SALT Report 1406 – The Missouri Department of Revenue ruled that a taxpayer’s sales of a drug-device combination product to hospitals and surgery centers are subject to Missouri sales or use tax. The taxpayer is a biotechnology company that specializes in the development and sale of drug-device combination products to promote the healing of musculoskeletal injuries and diseases. The product was developed as a synthetic replacement to autograft in hindfoot and ankle surgeries. It is used by surgeons wanting to fill and fuse the gaps between bones.
Missouri Regulation 12 CSR 10-110.013(2)(D) defines a prosthetic device as a “device that replaces all or part of the function of a permanently inoperative or malfunctioning internal body organ and is medically required.” Regulation 12 CSR 10-110.013(2)(A) defines a orthopedic device as “a rigid or semi-rigid leg, arm, back or neck brace and casting materials which are directly used for the purpose of supporting a weak or deformed body member or restricting or eliminating motion in a diseased or injured part of the body.”
The Department determined that the taxpayer’s product is not a rigid or semi-rigid brace used to support and restrict movement, it is not a casting material, and it is not used to replace malfunctioning internal organs. Therefore, the taxpayer’s sales of its product to hospitals and surgery centers are subject to sales or use tax, unless the hospital or surgery center has a valid exemption letter on file.
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