Is a prescription bone growth stimulator exempt from Utah sales tax as home medical equipment?

Plain-English summary

A seller of a bone growth stimulator asked the Utah State Tax Commission whether the device is exempt from Utah sales tax. A bone growth stimulator is a device used alongside a cast or brace that applies low-energy magnetic fields to stimulate bone growth in fractures that aren't healing on their own ("nonunion fractures"). It was FDA-approved as a Class III device, could only be obtained from a licensed physician by prescription, and was consumed in the course of treatment — it couldn't be reused once a patient's treatment ended.

The taxpayer argued the device qualified for exemption two different ways: as "home medical equipment" under Utah Code Ann. § 59-12-104(39), or as "medicine" under § 59-12-104(10). The Commission agreed with the first theory. Under § 59-12-102(9), home medical equipment must be (1) prescribed or authorized in writing by a licensed physician for treatment of an illness or injury, (2) used exclusively by the person for whom it's prescribed, and (3) eligible for payment under Medicare (Title 18) or Medicaid (Title 19) of the Social Security Act. The taxpayer's stimulator was prescribed for nonunion fractures, was designed for use by a single patient and discarded once treatment ended, and was eligible for Medicare payment — so it satisfied all three requirements.

The Commission also addressed a carve-out in § 59-12-102(9)(b): the home-medical-equipment exemption doesn't cover equipment purchased by a doctor, clinic, or other health care facility for use in its own professional practice. The Commission noted that in an earlier, unrelated advisory opinion it had found a bone growth stimulator did not qualify for the exemption because the physician retained ownership of the device and returned it to the company for disposal after treatment — meaning the device was really sold to the physician for practice use. Here, by contrast, the taxpayer stated the patient owned the stimulator, so the purchase wasn't by or for a health care provider's practice.

Because the device qualified as exempt home medical equipment, the Commission ruled in the taxpayer's favor on that basis and expressly declined to also decide whether it separately qualified as exempt "medicine" under § 59-12-104(10).

What this means for you

Sellers and distributors of prescription medical devices

If you sell a device that's prescribed by a physician, used exclusively by the patient it's prescribed for, and eligible for Medicare/Medicaid payment, it can qualify for Utah's home-medical-equipment sales tax exemption — even if it's a single-use, disposable device rather than something reusable. The critical fact in this ruling was who owns the device: because the patient (not the prescribing physician or a clinic) owned the stimulator and kept it through the end of treatment, the sale fell outside the exemption's carve-out for equipment purchased by health care providers for their own practice.

Physicians, clinics, and health care facilities

Watch the ownership structure of any device you provide to patients. This ruling contrasts directly with an earlier, unrelated Commission opinion in which a bone growth stimulator was taxable because the physician retained ownership and the device was returned to the manufacturer for disposal after treatment — that arrangement was treated as a purchase by the physician for use in their practice, not a sale of home medical equipment to the patient. If your practice retains title to equipment used on patients, the exemption analysis can come out differently than it did here.

Accountants and tax professionals

This ruling turns on the three-part test in Utah Code Ann. § 59-12-102(9)(a) (written prescription, exclusive use by the patient, Medicare/Medicaid payment eligibility) and the practice-use exclusion in § 59-12-102(9)(b)-(c). Because the Commission resolved the case entirely on the home-medical-equipment ground, it never reached — and this ruling gives no guidance on — whether the device also independently qualifies as "medicine" under § 59-12-104(10)/§ 59-12-102(13). Note also that this is a 1998 ruling; Utah's sales tax statutes have been renumbered and amended repeatedly since, so confirm current citations before relying on this reasoning.

Common questions

Q: Does every prescription medical device qualify for Utah's home medical equipment exemption? A: No. The device must be prescribed in writing by a licensed physician for treatment of an illness or injury, used exclusively by the patient it's prescribed for, and eligible for payment under Medicare or Medicaid. A device bought by a doctor or clinic for use in their own practice does not qualify, even if it's later used on patients.

Q: Why did an earlier bone growth stimulator ruling reportedly go the other way? A: This ruling references a prior, unrelated Commission advisory opinion where the physician (not the patient) retained ownership of the stimulator and returned it to the company for disposal after treatment. The Commission treated that as a sale to the physician for practice use, which is excluded from the exemption. Here, the patient owned the device, so the exclusion didn't apply.

