Were receipts and reasonable acquisition costs for processing and distributing human tissue to hospitals subject to Florida sales tax?

Plain-English summary

The Florida Department of Revenue concluded that the taxpayer's receipts associated with transferring processed human tissue for hospital use were not subject to Florida sales and use tax.

The tissue bank processed human amniotic-derived and musculoskeletal tissues registered as human tissue products. State and federal law prohibited selling human tissue for valuable consideration but allowed reasonable payments for removal, transport, processing, preservation, quality control, storage, and related activities.

Because the transactions stayed within those legal limits, the Department did not treat them as sales of the tissue. Reasonable amounts paid to acquire tissue for processing and distribution were also nontaxable, and the taxpayer's activities were not among the separately taxable services listed in section 212.05(1)(i).

What this means for you

Tissue banks and biotechnology companies

Document that charges represent authorized reasonable costs rather than payment for the tissue itself.

Hospitals and suppliers

Maintain records separating procurement, handling, transport, processing, preservation, quality-control, and storage costs.

Accountants and tax professionals

The result depended on compliance with state and federal human-tissue restrictions. It does not support ordinary commercial sales of human tissue.

Common questions

Q: Were hospital tissue-transfer receipts subject to Chapter 212 tax?
A: No.

Q: Were authorized reasonable acquisition costs taxable?
A: No.

Q: Did the ruling permit sale of human tissue for valuable consideration?
A: No.

Citations and references

• Fla. Stat. §§ 212.05(1)(i), 213.22, and 873.01(3)(b)
• 42 U.S.C. § 274e

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 16A-006

Original ruling text

Executive
Director
Leon M. Biegalski

QUESTIONS:

1. ARE THE REVENUES OF TAXPAYER ASSOCIATED WITH THE TRANSFER OF HUMAN
   TISSUE FOR USE IN HOSPITALS SUBJECT TO THE TAX IMPOSED UNDER CHAPTER 212,
   F.S.?
2. ARE THE AMOUNTS PAID FOR THE ACQUISITION OF HUMAN TISSUE FOR PROCESSING
   AND DISTRIBUTION FOR USE IN HOSPITALS SUBJECT TO THE TAX IMPOSED UNDER
   CHAPTER 212, F.S.?
   ANSWERS:
3. THE REVENUES OF TAXPAYER ASSOCIATED WITH THE TRANSFER OF HUMAN TISSUE
   FOR USE IN HOSPITALS ARE NOT SUBJECT TO THE TAX IMPOSED UNDER CHAPTER
   212, F.S.
4. THE AMOUNTS PAID BY TAXPAYER AUTHORIZED BY S. 873.01(3)(B), F.S., AS
   REASONABLE COSTS FOR THE ACQUISITION OF HUMAN TISSUE FOR PROCESSING AND
   DISTRIBUTION FOR USE IN HOSPITALS, ARE NOT SUBJECT TO THE TAX IMPOSED
   UNDER CHAPTER 212, F.S.
   May 25, 2016
   Re:

Technical Assistance Advisement – TAA 16A-006
XXXXX (“Taxpayer”)
Florida Sales and Use Tax
Human Tissue
Sections, 212.05(1)(i), 873.01, Florida Statute (F.S.)
BP#: XXXXX

Dear XXXXX:
This letter is in response to your request dated XXXXX, and received in this office on XXXXX, for
issuance of a Technical Assistance Advisement (“TAA”) pursuant to Section 213.22, F.S., and Rule
Chapter 12-11, F.A.C., concerning the taxability of machinery and equipment. An examination of your
request has established you complied with the statutory and regulatory requirements for issuance of a
TAA. Therefore, the Department is hereby granting your request for a TAA.
Child Support – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – Dr. Maurice Gogarty, Director  Information Services – Damu Kuttikrishnan, Director

http://dor.myflorida.com/dor/
Florida Department of Revenue
Tallahassee, Florida 32399-0100

