Missouri Rules that Sales of Products to Promote Musculoskeletal Injuries Are Subject to Tax

Wednesday, August 8th, 2012


The Missouri Department of Revenue (DOR) recently ruled that sales of a drug-device combination product that promotes the healing of musculoskeletal injuries and diseases are subject to sales tax. Mo. Ltr. Rul. No. LR 7123 (Dept. of Revenue July 20, 2012).

The party that applied for the ruling is a biotechnology company that sells medical devices to hospitals and surgery centers. The biotechnology company has developed a product that it describes as "a sterile, synthetic, non-pyrogenic material intended for use in combination with autologous bone marrow for bone void filling and fracture repair of the pelvis and extremities." This product promotes the healing of musculoskeletal injuries and diseases; it "is used by surgeons to fill gaps between bones where a surgeon is trying to achieve fusion." The biotechnology company applied for the ruling to find out whether its sales of this product are subject to tax.

Missouri taxes sales of tangible personal property, yet the state provides a limited exemption for sales of insulin and prosthetic or orthopedic devices. Mo. Rev. Stat. secs. 144.020.1(1), 144.030.2(18). In its sales tax regulations, Missouri defines "orthopedic device" as "a rigid or semi-rigid leg, arm, back or neck brace and casting materials which are directly used for the purpose of supporting a weak or deformed body member or restricting or eliminating motion in a diseased or injured part of the body." Mo. Code Regs. tit. 12, sec. 10-110.013(2)(A). Furthermore, in the same regulation, Missouri defines "prosthetic device" as a "device that replaces all or part of the function of a permanently inoperative or malfunctioning internal body organ and is medically required." Mo. Code Regs. tit. 12, sec. 10-110.013(2)(D).

The DOR reasoned that the biotechnology company's product is not "a rigid or semi-rigid brace used directly to support the movement of weak or injured body parts," so it is not an orthopedic device. Likewise, the DOR determined the product was not a prosthetic device as it is not used to replace malfunctioning internal body organs. Accordingly, the DOR ruled that sales of the product are taxable because the product does not qualify for the exemption for prosthetic or orthopedic devices.

The DOR's issued a similar ruling (in terms of both the item in question and the decision rendered) in January, 2012. Mo. Ltr. Rul. No. LR 7025 (Dept. of Revenue Jan. 20, 2012). In that letter ruling, the DOR determined that sales of a synthetic replacement to autograft used in hindfoot and ankle surgery to fill gaps between bones are not exempt.

In fact, the question of whether sales of products that are subsequently medically implanted has been considered in several letter rulings. These rulings demonstrate that the DOR's interpretation of the definitions of "orthopedic device" and "prosthetic device" (which appear not in the exemption statute, but in the DOR's own sales tax regulations) limit the application of Missouri's exemption for prosthetic or orthopedic devices. Consider the following rulings:

  • In Mo. Ltr. Rul. No. LR 7116 (Dept. of Revenue July 6, 2012), the DOR ruled that sales of spinal cord stimulators are subject to tax because the spinal cord stimulators are not prosthetic devices.
  • In Mo. Ltr. Rul. No. LR 6884 (Dept. of Revenue Aug. 25, 2011), the DOR ruled that sales of a tissue filler implant or an injectable implant were taxable or exempt depending on their ultimate use. When they were used to treat facial wrinkles, facial fat loss in people with HIV, acne scars, oral and maxillofacial defects, they were taxable because, used in those ways, the items did not satisfy the definition of prosthetic device. But, when used for nipple reconstruction after a mastectomy, treat speech impediments caused typically by stroke or neurological disorder, or to treat urinary incontinence due to poorly functioning urethral sphincter muscles, they are exempt.
  • In Mo. Ltr. Rul. No. LR 6467 (Dept. of Revenue Oct. 1, 2010), the DOR ruled that only one component of a three-component system that is used to repair a patients mitral valve qualified for exemption as a prosthetic device. The system consisted of (1) a steerable guide catheter, (2) a delivery system, and (3) an implanted mitral valve device, and only the third component—the implanted mitral valve device—qualified as a prosthetic device.

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