I manufacture an implant and instrument kit sold to physicians, not directly to patients — do sales tax exemptions for medical devices even apply, and does the 'true object' test matter here?

Plain-English summary

A medical device manufacturer asked the Department for an advance ruling on its patented, prescription-only procedure for treating airway obstruction, which uses an implant and a companion instrument, both FDA-cleared and sold as a kit to medical practitioners rather than directly to patients.

The medical device exemption tracks the specific patient, not the product category. Virginia Code § 58.1-609.10 10 exempts durable medical equipment and devices, but only when they're "purchased by or on behalf of an individual for use by such individual." Being a prescription item, or being bought from a medical supplier, doesn't automatically make a sale exempt (23 VAC 10-210-940 F). What matters is documentation: per Department precedent, the practitioner's purchase records must include patient-identification information at the time of purchase for the sale to count as "on behalf of an individual." The implant and instrument both qualify generally as medical "devices," so sales tied to a specific, identified patient are exempt. But bulk purchases of the kit — say, for adjustment or removal work not tied to one patient — are taxable, even if a particular unit later ends up fitted to a specific person.

Not every implant is an exempt "prosthetic device." The manufacturer separately asked whether its implant qualifies as a prosthetic device, a category that can be purchased exempt on behalf of a specific individual. Under 23 VAC 10-210-940, a prosthetic device is one that "replaces a missing part or function of the body." The Department found this particular implant doesn't fit that definition — the procedure isn't restoring a missing body part or function — so the prosthetic-device category simply doesn't apply here (separate from cosmetic implants, which are excluded from the category for a different reason: they don't replace anything missing either).

The "true object" test never even comes into play. The manufacturer's last question was how the "true object" test (used to decide whether a transaction combining services and goods is taxed as a service or a sale) applies to its sales. The Department's answer: it doesn't apply at all, because the manufacturer isn't rendering any SERVICE — it's simply supplying tangible personal property that practitioners then use to perform their own medical services. The true object test only matters when a single transaction genuinely mixes a service and a good; a pure product sale skips that analysis entirely and goes straight to whether a specific exemption (like the medical device or prosthetic device exemptions) applies.

What this means for you

Medical device manufacturers selling through practitioners

Your exemption eligibility rides on the DOCUMENTATION of each sale, not on whether your product is medical in nature. Build patient-identification information into your practitioners' ordering process if you want individual sales to qualify for the exemption — and expect bulk or inventory-replenishment orders to be taxable regardless.

Distinguishing prosthetic devices from other implants

Don't assume every implanted product qualifies as an exempt "prosthetic device." The legal test is narrow: it must replace a MISSING body part or function. Devices used for other therapeutic purposes, even if implanted, may not qualify even when sold for a specific patient — check the durable-medical-equipment exemption instead, which has its own (also patient-specific) requirements.

Accountants and tax professionals

When a client sells tangible medical products with no accompanying service, skip the true object/bundled-transaction analysis — it only applies to genuinely mixed service-and-property transactions. Go directly to whether a specific statutory exemption, like § 58.1-609.10 10, covers the sale, and check the documentation requirements that come with it.

Common questions

Q: Are all sales of FDA-cleared medical devices exempt from Virginia sales tax?
A: No — the durable medical equipment exemption requires the sale to be made by or on behalf of a specific, identified individual for that individual's own use, documented at the time of purchase.

Q: Does selling through a doctor's prescription automatically make a device exempt?
A: No. Being purchased on a physician's prescription is not, by itself, enough to make a sale exempt.

Q: What's the difference between the durable medical equipment exemption and the prosthetic device exemption?
A: Durable medical equipment covers a broad category of devices used in diagnosis, treatment, or affecting body structure/function; prosthetic devices are specifically those that replace a MISSING body part or function — a narrower category that this manufacturer's implant didn't fit.

Q: Why didn't the "true object" test apply here?
A: That test resolves transactions that mix a service and a sale of goods. Since the manufacturer wasn't providing any service at all — only supplying products that practitioners use in performing their own services — there was no mixed transaction to analyze.

Citations and references

Statutes and regulations:

• Va. Code § 58.1-609.10 10 — exemption for durable medical equipment and devices purchased for a specific individual's use
• 23 VAC 10-210-940 — defining "device" and "prosthetic device"; documentation requirements
• 23 VAC 10-210-4040 — mixed service/property transactions and the true object test

Prior rulings the Department relied on (described here, not linked): P.D. 94-127 (4/25/1994) (cosmetic implants don't qualify as prosthetic devices); P.D. 00-215 (12/7/2000) (patient-identification documentation required at time of purchase); P.D. 12-186 (11/15/2012) and P.D. 13-26 (3/5/2013) (bulk device sales are taxable).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 25-14

Original ruling text

February 12, 2025

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This letter is in reply to your request on behalf of * (the “Taxpayer”) regarding the Virginia retail sales and use tax application to the sale of its medical devices to medical practitioners.

