Are platinum coils used to seal off brain aneurysms — sold pre-loaded on a disposable delivery wire for one price — exempt from Tennessee sales and use tax as prosthetic devices?

Subject

Whether brain aneurysm embolization coils and their disposable delivery wire are exempt as a prosthetic device.

Plain-English summary

The Tennessee Department of Revenue ruled that platinum coils used to treat brain aneurysms — sold pre-loaded on a disposable delivery wire for one combined price — are exempt from sales and use tax as a prosthetic device.

An aneurysm is a weak, bulging spot in a blood vessel wall at risk of rupturing and causing a brain hemorrhage. The coil, made of platinum so it conforms to the aneurysm's irregular shape and is visible on x-ray, is fed through a catheter and positioned inside the aneurysm, then detached from its delivery wire by an electronic charge and left permanently in place. Once positioned, the coil reduces blood pulsation in the weak spot, seals it off, and promotes clotting and connective-tissue growth that eventually excludes the aneurysm from the healthy vessel entirely — preventing rupture. Under the Cordis Corp. v. Taylor test (a device is prosthetic if it replaces a missing body part or augments a natural function), the coil clearly augments the blood vessel's function by blocking off the dangerous aneurysm so blood can keep flowing properly through the healthy vessel, qualifying it for the exemption.

The disposable delivery wire — which represents 10% or less of the total product cost and is discarded after the coil detaches — rides along with that exemption because it's sold as part of the same packaged unit (not separately stated on the invoice) and becomes useless once its job is done. The Department's standing position treats a disposable delivery mechanism sold together with an exempt device as one single exempt item. The ruling separately flags that under the Streamlined Sales Tax Agreement legislation effective July 1, 2007, a bundled transaction where the taxable component is 10% or less of the total price would be excluded from the definition of "bundled transaction" entirely — a related but distinct de minimis rule worth checking for post-2007 transactions.

What this means for you

Medical device manufacturers selling implants with disposable delivery mechanisms

If your implantable device qualifies as an exempt prosthetic under the augment-a-function test, a disposable delivery wire, catheter, or similar mechanism sold as part of the same packaged unit (not separately invoiced) generally shares that exemption, following the same reasoning applied in the companion ruling on Vena Cava Filter delivery systems (TN Revenue Ruling 06-15). Keep the delivery component's cost share and invoicing structure in mind — this ruling notes the delivery wire was 10% or less of total cost and not separately stated, both facts supporting single-item treatment.

Accountants and tax professionals

This ruling reinforces the Department's consistent "disposable delivery mechanism bundled with an exempt device = single exempt item" position (also seen in TN Revenue Ruling 06-15) and applies the Cordis Corp. v. Taylor augment-a-function test to a specific interventional-neuroradiology device. Note the ruling's own footnote on the Streamlined Sales Tax Agreement's 10%-or-less de minimis bundled-transaction rule (effective July 1, 2007) — a separate, statute-based safe harbor that may independently support similar bundled medical-device pricing structures going forward.

Common questions

Q: What test determines whether an implantable medical device is an exempt prosthetic?
A: Whether it replaces a missing body part or augments a natural bodily function, per Cordis Corp. v. Taylor — here, the coil augments the blood vessel's function by sealing off the dangerous aneurysm.

Q: Is the disposable delivery wire taxable separately from the coil it delivers?
A: No, when it's sold as part of the same packaged unit for one price and becomes useless once the coil detaches — it's treated as part of a single exempt item rather than a separately taxable component.

Q: Does the delivery wire's small share of the total price (10% or less) matter to the analysis?
A: The ruling notes this fact and also flags the Streamlined Sales Tax Agreement's separate 10%-or-less de minimis rule (effective July 1, 2007) for bundled transactions, which could independently support similar pricing structures post-2007.

Q: Does this ruling apply to other embolization or interventional medical devices?
A: No. A Tennessee revenue ruling is advisory only and not binding on the Department, even for the taxpayer who requested it, though the augment-a-function test and bundled-delivery position are of general use.

Citations and references

Statutes and cases:

• Tenn. Code Ann. § 67-6-314(5) (prosthetic/orthotic device sales tax exemption)
• Cordis Corp. v. Taylor, 762 S.W.2d 138 (Tenn. 1988) (prosthetic device test: replaces or augments a missing/reduced bodily function)
• Streamlined Sales Tax Agreement conforming legislation, effective July 1, 2007 (10%-or-less de minimis exclusion from "bundled transaction" definition)

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/06-16.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
REVENUE RULING #06-16
WARNING
Revenue rulings are not binding on the Department. This presentation of
the ruling in a redacted form is information only. Rulings are made in
response to particular facts presented and are not intended necessarily as
statements of Departmental policy.

SUBJECT
Whether certain medical devices are exempt from sales and use tax as prosthetic devices.

