Which prescription-only vitreoretinal surgical products were exempt from Florida sales tax?

Plain-English summary

Retinal implants were exempt prosthetic devices, and qualifying single-use prescription-legend supplies were exempt medical products. For nonimplant devices, Florida required both one-time or single-patient use and a federal label restricting sale to or on the order of a licensed practitioner.

The federal warning alone was not enough. Microforceps and microscissors that were sterilized and reused remained taxable because they were tools used by the doctor rather than products dispensed to the patient.

The vendor also needed documentation: a hospital's Consumer's Certificate of Exemption, or an Annual Resale Certificate or physician/hospital statement that the items would be dispensed only under a physician's order, depending on the buyer.

What this means for you

Prescription-only labeling did not create a blanket exemption for surgical equipment. Florida distinguished implanted or single-patient items from reusable professional tools and required the seller to retain the appropriate exemption or resale documentation.

Common questions

Q: Were retinal implants exempt? Yes, as prosthetic devices.

Q: Were reusable microforceps and microscissors exempt? No.

Q: Who was responsible for ensuring an exemption certificate actually qualified? The ruling placed that responsibility on the customer issuing the certificate and noted tax, penalty, and criminal consequences for fraudulent issuance.

Citations and references

• Fla. Stat. § 212.08(2)(a)-(b) — medical products and prosthetic appliances
• Fla. Admin. Code r. 12A-1.020(6) — medical products and supplies
• Fla. Admin. Code r. 12A-1.021 — prosthetic and orthopedic appliances
• Fla. Admin. Code r. 12A-1.039 — resale certificates
• Fla. Stat. § 212.085 — fraudulent exemption certificates
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 02A-035

Original ruling text

SUMMARY

QUESTION: Taxpayer distributes surgical instruments to
ophthalmologists and hospitals for vitreoretinal surgery,
including retinal implants. All the products are only sold
according to the Federal warning restricting the sale by or
on the order of a physician. Are these medical devices and
implants exempt from sales tax?

ANSWER - Based on Facts Below: Section 212.08(2)(a), F.S.
provides an exemption for medical products and supplies, or
medicines, which are dispensed according to an "individual
prescription or prescriptions written by a prescriber
authorized by law to prescribe medicinal drugs." (emphasis
added). Included within the scope of this exemption are
those devices, such as medical procedure trays and surgical
supplies, which meet both of the following criteria: (a)
they are intended for one-time use; and (b) they are
required under federal law to bear a prescription legend
that reads either "RX only," or "CAUTION: Federal law
restricts this device to sale by or on the order of a
_____" [designation of a licensed health care
practitioner authorized to use or order use of the device].
The exemption does not extend to prescription legend
devices that are intended to be reusable, and thus it would
not be applicable to items such as x-ray machines or
similar diagnostic machinery, or to the mircoforceps and
microscissors that are sterilized and reused.

Sep 09, 2002

Re: Technical Assistance Advisement 02A-035
XXX ("Taxpayer")
Sales & Use Tax - Ophthalmic Instruments and Retinal
Implants
Statutes: 212.08(2)(a), (b), F.S.
Rules: 12A-1.020(6)(a), (b), 12A-1.021, F.A.C.

Dear :

This response is in reply to your letters dated October 25, and
December 7, 2000, and several telephone conversations requesting
the Department's issuance of a Technical Assistance Advisement
("TAA") pursuant to s. 213.22, F.S., and Chapter 12-11, F.A.C.,
regarding the referenced matter and parties. An examination of
your petition has established that you have complied with the
statutory and regulatory requirements for issuance of a TAA.
Therefore, the Department is hereby granting your request for
issuance of a TAA.

INFORMATION SUPPLIED

Taxpayer distributes surgical instruments to ophthalmologists
and hospitals for vitreoretinal surgery, including retinal
implants. All the products are only sold according to the
Federal warning restricting the sale by or on the order of a
physician.

APPLICABLE STATUTES

Section 212.08(2), F.S., provides, in part:

(2) EXEMPTIONS; MEDICAL.