Q: Did the Commission also rule the device was exempt as "medicine"? A: No. The Commission found the device exempt as home medical equipment and explicitly said it did not need to decide whether the device separately qualified as exempt "medicine" under § 59-12-104(10).

Q: Can I rely on this ruling for my own medical device sales? A: Not as binding authority. This is a private letter ruling; it binds the Commission only as to the taxpayer and facts presented, and identifying details have been redacted. It's useful as a guide to the Commission's reasoning, but your facts — especially who owns the device — need to match.

Q: Are these citations still current?
A: Not necessarily. This ruling was issued in 1998, and Utah Code provisions on sales tax exemptions have been renumbered and amended multiple times since. Verify the current statute and rule text before relying on the section numbers cited here.

Citations and references

Statutes (Utah Code Ann., 1953):

• § 59-12-104(10) — sales tax exemption for sales of medicine
• § 59-12-104(39) — sales tax exemption for home medical equipment and supplies
• § 59-12-102(9) — defines "home medical equipment and supplies" (physician-prescribed, exclusive patient use, Medicare/Medicaid payment eligibility; excludes equipment purchased by health care providers for practice use)
• § 59-12-102(13) — defines "medicine" (not reached in the Commission's ruling)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original page: https://files.tax.utah.gov/tax/commission/ruling/98-066.htm

Original ruling text

98-066

Response
September 24, 1998

REQUEST
LETTER

98-066

September 24, 1998

Ruling Request for Exemption from Sales Tax

Under Utah Code Annotated, 1953, Sections
59-12-104(10) and (39)

Dear Mr. Chapman;

We respectfully submit for your consideration a
request for a ruling that, under Utah law, a product, which is dispensed only by prescription, that stimulates bone growth and enhances the healing of nonunion fractures is exempt from sales tax under Utah Code Annotated, 1953, (Utah Code Ann.) Sections 59-12-104(10) and/or (39).

Discussion

The item for which we seek a ruling is a bone growth stimulator. It is used in conjunction with an external cast or brace, which keeps the fractured bone immobilized. The device uses low energy magnetic fields to stimulate bone growth in fractures that have not shown progressive signs of healing. The bone growth stimulator results in the production of bone cells, hence treating the diseased bone and the nonunion fracture. The bone growth stimulator has been approved by the Federal Food and Drug Administration (FDA) as a Class III device and can only be obtained from a licensed physician pursuant to a prescription. It is widely accepted by the medical community for treatment of patients who have suffered non-union fractures. The bone growth stimulator is consumed in its use and is not able to be reused once the patient's treatment has been completed.

It is our assertion that the bone growth stimulator satisfies the requirements of Utah Code Ann. Sections 59-12-104(10) and/or (39) as one or both of the following: prescription medicine for human ailments or home medical equipment. We will address each definition separately.

Home Medical Equipment

Utah Code Ann. �59-12-104(39) provides an exemption from sales tax for "home medical equipment and supplies" which are defined by Utah Code Ann. �59-12-102(9) as 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.

The law specifically excludes 'equipment and
supplies purchased by, for, or on behalf of any health care facility, ... doctor, nurse, or other health care provider for their use in their professional practice."

The bone growth stimulator is an orthopedic device designed and purchased to be worn exclusively by the patient to treat an injury. It is a Class III medical device regulated by the FDA. This class includes cardiac pacemakers, replacement heart valves, intraocular lenses for implantation in cataract patients eyes, and many other similar items. The product can only be purchased upon the written prescription or order of a licensed physician and is eligible for payment under federal Medicare provisions. As such the bone growth stimulator meets the criteria of Utah Code Ann. �59-12-102(9).

The Utah Code does not define the terms, "home
medical equipment and supplies," but rather focuses on the requirement that the equipment be prescribed or authorized by a physician. The bone growth stimulator can only be obtained from a licensed physician pursuant to a prescription. The reason for this is that the use of the device is not appropriate for individuals with certain other ailments or physical conditions. The bone growth stimulator is designed for use by only a particular individual and the licensed physician is trained to recognize when use of the device is indicated. The treatment released by the bone growth stimulator is individualized. Each patient must be trained in the proper use of the device and how to recognize when the device is not providing sufficient magnetic field treatment to ensure proper bone growth stimulation.

