Are surgical bone-graft and bone-void-filler products that get implanted in a patient's body exempt from Tennessee sales tax as prosthetic devices?

Plain-English summary

A biotechnology company sells two surgical products to Tennessee hospitals and surgery centers. Product #1 is a synthetic, single-use kit applied at gaps between bones (such as a fusion site) — its components are mixed together at the point of use and applied to the surgical site, where the material acts as a scaffold for natural bone regeneration, is gradually resorbed by the body, and is eventually turned into bone. Product #2 is a synthetic, sterile material used with the patient's own bone marrow aspirate for bone-void filling and fracture repair, available in pads, strips, blocks, plugs, and paste that can be shaped, compressed, or molded to the surgical site.

The Taxpayer asked whether sales of these products are exempt from Tennessee sales and use tax under the prosthetic device exemption, Tenn. Code Ann. § 67-6-314(1), which covers "prosthetic devices for human use and repair services for the repair and maintenance of those prosthetic devices." A "prosthetic device" is defined as a replacement, corrective, or supportive device that is worn in or on the body to artificially replace a missing portion of the body, prevent or correct physical deformity or malfunction, or support a weak or deformed portion of the body (§ 67-6-102(70)(A)).

The Department ruled both products exempt, walking through the same four-part test for each: (1) for human use — both are used in human surgery; (2) replacement, corrective, or supportive device — both act as supportive scaffolds for bone regeneration/remodeling; (3) worn in or on the body — both are applied to or placed inside the surgical site, satisfying this element even though they're surgically implanted rather than externally worn; and (4) artificially replaces/prevents/supports — Product #1 fills bone gaps and supports fusion, while Product #2 fills bone voids and supports fracture repair, each satisfying multiple prongs of this element.

What this means for you

Medical device companies selling implantable bone-graft or bone-void-filler products in Tennessee

If your implantable product is for human use, acts as a replacement, corrective, or supportive device, is placed in or on the patient's body, and serves to replace missing bone, correct a malformation, or support a weak/deformed area, it likely qualifies for the § 67-6-314(1) prosthetic-device exemption — even though it's surgically implanted rather than worn externally like a brace or limb. The "worn in or on the body" element reaches devices placed inside the body during surgery, not just external wearables.

Hospitals and surgery centers purchasing these products

This ruling supports treating qualifying bone-graft and bone-void-filler purchases as tax-exempt, but the exemption is product-specific and fact-dependent — confirm your particular product satisfies all four elements rather than assuming any "medical device" automatically qualifies.

Accountants and tax professionals

Compare this to LR 12-09 (venous reflux disease items), where a single-use ablation catheter failed the "worn in or on the body" element because the catheter itself isn't left in the body — only its therapeutic effect occurs there. Here, by contrast, the graft/filler material itself remains in the body as a scaffold, satisfying the element. The line is whether the device or material itself stays in or on the body, not merely whether it's used during a procedure that touches the body.

Common questions

Q: Does "worn in or on the body" require the device to be visible or externally attached, like a prosthetic limb?
A: No — this ruling confirms it also covers materials surgically placed inside the body, such as bone-graft scaffolds and bone-void fillers that remain implanted.

Q: Do single-use, dissolvable/resorbable implants qualify even though they don't stay in the body permanently?
A: Yes under these facts — Product #1 is gradually resorbed and turned into bone, and the Department still found it exempt because it's worn in the body and serves a supportive function while present.

Q: Can other taxpayers selling similar bone-graft or implant products rely on this letter ruling?
A: No. A Tennessee letter ruling binds the Department only as to the specific taxpayer and facts it was issued to. This summary is informational only, not legal or tax advice.

