Was Louisiana sales or use tax due on single-use camera capsules sold to health care providers for diagnosing patients?

Plain-English summary

Louisiana Private Letter Ruling 09-019 concluded that no Louisiana sales or use tax was due when two types of single-use, swallowable camera capsules were sold to physicians, hospitals, and other health care facilities for diagnosing people.

The Department treated the capsules as exempt medical devices under La. R.S. 47:305(D)(1)(s). Based on the facts presented, each capsule was prescribed by a physician, administered by a health care professional, used by only one patient, and used in diagnosing diseases.

The capsules also qualified as part of an exempt professional service under La. R.S. 47:305(D)(5)(b) when sold to a physician's office or another facility where patients were not regularly kept as bed patients for 24 hours or more.

How the diagnostic system worked

The patient swallowed a vitamin-sized capsule containing a camera and light source. As the capsule passed through the body, it transmitted images through sensors attached to the patient's torso to a reusable recorder worn on a belt. A physician later downloaded and reviewed the images for diagnosis.

The two capsule models were designed to image the small intestine or the esophagus. The capsules were single-use and left the body naturally. The sensor arrays and data recorders were reusable and separately charged, but the requested ruling and conclusion addressed the capsules.

Why the capsules were exempt

The ruling listed four conditions for the medical-device exemption:

1. A physician prescribed the capsules.
2. A health care professional administered them to a patient.
3. Each capsule was for one patient's exclusive use.
4. The capsules were used to treat various diseases.

The Department found those conditions satisfied on the stated facts and classified both capsules as exempt medical devices.

For the professional-service exemption, the ruling added a fifth condition: the capsule had to be sold to a physician's office where patients were not regularly kept as bed patients for 24 hours or more. Thus, sales to doctors' offices, outpatient clinics, and similar qualifying facilities could fit both exemptions, while hospital sales qualified under the medical-device exemption.

What this means for you

Medical-device companies

The ruling turned on the device's prescribed, single-patient, provider-administered diagnostic use. It did not announce an exemption for every camera, recorder, sensor, or other component of a diagnostic system.

Physicians, hospitals, and outpatient facilities

The Department distinguished the medical-device exemption from the professional-service exemption. The former supported the capsule sales to hospitals and other providers; the latter also applied when the sale was to a facility without regular 24-hour bed patients.

Accountants and tax professionals

Document who prescribes and administers the product, whether it is used by one patient, what medical purpose it serves, and the kind of facility buying it. Those facts drove the ruling's result.

Common questions

Q: Were the ingestible camera capsules taxable?

A: No. On the facts presented, the ruling found both capsule models exempt and said no Louisiana sales or use tax was due on sales to physicians, hospitals, and other health care facilities for human diagnosis.

Q: Did the ruling exempt the reusable sensor arrays and data recorders?

A: It described those items as separately charged and reusable, but the requested ruling and final conclusion addressed the single-use capsules. The page does not extend the capsule holding to the other equipment.

Q: Did the professional-service exemption apply to hospitals?

A: The ruling said hospital sales qualified under the medical-device exemption. It described the additional professional-service exemption for physicians' offices and other facilities where patients were not regularly kept as bed patients for 24 hours or more.

Q: Can another medical-device seller rely on this PLR?

A: No. The ruling says it bound the Department only for the addressed taxpayer, complete and truthful facts, and the proposed transaction.

Citations and references

• La. R.S. 47:305(D)(1)(s) — exemption for qualifying medical devices
• La. R.S. 47:305(D)(5)(b) — qualifying administration as a professional service
• LAC 61:III.101 — private letter ruling authority and reliance limits

Source

• Landing page: Louisiana Department of Revenue Policies
• Original PDF: LA PLR 09-019

Original ruling text

Private Letter Ruling No. 09-019
Redacted Version
Sales and Use Taxability of an Ingestible Medical Diagnostic Capsule
September 14, 2009
This private letter ruling involves the sale and use of an ingestible medical diagnostic capsule. The
Department’s response is limited to the facts as presented.

