Were electrosurgical pencils, electrodes, handpieces, and generators exempt when hospitals used them in surgery?

Plain-English summary

Florida found the electrosurgical instruments and generators taxable because doctors and hospitals consumed them in providing surgical services rather than dispensing or reselling them to patients. The products included single-use pencils, electrodes, handpieces and components, and generators.

A federal label restricting sale to or on a practitioner's order did not itself establish exemption. The Department said the patient did not receive title or possession of the surgical tools, even if a charge appeared on the bill.

The submitted blanket certificates also failed: they lacked sales-tax numbers, did not state a true resale, and incorrectly asserted that the tools would be dispensed to patients.

What this means for you

Prescription-device labeling and medical use are not enough. Determine whether the specific product is actually transferred or dispensed to the patient and obtain valid transaction documentation.

Common questions

Q: Were disposable surgical tools exempt? No.

Q: Did the federal warning label make them exempt? No.

Q: Were the hospitals' blanket certificates valid? No.

Citations and references

• Fla. Stat. § 212.08(2)(a) — prescribed medical products and supplies
• Fla. Admin. Code rr. 12A-1.002 and 12A-1.020 — practitioner-consumed and medical products
• Fla. Admin. Code r. 12A-1.038 — exemption and resale documentation
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 99A-071

Original ruling text

SUMMARY

QUESTION: What is the taxable status of the following
medical devices, which are used by doctors in performing
surgical procedures?:

1. Single use electrosurgical pencils
2. Various type of electrodes
3. Surgical handpieces and components
4. Electrosurgical generators

ANSWER - Based on Facts Below: Surgical instruments,
including those which are disposable, are not "dispensed"
or resold to patients and are thus not exempt from sales
tax. The fact that a medical product or supply, such as a
surgical tool, contains the federal warning label to the
effect that: "CAUTION: Federal law restricts this devise to
sale by or on the order of a (dentist, physician, etc.)",
does not make that item exempt. In order for the medicine,
or medical product or medical supply to be exempt, the item
must be dispensed pursuant to an individual prescription or
prescriptions written by one authorized to prescribe such
medicines, supplies or devices.

Dec 15, 1999

Re: Technical Assistance Advisement 99A-071
Sales and Use Tax; Medical Products
Section 212.08(2)(a), F.S.
Rules 12A-1.020, 12A-1.002, 12A-1.038, F.A.C.

Dear :

This is in response to your letter of October 12, 1999,
referencing your previous letter of August 13, 1999, in which
you request the issuance of a Technical Assistance Advisement
regarding the taxable status of certain medical products which
your company sells. In our telephone conversation of October
21, 1999, you stated that the products were medical devices

which were used by doctors in performing surgical procedures.
Your August 25, 1999 letter includes pictures and information on
the following types of products:

1. Single use electrosurgical pencils
2. Various types of electrodes
3. Surgical handpieces and components
4. Electrosurgical generators

In addition, you have enclosed two examples of certificates
which your for-profit hospital customers have been providing
when attempting to claim a sales tax exemption on their
purchases of your products. One certificate is labeled "Blanket
Certificate of Resale or Exemption" and the other is labeled
"Blanket Certificate of Exemption." The stated reasons for the
claimed exemptions are as follows:

Other (Explain) The specified products, supply, or devices
are to be dispensed to a patient pursuant to a duly
licensed physician's orders or prescription.

and,

Other: All medical products or supplies which contain the
Federal warning restricting the sale of said products by or
on the order of a physician. Please be advised that such
products purchased by our facility will be dispensed by or
on the order of a physician and are exempt from sales or
use tax pursuant to Section 212.08(2)(a), F.S. and Rule
12A-1.020, F.A.C.

Applicable Authority

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

(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;....

Rule 12A-1.038(1), F.A.C., addresses resale certificates and
provides in part:

(1) It is the specific legislative intent that each and
every sale, admission, use, storage, consumption, or rental
is taxable under Chapter 212, F.S., unless such sale,
admission, use, storage, consumption, or rental is
specifically exempt. The exempt status of the transaction
must be established by the dealer. Unless the dealer shall
have taken from the purchaser a certificate signed by the
dealer or the dealer's authorized representative to the
effect that the property or service was purchased for
resale and bearing the date, the name and address of the
purchaser, the effective date of the certificate, and the
number of the dealer's certificate of registration, or a
certificate signed by an authorized representative of the
organization bearing the number of the organization's
consumer's exemption certificate, the effective date of the
certificate, and the expiration date of the certificate,
the sale shall be deemed to be a taxable sale at retail.

Rule 12A-1.002, F.A.C., provides in part:

(1) All licensed practitioners of the healing arts are the
consumers of the various items of tangible personal
property which they use in the rendition of their
professional services and the tax will apply upon their
purchases of items of tangible personal property, including
equipment except such items as are exempt under Rule 12A1.020.

Rule 12A-1.020(6)(b) and (c), F.A.C., provide in part:

(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.

[Rule 12A-1.021, F.A.C. deals with certain exempt

prosthetic and orthopedic appliances that are not products
sold by your company.]

(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.

Determination

Because the two certificates which you have received from your
customers do not have sales tax numbers on them, they do not
qualify as resale certificates. Additionally, the certificates
do not state that the products will be resold. Instead, they
indicate that the products will be "dispensed to a patient
pursuant to a duly licensed physician's orders or prescription."
Even with a sales tax number, it is the Department's position
that the certificates are not valid, because they are erroneous
on their face. Surgical instruments are not "dispensed" or
resold to patients. Surgical tools used by a doctor or clinic,
are an overhead expense to the doctor or clinic, and are taxable
to the doctor or clinic. Therefore, your sales of surgical
instruments and equipment under the conditions described in your
letter would be taxable.

The fact that a medical product or supply, such as a surgical
tool, contains the federal warning label to the effect that:
"CAUTION: Federal law restricts this device to sale by or on the
order of a (dentist, physician, etc.)," does not make that item
exempt under Section 212.08(2), F.S. In order for a medicine,
or 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.
While Chapter 212, F.S., does not provide a definition for
"dispense," there are some other 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. Section 893.02(6), F.S. defines
"dispense" as the "transfer of possession of one or more doses
of a medicinal drug by a pharmacist or other licensed
practitioner to the ultimate consumer thereof or to one who
represents that it is not his or her intention to consume or use
the same but to transfer the same to the ultimate consumer or
user for consumption by the ultimate consumer or user." Chapter
21 USC Section 802(10), states that the term "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."

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. And, in fact, it might 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. Such items or their packaging may very well
contain a label indicating that their use is restricted, so that
the items do not end up in the hands of the general public.
However, a label does not provide an exemption. The exemption
is for prescription drugs, legend medical devices, and medical
products that are dispensed to a patient.

This response constitutes a Technical Assistance Advisement
under s.21 3.22, F.S. which is binding on the department only
under 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, your request and
related backup documents are public records under Chapter 119,
F.S., which are subject to disclosure to the public under the
conditions of s.213.22, F.S. Your name, address, and any other
details which might lead to identification of the taxpayer must
be deleted by the Department before disclosure. In an effort to
protect the confidentiality of such information, we request you
provide the undersigned with an edited copy of your request for
Technical Assistance Advisement, backup material and response
within fifteen days of the date of this advisement.

Sincerely,

Jonathan E. Swift
Tax Law Specialist
Technical Assistance and Dispute Resolution
(850) 922-4840

Control #39196