Citations and references

Tennessee statutes (Tenn. Code Ann.):

• § 67-6-314(1) (2011) (prosthetic device exemption)
• § 67-6-102(70)(A) (Supp. 2012) (definition of "prosthetic device")
• §§ 67-6-101 to -907 (2011 & Supp. 2012) (Retailers' Sales Tax Act, general taxability of tangible personal property)

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/12-28.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
LETTER RULING # 12-28
Letter rulings are binding on the Department only with respect to the individual taxpayer
being addressed in the ruling. This ruling is based on the particular facts and
circumstances presented, and is an interpretation of the law at a specific point in time. The
law may have changed since this ruling was issued, possibly rendering it obsolete. The
presentation of this ruling in a redacted form is provided solely for informational purposes,
and is not intended as a statement of Departmental policy. Taxpayers should consult with a
tax practitioner before relying on any aspect of this ruling.
SUBJECT
The application of the Tennessee sales and use tax exemption under TENN. CODE ANN. § 67-6314(1) (2011) for prosthetic devices.
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;
(C) 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] (the “Taxpayer”) is a biotechnology company specializing in [DESCRIPTION
OF PRODUCTS].

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[PRODUCT #1]
The Taxpayer sells [PRODUCT #1] which is a combination product [REDACTED]. The
Taxpayer will sell [PRODUCT #1] to hospitals and surgery clinics in Tennessee for use in
[REDACTED] surgeries.
[PRODUCT #1] is placed on defects, such as gaps between bones where a surgeon is trying to
achieve fusion. It provides a scaffold for natural occurring tissue (bone) regeneration and is
gradually resorbed by the body and turned into bone. [PRODUCT #1] was developed as a fully
synthetic replacement to autograft in [REDACTED] surgery. [PRODUCT #1] consists of
[NUMBER OF] components: [REDACTED]. It is supplied as a kit for a single use only.
At the point of use, [NUMBER OF] components are combined in entirety, mixed and
subsequently applied to the surgical site. The [REDACTED] component of [PRODUCT #1] is a
highly porous, reabsorbable and osteoconductive scaffold which provides a framework for bone
regeneration, aids in preventing soft tissue infiltration and promotes stabilization of blood clots.
The [COMPONENT] acts by stimulating the recruitment and proliferation of a variety of cell
types.
[PRODUCT #2]
The Taxpayer also sells [PRODUCT #2], which is a sterile, synthetic, non-pyrogenic material
intended for use in combination with autologous bone marrow for bone void filling and fracture
repair of the [PARTS OF THE BODY]. [REDACTED]. The Taxpayer will sell [PRODUCT #2]
to hospitals and [REDACTED] surgery centers in Tennessee for use in surgery.
The product material is a composition of [COMPONENTS]. [COMPONENT] is [REDACTED],
providing an enhanced osteoconductive scaffold to support bone remodeling. The [PRODUCT

2] product family is available in a variety of configurations: pads, strips, blocks, plugs, and

paste.
Upon saturation with bone marrow aspirate, [PRODUCT #2] may be manipulated as desired.
The flexible structure allows the grafts to be shaped based on patient anatomy and surgical
environment. Pads, strips, blocks, and plugs may be compressed, folded, trimmed, or layered.
Hydrated paste may be molded.
RULINGS
1.

Are sales of [PRODUCT #1] to hospitals and surgery centers exempt for purposes of the
Tennessee sales and use tax?
Ruling: Yes. [PRODUCT #1] is exempt from the Tennessee sales and use tax under
TENN. CODE ANN. § 67-6-314(1) (2011) as a prosthetic device.

2.

Are sales of [PRODUCT #2] to hospitals and surgery centers exempt for purposes of the
Tennessee sales and use tax?

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Ruling: Yes. [PRODUCT #2] is exempt from the Tennessee sales and use tax under
TENN. CODE ANN. § 67-6-314(1) (2011) as a prosthetic device.
ANALYSIS
Under the Retailers’ Sales Tax Act, TENN. CODE ANN. §§ 67-6-101 to -907 (2011 & Supp.
2012), the retail sale in Tennessee of tangible personal property, including medical devices and
supplies, is subject to sales and use tax unless an exemption from taxation applies.
TENN. CODE ANN. § 67-6-314(1) (2011) exempts from the Tennessee sales and use tax
“prosthetic devices for human use and repair services for the repair and maintenance of those
prosthetic devices.” The term “prosthetic device” is defined as “a replacement, corrective, or
supportive device . . . worn in or on the body to: (i) [a]rtificially replace a missing portion of the
body; (ii) [p]revent or correct physical deformity or malfunction; or (iii) [s]upport a weak or
deformed portion of the body.” TENN. CODE ANN. § 67-6-102(70)(A) (Supp. 2012).
For the reasons discussed below, [PRODUCT #1] and [PRODUCT #2] are each exempt from the
Tennessee sales and use tax under TENN. CODE ANN. § 67-6-314(1) as a prosthetic device.
1.