Factual Scenario
As part of an endoscopy procedure a physician will furnish an ingestible medical diagnostic
capsule (hereinafter referred to as “capsule”) to patients for oral ingestion. Physically the capsule
resembles a large vitamin capsule. The single-use capsule contains a micro camera, which when
ingested travels through the body collecting images and data. The information is then transmitted
via sensor arrays secured to the abdomen, to a data recorder affixed to a belt worn around the
patient’s waist. Once the exam is completed the data is transferred from the recorder belt to a
workstation, which is used for reviewing, editing, archiving and e-mailing video images. The 8hour examination can be conducted while the patient continues normal daily activities. When the
exam period expires the patient returns the sensor arrays and the data recorded for processing. A
physician then examines the video and data as part of the diagnostic process. The capsules are
sold only to physicians, hospitals and other health care facilities. A separate charge is made for
the sale of the sensor arrays and the data recorders which can be used multiple times.
Summary of Law
Louisiana Revised Statute 47:305(D)(1)(s) specifically exempts any and all medical devices used
exclusively by the patient in the medical treatment of various diseases or administered
exclusively to the patient by a physician, nurse, or other health care professional or health care
facility in the medical treatment of various diseases under the supervision of and prescribed by a
licensed physician from state sales and use tax for tangible personal property sold at retail,
distributed, storage to be used or consumed in Louisiana.
Louisiana Revised Statute 47:305(D)(5)(b) provides a sales tax exemption for the administration
of prescription drugs used exclusively by the patient in the medical treatment of various diseases
or injuries when administered exclusively to the patient by a physician, nurse, or other health
care professional in a physician’s office where patients are not regularly kept as bed patients for
twenty-four hours or more because it constitutes a professional service.
Requested Ruling
Is the sale of the capsule subject to Louisiana sales and use tax?
Analysis
Company A created capsule A and capsule B, which are the size of a vitamin and provide
physicians with pictures of the esophagus and small intestine. The single use plastic capsule
contains a tiny camera and a light source. The patient swallows the capsule with a glass of water.
Capsule A is designed specifically to help physicians see inside the patient’s small intestine to
This constitutes a redacted version of a private letter ruling (PLR) by the Louisiana Department of Revenue, as provided for by
section 61:III.101 of the Louisiana Administrative Code. A PLR provides guidance to a specific taxpayer at the taxpayer's request. It
is a written statement that applies principles of law to a specific set of facts or a particular tax situation. A PLR does not have the
force and effect of law, and is not binding on the person who requested it or on any other taxpayer. This PLR is binding on the
department only as to the taxpayer to whom it is addressed, and only if the facts presented were truthful and complete and the
transaction was carried out as proposed. It continues as authority for the department's position unless a subsequent declaratory
ruling, rule, court case, or statute supersedes it.

Redacted Private Letter Ruling No. 09-019
Page 2 of 3

diagnose disorders such as Crohn’s disease, Celiac disease, benign and cancerous tumors,
ulcerative colitis as well as others disorders. Capsule A transmits images at a rate of two images
per second for approximately eight hours, resulting in more than 50,000 images. Capsule B is
designed specifically to help physicians see inside the patient’s esophagus to diagnose diseases
such as esophageal varices, which may result in fatal bleeding, gastrointestinal reflux disease
(GERD) and Barrett’s esophagus, which is an early indication for esophageal cancer. Capsule B
provides a patient-friendly alternative to esophageal endoscopy and the associated sedation and
discomfort. Capsule B contains an imaging device and light source at both ends of the capsule
and takes up to 14 images per second or a total of 2,600 color images as it passes down the
esophagus. As the capsule moves through the body, the camera takes pictures. The images from
Capsule A or Capsule B are transmitted to a data recorder about the size of a Walkman attached
to a padded waist belt that is worn by the patient. Several electronic leads are attached to the
patient’s torso and capture the images transmitted from the camera. The patient wears the belt for
about eight hours. After the belt is removed, the physician downloads the images from the data
recorder to the workstation for review and diagnosis. The software installed on the workstation
contains an image atlas to help facilitate the analysis. Both capsules leave the body naturally.
To be exempt under La. R.S. 47:305(D)(1)(s) as a medical device, the following criteria must be
met:

1. The capsules are prescribed by a physician;
2. The capsules are administered by a health care professional to a patient;
3. The capsules are for the exclusive use of one patient; and
4. The capsules are used to treat various diseases.
   Based on the facts as presented, the capsules qualify for the medical device exemption and are
   not subject to sales and use tax. In addition, the capsules may also qualify as part of a
   professional service if the following criteria are met:
5. The capsules are prescribed by a physician;
6. The capsules are administered by a health care professional to a patient;
7. The capsules are for the exclusive use of one patient;
8. The capsules are used to treat various diseases; and
9. The capsules are sold to a physician’s office where patients are not regularly kept as
   bed patients for twenty-four hours or more.
   If the capsules are sold to a physician’s office or health care facility where patients are not
   regularly kept as bed patients for twenty-four hours or more, the capsules are administered as
   part of a professional service, as set forth in La. R.S. 47:305(D)(5)(b), and not subject to sales
   and use tax. It is important to note that sales of the capsules to hospitals qualify as an exempt
   medical device under La. R.S. 47:305(D)(1)(s) while sales of the capsules to doctor’s offices,
   outpatient clinics and other health care facilities where patients are not regularly kept as bed
   patients for twenty-four hours or more qualify as a medical device and as part of a professional
   service under La. R.S. 47:305(D)(5)(b).

Redacted Private Letter Ruling No. 09-019
Page 3 of 3

Ruling
Assuming the facts as stated by Company A are accurate, based on La. R.S. 47:305(D)(1)(s) the
nature and use of Capsule A and Capsule B qualify as exempt medical devices. In addition to the
medical device exemption, Capsule A and Capsule B sales will qualify under La. R.S.
47:305(D)(5)(b), as part of a professional service, if the capsules are sold to facilities where
patients are not regularly kept as bed patients for twenty-four hours or more. Therefore, no
Louisiana sales and use tax is due when Capsule A and Capsule B are sold to physicians,
hospitals and other health care facilities for the diagnosis of human beings.
If you have any questions or need additional information, please contact Michael Pearson,
Director, or Raymond Tangney, Senior Policy Consultant, or Shanda J. McClain, Attorney,
Policy Services Division, at (225) 219-2780.
Sincerely,
Cynthia Bridges
Secretary
By:
Shanda J. McClain
Attorney
Policy Services Division