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.

(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