TAA
Page 2

FACTS PRESENTED
Taxpayer currently operates a tissue bank located in XXXXX, XXXXX. Specifically it is a biotechnology
company focused on the development and commercialization of a suite of products designed to address
market needs with product applications across various collagen repair markets. Currently, Taxpayer has a
comprehensive portfolio of human tissue products it processes that include both human amniotic-derived
tissues and a variety of musculoskeletal tissues.
All of Taxpayer’s products are registered with the US Food and Drug Administration under the
regulations in 21 CFR Part 1271 as human tissue products.
The National Organ Transplant Act (“NOTA,” 42 U.S.C. §274 et seq.) makes it unlawful for “any person
to knowingly acquire, receive, or otherwise transfer any human organ for valuable consideration for use in
human transplantation ....” 42 U.S.C. §274e.(a). As used in NOTA, the term “valuable consideration”
does not include the “reasonable payments associated with the removal, transportation, implantation,
processing, preservation, quality control, and storage of a human organ....” Similarly, s. 73.01, F.S.,
prohibits the sale, purchase or transfer of human organs or tissue for valuable consideration making such a
transaction a second degree felony. 42 U.S.C. §274e.(c)(2)., s. 873.01, F.S.
Amounts paid to Taxpayer are for the use of its technology in the processing and transfer of human tissue
to hospitals both in and outside the state of Florida. Payments made to the suppliers of the donor tissue
and related items are made for the reimbursement of the harvesting, handling, and transportation costs of
the supplying entity.
REQUESTED ADVISEMENT

1. Are the revenues of Taxpayer associated with the transfer of human tissue for use in hospitals
   subject to the tax imposed under Chapter 212, F.S.?
2. Are the amounts paid for the acquisition of human tissue for processing and distribution for use in
   hospitals subject to the tax imposed under Chapter 212, F.S.?
   TAXPAYER’S DETERMINATION
   Taxpayer asserts that the transactions at question, procurement, processing, and distribution of human
   tissue, are not the sale of tangible personal property, but the reimbursement of costs associated with
   accepted tissue services. Tissue transfer services are not services subject to the tax referenced in Chapter
   212 F.S. Only services enumerated in s. 212.05(1)(i), F.S., are subject to Florida sales and use tax. As
   such, Taxpayer asserts that the charges for tissue procurement and the charges for tissue distribution are
   not subject to Florida sales and use taxation.
   APPLICABLE LAW AND DISCUSSION
   The sale of human organs and/or tissue for “valuable consideration” is prohibited by state and federal law.
   Taxpayer asserts it will conduct its business activities within the confines of state and federal law.

TAA
Page 3

Therefore, in accordance with statutory authority, only “reasonable payments” will be made by Taxpayer
to its supplier. The payments are limited to the costs associated with the supplier’s use of technology in
the processing and transfer of the human tissue to Taxpayer’s Florida location. A review of the contract
submitted by Taxpayer echoes the limited conditions under which consideration will flow between the
parties. Accordingly, it is the Department’s position that the acquisition and transfer of human tissue
within the confines of state and federal law are not sales of the human tissue, and given there is no sale of
the human tissue, there is no sales or use tax due on the transaction between Taxpayer and its supplier.
Regarding taxable services, the only services, in Florida, that by themselves are subject to Florida sales
and use tax are those enumerated in s. 212.05(1)(i), F.S.1 The Department agrees Taxpayer’s business
activities are not subject to taxation under the referenced provision.
CONCLUSION

1. The revenues of Taxpayer associated with the transfer of human tissue for use in hospitals are not
   subject to the tax imposed under Chapter 212, F.S.
2. The amounts paid by Taxpayer authorized by s. 873.01(3)(b), F.S., as reasonable costs for the
   acquisition of human tissue for processing and distribution for use in hospitals, are not subject to
   the tax imposed under Chapter 212, F.S.
   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 or administrative rule changes, or 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 and 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 s.
   213.22, F.S. Confidential information must be deleted before public disclosure. In an effort to protect
   confidentiality, we request 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 which might lead to identification of the taxpayer. Your response should be received by the
   Department within 15 days of the date of this letter.
   Kind Regards,
   Alan R. Fulton
   Tax Law Specialist
   Technical Assistance & Dispute Resolution
   850-717-6735
   ARF\tmk
   Record ID: 209976
   1

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