Is a prescription dermal filler injected by a doctor to treat facial wrinkles exempt from Tennessee sales and use tax, and does the seller need exemption certificates from the buying physicians?

Plain-English summary

A manufacturer makes an FDA-approved injectable dermal filler -- used to smooth facial "smile lines" by replacing collagen and elastin lost as skin ages. The FDA restricts the product to prescription use only: it's sold to physicians (dermatologists, cosmetic surgeons) who are trained to inject it, and under FDA rules a patient can only receive it pursuant to a prescription. The manufacturer asked whether its sales of the filler are exempt from Tennessee sales and use tax, and if so, what paperwork it needs.

The Department ruled the filler is exempt as a prescription drug under Tenn. Code Ann. § 67-6-320(a), which exempts "any drug ... for human use dispensed pursuant to a prescription." To qualify, a product must (1) meet the statutory definition of "drug," (2) be for human use, and (3) be dispensed pursuant to a prescription. The filler checked all three boxes:

• It's a "drug" because it's a compound or preparation "intended to affect the structure ... of the body" -- here, permanently restoring lost collagen structure in the skin. (It's not knocked out by the "grooming and hygiene products" carve-out, which is limited to things like soaps, shampoo, toothpaste, and sunscreen.)
• It's for human use -- undisputed on the facts presented.
• It's dispensed pursuant to a prescription -- the FDA restricts it to prescription use, and Tennessee defines "prescription" broadly enough to include an order written on a patient's chart by a licensed practitioner (it doesn't require a traditional pharmacy-style written script).

On paperwork: because the prescription-drug exemption is a product exemption (it turns on what's being sold, not on who's buying it), the manufacturer does not have to collect the exemption certificates normally required under Tenn. Code Ann. § 67-6-409(a) for purchaser-status exemptions. It only needs to comply with the Department's general recordkeeping rule (Tenn. Code Ann. § 67-6-523) -- keeping adequate records like invoices and purchase orders for at least three years from December 31 of the year the related sales tax return was filed.

What this means for you

Medical device and pharmaceutical manufacturers selling prescription-only products in Tennessee

If your product is FDA-restricted to prescription use, is intended to affect the structure or function of the body (or treat/diagnose/prevent disease), and is dispensed only pursuant to a prescription, it likely qualifies for Tennessee's prescription-drug sales tax exemption -- even if it's a device-like product (like an injectable filler) rather than a traditional pill or liquid medication. Because it's a product exemption, you generally don't need purchaser exemption certificates; ordinary sales recordkeeping is enough.

Physicians and cosmetic practices purchasing the product

You should not be charged Tennessee sales tax on prescription-only dermal fillers and similar products purchased for dispensing to patients under a prescription, consistent with the same exemption.

Accountants and tax professionals

Note the distinction the ruling draws between a product exemption (turns on what's sold; § 67-6-409(a) purchaser-certificate rules don't apply) and a purchaser-status exemption (turns on who's buying; certificates are required). Also note "prescription" here is defined broadly -- it includes chart orders by a licensed practitioner, not just a traditional written script handed to a pharmacy.

Common questions

Q: Is every injectable cosmetic product exempt from Tennessee sales tax?
A: No -- only ones that meet the statutory "drug" definition, are for human use, and are dispensed pursuant to a prescription. This ruling turned on FDA-restricted prescription status and the product's intended effect on the body's structure.

Q: Does the seller need exemption certificates from purchasing physicians?
A: No. Because this is a product exemption rather than a purchaser-status exemption, the normal purchaser exemption-certificate documentation under Tenn. Code Ann. § 67-6-409(a) doesn't apply. General recordkeeping under § 67-6-523 (invoices, purchase orders, kept at least three years) is sufficient.

Q: What if the product were sold without a prescription requirement?
A: The ruling's ordinary "over-the-counter drug" exemption path was not needed here since the product requires a prescription; a non-prescription product would need to separately qualify (or not) under the "over-the-counter drug" definition and would be excluded if it were a "grooming and hygiene product."

Q: Can another company selling a similar product rely on this ruling?
A: No. A Tennessee letter ruling binds the Department only as to the specific taxpayer and facts it was issued to, and it can be revoked or modified by the Commissioner. A different product's FDA status, ingredients, or intended use could change the analysis.

