I sell an implantable neurostimulator that treats Parkinson's and epilepsy -- does it qualify for Missouri's sales tax exemption for prosthetic devices?

Plain-English summary

The Missouri Department of Revenue ruled on whether an implantable medical neurostimulator device ("the Device") sold by the Applicant qualifies for Missouri's sales tax exemption for "prosthetic devices" -- and concluded that it does not.

The Device is a dual-channel, rechargeable, implantable neurostimulator that delivers a controlled electrical pulse to precisely targeted areas of the brain through implanted leads and an extension connected to a main unit implanted subcutaneously near the clavicle. It is FDA-approved for deep brain stimulation to treat motor symptoms of advanced Parkinson's disease and essential tremor, and is also used to treat epilepsy and depression. Absent one of these conditions, there would be no reason to implant the Device.

Section 144.020.1(1), RSMo, imposes a general 4% sales tax on retail sales of tangible personal property in Missouri. Section 144.030.2(18), RSMo, exempts "prosthetic devices" from that tax. The Department's analysis turned on a single fact, drawn directly from the Applicant's own description: the Device does not replace the function of an internal organ. Rather than substituting for an organ that is missing or has failed, the Device stimulates and modulates neural activity to manage symptoms. Because it does not replace an organ's function, it does not meet Missouri's understanding of a "prosthetic device," so the exemption does not apply, and the Applicant's sales of the Device are subject to the standard 4% sales tax.

What this means for you

For medical device sellers evaluating the prosthetic exemption

If you sell an implantable or wearable medical device in Missouri and are considering whether it qualifies as an exempt "prosthetic device," this ruling shows the Department's key question: does the device replace the function of an internal organ, or does it instead stimulate, modulate, monitor, or otherwise assist a bodily process without replacing it? Devices that manage or treat symptoms -- such as neurostimulators that alter electrical activity in the brain -- were treated here as falling outside the exemption, even though they are implanted, FDA-approved, and medically necessary for the patient. Being medical, implantable, or essential to treatment is not, by itself, enough to qualify as a "prosthetic device" under Missouri law.

For buyers of implantable neuromodulation devices

If you purchase an implantable neurostimulator or similar neuromodulation device in Missouri (or sell to Missouri patients), expect the standard 4% state sales tax to apply unless a different exemption applies to your situation. This ruling establishes that neurostimulation devices treating Parkinson's disease, essential tremor, epilepsy, or depression are not automatically tax-exempt just because they are implanted and medically necessary.

Common questions

Q: What would make a device a "prosthetic" under Missouri law based on this ruling?
A: The ruling indicates the touchstone is whether the device replaces the function of an internal organ. The Department did not exempt the Device because, by the Applicant's own description, it does not replace an organ's function -- it instead delivers electrical pulses to modulate neural activity.

Q: Does it matter that the Device is implanted and FDA-approved for treating serious conditions like Parkinson's disease and epilepsy?
A: Not under this ruling. Even though the Device is implanted, FDA-approved, and necessary for treating advanced Parkinson's disease, essential tremor, epilepsy, or depression, none of those facts changed the outcome. The Department's exemption analysis focused solely on whether the Device replaces an organ's function, not on how the device is used, implanted, or approved.

Q: Would a device that replaces an organ's function -- rather than just stimulating it -- be treated differently?
A: Based on the reasoning in this ruling, yes. The Department's rationale for denying the exemption was specifically that the Device does not replace a function of an internal organ. That implies a device that does replace an organ's function could meet Missouri's understanding of a "prosthetic device" under Section 144.030.2(18), RSMo, though this ruling does not resolve that question and only addresses the Device actually at issue.

Q: Can another seller of a similar neurostimulator rely on this ruling?
A: Not automatically. A Missouri letter ruling binds the Department only as to the requesting Applicant, only for three years from its date, and only so long as the facts and law remain unchanged. A different seller should confirm that its device's facts match those described here and consult a tax professional before relying on this result.

Citations and references

Statutes and cases:

• Section 144.020.1(1), RSMo (imposition of a 4% sales tax on retail sales of tangible personal property)
• Section 144.030.2(18), RSMo (exemption from sales tax for "prosthetic devices")

Source

• Landing page: Missouri DOR Rulings Search
• Ruling: LR 8282

Original ruling text

Dear Applicant:

This is a letter ruling issued by the Director of Revenue under Section 536.021.10, RSMo, and Missouri Code of State Regulations 12 CSR 10-1.020, in response to your letter dated November 9, 2023.

The facts as presented in your letter ruling request are summarized as follows:

Applicant sells medical neurostimulators ("The Device"). The Device is a dual-channel stimulator capable of delivering bilateral stimulation. The device contains a rechargeable battery and microelectric circuitry to deliver a controlled pulse to precisely targeted areas of the brain. The Device is typically implanted subcutaneously near the clavicle, and connected to an extension and leads, which are implanted in the brain. Deep brain stimulation using the Device is approved for the treatment of symptoms due to motor symptoms of advanced Parkinson's disease and essential tremor. Moreover, the device is also used to treat epilepsy and depression. Absent the need for treatment of one of these ailments there would be no need for the implantation of the Device.

ISSUE :

Are Applicant's sales of the Device exempt from sales tax as a prosthetic device?

RESPONSE :

No. Applicant's sales of the Device are not exempt as a prosthetic device.

Section 144.020.1(1) RSMo, provides a tax:

"Upon every retail sales in this state of tangible personal property....a tax equivalent to four percent of the purchase price paid or charged, or in case such sale involves the exchange of property exchanged at the time and place of the exchanged, except as otherwise provided in section 144.025"

However, section 144.030.2(18) RSMo, exempts from tax sales of 'prosthetic devices.'

According to the Applicant, the Device does not replace a function of an internal organ. Therefore, sales of the Device are not exempt from sales tax as a prosthetic device.

This letter ruling is binding upon the Department of Revenue with respect to the Applicant for three (3) years from the date of this letter and is subject only to statutory changes by the General Assembly and to changes in the interpretation of law by the courts or administrative tribunals.  If a change occurs, the taxpayer who relies upon an outdated interpretation may be subject to additional taxes, interest and penalties, which may be imposed prospectively from the date of the change.  For this reason, the interpretation set forth above should be reviewed on a regular basis.  Please note that any change in or deviation from the facts as presented will render this ruling inapplicable.

Should additional information be needed, please contact Legal Counsel J. Ross Shelton General Counsel's Office, Post Office Box 475, Jefferson City, Missouri 65105-0475, phone (573) 751-0961.

Sincerely,

Wayne Wallingford