(a) There shall be exempt from the tax imposed by this
chapter any medical products and supplies or medicine
dispensed according to an individual prescription or
prescriptions written by a prescriber authorized by
law to prescribe medicinal drugs; .... There shall
also be exempt from the tax imposed by this chapter...
prosthetic and orthopedic appliances;....

(b) For the purposes of this subsection:

1. "Prosthetic and orthopedic appliances" means any
   apparatus, instrument, device, or equipment used to replace
   or substitute for any missing part of the body, to
   alleviate the malfunction of any part of the body, or to
   assist any disabled person in leading a normal life by

facilitating such person's mobility. Such apparatus,
instrument, device, or equipment shall be exempted
according to an individual prescription or prescriptions
written by a physician....

APPLICABLE RULES

Rule 12A-1.020, F.A.C., provides, in part:

(6)(a) Medical products and supplies used in the cure,
mitigation, alleviation, prevention or treatment of injury,
illness, disease or incapacity are taxable, unless:

1. Temporarily or permanently incorporated into a
   patient or client by a practitioner of the healing
   arts licensed by the State of Florida.

2. Ordered and dispensed by or on the prescription of
   a duly licensed practitioner authorized by the laws of
   the state to prescribe medicinal drugs; or

3. Ordered and dispensed by a pharmacist pursuant to
   the established dispensing procedures determined by
   the joint committee of medical, osteopathic and
   pharmacy professions as created by section 465.186,
   F.S.

(b) The sale of medical products or supplies to physicians,
dentists, veterinarians and hospitals is taxable even
though the medical products or supplies may be used in
connection with medical treatment, unless the products and
supplies are specifically exempt from tax under this rule
or in Rule 12A-1.021, F.A.C.

(c) "Medical products and supplies" shall mean and include,
but is not limited to, such items as cotton, knives, sewing
and surgical needles, scissors, microscopes, x-ray
machines, I.V. administration sets, laboratory apparatus,
surgeons' gloves, ear syringes, and hospital beds.

Rule 12A-1.021, F.A.C., provides, in part:

(1)(a) Prosthetic and orthopedic appliances are exempt.
The term "prosthetic and orthopedic appliances" means any
apparatus, instrument, device, or equipment used to replace
or substitute for any missing part of the body, used to
alleviate the malfunction of any part of the body, or used
to assist any disabled person in leading a normal life by
facilitating such person's mobility. Such apparatus,
instrument, device, or equipment shall be exempted
according to an individual prescription or prescriptions
written by a duly licensed practitioner authorized by the
laws of the state to prescribe medicinal drugs, or
according to a list prescribed and approved by the
Department of Health, which list shall be certified to the
Department of Revenue from time to time....

DISCUSSION

In order for a medicine, medical product, or medical supply to
be exempt under Section 212.08(2)(a), F.S, the item must be
dispensed pursuant to an "individual prescription or
prescriptions written by one authorized to prescribe such
medicines, supplies or devices." (emphasis added). While Chapter
212, F.S., does not provide a definition for "dispense," there
are provisions under Federal and State law that are useful in
ascertaining the meaning of such term. Section 465.003(5), F.S.,
of the Florida Pharmacy Act defines "dispense" as "the transfer
of possession of one or more doses of a medicinal drug by a
pharmacist to the ultimate consumer or her or his agent."
Federal law states that "dispense" means "to deliver a
controlled substance to an ultimate user or research subject by,
or pursuant to the lawful order of, a practitioner, including
the prescribing and administering of a controlled substance and
the packaging, labeling and compounding necessary to prepare the
substance for such delivery." 21 U.S.C. s. 802(10)(1999).

Items such as surgical tools, whether disposable or not, are not
consumed by the patient. Unlike the case of prescription drugs,
such as anesthesia, which actually are administered to a
patient, the patient is not going to receive title or possession
of the surgical tools. Moreover, it may be a violation of

Federal law if the patient were to be given control over the
item. Such items, instead, are utilized by the doctor as a tool
in performing medical services. The patient may or may not be
charged for such items on an itemized basis. The charge is in
the nature of a reimbursement to the hospital or doctor for
their costs of acquiring the supplies necessary to perform their
medical services.

