LR 6884

Taxability of Prosthetics Used To Correct Defects From Surgery & Other Defects

August 25, 2011

Dear Applicant:

This is a letter ruling issued by the Director of Revenue under Section 536.021.10, RSMo, and Missouri Code of State Regulations 12 CSR 10-1.020, in response to your letter dated June 23, 2011.

The facts as presented in your letter ruling request and the documents that you have provided are summarized as follows:

Applicant produces medical devices and pharmaceuticals.  Applicant is headquartered outside Missouri and has a manufacturing facility outside Missouri.  Applicant sells Product A and Product B directly to physicians, hospitals and medical clinics.
Product A is a tissue filler implant that is used in the treatment of defective, diseased, traumatized, or aging human tissue.  Product A consists of particles, suspended in a water-based gel carrier.
Product A repairs defects in the soft tissue of the body by initially replacing lost tissue volume and then stimulating the body’s production of natural collagen.  Collagen is a fibrous protein that is the chief constituent of connective tissues in the soft tissues of the body.  Product A is also used as a scaffolding to garner bone growth when it is implanted next to bone forming cells and bone forms around it.
Product A is sold in individually packaged, single dose syringes.  The U.S. Food and Drug Administration (FDA) requires Product A to carry the following label: Federal (USA) law restricts this device to sale by or on the order of a physician.  Product A is injected by a physician or a nurse under the supervision of a physician.
The FDA has approved Product A for the following treatments: radiographic tissue marking, vocal fold augmentation, facial lipoatrophy, nasolabial folds, marionette lines and oral and maxillofacial defects.  Oral and maxillofacial defects include misaligned jaws, facial injuries due to accident, cosmetic facial defects, oral cancer effects, and tumors and cysts of the jaws.
Product B is an injectable implant that consists of calcium hydroxylapatite (CaHa) particles (75 to 125 microns in diameter) suspended in a gel carrier.  The FDA has approved Product B as a peri-urethal bulking agent.
Product B is injected into the space around the urethra near the bladder as an implant.  After injection, the implant bulks the tissue near the urethral sphincter and stimulates the production of collagen, enabling the sphincter to function more effectively.
Product B is sold in individually packaged, single dose syringes.  The FDA requires Product B to carry the following label: Federal (USA) law restricts this device to sale by or on the order of a physician.  Product B is injected by a physician or a nurse under the supervision of a physician. 

ISSUE 1:

Are Applicant’s sales of Product A exempt from sales and use tax as a prosthetic device when it is used to treat facial wrinkles and folds such as nasolabial folds?

RESPONSE 1:

No.  Applicant’s sales of Product A are not exempt from sales and use tax as a prosthetic device when it is used to treat facial wrinkles and folds such as nasolabial folds.

Section 144.020.1, RSMo, imposes a sales tax on all sales of tangible personal property and certain enumerated services.  Section 144.610.1 imposes a use tax on the storage, use or consumption of tangible personal property within the state.

Section 144.030.2(18), RSMo, exempts from sales and use tax “all sales of . . . prosthetic . . . devices as defined on January 1, 1980, by the federal Medicare program under Title XVIII of the Social Security Act of 1965, including the items specified in section 1862(a)(12) of that act.”

Missouri Code of State Regulations 12 CSR 10-110.013(2)(D) explains the meaning of prosthetic device under federal law.  A prosthetic device is “a device that replaces all or part of the function of a permanently inoperative or malfunctioning internal body organ and is medically required.”  An “organ” is defined as a “differentiated part of an organism, such as an eye, wing, or leaf that performs a specific function.”  The American Heritage Dictionary of the English Language, 4th Ed. 1239 (2006).

Product A is used to eliminate facial wrinkles and folds when the implant is injected into skin to smooth out the surface.  In this procedure, the product replaces volume beneath the skin but does not replace an internal organ with a specific function.  The procedure is not medically necessary but purely cosmetic.  Therefore, sales of Product A are not exempt from sales and use tax as a prosthetic device when sold for this use.

ISSUE 2:

Are Applicant’s sales of Product A exempt from sales and use tax as a prosthetic device when it is used to restore or correct signs of facial fat loss in people with HIV?

RESPONSE 2:

No.  Applicant’s sales of Product A are not exempt from sales and use tax as a prosthetic device when it is used to restore or correct signs of facial fat loss in people with HIV.