SCOPE
Revenue rulings are statements regarding the substantive application of law and
statements of procedure that affect the rights and duties of taxpayers and other members
of the public. Revenue rulings are advisory in nature and are not binding on the
Department.

FACTS
Company A is a manufacturer and distributor of medical devices, including Brand X Coil
systems that are used to treat brain aneurysms. Company A’s products are primarily sold
to physicians, hospitals, and other medical facilities. The majority of Brand X Coil
systems sold by Company A to hospitals in Tennessee are small coils used to obstruct or
plug brain aneurysms. An aneurysm is a malformation in a blood vessel in which the
vessel wall has stretched or bubbled. The resulting weak spot, the fundus, fills with
blood and the pressure from this excess blood makes the vessel prone to rupture, causing
a brain hemorrhage. Coils provide immediate protection against rehemmorhage by
reducing blood pulsations within the fundus, and sealing the weak portion of the wall or
hole. Eventually, clotting occurs within the aneurysm and the aneurysm is excluded from
the parent vessel by the formation of a layer of connective tissue. The coils are

constructed of platinum to allow them to conform to the irregular shape of the aneurysm
and to make them visible via x-ray. The coils are attached to a delivery wire and are fed
through a catheter into the aneurysm. Once the coil is properly positioned, it is detached
from the delivery wire by an electronic charge and the coil is left behind to prevent blood
from flowing into the aneurysm and causing a rupture. The delivery wire is removed and
discarded after use. The Brand X Coil is packaged with the detachable delivery wire and
sold for one price. The delivery wire represents 10% or less of the total cost of the
product. The Brand X Coil and delivery wire are not separately stated on the invoice.

ISSUE
Are Brand X coils exempt from sales and use tax as prosthetic devices?

RULING
Yes.

ANALYSIS
Under the Retailers’ Sales Tax Act, Tenn. Code Ann. § 67-6-101 et. seq., the sale of
tangible personal property is generally subject to sales and use tax unless an exemption
applies. Several specific exemptions apply to the sale of medical equipment and supplies
including the following exemption for orthotics and prosthetics:1
Tenn. Code Ann. § 67-6-314(5) provides as follows:
There is exempt from the sales tax imposed by the chapter. . .
(5) The sale or repair of prosthetics, orthotics, special molded orthopedic
shoes, walkers, crutches, surgical supports of all kinds, and other similarly
medical corrective or support appliances and devices.
A device is a prosthetic if it replaces a missing body part or augments the performance of
a natural function. Cordis Corp. v. Taylor, 762 S.W.2d 138, 139 (Tenn. 1988). Cordis
held that an implantable cardiac pacemaker is a prosthetic because it replaces or
augments the missing or reduced body function of providing a stimulus for the beating of
a heart. Id. Cordis also held that a hydrocephalus valve system is a prosthetic because it
is an artificial part which augments the natural flow of cerebral spinal fluid from the brain
into the bloodstream. Id.

1

The definition of a prosthetic device will change effective July 1, 2007 with the adoption of the
Streamlined Sales Tax Agreement.

2

Brand X Coils are designed to obstruct or plug brain aneurysms. The coils are attached
to a delivery wire and are fed through a catheter into the aneurysm. The delivery wire
allows the physician to reposition or withdraw the coil. Once the coil is properly
positioned, it is detached from the delivery system and left behind to prevent blood from
flowing into the aneurysm.
The coil augments a function of the body by sealing off the weak portion of the blood
vessel, by promoting blood clotting to occur within the aneurysm, and promoting the
growth of connective tissue between the parent vessel and the aneurysm. Since the coil
clearly augments the function of the blood vessel in the brain by blocking off the
aneurysm so that the blood can flow properly through the vessel, it is exempt from sales
and use tax as a prosthetic under Tenn. Code Ann. § 67-6-314(5).
The coil delivery wire is considered disposable because it is useless and valueless after
the preloaded coil is delivered.2 The Department has taken the position that a disposable
wire that is attached to and delivers an exempt medical device constitutes a single item
which qualifies for the exemption under Tenn. Code Ann. § 67-6-314(5). Based on this
reasoning, the coil delivery wire is exempt from sales and use tax as a prosthetic device.

Deborah A. Toon
Tax Counsel

APPROVED: Loren L. Chumley
Commissioner

DATE:

5/5/06

2

Please note that under the Streamlined Sales Tax legislation, effective July 1, 2007, a transaction that
includes taxable products and nontaxable products, where the “purchase price” or “sales price” of the
taxable products is de minimis, will not be considered a bundled transaction (i.e. “the retail sale of two or
more products, except real property and services to real property, where the products are otherwise distinct
and identifiable, and the products are sold for one non-itemized price”). De minimis means “the seller’s
“purchase price” or “sales price” of the taxable products is ten percent (10%) or less of the total “purchase
price” or “sales price” of the bundled products.”

3