SALT Report 2412 – The Missouri Department of Revenue issued a Letter Ruling regarding the taxability of medical computer equipment that is used in conjunction with disposable medical catheters. The Taxpayer is an out-of-state corporation that sells disposable, one-time use, catheters to hospitals and medical clinics.
The catheters are used during a procedure in which the physician inserts the catheter into the patient’s body through an artery that is blocked by a blood clot. The physician injects medications through the catheter towards the clot’s location at which point ultrasound equipment is used to disperse the medication and dissolve the clot.
For this type of procedure, the catheter is useless on its own. Therefore, the Taxpayer provides its customers with a multiple use computer that works with the catheters. The computer equipment has three functions: it enables the medication to be injected in the appropriate location, it monitors and times the ultrasound equipment, and it records the procedure for further evaluation. The Taxpayer provides the computer equipment to its customers free of charge with the understanding that it must be returned upon request.
The Taxpayer currently collects and remits sales tax on its sales of catheters that are used in Missouri. However, the Taxpayer requested a ruling as to whether the computer equipment that it loans to its customers for use with the purchased catheters is subject to use tax?
In its response the Department referred to section 144.605(7), RSMo, which defines a sale as, “any transfer, barter or exchange of the title or ownership of tangible personal property, or the right to use, store or consume the same, for a consideration paid or to be paid, and any transaction whether called leases, rentals, bailments, loans, conditional sales or otherwise, and notwithstanding that the title or possession of the property or both is retained for security.”
Based on that regulation, the Department determined that the Taxpayer is simply using the computer equipment to sell its catheters. It does not matter that the Taxpayer allows its customer to use the computer equipment at no charge or that it retains title of the equipment while it is with the customer. If the Taxpayer did not provide the computer equipment the Taxpayer would be unable to sell its catheters. As a result, the use of the equipment in Missouri subjects the Taxpayer to use tax.
The use tax is imposed on the purchase price of the computer equipment. However, a credit against the Missouri use tax is allowed on equipment loaned to Missouri customers if the Taxpayer paid sales tax to another state.
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