[PRODUCT #1]

[PRODUCT #1] is exempt from the Tennessee sales and use tax under TENN. CODE ANN. § 67-6314(1) as a prosthetic device.
For [PRODUCT #1] to be exempt from the sales and use tax under TENN. CODE ANN. § 67-6314(1), the product must: (1) be for human use; (2) constitute a replacement, corrective, or
supportive device; (3) be worn in or on the body; and (4) be used to artificially replace a missing
portion of the body, prevent or correct physical deformity or malfunction, or support a weak or
deformed portion of the body.
The first requirement is satisfied because [PRODUCT #1] is for human use. The facts indicate
that the product is used as a replacement to autograft in [REDACTED] surgery.
The second requirement is satisfied because [PRODUCT #1] constitutes a replacement,
corrective, or supportive device. The facts indicate that [PRODUCT #1] provides a scaffold for
bone tissue regeneration. The product therefore acts as a supportive device.
The third requirement is satisfied because [PRODUCT #1] is worn in or on the body. The
product is applied to the surgical site inside or on the patient’s body.
The fourth requirement is satisfied because [PRODUCT #1] is used to artificially replace a
missing portion of the body, prevent or correct physical deformity or malfunction, or support a
weak or deformed portion of the body. The facts indicate that [PRODUCT #1] is placed on
defects, such as gaps between bones where a surgeon is trying to achieve fusion. The product
therefore artificially replaces a missing portion of the bone inside the body. The product also
prevents physical deformity or malfunction by aiding in the prevention of soft tissue infiltration.
Additionally, the facts indicate that [PRODUCT #1] provides a scaffold for bone tissue

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regeneration. The product therefore supports a weak or deformed portion of the body, i.e., the
[PART OF THE BODY] being repaired in surgery.
Accordingly, the sale of [PRODUCT #1] to hospitals and surgery centers is exempt for purposes
of the Tennessee sales and use tax.
2.

[PRODUCT #2]

[PRODUCT #2] is exempt from the Tennessee sales and use tax under TENN. CODE ANN. § 67-6314(1) as a prosthetic device.
For [PRODUCT #2] to be exempt from the sales and use tax under TENN. CODE ANN. § 67-6314(1), the product must: (1) be for human use; (2) constitute a replacement, corrective, or
supportive device; (3) be worn in or on the body; and (4) be used to artificially replace a missing
portion of the body, prevent or correct physical deformity or malfunction, or support a weak or
deformed portion of the body.
The first requirement is satisfied because [PRODUCT #2] is for human use. The facts indicate
that the product is used in surgery for bone void filling and fracture repair of the [PARTS OF
THE BODY].
The second requirement is satisfied because [PRODUCT #2] constitutes a replacement,
corrective or supportive device. The facts indicate that [PRODUCT #2] is used to provide an
enhanced osteoconductive scaffold to support bone remodeling. The product therefore acts as a
supportive device.
The third requirement is satisfied because [PRODUCT #2] is worn in or on the body. The
product is available as pads, strips, blocks, plugs, and paste, and may be compressed, folded,
trimmed, layered, or molded, as necessary, to conform to the patient’s anatomy, which indicates
it is worn either in or on the body.
The fourth requirement is satisfied because [PRODUCT #2] is used to artificially replace a
missing portion of the body, prevent or correct physical deformity or malfunction, or support a
weak or deformed portion of the body. The facts indicate that the product is used for bone void
filling, and provides an enhanced osteoconductive scaffold to support bone remodeling. As a
bone void filler, the product artificially replaces a missing portion of the body. Additionally, the
product prevents physical deformity or malfunction by supporting bone remodeling. The product
also supports a weak or deformed portion of the body, i.e., the [PART OF THE BODY] being
repaired in the surgery.
Accordingly, the sale of [PRODUCT #2] to hospitals and surgery centers is exempt for purposes
of to the Tennessee sales and use tax.

Kristin Husat
General Counsel

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APPROVED:

Richard H. Roberts
Commissioner of Revenue

DATE:

November 19, 2012

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