Citations and references

Tennessee statutes (Tenn. Code Ann.):

• § 67-6-320(a) (Supp. 2010) (prescription drug sales/use tax exemption, including over-the-counter drugs, excluding grooming and hygiene products)
• § 67-6-102(35) (Supp. 2010) (definition of "drug" -- recognized pharmacopoeia listing, or intended for diagnosis/cure/treatment/prevention of disease, or intended to affect body structure/function; excludes food, dietary supplements, alcoholic beverages)
• § 67-6-102(70) (definition of "prescription" -- includes chart orders by a licensed practitioner)
• § 67-6-102(62)(A) (definition of "over-the-counter drug")
• § 67-6-102(45) (definition of "grooming and hygiene products" -- soaps, shampoo, toothpaste, mouthwash, antiperspirants, suntan lotions/screens)
• § 67-6-523 (2006) (general recordkeeping requirements; 3-year retention)
• § 67-6-409(a) (Supp. 2010) (purchaser exemption-certificate documentation -- held not applicable to this product exemption)

Other sources cited by the ruling:

• American Airlines, Inc. v. Johnson, 56 S.W.3d 502 (Tenn. Ct. App. 2000); Rogers Group, Inc. v. Huddleston, 900 S.W.2d 34 (Tenn. Ct. App. 1995); Tibbals Flooring Co. v. Huddleston, 891 S.W.2d 196 (Tenn. 1994); United Canners, Inc. v. King, 696 S.W.2d 525 (Tenn. 1985) (taxpayer bears the burden of proving entitlement to an exemption)
• Tennessee Department of Revenue Important Notice #07-18 (December 2007)

Source

• Landing page: https://www.tn.gov/revenue/tax-resources/legal-resources/tax-rulings.html
• Original PDF: https://www.tn.gov/content/dam/tn/revenue/documents/rulings/sales/11-27.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
LETTER RULING 11-27
WARNING
Letter rulings are binding on the Department only with respect to the individual taxpayer
being addressed in the ruling. This presentation of the ruling in a redacted form is
informational only. Rulings are made in response to particular facts presented and are not
intended necessarily as statements of Department policy.
SUBJECT
Application of the Tennessee sales and use tax to the sale of dermal fillers.
SCOPE
This letter ruling is an interpretation and application of the tax law as it relates to a specific set of
existing facts furnished to the department by the taxpayer. The rulings herein are binding upon
the Department and are applicable only to the individual taxpayer being addressed.
This letter ruling may be revoked or modified by the Commissioner at any time.
Such revocation or modification shall be effective retroactively unless the following conditions
are met, in which case the revocation shall be prospective only:
(A) The taxpayer must not have misstated or omitted material facts involved in
the transaction;
(B) Facts that develop later must not be materially different from the facts upon
which the ruling was based;
(G) The applicable law must not have been changed or amended;
(D) The ruling must have been issued originally with respect to a prospective or
proposed transaction; and
(E) The taxpayer directly involved must have acted in good faith in relying upon
the ruling; and a retroactive revocation of the ruling must inure to the taxpayer’s
detriment.

FACTS
[TAXPAYER] manufactures a product called [PRODUCT NAME], which is a dermal filler that
contains [INGREDIENT], and [INGREDIENT]. [INGREDIENT] is a drug listed in the United
States Pharmacopeia (“USP”). [PRODUCT NAME] is for human use.
By letter dated October 27, 2006, the United States Food and Drug Administration (the “FDA”)
approved the Taxpayer’s premarket approval application for [PRODUCT NAME]. The FDA
restricted the sale, distribution, and use of [PRODUCT NAME] to prescription use in accordance
with 21 C.F.R. § 801.109 (pertaining to prescription devices). The FDA further restricted the use
of [PRODUCT NAME] within the meaning of Section 520(e) of the Federal Food, Drug, and
Cosmetic Act (pertaining to control of devices intended for human use).
[PRODUCT NAME] is currently used for the elimination of nasolabial folds (commonly referred
to as “smile lines”) and is being investigated for other uses. Over time, the skin loses its ability to
repair itself as the underlying elastin and collagen fibers break down, which can result in the
development of facial wrinkles and folds. [PRODUCT NAME] is injected into the patient’s skin
tissue, where it replaces the missing collagen in the smile lines and provides a support structure
for the skin in that area. Eventually, the [INGREDIENT] will be absorbed by the patient’s body;
the [INGREDIENT] will not be absorbed, however, and thus will provide permanent elimination
of smile lines.
The Taxpayer sells [PRODUCT NAME] to physicians, such as dermatologists or cosmetic
surgeons, who have been trained by the Taxpayer to properly inject it. Consistent with the FDA
approval of the product, a patient may only obtain [PRODUCT NAME] pursuant to a
prescription.
QUESTIONS

