Is a breast tissue expander and its dosage controller — used temporarily after a mastectomy before a permanent implant — exempt from Texas sales tax as a prosthetic or therapeutic device?

Plain-English summary

A medical device manufacturer sells a tissue expander and matching dosage controller directly to physicians and hospitals for use in breast reconstruction surgery after a mastectomy. The tissue expander gradually stretches the patient's chest wall using small carbon dioxide releases from the dosage controller, until enough tissue has grown to accept a permanent breast implant — at which point the surgeon removes and discards both the expander and the controller (neither is reusable, and neither works without the other). The manufacturer sells them as a system but lists a separate price for each, and asked whether either — or both together — qualify for a health-care sales tax exemption.

The Comptroller ruled both are taxable, on both possible exemption theories. They're not exempt prosthetic devices under § 151.313(a)(5), because a prosthetic device must be artificial-and-replace-a-missing-part, perform a vital organ's function, or be permanently implanted — the expander/controller system is temporary by design, removed once the tissue has stretched enough. They're also not exempt therapeutic devices under § 151.313(a)(6), because that exemption is narrower than it sounds: it only covers devices dispensed/prescribed by a licensed practitioner AND purchased and used by the individual patient. Here, the manufacturer sells directly to hospitals and physicians, not to patients — so even though the device is therapeutic in the ordinary sense of the word, it fails the "purchased and used by the individual" requirement. Bundling both components into one lump-sum charge doesn't help either, since neither piece is exempt on its own. The one path to tax-free sale: a governmental-entity purchase voucher under § 151.309, or a properly completed exemption certificate from an organization exempt under § 151.310.

What this means for you

Medical device manufacturers selling to hospitals and physicians

Temporary/single-use implantable devices are a recurring trap: even devices that are surgically implanted, stay in the body for weeks, and serve an obviously medical purpose can still be fully taxable if they're not permanent. And selling to the provider (rather than directly to the patient) forecloses the therapeutic-device exemption regardless of how clinical the device is — that exemption is narrowly written around individual patient purchases, not provider purchasing.

Hospitals and physician practices purchasing implantable devices

Don't assume a device is exempt just because it's medically necessary or surgically implanted. Check whether it's genuinely permanent (prosthetic exemption) or whether you, as the purchasing entity, independently qualify as exempt under § 151.309 (government) or § 151.310 (nonprofit) — because the general "medical device" and "therapeutic" exemptions are much narrower than they sound.

Accountants and tax professionals

The two-exemption framework here (§ 151.313(a)(5) prosthetic vs. (a)(6) therapeutic, both defined in Rule 3.284(a)(13)) recurs across many STAR medical-device rulings — the permanence test and the "purchased/used by the individual patient" requirement are the two most common reasons a device that sounds medically exempt turns out to be fully taxable when sold business-to-business.

Common questions

Q: Why isn't the tissue expander a "prosthetic device"?
A: A prosthetic device must be permanently implanted, replace a missing body part, or perform a vital organ's function. The tissue expander is temporary — removed once the tissue has stretched enough for the permanent implant — so it doesn't meet the definition.

Q: The device is clearly used to treat a patient — why doesn't the therapeutic device exemption apply?
A: That exemption requires the item be purchased AND used by the individual patient for whom it was prescribed. Here, the manufacturer sells directly to the hospital or physician, not to the patient, so the exemption's ownership requirement isn't met.

Q: Does selling the tissue expander and dosage controller together for one price make the sale exempt?
A: No. A single lump-sum charge for both taxable components is still fully taxable.

Q: Can another medical device manufacturer rely on this ruling for a similar product?
A: No. It binds the Comptroller only for the taxpayer and facts presented; a device sold directly to patients, or one that is permanently implanted, could be analyzed differently.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.313(a)(5) (prosthetic device exemption — permanence requirement); § 151.313(a)(6) (therapeutic device exemption — individual purchaser/user requirement)
• Tex. Tax Code § 151.051 (sales tax imposed); § 151.010 (taxable item); § 151.054 (gross receipts presumed taxable absent valid certificate)
• Tex. Tax Code § 151.309 (governmental entity exemption); § 151.310 (nonprofit/exempt organization exemption)
• 34 Tex. Admin. Code § 3.284(a)(13) (prosthetic device definition)

Source

• Landing page (STAR search): https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/201907004L

Original ruling text

July 2, 2019

RE: Private Letter Ruling No. 20180828083113

**, Taxpayer No. **

Dear **:

We issue this private letter ruling in accordance with Rule 3.1, Private Letter Rulings and General Information Letters.[1] We are responding to your request dated Aug. 21, 2018. Detrimental reliance relief is provided in accordance with Rule 3.10, Taxpayer Bill of Rights.

You requested guidance on the taxability of a tissue expander and dosage controller used in reconstructive surgery following a mastectomy.

