Is a drug-eluting coronary stent system — a permanent artery-support implant coated with a restenosis-preventing drug, sold pre-mounted on a disposable delivery system — exempt from Tennessee sales and use tax as a prosthetic device?

Subject

Whether drug-eluting coronary stent systems and their disposable delivery mechanism are exempt as a prosthetic device.

Plain-English summary

The Tennessee Department of Revenue ruled that a drug-eluting coronary stent system — implanted to hold open an artery narrowed by coronary artery disease — qualifies as an exempt prosthetic device, and that its disposable delivery mechanism is exempt right along with it.

A stent is a small expandable metal mesh tube implanted permanently in a coronary artery after angioplasty, serving as a support that keeps the newly widened vessel open so blood can keep flowing to the heart. This particular stent is also coated with Paclitaxel (a drug also used in cancer treatment) combined with a polymer that releases the drug locally into the artery wall to limit scar-tissue growth and reduce the risk of the artery re-narrowing (restenosis). Under the Cordis Corp. v. Taylor test, a device is a prosthetic if it replaces a missing body part or augments a natural bodily function — here, the stent augments the coronary artery's core function (conducting blood to the heart) by physically keeping it open, satisfying the exemption just as a cardiac pacemaker or hydrocephalus valve system did in Cordis.

The stent arrives pre-mounted on a delivery system used to guide and deploy it into place; that delivery mechanism becomes "useless and valueless" the instant the stent is released and is then discarded. Following the Department's standard position (also applied to Vena Cava Filters and aneurysm coils in companion 2006 rulings), a disposable delivery mechanism sold together with an exempt device is treated as a single exempt item rather than split into taxable and exempt pieces. The ruling adds a notable side point: even though this taxpayer doesn't require a written prescription to sell the coated stents (relying instead on a federal "sale by or on the order of a physician" warning label), the Paclitaxel/polymer drug coating could independently qualify for Tennessee's separate prescription drug exemption if it were ever sold on its own to a physician or dispensed pursuant to a prescription — a distinct exemption pathway from the prosthetic-device analysis that got the stent itself over the line.

What this means for you

Medical device manufacturers selling drug-coated or drug-eluting implants

A device combining a mechanical implant function (like a stent's structural support) with a therapeutic drug-delivery function doesn't need to choose one exemption category over the other — the mechanical/structural component can qualify as an exempt prosthetic under the augment-a-function test, while the drug component may separately qualify under the prescription drug exemption if sold to a physician or dispensed under a prescription. Track which exemption basis applies to which part of your product, especially if you ever unbundle pricing.

Accountants and tax professionals

This ruling extends the "augment-a-function" prosthetic test and the "bundled disposable delivery = single exempt item" position (both seen in TN Revenue Rulings 06-15 and 06-16 for other implantable devices) to a hybrid mechanical/pharmaceutical device. The footnote analysis of the separate prescription drug exemption under Tenn. Code Ann. § 67-6-320(a)-(b) is a useful reminder that a device's drug component can carry its own independent exemption basis distinct from the device's prosthetic classification — worth flagging for any client selling drug-coated implants, wound dressings, or similar combination products.

Common questions

Q: Does a stent's drug coating affect whether it qualifies as an exempt prosthetic device?
A: No, not for purposes of the prosthetic exemption itself — the stent's mechanical function of holding the artery open is what satisfies the Cordis augment-a-function test, independent of the drug coating.

Q: Is the disposable delivery mechanism for a coronary stent taxable separately from the stent?
A: No, when it's sold pre-mounted as part of the same unit and becomes useless once the stent is deployed — the Department treats the whole system as a single exempt item.

Q: Could the drug coating on a stent qualify for a different exemption if sold separately?
A: Potentially yes — Tennessee's prescription drug/medicine exemption could independently apply to the drug component if it's sold to a physician or dispensed pursuant to a prescription, separate from the prosthetic-device analysis covering the stent itself.

Q: Does requiring a federal "sale by physician's order only" warning label instead of a written prescription change the stent's tax treatment?
A: No — the prosthetic-device exemption analysis for the stent itself doesn't depend on prescription status; that consideration only becomes relevant for the separate prescription-drug exemption analysis of the coating.

Q: Does this ruling apply to other stent or implantable device manufacturers?
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)
• Tenn. Code Ann. § 67-6-320(a)-(b) (prescription drug/medicine exemption)
• Cordis Corp. v. Taylor, 762 S.W.2d 138 (Tenn. 1988) (prosthetic device test: replaces or augments a missing/reduced bodily function)

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/06-22.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
REVENUE RULING #06-22

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.

RE:

Coronary stents manufactured by Company A.

