Virginia – Services to Recondition Used Catheters are Exempt

SALT Report 1929 – The Virginia Tax Commissioner issued a ruling regarding the taxability of an out of state Taxpayer’s catheter reconditioning service.  As part of his service, the Taxpayer collects used catheters from hospitals and clinics for reconditioning. The Taxpayer cleans, decontaminates, reconditions, tests, packages, labels, and sterilizes the used medical catheters.  The reconditioned catheters are then returned to the hospitals and clinics in for reuse.  At that time, the Taxpayer charges the hospitals and clinics for its services.

When making his decision, the Commissioner used the True object test provided in Title 23 of the Virginia Administrative Code 10-210-4040 D.  The law states that, “In order to determine whether a particular transaction which 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. If the object of the transaction is to secure a service and the tangible personal property which is transferred to the customer is not critical to the transaction, then the transaction may constitute an exempt service. However, if the object of the transaction is to secure the property which it produces, then the entire charge, including the charge for any services provided, is taxable.”

The Commissioner determined that the true object of the Taxpayer’s reconditioning service was the service itself.  Therefore, because the Taxpayer is providing a nontaxable service when it reconditions the used catheters any charges billed for the services are exempt from sales and use tax.

For Further Information:

Virginia Department of Revenue – Ruling of the Tax Commissioner 12-178