 19 of the Social Security Act. Instead, these agencies will pay for the surgical cost to implant these items, a cost in which the cost of the implanted item is embedded. In addition, an item that is permanently implanted into a human body loses its identity as tangible personal property. For this reason, items implanted by a medical provider into the human body are considered �consumed� by a medical provider in providing its professional medical service; i.e., the items are purchased for use in a professional practice. Accordingly, such items are excluded from the home medical equipment and supplies exemption under Subsection 102(12)(b)(i).

In summary, while the criteria to qualify for the home medical equipment and supplies exemption remains the same as stated in Advisory Opinion 96-112DJ, none of the items you list qualify for either the exemption on sales of medicine or the exemption on sales of home medical equipment and supplies. Please contact us if your have any other questions.

For the Commission,

Marc B. Johnson

Commissioner

MBJ/KC

01-005