Does a laparoscopic-surgery trocar system that delivers carbon dioxide gas (not fluids or drugs) into the abdomen qualify for Texas's sales tax exemption for intravenous (IV) systems?

Plain-English summary

A medical device company makes an integrated system used in minimally invasive laparoscopic abdominal surgery: a self-anchoring access port ("PRODUCT," a type of trocar), a cannula (hollow tube for inserting cameras and instruments), a capital device that controls the flow of carbon dioxide gas into the abdomen to maintain surgical working space and stability, and connecting tubing. Sold individually or in kits, the system's CO2 delivery also helps clear smoke and plume created by energized surgical tools like electrocautery or lasers.

The company asked whether this trocar system qualifies for Texas's sales tax exemption for intravenous (IV) systems, supplies, and replacement parts under Tax Code Section 151.313(a)(15). That exemption, per Section 151.313(e), requires the product to be designed or intended to administer fluids, electrolytes, blood or blood products, or drugs to patients, or to withdraw blood or fluids from patients — regardless of whether it's inserted subcutaneously.

The Comptroller ruled the trocar system does not qualify. Carbon dioxide gas isn't a fluid, electrolyte, blood product, or drug within the meaning of the exemption, and the system's function — stabilizing abdominal pressure and providing valve-free surgical access — isn't administering or withdrawing any of the exempt substances. The result applies whether the components are sold separately or as a bundled kit: the entire trocar system is taxable tangible personal property.

What this means for you

Medical device manufacturers and distributors

Don't assume every device used in a clinical/surgical setting, or every product that penetrates the body, qualifies for the IV-system exemption. The test is narrow and substance-specific: it must administer or withdraw fluids, electrolytes, blood/blood products, or drugs. Devices that manage gas, pressure, smoke evacuation, or purely mechanical/optical surgical access functions fall outside the exemption even if they're integrated with or resemble IV-adjacent hardware.

Hospitals, surgical centers, and group purchasing organizations

Expect sales tax to apply to trocar/laparoscopic access systems like the one described here when purchasing for a Texas facility, unless a different exemption (e.g., a manufacturing exemption for equipment used to produce a taxable item, which wouldn't typically apply to a hospital) is available.

Accountants and tax professionals

The ruling is a clean illustration of Section 151.313(e)'s substance-based test: it doesn't matter that a product is inserted into the body or used alongside IV-adjacent medical equipment — what matters is whether the specific substance administered or withdrawn is a fluid, electrolyte, blood/blood product, or drug.

Common questions

Q: Would this system qualify for the exemption if it also delivered saline or another fluid?
A: This ruling only addresses the facts presented — a system that delivers carbon dioxide gas. A device that also administers a qualifying fluid, electrolyte, blood product, or drug would need its own analysis of whether that specific function meets Section 151.313(e)'s definition.

Q: Does it matter whether the components are purchased individually or as a kit?
A: No — the Comptroller ruled the exemption doesn't apply whether the trocar, cannula, capital device, and tubing are purchased separately or together as an integrated kit.

Q: Can another medical device company rely on this ruling?
A: No. This is a private letter ruling binding only on the Comptroller as to this taxpayer and these facts, and cannot be relied upon by any other taxpayer.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.313(a)(15) (IV system, supplies, and replacement parts exemption)
• Tex. Tax Code § 151.313(e) (definition of intravenous system)
• 34 Tex. Admin. Code Rule 3.284(d)(9) (IV system exemption rule)
• 34 Tex. Admin. Code Rule 3.1 (Private Letter Rulings and General Information Letters)
• 34 Tex. Admin. Code Rule 3.10 (Taxpayer Bill of Rights; detrimental reliance)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/201603744L

Original ruling text

March 17, 2016

Re: Private Letter Ruling # 151870054

Dear ****:

We issue this private letter ruling in accordance with Rule 3.1, Private Letter
Rulings and General Information Letters [ENDNOTE 1], in response to your request
dated July 1, 2015. Detrimental reliance relief is provided in accordance with Rule
3.10, the Taxpayer Bill of Rights.