This ruling is based on the facts presented as summarized below. Any change in facts or the introduction of new facts may lead to a different result.

FACTS

The Taxpayer requests a ruling regarding the application of the medical exemption to its * (“the patented procedure”) and the sales of its (“the implant”) and ** (“the instrument”) to medical practitioners. The patented procedure is a method to treat airway obstruction that is only administered by a prescription. The instrument and implant are sold as a kit to medical practitioners and not directly to patients. The Taxpayer has indicated that both devices have been cleared by the Food and Drug Administration (FDA).

RULING

Medical Exemption

The Taxpayer asks whether sales of the implant and the instrument qualify for the state’s medical device exemption. Virginia Code § 58.1-609.10 10 provides an exemption from the retail sales and use tax for:

Wheelchairs and parts therefor, braces, crutches, prosthetic devices, orthopedic appliances, catheters, urinary accessories, other durable medical equipment and devices, and related parts and supplies specifically designed for those products ; and insulin and insulin syringes, and equipment, devices or chemical reagents that may be used by a diabetic to test or monitor blood or urine, when such items or parts are purchased by or on behalf of an individual for use by such individual. [Emphasis added].

Title 23 of the Virginia Administrative Code (VAC) 10-210-940 interprets the statute and provides a definition of devices as “instruments, apparatuses, and contrivances, including their components, parts, and accessories, intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease in human beings or to affect the structure or any function of the human body.”

Subsection F of the same regulation states that devices must be “purchased by or on behalf of an individual for the individual's exclusive use. The fact that an item is purchased from a medical equipment supplier or on a physician's prescription is not dispositive of its exempt status.”

Furthermore, for “a purchase to be deemed a purchase on behalf of an individual, the item must be specifically purchased for the individual. If items are purchased in bulk and then dispensed to individual patients, the exemption does not apply, even if the items are modified or fitted for a specific individual.”

The implant and the instrument meet the definition of a medical device mentioned above. The Taxpayer may sell the implant and the instrument exempt of the tax when such products are purchased by or on behalf of an individual for use by such individual. Supplemental sales of the tool kit for adjustment or removal of the implant may be subject to taxation if the sales are not specifically for an individual patient. Pursuant to Public Document (P.D.) 00-215 (12/7/2000), a medical practitioner’s purchase documentation must include patient identification information at the time of purchase in order for the purchase to be deemed made on behalf of an individual. Any sales of the implant and the instrument in bulk would be subject to the tax. See P.D. 12-186 (11/15/2012) and P.D. 13-26 (3/5/2013).

Prosthetic Device

The Taxpayer also requests guidance as to whether the implant and the instrument meet the definition of a prosthetic device. 23 VAC 10-210-940 defines prosthetic device as “any device that replaces a missing part or function of the body . For purposes of this section, a prosthetic device includes any supplies physically connected to the device.” [Emphasis added].

Generally, prosthetic devices, which includes implants, may be purchased exempt of the tax when purchased by or on behalf of specific individuals. However, implants used for cosmetic purposes are not used to replace missing body parts or functions and, as such, do not qualify for exemption from the tax, regardless of whether they are purchased by or on behalf of an individual. See P.D. 94-127 (4/25/1994). The components of the patented procedure do not replace a missing part or function of the body as stated above. Therefore, the components do not meet the definition of a prosthetic device.

Bundled Transactions

Finally, the Taxpayer asks to understand the true object test and its application to the sales of the devices. Title 23 VAC 10-210-4040 provides that for the purposes of determining whether a particular transaction that involves both the rendering of a service and the provision of tangible personal property constitutes an exempt service or a taxable retail sale, the "true object" of the transaction must be examined.

Based on the facts provided by the Taxpayer the true object test does not apply. The Taxpayer is not rendering any service but merely supplying tangible personal property for use by medical practitioners who provide the service.

The Code of Virginia sections and regulations cited are available online at law.lis.virginia.gov. The public documents cited are available at tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website. If you have any questions regarding this ruling, you may contact * in the Office of Tax Policy and Legal Affairs, Tax Adjudication and Resolution Division, at or **@tax.virginia.gov.

Sincerely,

James J. Alex

Tax Commissioner

Commonwealth of Virginia

AR/4880.F

Related Documents

94-127

00-215

12-186

13-26