1. Are sales of a dermal filler such as [PRODUCT NAME] exempt for purposes of the
   Tennessee sales and use tax?
2. If the sale of a dermal filler such as [PRODUCT NAME] is exempt for purposes of the
   Tennessee sales and use tax, what are the steps necessary to reflect the tax-exempt status?
   RULINGS
3. Yes. The sale of a dermal filler such as [PRODUCT NAME] is exempt from the
   Tennessee sales and use tax as a prescription drug, provided that the product is dispensed
   pursuant to a prescription and is for human use.
4. The Taxpayer must comply with the general documentation requirements set forth under
   TENN. CODE ANN. § 67-6-523 (2006). Because the exemption for prescription drugs is a
   product exemption that does not depend on the status of the purchaser, the documentation
   requirements with respect to purchasers claiming exemption from taxation, found under
   TENN. CODE ANN. § 67-6-409(a) (Supp. 2010), are not applicable in the case of sales of
   [PRODUCT NAME].

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ANALYSIS
Under the Retailers’ Sales Tax Act, TENN. CODE ANN. § 67-6-101 et seq., the sale of tangible
personal property, which includes dermal fillers such as [PRODUCT NAME], is generally
subject to sales and use tax. The sale of an item of tangible personal property is exempt for
purposes of the Tennessee sales and use tax only if the sale comes within the scope of a statutory
exemption.
Note that the burden is on the taxpayer to establish entitlement to an exemption from taxation.
The Tennessee Supreme Court has stated that “[a]lthough the rule is well-established that taxing
legislation should be liberally construed in favor of the taxpayer and strictly construed against
the taxing authority, it is an equally important principle of Tennessee tax law that ‘exemptions
from taxation are construed against the taxpayer who must shoulder the heavy and exacting
burden of proving the exemption.’” American Airlines, Inc. v. Johnson, 56 S.W.3d 502, 506
(Tenn. Ct. App. 2000) (quoting Rogers Group, Inc. v. Huddleston, 900 S.W.2d 34, 36 (Tenn. Ct.
App. 1995)). The Tennessee Supreme Court has also stated that the burden is on the taxpayer to
establish the exemption, and any well-founded doubt is sufficient to defeat a claimed exemption
from taxation. American Airlines, 56 S.W.3d at 506 (citing Tibbals Flooring Co. v. Huddleston,
891 S.W.2d 196, 198 (Tenn. 1994); United Canners, Inc. v. King, 696 S.W.2d 525, 527 (Tenn.
1985)).

1. Sales of dermal fillers are exempt for purposes of the Tennessee sales and use tax.
   The sale of dermal fillers such as [PRODUCT NAME] is exempt for purposes of the Tennessee
   sales and use tax pursuant to TENN. CODE ANN. § 67-6-320(a) (Supp. 2010) because a dermal
   filler is a drug for human use dispensed pursuant to a prescription.
   TENN. CODE ANN. § 67-6-320(a) provides that “any drug, including over-the-counter drugs,1
   for human use dispensed pursuant to a prescription” is exempt from the Tennessee sales and
   use tax.2 TENN. CODE ANN. § 67-6-102(35) (Supp. 2010) defines the term “drug” as a
   “compound, substance or preparation, and any component of a compound, substance or
   preparation”3 that
   1

[PRODUCT NAME] is not an over-the-counter drug, because the FDA requires that it be dispensed pursuant to a
prescription. TENN. CODE ANN. § 67-6-102(62)(A) defines the term “over-the-counter drug” in pertinent part as a
“drug that contains a label that identifies the product as a drug as required by 21 C.F.R. 201.66 [pertaining to
labeling of over-the-counter drugs].”
2

Note that TENN. CODE ANN. § 67-6-320(a) expressly excludes “grooming and hygiene products” from the
exemption for prescription drugs. [PRODUCT NAME] is not a grooming or hygiene product because it does not
come within the scope of TENN. CODE ANN. § 67-6-102(45), which defines “grooming and hygiene products” as
“soaps and cleaning solutions, shampoo, toothpaste, mouthwash, antiperspirants, and suntan lotions and screens,”
regardless of whether such items meet the definition of “over-the-counter drugs” under TENN. CODE ANN. § 67-6102(62)(A).
3

Note that the definition of “drug” expressly excludes compounds, substances, and preparations that are properly
classified for Tennessee sales and use tax purposes as food, food ingredients, dietary supplements, or alcoholic
beverages. [PRODUCT NAME] does not come within the definition of any of these items. See TENN. CODE ANN. §
67-6-102(35).

