Washington – Taxability of Continuous Positive Airway Pressure Machines

SALT Report 2795 – A Washington Department of Revenue Appeals Judge issued a ruling regarding a sales tax assessment against a medical equipment provider for sales of its continuous positive airway pressure machines (CPAP).  The Taxpayer protested the assessment claiming that they are exempt as either prosthetic devices or legend drugs.

The CPAP machines at issue in this case are used to treat sleep apnea by providing continual airflow to the airway while the user is sleeping.  Most of the Taxpayer’s CPAP machines consist of a mask and a base unit. The mask fits over the nose and forces air into the airway through the nostrils. The mask is connected by a hose to a heated base unit with a water reservoir. The water reservoir supplies humidity to the forced air.

However, some of Taxpayer’s CPAP machines are comprised of a single unit that does not have a separate base unit or cord. With this type of CPAP machine, the entire unit fits over the user’s face during sleep, forcing air through the nostrils.  This unit is powered by a rechargeable battery.

In its decision, the Appeals Judge referred to RCW 82.08.0283(1), which provides an exemption for “prosthetic devices prescribed, fitted, or furnished for an individual by a person licensed…to prescribe, fit, or furnish prosthetic devices.”  The statute defines a prosthetic device as, “a replacement, corrective, or supportive device, including repair and replacement parts for a prosthetic device, worn on or in the body.”

The Appeals Judge also referred to a previous decision in which the court determined that CPAP machines were not exempt prosthetic devices under RCW 82.08.0283 because they were not entirely worn on or in the body.  Specifically, the court held that CPAP machines were not exempt prosthetic devices because they were not “worn on the body as a complete system” as required by RCW 82.08.0283.

Based on this regulation and the prior court decision, the Appeals Judge ruled that only the Taxpayer’s CPAP machines that are entirely worn on the body qualify as exempt prosthetic devices.

As for the issue of legend drugs, the Appeals Judge stated that Rule 18801, which was issued in 1992, has not been amended since the statute that it interprets was changed in 2003.  Therefore, any provisions of the rule that are inconsistent with the amended statute are not valid.  As a result, the definition of “drug” contained in the statute, rather than the definition of “legend drug” contained in the rule, determines whether the Taxpayer’s CPAP machines qualify for the exemption.

The statute, RCW 82.08.0281, defines a drug as, “a compound, substance, or preparation, and any component of a compound, substance, or preparation, other than food and food ingredients, dietary supplements, or alcoholic beverages…” Based on this definition, the Appeals Judge determined that a CPAP machine is not a “chemical compound or mixture” therefore, it does not qualify as a “drug” as defined by RCW 82.08.0281(b).

Moreover, the Judge held that a CPAP machine is more accurately described as a device, rather than a drug, and unlike a prescription drug, prescription devices are not exempt from retail sales tax under RCW 82.08.0281.  Consequently, sales of the Taxpayer’s CPAP machine are taxable, unless they are of the type that is worn entirely on the body, as described above.

For Further Information

Washington Department of Revenue – Tax Determination No. 12-0305