The Code emphasizes that the exemption only applies to items which are prescribed or authorized for the treatment of an injury and not to items purchased by physicians for their use in their professional practice. Presumably this restriction was meant to exclude items which are used by physicians and hospital personnel in the performance of their daily activities such as rubber gloves, tongue depressors, etc. The bone growth stimulator Is an item, which is sold to a particular individual for that individual's use. It is not used or consumed by physicians in the performance of their duties and it is not used for multiple patients. The patient owns the device and administers the treatment at home as directed by the physician. The bone growth stimulator is discarded once the patient's treatment ends.

As is required by Utah Code Ann. �59-12-102(9) the bone growth stimulator is (I) an item of medical equipment purchased on a written prescription issued by a licensed physician for the treatment of an injury; (2) it is designed to be used exclusively by the person for whom it is prescribed; and (3) it is eligible for payment by Medicare. Accordingly the bone growth stimulator should be exempt from Utah sales tax.

Medicine

Pursuant to Utah Code Ann. �59-12-104(10), sales tax does not apply to the "sales of medicine." Medicine is defined by Utah Code Ann. �59-12-102(13) as:

(a)(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...

(b)

Medicine does not include; (I) any auditory,
prosthetic, ophthalmic, or ocular device or appliance; or (ii) any alcoholic beverage.

It is our assertion that the bone growth stimulator satisfies the requirements of Utah Code Ann. �59-12-102(13) and is exempt from sales tax forte following reasons. First, the bone growth stimulator can only be obtained directly from a physician or a prescription written by a physician which is filled by a licensed pharmacist, as is required by Utah Code Ann.
�59-12-102(13). Generally, once a physician has determined that a patient has a nonunion fracture and can benefit from the bone growth stimulator, the physician sells the bone growth stimulator directly to the patient. This method of prescription distribution is best suited for this medicine because instruction is provided by the physician during the initial application and all subsequent applications are administered by the patient at home.

Second, the bone growth stimulator is medicine
because it is used in treating a human ailment. A nonunion fracture is the result of impaired hone. The bone cells at the fracture site have slowed or ceased producing insulin-like growth factors. However, with the biophysical stimulation provided by the bone growth stimulator, insulin-like growth factors are produced causing bone cells at the fracture site to divide and to produce collagen, the precursor to bone. The bone growth stimulator results in the production of bone, hence treating the impaired bone arid the nonunion fracture.

Finally, the bone growth stimulator satisfies the requirements of Utah Code Ann. �59-12-102(13) because it falls within the definition of medicine by the Utah Code. The bone growth stimulator is a medical device which releases medical treatment-a low energy magnetic field. It is the magnetic field, which stimulates cell growth. The magnetic field is the medicine and the bone growth stimulator is the vehicle that delivers the medicine to the patient. Utah law specifically excludes prosthetic devices and equipment designed to assist the eyes and ears. However, no other types of devices are excluded. Rather, Utah law includes syringes in its definition of medicine. Syringes are not drugs but they are instruments that deliver drugs and other medications to the patient. The bone growth stimulator, like a syringe, is a device that delivers a treatment to the patient. If the legislature had intended to exclude devices which release electronic impulses or magnetic fields or similar types of treatment from the definition of medicine, it would have done so.

In recognizing that drugs come in many forms,
several states have adopted a 'catch-all" category within the definition of drugs. For example, North Carolina Code � 105-164.13(13) states that "medicines sold on prescription of physicians and dentists are exempt from tax." North Carolina Rule 1401 states, "the exemption for prescribed medicines applies to tonics for internal use, vitamins, ointments, liniments, antiseptics, anesthetics, serums, and other remedies having preventative or curative
properties in medical treatment" (emphasis added). Thus, under North Carolina law, a product used to cure nonunion fractures would be classified as a drug, and therefore exempt, since it internally achieves the same results as would a prescription drug which came in pill form. Likewise, Utah Code Ann. �59-12-102(13) is a hybrid "catchall" for medicine excluded from Utah sales tax. It is a hybrid catchall because the exemption has the qualification that the medicine can only be obtained by prescription from a licensed physician. This noninvasive drug is consumed by the human body, particularly at the nonunion fracture site, by means of biophysical stimulation. Therefore, the bone growth stimulator should be included in the catch-all category of tax-exempt medicine under Utah law because it meets the statutory requirements of Utah Code Ann. �59-12-102(13).

