Is a permanently implanted spinal cord stimulator exempt from Texas sales tax as a prosthetic device, and does the same exemption cover the temporary trial stimulator used to test the implant beforehand?

Plain-English summary

A medical device manufacturer makes a spinal cord stimulator system for chronic pain management: a permanently implanted device (with anchors, battery, and leads) plus its wireless controller and charger. Before permanent implantation, patients first get a trial: a temporary external stimulator connected to surgically placed trial leads, used to confirm the treatment works before committing to the permanent implant. The manufacturer asked how each piece is taxed.

The Comptroller split the answer along the permanence line. The permanent Implant (and its anchors, battery, and leads) qualifies as an exempt prosthetic device under § 151.313(a)(5) because it's permanently implanted in the body — and its wireless remote and charger ride along as exempt "related components," since they're necessary to actually use the implant and keep it charged. But the trial stimulator and trial leads are not permanently implanted, so they don't meet the prosthetic-device definition; instead they're a therapeutic device under § 151.313(a)(6), a category that's only exempt when dispensed or prescribed by a licensed practitioner and purchased/used by the individual patient. Here, the trial stimulator and leads are sold to and used by the health care provider (not directly dispensed to the patient for their own purchase), so the therapeutic-device exemption doesn't apply — the provider owes sales tax on them unless the provider itself qualifies as an exempt governmental or nonprofit organization under §§ 151.309 or 151.310.

What this means for you

Medical device manufacturers

Permanence is the dividing line for the prosthetic-device exemption: a component permanently implanted in the body (or a "related component" necessary to operate it, like a controller or charger) is exempt, while an otherwise-identical temporary or trial version of the same technology is not — it falls into the narrower therapeutic-device category instead. If you sell both a permanent product and a temporary trial/demo version, expect different tax treatment for each.

Health care providers using trial or demo medical devices

Watch who is legally the "purchaser and user" of a therapeutic device. The § 151.313(a)(6) exemption only applies when the device is dispensed/prescribed by a licensed practitioner and purchased and used by the patient for whom it's prescribed — a device the provider itself buys, keeps ownership of, and uses on multiple patients (like this trial stimulator) doesn't qualify, and the provider owes the tax unless it's independently a tax-exempt organization.

Accountants and tax professionals

The controlling test comes from Rule 3.284(a)(13)-(14): "prosthetic device" requires permanence (artificial, replaces a body part, performs a vital function, or is permanently implanted), while "therapeutic appliance or device" is the broader catch-all for pain-alleviation/treatment devices that don't meet that bar. STAR Accession No. 201111249L (2011) and Comptroller's Decisions 108,253 (2015) and 39,457 (2004) are the supporting authorities on the therapeutic-device exemption's "dispensed to and used by the patient" requirement.

Common questions

Q: Why is the permanent implant exempt but the trial version isn't?
A: The prosthetic-device exemption under § 151.313(a)(5) requires permanence — being permanently implanted, replacing a body part, or performing a vital function. The trial stimulator and leads are removed after the trial period, so they don't meet that definition; they're taxed as a therapeutic device instead, and that exemption only applies when the patient (not the provider) is the purchaser/user.

Q: Are the wireless remote and charger for the permanent implant taxable?
A: No — when sold in connection with the permanently implanted System, they're exempt "related components" of the prosthetic device.

Q: Who owes the tax on the trial stimulator and leads?
A: The health care provider, since it purchases and uses them to provide medical services to multiple patients — unless the provider itself qualifies as a tax-exempt governmental entity or nonprofit under §§ 151.309 or 151.310.

Q: Can another medical device company rely on this ruling for a similar product?
A: No. It binds the Comptroller only for the taxpayer and facts presented; a device with different permanence characteristics or a different sale structure could be analyzed differently.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.313(a)(5) (prosthetic device exemption); § 151.313(a)(6) (therapeutic appliance/device exemption)
• Tex. Tax Code § 151.051 (sales tax imposed); § 151.010 (taxable item); § 151.009 (tangible personal property)
• Tex. Tax Code § 151.309 (governmental entities); § 151.310 (religious, educational, and public service organizations)
• 34 Tex. Admin. Code § 3.284(a)(1), (13) (prosthetic device definition); (14) (therapeutic appliance/device definition); (d)(11)(C) (health care provider tax liability)

Cited prior guidance:

• Comptroller's Decision No. 108,253 (2015), citing Comptroller's Decision No. 39,457 (2004) — therapeutic device exemption requires patient to be the purchaser/user
• STAR Accession No. 201111249L (Nov. 7, 2011) — health care providers owe tax on therapeutic devices used in providing services

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/201912014L

Original ruling text

December 18, 2019

RE: Private Letter Ruling No. PLR20190402094714

**, Taxpayer No. ***

Dear ***:

We issue this private letter ruling in accordance with Rule 3.1, Private Letter Rulings and General Information Letters.[ENDNOTE: (1)] We are responding to your request dated March 26, 2019, as well as supplemental information received on May 24, 2019. Detrimental reliance relief is provided in accordance with Rule 3.10, Taxpayer Bill of Rights.

