A company sells a wearable, continuous-use medical device — a portable pack, a worn component, and ancillary parts — at one monthly price to treat a disease. Is the device exempt from Tennessee sales and use tax as a prosthetic device?

Plain-English summary

The company (its identity is redacted) makes a wearable medical device used to treat a disease. It has three parts — a portable pack, a wearable component, and ancillary items — that together weigh about six pounds and are designed for continuous, all-day use while the patient goes about a normal routine (the patient carries the pack on the arm when mobile and can plug it in when stationary). The company bills patients or their insurers a single monthly charge covering all the parts, and asked whether those sales are exempt from Tennessee sales and use tax.

The Department said yes — the device is an exempt "prosthetic device." Tennessee generally taxes retail sales of tangible personal property, including medical devices, unless an exemption applies. One exemption (§ 67-6-314(1)) covers prosthetic devices for human use, plus their repair and replacement parts and repair services. A "prosthetic device" is a replacement, corrective, or supportive device worn in or on the body to (i) replace a missing body part, (ii) prevent or correct a physical deformity or malfunction, or (iii) support a weak or deformed part — which the Department broke into a four-part test: the device must be (1) for human use, (2) a replacement/corrective/supportive device, (3) worn in or on the body, and (4) used for one of those three medical purposes.

The device met all four. It is for human use, and it corrects a malfunction of the body by treating the disease (requirements 1, 2, and 4). The interesting requirement is "worn in or on the body." The Department explained the line: an item is "worn on the body" if it's implanted, attached, or carried by the body without hindering mobility — but not if it sits on a wheeled cart or pole that makes it portable. Because the patient wears the component and carries the portable pack on the arm, the whole device is "worn on the body." Finally, since all the parts are sold for one monthly price and work as a single unit, the entire charge is exempt, and the ancillary/replacement parts are exempt as parts of the prosthetic device.

What this means for you

Medical-device sellers

A device can qualify for Tennessee's prosthetic-device exemption even if it's a complex, electronic, multi-part system — what matters is the four-part test, especially that the device is worn in or on the body for a corrective/supportive medical purpose. The key distinction the Department drew: wearable or body-carried (exempt) versus mounted on a wheeled cart or pole (not "worn on the body"). Note corrective eyeglasses and lenses are specifically excluded from the definition (§ 67-6-102(70)(B)).

Billing and bundled pricing

Selling all the components for a single price as one functioning unit let the entire charge be exempt here. And because the exemption expressly covers repair and replacement parts, the device's ancillary and replacement items were exempt too. How you package and invoice a device can affect whether the whole charge rides the exemption.

Accountants and tax professionals

The exemption is § 67-6-314(1); the definition and four-part test come from § 67-6-102(70)(A). The "worn on the body" gloss (carried-by-body vs. on a wheeled mobility item) tracks the Streamlined Sales Tax health-care guidance the Department cited. The single-price/one-unit treatment follows the sales-price principle (cf. § 67-6-102(79)(A)). No case law was cited.

Common questions

Q: Is a wearable medical device exempt from Tennessee sales tax?
A: It can be, if it qualifies as a prosthetic device — a replacement, corrective, or supportive device worn in or on the body for human use to replace a missing part, correct a deformity or malfunction, or support a weak or deformed part. Here the wearable, body-carried device qualified and was fully exempt.

Q: What does "worn in or on the body" mean?
A: Implanted, attached, or carried by the body without hindering mobility counts as worn on the body. An item that rides on a wheeled cart or a pole with wheels does not count as worn on the body, even if portable.

Q: Are the extra parts and a single monthly charge all exempt?
A: Yes. Because the parts are sold for one price and operate as a single unit, the whole charge is exempt, and the exemption covers the device's repair and replacement parts as well.

Q: Can I 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, and it can be revoked or modified. Whether a particular device qualifies is fact-specific. Confirm your own facts with a tax professional.

Citations and references

Tennessee statutes (Tenn. Code Ann.):

• § 67-6-314(1) (exemption for prosthetic devices for human use, plus their repair/replacement parts and repair services)
• § 67-6-102(70)(A) (definition of "prosthetic device"); § 67-6-102(70)(B) (excludes corrective eyeglasses and lenses)
• § 67-6-102(76) ("retail sale"); § 67-6-102(78)(A) ("sale"); § 67-6-102(79)(A) (single-price unit treated as a unit); § 67-6-101 to -907 (Retailers' Sales Tax Act)

Other references (no case law cited):

• Streamlined Sales Tax health-care guidance on the "worn on the body" standard, and the Department's health-care product list, cited by the ruling

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/14-02.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
LETTER RULING # 14-02
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 professional 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) (2013) 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 [REDACTED] company dedicated to the development and
commercialization of [A MEDICAL DEVICE]. [REDACTED].

1

[REDACTED].
There are 3 primary components to the [MEDICAL DEVICE]:
•
•
•

[A PORTABLE PACK];
[A WEARABLE COMPONENT]; and
[ANCILLARY ITEMS].