As additional support for the position that the bone growth stimulator qualifies under the drug exemption, federal law indicates that the word "drugs" should not be limited in substantive form to pills, tablets, powders, capsules and liquids. According to the United States Code, Title 21, Chapter 9, Federal Food, Drug, and Cosmetic Act Definitions Section (g)(1), "drugs" are defined as:

(A)

articles recognized in the official United States Pharmacopoeia, official Homeopathic Pharmacopoeia of the United States, or official National Formulary, or any supplement to any of them; and

(B)

articles intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease in man or other animals.... (emphasis added).

Hence, under this definition, property, which is purposely used in the diagnosis, cure, mitigation, treatment, or prevention of disease in human beings and animals would constitute a drug. Clearly, a product intended to enhance the healing of nonunion fractures in human beings would be considered a drug under the federal meaning of the word "drugs" because of its ability to provide noninvasive treatment of nonunion fractures. Utah has adopted, similar to the federal law, a definition of the term "drug" that is flexible enough to take into account advances made in the field of medicine with regard to the substantive forms of drugs. Therefore, the bone growth stimulator should be exempt from sales tax because it achieves the same results as drugs that come in pill and liquid form, but does so in a noninvasive way.

In addition, federal court cases have examined the scope of the statutory definition of "drug" as contained in the Federal Food, Drug and Cosmetic Act. One notable U.S. Supreme Court case on point is United States V. An Article of Drug Bacto-Unidisk, in which the Court specifically addressed the meaning of the term "drugs." In that case, the Court concluded that

"Congress intended to define 'drug' far more
broadly than does the medical profession"

(emphasis added).
The Court stated that, �the word 'drug' is a term of art for purposes of the Act, encompassing far more than the strict medical definition of that word. If Congress had intended to limit the statutory definition to the medical one, it could have so stated explicitly, or simply have made reference to the official United States Pharmacopoeia." Thus, federal courts have taken a broad stance on the types of products which would be considered drugs. Hence, the federal courts would agree that a prescribed product consumed by a patient for the enhancement of bone growth healing would be classified as a drug because the Congressional intent of the meaning of the word is broad in scope and includes all forms of products designed to aid in healing.

Correspondingly, under Utah law, it appears that the Utah legislature intended that the classification of medicine not be limited by the medical definition of medicine. This is evidenced by the requirement that the medicine be dispensed through a prescription. Consequently, pursuant to both federal arid Utah law, the bone growth stimulator should be classified as a medicine, and exempt as such, given that the product is used to enhance the healing of nonunion fractures and is dispensed only by prescription.

In the Bacto-Unidisk decision, the Supreme
Court also noted that the historical expansion of the definition of the word "drug" suggests, "that Congress fully intended that the Act's coverage be as broad as its literal language indicates -and equally clearly, broader than any strict medical definition might otherwise allow." This broad definition takes into account the technological advances which are constantly occurring in the field of medicine. In the past, most drugs were consumed in the form of a pill or liquid; however, drugs come In various forms and &e administered in various ways. Cutting-edge products such as this one are considered drugs by the federal government and most states for this very reason. Products such as the bone growth stimulator are subject to regulation by the FDA. As a result, FDA approval was required before the bone growth stimulator could be dispensed to patients. To claim that such products are not drugs would be to deny medical progress and inhibit the changing nature of medical treatment as technology progresses and changes.

Although there is limited authority in Utah
specifically addressing this product, the legislative interpretation of the term "medicine" appears broad, for while it explicitly excludes, auditory, prosthetic, ophthalmic, and ocular devices, it does not exclude equipment which releases treatments to patients. Instead, Utah law focuses on the requirement that the medicine must be dispensed pursuant to a prescription. Many other states would classify this product as medicine and, therefore, consider it exempt for sales tax purposes. The bone growth stimulator renders medical assistance to patients as do conventional drugs and its similarity to conventional medicine is demonstrated by its FDA approval and its acceptance by the medical community. Finally, similar to conventional drugs, the bone growth stimulator is consumed In its use and is not able to be reused once the patient's treatment has been completed. Hence, the bone growth stimulator, for the above-stated reasons, qualifies as medicine prescribed by a physician for human consumption for purposes of; Utah Code Ann. �59-12-102(13) and should be exempt as such from Utah sales tax.

