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