The [MEDICAL DEVICE] is designed for continuous use throughout the day, and the patient is
able to maintain a normal daily routine while treating the disease. 1 [REDACTED].
[REDACTED].
The components of the [MEDICAL DEVICE] are small, weighing six pounds. To maintain
mobility, a patient carries the [PORTABLE PACK]. The system can be plugged into the wall
while the patent is stationary.
[REDACTED].
The Taxpayer bills the patient’s third party insurance provider, managed care company, or in
some cases, the patient directly. The Taxpayer provides a monthly invoice that includes all
[COMPONENTS OF THE MEDICAL DEVICE] in one consolidated charge. [REDACTED].
[REDACTED].
RULING
Are the Taxpayer’s sales of the [MEDICAL DEVICE] exempt from the Tennessee sales and use
tax?
Ruling: Yes. The [MEDICAL DEVICE] is exempt from the Tennessee sales and use tax
as a prosthetic device.
ANALYSIS
The [MEDICAL DEVICE] is exempt from the Tennessee sales and use tax as a prosthetic device
under TENN. CODE ANN. § 67-6-314(1) (2013).
Under the Retailers’ Sales Tax Act, 2 the retail sale in Tennessee of tangible personal property,
including medical devices and supplies, is subject to the Tennessee sales and use tax unless an
exemption applies. 3
1

[REDACTED].

2

Tennessee Retailers’ Sales Tax Act, ch. 3, §§ 1-18, 1947 Tenn. Pub. Acts 22, 22-54 (codified as amended at TENN.
CODE ANN. §§ 67-6-101 to -907 (2013)).

2

TENN. CODE ANN. § 67-6-314(1) 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 including repair and replacement
parts for the 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. 4
Thus, to be exempt from the sales and use tax as a prosthetic device, the [MEDICAL DEVICE]
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 the [MEDICAL DEVICE] is for human use. The facts
indicate that the product is used as a treatment for human adults [REDACTED].
The second and fourth requirements are satisfied because the [MEDICAL DEVICE] constitutes a
device that is used to correct a physical deformity or malfunction. The facts indicate that the
product is a device that is used to treat [A DISEASE]. Thus, the device is intended to correct a
malfunction of the body by [REDACTED].
The third requirement is satisfied because the [MEDICAL DEVICE] is worn on the body. An
item is considered “worn on the body” if it is implanted or attached to the body so that it
becomes part of the body or is carried by the body and does not hinder an individual’s mobility.
Conversely, an item is not considered “worn on the body” if it is placed on an item of mobility
that makes the item portable. 5 For example, a medical item that requires a cart or a pole with
wheels to move it around would not be considered to be worn in or on the body.
Here, the [MEDICAL DEVICE]’s [WEARABLE COMPONENT IS] placed directly on a patient
[REDACTED]. When mobile, a patient carries the [PORTABLE PACK] on his or her arm; the
3

TENN. CODE ANN. § 67-6-102(76) (2013) defines a “retail sale” as any “sale, lease, or rental for any purpose other
than for resale, sublease, or subrent.” The term “sale” is defined under the Tennessee sales and use tax laws in
pertinent part as “any transfer of title or possession, or both, exchange, barter, lease or rental, conditional or
otherwise, in any manner or by any means whatsoever of tangible personal property for a consideration.” TENN.
CODE ANN. § 67-6-102(78)(A).
4

TENN. CODE ANN. § 67-6-102(70)(A) (2013). Although not relevant to this letter ruling, TENN. CODE ANN. § 67-6102(70)(B) excludes corrective eyeglasses and corrective lenses from the definition of a “prosthetic device.”
Additional information about the application of the Tennessee sales and use tax to specific healthcare products can
be found on the Department’s website at http://tn.gov/revenue/streamlined/healthcarelist1011.pdf.
5

See generally Craig Rook, Health-Care Definitions Issue Paper (Sept. 27, 2006), available at
http://www.streamlinedsalestax.org/uploads/downloads/IP%20Issue%20Papers/2011/IP11012%20Healthcare%20iss
ue%20paper%20worn%20on%20the%20body.pdf (last visited June 6, 2014).

3

remainder of the [MEDICAL DEVICE] is therefore worn on the body by virtue of being carried
by the patient.
Accordingly, the [MEDICAL DEVICE] is exempt from the Tennessee sales and use tax as a
prosthetic device under TENN. CODE ANN. § 67-6-314(1).
Note that because the Taxpayer sells all parts of the [MEDICAL DEVICE] for a single monthly
price and all of the elements together operate as one functioning unit, the entire sales price is
exempt from the Tennessee sales and use tax. 6 Moreover, because the definition of a “prosthetic
device” includes repair and replacement parts for the device, all [ANCILLARY ITEMS] for
operation of the [MEDICAL DEVICE] also are exempt from the Tennessee sales and use tax.

Jennifer Wilson
Assistant General Counsel

6

APPROVED:

Richard H. Roberts
Commissioner of Revenue

DATE:

June 18, 2014

Cf. TENN. CODE ANN. § 67-6-102(79)(A).

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