SALT Report 2341 – The Texas Comptroller issued a memo regarding a temporary exemption for orthopedic devices. The purpose of the memo is to provide guidance to help determine what types of equipment qualify for the temporary exemption or refund as required by a 2012 Appeals Court decision.
Traditionally, the Comptroller has held that Texas Tax Code Sec. 151.313 does not provide an exemption for tools and instruments used by doctors and hospitals to provide certain medical services. The Comptroller also held that this applied to the surgical instruments and equipment used to implant orthopedic and prosthetic devices.
However, in the 2012 Zimmer decision, the Texas Court of Appeals determined that the definition of the term “orthopedic appliance” in Rule 3.284, which interprets Texas Tax Code section 151.313, does in fact provide an exemption for the instruments and tools used to implant orthopedic devices. The Court noted that the language in Rule 3.284(a)(12) specifically states that an orthopedic appliance or device is defined as “any appliance or device designed specifically for use in the correction or prevention of human deformities, defects, or chronic diseases of the skeleton, joints, or spine.”
Further, the Court clarified that under Rule 3.284 “any instrument, apparatus, implement, machine, contrivance, implant, chemical, or other similar or related product used in the correction or prevention of human deformities, defects, or chronic diseases of the skeleton, joints, or spine is an orthopedic appliance as long as the item is designed specifically for those purposes.”
However, the Court stated that any item that is not specifically designed for use in correcting or preventing a deformity, defect or chronic disease in a skeleton, joint, or spine does not qualify as an orthopedic appliance or device even if it is used in a qualifying manner.
For example, a drill bit that can be used to drill holes in bone to prepare it for surgical pins might be exempt as an orthopedic appliance or device, but only if it is “designed specifically” for that orthopedic use. If the same drill bit is used to drill holes in a skull to relieve cranial pressure, then it would not be “designed specifically” for an orthopedic use and would not qualify for the exemption.
The Comptroller is currently in the process of amending Rule 3.284 to exclude tools and equipment used by medical service providers from the definition of orthopedic appliances. Therefore, until the updated rule is adopted purchasers may claim an exemption or request a refund of taxes paid on certain orthopedic equipment.
To determine if an item qualifies as “specifically designed,” the Comptroller said that they will consider, the device itself, the marketing materials from the manufacturer or seller, as well as certain information provided by the Food and Drug Administration. However, just because a product falls within the FDA’s classification of an orthopedic device does not mean that the item automatically qualifies for the exemption.
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