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(A) is recognized in the official United States Pharmacopoeia, official Homeopathic
Pharmacopoeia, or official National Formulary; (B) is intended for use in the “diagnosis, cure,
mitigation, treatment, or prevention” of disease; or (C) is intended to “affect the structure or
any function of the body.” TENN. CODE ANN. § 67-6-102(70) defines the term “prescription” as
an “order, formula or recipe issued in any form of oral, written, electronic, or other means of
transmission by a duly licensed practitioner authorized by the laws” of Tennessee. The
definition of the term “prescription” includes orders written on a patient’s chart by a duly
licensed practitioner.4
Accordingly, to come within the exemption for prescription drugs under TENN. CODE ANN.
§ 67-6-320(a), [PRODUCT NAME] must 1) come within the definition of a “drug” under
TENN. CODE ANN. § 67-6-102(35); 2) be for human use; and 3) be dispensed pursuant to a
prescription.
First, [PRODUCT NAME] meets the definition of a “drug” under TENN. CODE ANN. § 67-6102(35)(C) because it is a compound, substance, or preparation that is intended to affect the
structure of the patient’s body. [PRODUCT NAME] is a dermal filler that replaces broken down
collagen and elastin when injected into the patient’s skin tissue, resulting in the permanent
elimination of “smile lines” on the patient’s face. The Taxpayer has stated that the
[INGREDIENT]contained in the product will eventually be absorbed by a patient’s body, but
that the [INGREDIENT] that are also contained in the product will not be absorbed. As a result,
[PRODUCT NAME] permanently affects the structure of the patient’s skin.
[PRODUCT NAME] meets the second requirement because it is for human use.5 [PRODUCT
NAME] also meets the third requirement because it is dispensed pursuant to a prescription.6
The sale of [PRODUCT NAME] is therefore exempt for purposes of the Tennessee sales and use
tax under TENN. CODE ANN. § 67-6-320(a).

2. Documentation requirements
   The Taxpayer must comply with the general documentation requirements set forth under TENN.
   CODE ANN. § 67-6-523 (2006). Because the exemption for prescription drugs is a product
   exemption that does not depend on the status of the purchaser, the documentation requirements

4

See Tennessee Department of Revenue Important Notice #07-18 (December 2007) for further information. The
Notice is available on the Department’s website at http://state.tn.us/revenue/notices/sales/sales07-18.pdf.

5

Because the exemption is available only if the product is dispensed pursuant to a prescription for human use, any
sales of the product not for human use will be subject to the Tennessee sales and use tax.
6

As noted above, TENN. CODE ANN. § 67-6-102(70) broadly defines the term “prescription” as an “order, formula or
recipe issued in any form of oral, written, electronic, or other means of transmission by a duly licensed practitioner
authorized by the laws” of Tennessee. The definition of the term “prescription” includes orders written on a patient’s
chart by a duly licensed practitioner.

4

with respect to purchasers claiming exemption from taxation, found under TENN. CODE ANN.
§ 67-6-409(a), are not applicable in the case of sales of [PRODUCT NAME].7
TENN. CODE ANN. § 67-6-523 generally requires all taxpayers to establish and maintain records
that are adequate for auditors to use in determining the correct amount of the taxpayer’s tax
liability. The Taxpayer should therefore keep records of all sales of [PRODUCT NAME],
including copies of invoices and purchase orders. Records of business transactions must be
retained for a minimum of three years from December 31 of the year in which the associated
Tennessee sales and use tax return was filed.

Kristin Husat
Senior Tax Counsel

APPROVED:

Richard H. Roberts
Commissioner of Revenue

DATE:

06/20/2011

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Tenn. Code Ann. § 67-6-409(a)(2) generally requires a seller to obtain a copy of the purchaser’s authorization for
exemption. The exemption certificate contains the information required under Tenn. Code Ann. § 67-6-409(a)(1),
including: the purchaser’s name, address, type of business, reason for exemption, and a tax identification number
issued by Tennessee or another governmental authority. Note as well that the Taxpayer is not required to obtain
copies of prescriptions for [PRODUCT NAME]; such prescriptions will be unavailable at the time of the sale
because the Taxpayer’s customers will dispense the product at a later date.

5