Facts Presented

** (Taxpayer), manufactures and sells the PRODUCT that comprises a tissue expander and a dosage controller. Taxpayer sells directly to physicians and hospitals for use in breast reconstruction surgeries following a mastectomy. The purpose of the tissue expander is to gradually stretch the patient’s chest wall to make room for a permanent breast implant. The tissue expander uses a carbon dioxide cartridge to inflate the expander.

The dosage controller communicates with the tissue expander and controls the inflation by releasing small amounts of carbon dioxide. The tissue expander remains in the patient’s chest until the tissue has stretched enough to accept the permanent breast implant. When the tissue has been sufficiently expanded, the surgeon removes the tissue expander and inserts the permanent breast implant. The surgeon then discards the tissue expander and dosage controller. Neither the tissue expander nor dosage controller are reusable, and nor can one function without the other.

Taxpayer sells the tissue expander and dosage controller as a single system. However, Taxpayer lists a separate price for each component.

Questions, Rulings, and Analysis

Our restatement of your questions is shown below, followed by our responses and analysis.

Question One: Is the sale of the tissue expander subject to Texas sales and use tax?

Ruling One: Yes, the tissue expander is subject to tax. The sale of the device does not qualify for exemption under Section 151.313 (Health Care Supplies) and is taxable.

Question Two: Is the sale of the dosage controller subject to Texas sales and use tax?

Ruling Two: Yes, The dosage controller is subject to tax. See Ruling One.

Question Three: If the sale of one component but not the other is exempt, would the sale of both items be treated as exempt if sold together for a lump sum sales price?

Ruling Three: The tissue expander and dosage controller are both subject to sales and use tax. A single charge for both devices would be taxable.

Question Four: If the sale of either item is exempt, what documentation, if any, would Taxpayer be required to collect from its health provider-customers to claim the exemption?

Ruling Four: The sale of the devices is subject to Texas sales and use tax. A sale to a governmental entity under Section 151.309 (Governmental Entities) is not taxable. A purchase voucher issued by a governmental entity is sufficient to document the exempt purchase. An exempt entity under Section 151.310 (Religious, Educational, and Public Service Organizations) may provide a properly completed exemption certificate in lieu of tax when purchasing the tissue expander and dosage controller.

Analysis: Texas imposes a sales tax on each sale of a taxable item in this state. Section 151.051 (Sales Tax Imposed). The term “taxable item” includes tangible personal property and taxable services. Section 151.010 (Taxable Item). A seller’s gross receipts are presumed to be subject to sales tax unless the seller accepts a valid resale or exemption certificate from the purchaser. Section 151.054 (Gross Receipts Presumed Subject to Tax).

Section 151.313(a)(5) exempts from sales and use tax “a brace; hearing aid or audio loop; orthopedic, dental, or prosthetic device; ileostomy, colostomy, or ileal bladder appliance; or supplies or replacement parts for the listed items.” Rule 3.284(a)(13) (Drugs, Medicines, Medical Equipment, and Devices) defines a prosthetic device as, “An item that is artificial and replaces a missing part of the body, performs the function of a vital organ or appendage of the human body, or is permanently implanted in the body.”

Taxpayer’s tissue expander and dosage controller do not meet the definition of a prosthetic device. The devices do not replace a missing breast, perform a function of a vital organ or appendage, nor are they permanently implanted. The dosage controller and the tissue expander system are temporarily implanted in order to stretch the skin in preparation for a permanent breast implant.

Section 151.313(a)(6) provides an exemption for therapeutic devices dispensed or prescribed by a licensed practitioner of the healing arts, when those items are purchased and used by the individual for whom the items were dispensed or prescribed. As you describe, the tissue expander and dosage controller are sold to health care providers, not to individuals, and do not qualify for this exemption.

The tissue expander and dosage controller are not tax exempt from Texas sales and use tax. Taxpayer should collect and remit tax on sales of these items.

A sale to a governmental entity under Section 151.309 is not taxable. A purchase voucher issued by a governmental entity is sufficient to document the exempt purchase. An exempt entity under Section 151.310 must provide a properly completed exemption certificate in order to claim an exemption based on the entity’s exempt status.

STAR documents cited can be found on the Comptroller’s State Tax Automated Research (STAR) system. The Texas Tax Code, Texas Administrative Code, and the STAR system are accessible at www.comptroller.texas.gov/taxes/.

If you have questions about this private letter ruling, please email us through our website at https://comptroller.texas.gov/web-forms/tax-help/ and reference Private Letter Ruling No. 201808280083113.

Sincerely,

Tax Policy Division – Indirect Taxes

Texas Comptroller of Public Accounts

ENDNOTE:

[1] Unless otherwise indicated, all references to “Section” are to the Texas Tax Code, and all references to “Rule” are to Title 34 of the Texas Administrative Code.