SALT Report 1912 – The Colorado Department of Revenue issued a Private Letter Ruling regarding a Taxpayer’s sales of medical products to hospitals and surgical centers. The Taxpayer owns a biotechnology company that develops a drug/device that promotes the healing of musculoskeletal injuries and diseases.
The product is made of a synthetic material that when used in combination with autologous bone marrow it fills bone voids and repairs fractures. The product is made of a flexible material that allows the graft to be shaped to fit the patient based on the injury.
The Taxpayer requested guidance regarding the exemption for “materials furnished as part of a licensed provider’s professional service” provided in 39-26-717(1)(a) CRS. This exemption requires that the materials be provided by a licensed provider and must leave the provider’s office with the patient.
The Department determined that because the Taxpayer’s product is permanently absorbed by the bone tissue, it leaves the provider’s office with the patient and qualifies for the exemption. Further, the Department noted that although the Taxpayer sells his product to hospitals and surgical centers rather than to licensed providers; it is unreasonable to limit the exemption to the licensed providers who actually purchase the materials. Therefore, the exemption applies to materials purchased by hospitals and medical centers as long as they are provided to the patient by a licensed provider.
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