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
Coronary Artery Disease (“CAD”) occurs when the inner walls of the coronary arteries,
which surround the heart, thicken due to plaque (a buildup of cholesterol, fatty deposits,
calcium, and other elements). Angioplasty, one of the treatments for CAD, is a procedure
used to open blocked arteries. A catheter (a thin tube) is inserted through the groin or
wrist and then threaded through a major blood vessel to the site of the blockage. A small
balloon on the tip of the catheter is then expanded to reduce the blockage. Many patients
who have angioplasty also have coronary stent implantation. Stents are small tubular
structures that are implanted into a vessel and expanded to fit the size, shape, and bend of
the vessel wall. Stent implantation is performed to implant a stent that will remain in the
blood vessel to hold open and support the blood vessel and improve blood flow. Stent
implantation also reduces the risk of restenosis, a renarrowing of the artery following
angioplasty.
Company A (hereinafter the “Taxpayer”) is a manufacturer and distributor of medical
devices including different types of stent systems. The Taxpayers products are primarily
sold to physicians, hospitals, and other medical facilities. The majority of stent systems
sold by the Taxpayer to hospitals in Tennessee are drug-eluting coronary stent systems.
Drug-eluting stents are designed to perform the function of a coronary stent, and also

deliver a drug locally to minimize restenosis and reduce the need for additional treatment
in the stented area. The stent system consists primarily of an expandable metal mesh
tube, the stent, which helps restore blood flow by serving as a permanent vessel support
for a newly widened artery formerly blocked by plaque deposits. The stent comes premounted on a stent delivery system, which is used to deliver and deploy the stent, and
then is thrown away. The stent delivery system is useless and valueless after the delivery
and deployment of the stent.
The coating on the stent is composed of the drug Paclitaxel and a polymer. Paclitaxel is a
cancer drug that is also used for the prevention of restenosis. The Paclitaxel/polymer
coating has been designed to allow for a consistent and controlled release of the drug
from the stent surface into the artery walls. When delivered locally to the wall of the
coronary artery, it limits the growth of neointima (scar tissue) where stents have been
implanted. The Taxpayer does not require a written prescription when it sells the coated
stents. Warning labels are included on the Taxpayer’s products indicating “Caution:
Federal law restricts this product to sale by or on the order of a physician.”

ISSUE
Is a stent system exempt from sales and use tax as a prosthetic device?

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). The
1

Legislation related to the Streamlined Sales and Use Tax Agreement, effective July 1, 2007, may result in changes regarding the
application of sales and use tax sales of certain items of tangible personal property. The Department of Revenue encourages you to
visit our website at www.tennessee.gov/revenue for updates.

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court in 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. The court also held that a hydrocephalus valve system is a
prosthetic because it is an artificial device that augments the natural flow of cerebral
spinal fluid from the brain into the bloodstream. Id.
The stent manufactured by the Taxpayer is implanted into a coronary artery and
augments the vessel’s function which is to provide a conduit for the flow of blood to the
heart. According to the Tennessee Supreme Court’s interpretation of a prosthetic device
in Cordis, devices which replace a body part or augment the performance of a natural
function are considered exempt as prosthetic devices. Since the coronary stent augments
the function of the coronary artery by keeping the artery open so that blood can flow
through it, it qualifies as a prosthetic device under Tenn. Code Ann. § 67-6-314(5).2
The stent delivery system is considered disposable because it is useless and valueless
after the preloaded stent is delivered. The Department has taken the position that a
disposable unit that holds 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 stent delivery system is also exempt as a prosthetic device.

Deborah A. Toon
Tax Counsel

APPROVED: Loren L. Chumley
Commissioner
DATE:

7/10/06

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It should be noted that the Taxpayer’s stent also contains a drug which if sold separately may also be exempt from sales and use tax.
Tenn. Code Ann. § 67-6-320(a) and (b) provides an exemption from sales and use tax for prescription drugs and medicines:
(a) There is exempt from the tax imposed by this chapter any prescription drug or medicine issued by a licensed
pharmacist in accordance with an individual prescription written for the use of a human being by a practitioner
of the healing arts licensed by the state of Tennessee.
(b) There is also exempt from the tax imposed by this chapter any prescribed drug or medicine sold to a
practitioner of the healing arts licensed by the state of Tennessee or issued by a licensed pharmacist for use in
the treatment of a human being.
To fall under this exemption, the item must be a drug or medicine and must be either (a) sold to a physician or (b) issued by a
pharmacist to an individual in accordance with a physician’s prescription. Accordingly, as long as the drug meets this test, it would
be exempt from sales and use tax.

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