Additionally, the fact that a medical product or supply contains
a federal warning label restricting the device to sale by or on
the order of a licensed practitioner, does not exempt the device
under Section 212.08(2), F.S. This label indicates that use is
restricted in order to prevent access to the general public.
The exemption is for prescription drugs, legend medical devices,
and medical products that are dispensed to the patient.

Taxpayer distributes surgical instruments to ophthalmologists
and hospitals for vitreoretinal surgery, including retinal
implants. All the products are only sold according to the
Federal warning restricting the sale by or on the order of a
physician.

However, Section 212.08(2)(a), F.S. provides an exemption for
medical products and supplies, or medicines, which are dispensed
according to an "individual prescription or prescriptions
written by a prescriber authorized by law to prescribe medicinal
drugs." (emphasis added). Included within the scope of this
exemption are those devices, such as medical procedure trays and
surgical supplies, which meet both of the following criteria:
(a) they are intended for one-time use; and (b) they are
required under federal law to bear a prescription legend that
reads either "RX only," or "CAUTION: Federal law restricts this
device to sale by or on the order of a _____" [designation
of a licensed health care practitioner authorized to use or
order use of the device]. The exemption does not extend to
prescription legend devices that are intended to be reusable,
and thus it would not be applicable to items such as x-ray
machines or similar diagnostic machinery, or to the mircoforceps
and microscissors that are sterilized and reused.

With regard to the initial transaction between the vendor and

the hospital, clinic, or physician, one of the two following
procedures must be followed:

1. If the items are sold to a hospital which holds a
   consumer's certificate of exemption, the vendor must obtain
   a copy of the hospital's consumer's certificate of
   exemption; and

2. If the items are sold to a hospital not holding a
   consumer's certificate of exemption, or to a physician,
   then the vendor must obtain an Annual Resale Certificate
   (See Rule 12A-1.039, F.A.C.) or a certificate (or
   affidavit) from such hospital or physician indicating that
   the items will be dispensed only pursuant to a physician's
   order.

You also expressed concern regarding your customers issuing
Annual Resale Certificates to purchase your products exempt from
sales tax. Specifically, you asked whether it may be necessary
to recover any underpaid sales tax from your customer should its
exemption certificate be deemed invalid. So long as you have a
valid exemption certificate, there is no unpaid sales tax. It
is the responsibility of the company offering the exemption
certificate to insure that the transaction qualifies for the
exemption. Furthermore, when a company fraudulently "issues a
vendor an exemption certificate or statement in writing in which
he or she claims exemption from the sales tax, such person, in
addition to being liable for payment of the tax plus a mandatory
penalty of 200% of the tax, shall be liable for fine and
punishment provided for by law for conviction of a misdemeanor
of the second degree...." See s. 212.085, F.S.

CONCLUSION

Medical products qualify for the exemption under s.
212.08(2)(a), F.S., and Rule 12A-1.020, F.A.C., when they are
for single patient use and contain the federal warning
restricting their sale by or on the order of a licensed
physician. Medical supplies that are reused do not qualify for
this exemption. Retinal implants are exempt as prosthetic
devices under Rule 12A-1.021(1)(a), F.A.C.

This response constitutes a Technical Assistance Advisement
under s. 213.22, F.S., which is binding on the Department only
under the facts and circumstances described in the request for
this advice as specified in s. 213.22, F.S. Our response is
predicated on those facts and the specific situation summarized
above. You are advised that subsequent statutory and
administrative rule changes or that judicial interpretations of
the statutes or rules upon which this advice is based may
subject similar future transactions to a different treatment
than expressed in this response.

You are further advised that this response, your request, and
related backup documents are public records under Chapter 119,
F.S., and are subject to disclosure to the public under the
conditions of section 213.22, F.S. Confidential information
must be deleted before public disclosure. In an effort to
protect confidentiality, we request that you provide the
undersigned with an edited copy of your request for Technical
Assistance Advisement, the backup material and this response,
deleting names, addresses, and any other details that might lead
to identification of the taxpayer. Your response should be
received by the Department within 15 days of the date of this
letter.

Sincerely,

Michael T. Cavanaugh
Tax Law Specialist
Technical Assistance and Dispute Resolution
850-922-9411

Enclosure
Control #50915