Ruling Requested

We respectfully request a ruling on whether the sale of the bone growth stimulator is exempt from Utah sales tax because it constitutes home medical equipment or a drug prescribed by a physician and, as such, is exempt under Utah Code Ann. Sections 59-12-104(39) and/or (10).

We assert that the product for which we seek a
ruling meets the requirements of Utah Code Ann. Sections 59-12-104(39) and (10) for the following reasons:

-

it is prescribed by a physician or sold to the
patient by the physician for treatment of an injury as required by Utah Code Ann.
Section 59-12-102(9)(I);

-

it is used exclusively by the person for whom it is prescribed to serve a medical purpose as required by Utah Code Ann. Section 59-12-102(9)(ii);

-

it is eligible for payment under Title 18 of the federal Social Security Act as required by Utah Code Ann. Section 59-12-102(9)(iii); and

-

it is prescribed by a physician or supplied to
patients by a physician to treat a human ailment as required by Utah Code Ann. Section 59-12-102(13).

As we are awaiting your response on this matter in an attempt to comply with the sales and use tax laws of Utah, we respectfully request that you advise us of your conclusions on these issues as soon as possible. We look forward to hearing from you very soon and appreciate your assistance in this matter. Please feel free to contact me with any questions or comments you may have regarding this ruling request at #####.

Sincerely,

NAME

November
30, 1998

NAME

COMPANY

RE: Advisory
Opinion - Sales Tax Exemption for Bone Growth Stimulator

Dear NAME,

We have
received your request for an advisory opinion as to whether a bone growth stimulator (�stimulator�) is eligible for a sales tax exemption in Utah. You assert that the stimulator should be exempted either under Utah Code Ann. �59-12-104(10), which exempts sales of medicine, or under Utah Code Ann. �59-12-104(39), which exempts sales of home medical equipment.

Utah
Code Ann. � 59-12-102(9)(a) defines home medical equipment and supplies as those items 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.

In
your letter, you state that the stimulator can only be obtained from a licensed physician pursuant to a prescription for treatment of a medical injury (non-union bone fractures). In addition, you state that each stimulator is designed for use by only one patient and is discarded once that patient�s treatment ends. Lastly, you state that a prescribed stimulator is eligible for payment under Medicare. Assuming these statements to be fact, the stimulator does meet the requirements of Subsection (9)(a). Should the facts be otherwise, a different conclusion could be reached.

It
should be noted, however, that Subsection (9)(b) excludes from the definition of �home medical equipment� any �equipment and supplies purchased by, for, or on behalf of any health care facility, as defined in Subsection (9)(c), doctor, nurse, or other health care provider for use in their professional practice.� Subsection (9)(c) defines
�health care facility� as used in Subsection (9)(b) to include: �(I) a clinic; (ii) a doctor�s office; and (iii) a health care facility as defined in Subsection 26-21-2.�

In
a prior advisory opinion, the Commission found that a bone growth stimulator was excluded from the definition of �home medical equipment.� In that instance, the physician retained ownership of the stimulator until treatment was complete, and the stimulator was returned to the company for disposal. Under those circumstances, the Commission determined that the device was sold to the physician for use in his or her medical practice, and thus was excluded from the definition of �home medical equipment� by Subsection(9)(b).

In
this case, you state that the patient owns the stimulator. Accordingly, the stimulator is not purchased by a doctor for use in his or her medical practice. Given the facts as presented in your letter and interpreted above, the stimulator you inquire about would be exempt from Utah sales tax under the home medical equipment exemption.

As
we have decided that the stimulator qualifies for a sales tax exemption as home medical equipment, we do not address whether or not the stimulator qualifies for the sales tax exemption for medicine. Please contact us if you have any other questions.

For
the Commission,

Joe
B. Pacheco, CPA

^^ Commissioner