Is a prescription cancer-treatment device that uses electric fields exempt from Connecticut sales and use tax?

Plain-English summary

A company makes a prescription-only cancer-treatment device that uses low-intensity, alternating electric fields to disrupt the division of cancer cells and cause them to die. Its product treats glioblastoma multiforme, an aggressive brain tumor, and carries FDA premarket approval — the approval the FDA requires for devices it deems to support or sustain human life. The product has three parts: a wearable electric-field generator (with cable, battery, power supply, and cord), transducer arrays, and ancillary accessories. Patients get it by prescription and pay a monthly fee covering the durable components, the arrays, and technical support. The company asked whether its retail sales of the device are exempt from Connecticut sales and use tax.

DRS ruled the sales are exempt. Connecticut exempts gross receipts from "any equipment used in support of or to supply vital life functions" under Conn. Gen. Stat. § 12-412(19)(E). The company argued — and DRS agreed — that this exemption is not limited to the specific examples the statute lists (oxygen supply equipment, kidney dialysis machines, apnea monitors). Because the statute uses the word "including" and the catch-all phrase "any other such device used in necessary support of vital life functions," the listed items are illustrations, not an exhaustive set.

Given that the device assists the patient's immune system in destroying cancer cells and improves the one-year survival rate and overall survival time for glioblastoma patients, DRS concluded it qualifies as equipment used in support of vital life functions, so its retail sales are exempt.

What this means for you

Medical-device makers and sellers

The vital-life-functions exemption can reach novel therapies, not just the classic oxygen tanks and dialysis machines named in the statute. If your device is genuinely used in support of or to supply a vital life function — here, extending survival by fighting a lethal cancer — it can qualify even though it looks nothing like the statutory examples. FDA life-supporting/life-sustaining premarket approval and documented survival benefit helped make the case.

Healthcare providers and patients

A qualifying life-function device sold at retail should come to the patient without Connecticut sales or use tax. The exemption also extends to repair or replacement parts and repair services for such equipment. If you're being charged tax on a device that supports a vital life function, it's worth checking whether this exemption applies.

Accountants and tax professionals

The analysis turns on reading Conn. Gen. Stat. § 12-412(19)(E) (and Conn. Agencies Regs. § 12-426-14(1)) as illustrative, not exhaustive, because of the words "including" and "any other such device." The transferable question is functional: does the equipment support or supply a vital life function? Marketing labels and device novelty are secondary to that functional test.

Common questions

Q: Are medical devices exempt from Connecticut sales tax?
A: Not all of them, but equipment "used in support of or to supply vital life functions" is exempt under Conn. Gen. Stat. § 12-412(19)(E). This device qualified because it supports a vital life function by treating a lethal brain cancer.

Q: The statute only lists oxygen and dialysis equipment — how did a cancer device qualify?
A: DRS read the list as examples, not limits. The statute says "including" and "any other such device used in necessary support of vital life functions," so other qualifying devices are exempt too.

Q: Does the exemption cover parts and repairs?
A: Yes. The statute's exemption extends to repair or replacement parts and repair services for the qualifying equipment.

Q: Does it matter that patients pay a monthly fee?
A: The ruling treated the monthly charge as the retail sale of the product (durable components, arrays, and technical support) and found those gross receipts exempt. The billing cadence didn't defeat the exemption.

Q: Does this ruling apply to my device?
A: Not automatically. A Connecticut Ruling binds DRS only for the taxpayer and facts it addressed. A device that does not support a vital life function would be analyzed differently.

Citations and references

Statutes:

• Conn. Gen. Stat. § 12-412(19)(E) (exemption for equipment used in support of or to supply vital life functions, including repair/replacement parts and repair services)
• Conn. Gen. Stat. §§ 12-407 and 12-408 (imposition of sales and use taxes on retail sales)

Regulations:

• Conn. Agencies Regs. § 12-426-14(1) (exemption for equipment supporting vital life functions)

Source

• Landing page: Connecticut DRS Rulings
• Ruling: Ruling 2015-3

Original ruling text

Ruling 2015-3, Sales and Use Taxes, Medical Devices

FACTS:

Company is dedicated to the development and commercialization of a cancer treatment therapy that uses low-intensity, alternating electric fields to exert physical forces on the electrically charged components of dividing cancer cells, which is intended to disrupt cell division and cause cancer cell death (“Therapy”).  To this end, Company created a product to treat solid tumors of the head using Therapy (the “Product”).  The United States Food and Drug Administration (“FDA”) approved Company’s premarket approval application for the Product as a stand-alone treatment for adult patients with confirmed glioblastoma multiforme.  Such FDA approval is required for devices that are deemed by the FDA to support or sustain human life.  Glioblastoma multiforme is an aggressive brain tumor that without other treatment is combatted by the immune system.  The Product is intended to improve the one-year survival rate and overall survival time for patients with glioblastoma multiforme.

There are three primary components to the Product:

An electric field generator, connection cable, a portable batter, power supply, rack and a power cord;

Transducer arrays; and

Ancillary items and accessories consisting of boxes, bags, operations manuals, and self-exchange kits.

The Product is only available by prescription.  The prescription is submitted to Company and the components of the Product are shipped to the closest local technical support staff specialist or to the prescribing physician’s office.  After initial treatment begins, Company typically ships arrays and other components directly to patients.  Patients pay a monthly fee for the Product, which includes the cost of the durable components, the cost of the transducer arrays, and the cost of technical support.

Company is operating within the State of Connecticut and is registered for sales and use tax.

ISSUE:

Are gross receipts from the retail sale of the Product to patients exempt from Connecticut sales and use tax?

RULING:

Gross receipts from the retail sale of the Product are exempt from Connecticut sales and use tax because it is equipment used in support of vital life functions. Conn. Gen. Stat. § 12-412(19).

DISCUSSION:

Retail sales of tangible personal property in the State of Connecticut are subject to sales and use tax, unless specifically exempt. Conn. Gen. Stat. §§ 12-407 and 12-408.  Gross receipts from the sale of “any equipment used in support of or to supply vital life functions” are exempt from the sales and use tax. Conn. Gen. Stat. § 12-412(19)(E); Conn. Agencies Regs. § 12-426-14(1).

The relevant portion of Conn. Gen. Stat. § 12-412 states as follows:

any equipment used in support of or to supply vital life functions, including oxygen supply equipment used for humans or animals, kidney dialysis machines and any other such device used in necessary support of vital life functions, and apnea monitors, and repair or replacement parts and repair services rendered to property described in this subparagraph

Conn. Gen. Stat. § 12-412(19)(E).  Although the examples given in both the statute and the regulation for such equipment are of “oxygen supply equipment” and “kidney dialysis machines,” the use of the word “including” and the phrase “and any other such device used in necessary support of vital life functions” indicates that the examples given are not exhaustive and that other devices that support vital life functions are similarly exempt. Conn. Gen. Stat. § 12-412(19)(E); Conn. Agencies Regs. § 12-426-14(1).

Given the Product’s assistance of the patient’s immune system in the destruction of cancer cells and its improvement of the one-year survival rate and overall survival time for patients with glioblastoma multiforme, the Product qualifies as equipment that is used in support of vital life functions.  Accordingly, the gross receipts from retail sales of the Product are exempt from Connecticut sales and use tax pursuant to the exemption set forth in Conn. Gen. Stat. § 12-412(19)(E).

OFFICE OF COUNSEL

June 24, 2015