Are sales of custom prosthetic and orthotic devices taxable in Kansas, and must the provider register as a retailer?

Plain-English summary

A company that provides custom prosthetic and orthotic devices — billing Medicare, Medicaid, private insurance, and patients, all in conjunction with a physician's order or prescription — asked the Department for a ruling on its tax status. Medicare required it to furnish a sales tax number or tax exemption certificate to keep its provider status.

The described sales are not taxable. After discussing the facts, the Department advised that "[t]he sales described in your letter are not subject to sales tax." Custom prosthetic and orthotic devices supplied on a physician's order fall outside the sales tax.

But the company must still register as a retailer. "[Y]our company is acting in the capacity of a retailer and therefore must register as [a] retailer and collect tax on sale[s] that are taxable." The Department enclosed an application for registration, which also answers Medicare's documentation requirement.

Bottom line: the prosthetic and orthotic device sales themselves are exempt, but the provider is still a Kansas retailer — it must register and, if it makes any taxable sales, collect and remit the tax on those.

What this means for you

Non-taxable sales do not remove the retailer role

Even a business whose main line of sales is exempt can be "acting in the capacity of a retailer." Registration is required so the business is set up to collect tax on any taxable transactions it does make.

Prosthetic and orthotic devices on a prescription are treated as exempt

The Department treated the described custom prosthetic and orthotic device sales — supplied in conjunction with a physician's order — as not subject to Kansas sales tax.

Registration can serve a payer's documentation needs

The provider needed a Kansas sales tax number or exemption certificate to satisfy Medicare. Registering as a Kansas retailer produces the registration the payer was asking for.

Watch for taxable side sales

If the provider sells anything that is taxable — for example, non-exempt supplies or accessories — it must collect and remit Kansas sales tax on those items even though its core device sales are exempt.

Common questions

Q: Are custom prosthetic and orthotic devices taxable in Kansas?
A: The Department said the sales described in the request — custom prosthetic and orthotic devices supplied on a physician's order — are not subject to Kansas sales tax.

Q: If the sales are not taxable, why register?
A: Because the company is acting as a retailer; it must register and be able to collect tax on any sales it makes that are taxable.

Q: Does registering help with Medicare?
A: Yes. Medicare required a sales tax number or exemption certificate, and registering as a Kansas retailer provides that documentation.

Q: Does the provider ever collect sales tax?
A: Only on sales that are taxable. The exempt device sales are not taxed, but any taxable sales it makes must have tax collected and remitted.

Citations and references

• Kansas sales tax treatment of prosthetic and orthotic devices — the Department concluded that the described custom prosthetic and orthotic device sales, supplied on a physician's order, are not subject to Kansas sales tax; it did not cite a specific statutory subsection in the letter.
• Kansas retailers' sales tax registration — a business acting in the capacity of a retailer must register and collect tax on its taxable sales, even when its principal sales are exempt.
• K.A.R. 92-19-59 — the regulation authorizing private letter rulings; this ruling was issued under it and binds the Department only as to the requesting taxpayer.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1998-205

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

November 30, 1998

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Dear XXXXXXXXXXXXXXXX:

The purpose of this letter is to respond to your letter dated November 16, 1998.

Your company provides custom prosthetic and orthotic devices. Billings are to Medicare, Medicaid, private insurance and patients for your services. All services are according to and in conjunction with a physician’s order or prescription. Medicare has issued you a provider number for purposes of billing them. They require you to provide them a sales tax number or tax exemption certificate in order to maintain your provider status. You have been advised to write to the Department for a Private Letter Ruling which should satisfy Medicare’s requirement as proof of your tax exemption status.

After speaking to you on the 23rd of November, it is apparent that your company needs to register for Kansas retailers’ sales tax. The sales described in your letter are not subject to sales tax. However, your company is acting in the capacity of a retailer and therefore must register as retailer and collect tax on sale that are taxable. I have enclosed and application for that purpose.

This private letter ruling is based solely on the facts provided in your request. If it is determined that undisclosed facts were material or necessary to make an accurate determination by the department, this ruling is null and void. This private letter ruling will be revoked in the future by operation of law without further department action if there is a change in the statutes, administrative regulations, or case law, or a published revenue ruling, that materially affects this private letter ruling.

Sincerely,

Mark D. Ciardullo
Tax Specialist

MDC
encl.

Date Composed: 12/08/1998 Date Modified: 10/10/2001

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