The procedure is not medically required but only serves to improve appearances.  The product is injected into the skin and does not replace any organ.  Therefore, sales of Product A are not exempt from sales and use tax as a prosthetic device when sold for this use.  See Response 1. 

ISSUE 3:

Are Applicant’s sales of Product A exempt from sales and use tax as a prosthetic device when it is used for vocal fold augmentation to treat speech impediments caused typically by stroke or neurological disorder?

RESPONSE 3:

Yes.  Applicant’s sales of Product A are exempt from sales and use tax as a prosthetic device when it is used for vocal fold augmentation to treat speech impediments caused typically by stroke or neurological disorder.

Product A is used to treat speech impediments when the product is injected into the vocal folds to augment the size of a displaced or deformed vocal fold.  This procedure is typically used after a stroke or neurological disorder has impaired an individual’s ability to speak and is therefore medically required.  Because Product A is augmenting the tissue of the vocal fold which has a specific function and is an organ, sales of the product are exempt from sales and use tax as a prosthetic device when sold for this use.  See Response 1.

ISSUE 4:

Are Applicant’s sales of Product A exempt from sales and use tax as a prosthetic device when it is used to treat acne scars?

RESPONSE 4:

No.  Applicant’s sales of Product A are not exempt from sales and use tax as a prosthetic device when it is used to treat acne scars.

When Product A is injected into the skin to improve the appearance of acne scars, no organ is replaced and the procedure is purely cosmetic.  Therefore, sales of Product A are not exempt from sales and use tax as a prosthetic device when sold for this use.  See Response 1.

ISSUE 5:

Are Applicant’s sales of Product A exempt from sales and use tax as a prosthetic device when it is used to treat oral and maxillofacial defects?

RESPONSE 5:

No.  Applicant’s sales of Product A are not exempt from sales and use tax as a prosthetic device when it is used to treat oral and maxillofacial defects.

Oral and maxillofacial defects include misaligned jaws, facial injuries due to accident, cosmetic facial defects, oral cancer effects, and tumors and cysts of the jaws.  Because Product A appears to be used for correcting cosmetic defects in this instance, Applicant’s sales of Product A are subject to sales or use tax. 

ISSUE 6:

Are Applicant’s sales of Product A exempt from sales and use tax as a prosthetic device when it is used for nipple reconstruction after a mastectomy?

RESPONSE 6:

Yes.  Applicant’s sales of Product A are exempt from sales and use tax as a prosthetic device when it is used for nipple reconstruction after a mastectomy.

Missouri Code of State Regulations 12 CSR 10-110.013(4)(B) includes “breast prosthetics” as an example of an exempt prosthetic device.

When Product A is used to reconstruct a nipple after a mastectomy, an organ is replaced and the purpose is medically required.  Therefore, sales of Product A are exempt from sales and use tax as a prosthetic device when sold for this use.  See Response 1.

ISSUE 7:

Are Applicant’s sales of Product B exempt from sales and use tax as a prosthetic device when it is used as a peri-urethral bulking agent to treat women who have stress urinary incontinence due to poorly functioning urethral sphincter muscles?

RESPONSE 7:

Yes.  Applicant’s sales of Product B are exempt from sales and use tax as a prosthetic device when it is used as a peri-urethral bulking agent to treat women who have stress urinary incontinence due to poorly functioning urethral sphincter muscles.

In this procedure, Product B is used to replace the function of an inoperative urethra.  Therefore, sales of Product B are exempt from sales and use tax as a prosthetic device when sold to treat an inoperative urethra.

This letter ruling is binding on the Department of Revenue with respect to the Applicant for three (3) years from the date of this letter and is subject only to statutory changes by the General Assembly and to changes in the interpretation of law by the courts or administrative tribunals.  If a change occurs, the taxpayer who relies upon an outdated interpretation may be subject to additional taxes, interest and penalties, which may be imposed prospectively from the date of the change.  For this reason, the interpretation set forth should be reviewed on a regular basis.  Please note that any change in or deviation from the facts as presented will render this ruling inapplicable.

Should additional information be needed, please contact Legal Counsel Eva Vlachynsky, General Counsel’s Office, Post Office Box 475, Jefferson City, Missouri 65105-0475 (phone 573-751-0961), or me.

Sincerely,

Alana M. Barragán-Scott