Requested Ruling

Does the sale of COMPANY A’s PRODUCT, either separately or together with the
trocar system, fit within the definition of an exempt intravenous (“IV”) system
as that term is defined by Tax Code Section 151.313(e) and Rule 3.284(d)(9)
because carbon dioxide gas is administered through the PRODUCT?

Relevant Facts

COMPANY A is a developer and retailer of items used to perform minimally
invasive, laparoscopic abdominal surgery. Particularly, COMPANY A has developed
an integrated system made up of the following four components for use in
laparoscopic surgery:

1. a self-adjusting and self-anchoring access port (or trocar), sold under the
   name PRODUCT, that has a bladeless, optical tip for direct entry and creates
   and maintains an airtight environment;

2. a small cannula (a hollow tube), through which laparoscopic cameras, hand
   instruments, and mechanical and thermal ligation instruments are inserted into
   the abdomen during surgery;

3. a fixed capital device that controls the supply of carbon dioxide gas into
   the abdomen in order to achieve and maintain the desired abdominal pressure to
   provide abdominal stability during surgery; and

4. a filtered tube set of differing lengths and sizes used to integrate the
   capital device with the access port and cannula.

These four components make up a trocar system that ensures stable abdominal
pressure, continually evacuates smoke and plume when energized medical devices
such as electrocautery, laser, or ultrasound are used, and provides valve-free
access to the abdominal cavity during both robotic and laparoscopic surgical procedures.

The COMPANY A trocar system is packaged both as individual units and in kits of
three. Additional cannulae are also available as individually packaged units,
both with and without integrated PRODUCTs.

Analysis and Response

Section 151.313(a)(15) provides that IV systems, supplies, and replacement
parts designed or intended to be used in the diagnosis or treatment of humans
are exempt from sales and use tax.

In part, Section 151.313(e) states, “A product is an intravenous system for
purposes of this section if, regardless of whether the product is designed or
intended to be inserted subcutaneously into any part of the body, the product
is designed or intended to be used to administer fluids, electrolytes, blood
and blood products, or drugs to patients or to withdraw blood or fluids from
patients.” (Emphasis added.)

In accordance with Rule 3.284 and Section 151.313, items such as access ports,
valves, and cannula can be sold tax-free if sold for use in an IV system.
However, an exemption prerequisite is that these items be, “…designed or
intended to be used to administer fluids, electrolytes, blood and blood
products, or drugs to patients or to withdraw blood or fluids from patients.”

The COMPANY A products described in the private letter ruling request are not
designed or intended to be used to administer fluids, electrolytes, blood and
blood products, or drugs to patients, or to withdraw blood or fluids. Rather,
the trocar system is intended to introduce carbon dioxide gas—which is not a
fluid or a drug—into the abdomen in order to stabilize abdominal pressure,
provide valve-free access to the abdominal cavity during laparoscopic surgical
procedures, and continually evacuate smoke and plume when electrocautery,
laser, or ultrasound medical devices are used in the abdomen.

COMPANY A’s trocar system does not fit within the definition of an exempt IV
system, as that term is defined by Section 151.313, both because carbon dioxide
is not a fluid or drug and because the trocar system is designed to maintain
sufficient abdominal pressure to allow for the performance of laparoscopic
surgery, not to administer a fluid or drug.

Therefore, COMPANY A’s sale of the above-listed medical devices and supplies,
either separately or together, is not exempt from Texas sales and use tax under
Section 151.313.

If you have questions about this private letter ruling, please email us at the
following link, https://www.comptroller.texas.gov/taxhelp/ and please be sure
to reference Private Letter Ruling #151870054.

Sincerely,

Indirect Tax Section Tax Policy Division

ENDNOTE:

1. Unless otherwise noted, all references herein to “Section” are to Tex. Tax
   Code Ann. (Vernon 2008 and Supp. 2015) and all references to “Rule” are to
   34 Tex. Admin. Code (2015).