You requested guidance, for purposes of sales and use tax, on the taxability of **'s (Taxpayer's) PRODUCT A (System) used for chronic pain management.

Facts Presented

The relevant facts are based on the request documents provided for review by Taxpayer and additional information Taxpayer provided in response to a request for additional information.

Taxpayer manufactures and sells medical devices, including the System, comprised of the PRODUCT B and anchors (Implant), its wireless controller and a charger. A medical provider surgically installs the Implant on a person's spinal cord, along with the battery, the anchor and leads. The Implant, anchors and leads are not intended to be removed from the patient once installed.

Prior to the surgical installation of the Implant, the medical provider provides the patient with a temporary device (trial stimulator) that is externally adhered to the patient's body in order to determine if the patient is a candidate for implantation of the permanent System. Thin insulated wires (trial leads) are surgically implanted in the patient and connected to the trial stimulator during the trial period. If the trial is successful, the trial leads are removed, and permanent leads are installed with the permanent Implant.

Taxpayer sells only the trial leads to the medical professional and retains ownership of the trial stimulator used on the patient.

Questions, Rulings, and Analysis

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

Question One: Is the retail sale of the Implant subject to Texas sales and use tax under Tax Code, Chapter 151 (Limited Sales, Excise and Use Tax) or is it exempt because it qualifies as an exempt prosthetic device and/or an exempt therapeutic device?

Ruling One: The Implant is a prosthetic device and is exempt from sales and use tax under Section 151.313(a)(5) (Health Care Supplies).

Question Two: Is the retail sale of the wireless remote and charger subject to Texas sales and use tax, or are they exempt as accessories to the Implant, which is exempt as a prosthetic device and/or therapeutic device?

Ruling Two: The wireless remote and charger, when sold in connection with a permanently implanted System, are components and supplies for a prosthetic device and are exempt from sales and use tax under Section 151.313(a)(5).

Question Three: Are the retail sale of the trial leads attached to the trial stimulator subject to Texas sales and use tax, or are they exempt because they qualify as an exempt prosthetic device and/or therapeutic device?

Ruling Three: The trial stimulator, trial leads, and any other related supplies are therapeutic devices under Section 151.313(a)(6) and are not exempt from sales and use tax when sold to a health care provider of nontaxable health care and medical services, unless the healthcare provider qualifies as an exempt organization under Sections 151.309 (Governmental Entities) or 151.310 (Religious, Educational, and Public Service Organizations).

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). Tangible personal property is defined as personal property that can be seen, weighted, measured, felt, or touched or that is perceptible to the senses in any manner. Section 151.009 (“Tangible Personal Property”).

Certain items are exempted from sales and use tax, including specific health care items under Section 151.313. Section 151.313(a)(5) exempts a prosthetic device and supplies from sales and use tax. A prosthetic device is 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. Prosthetic devices include related components and supplies. Rule 3.284(a)(13) (Drugs, Medicines, Medical Equipment, and Devices).

The Implant, anchors, battery, and leads in Taxpayer's System that medical providers permanently implant into the human body qualify as prosthetic devices under the plain reading of Rule 3.284(a)(1) and (13).

In addition to the permanently implanted items, Taxpayer provides patients with a wireless remote to control the Implant and a charger. These items are necessary for the patient to use the Implant to control pain and to keep the battery functioning. Because they are necessary for the use of the Implant, they are related components and included in the definition prosthetic device.

Prior to the surgery to implant the permanent System into a patient, a medical provider may provide the patient with a trial stimulator to determine if the patient is a suitable candidate for the System. The medical provider adheres the trial stimulator to the patient's body and implants trial leads that are connected to the trial stimulator. The trial simulator and trial leads are not permanently implanted and do not meet the definition of a prosthetic device.The trial stimulator, trial leads, and other related supplies fall under the definition of a therapeutic appliance or device. Rule 3.284(a)(14) defines a therapeutic appliance or device as appliances or devices that are designed to alleviate pain or for use during the treatment or cure of human sickness, disease, suffering or deformity.

Certain therapeutic devices are exempted from tax under Section 151.313(a)(6). However, the Section 151.313(a)(6) exemption applies only if the therapeutic appliance, device, or related supply is dispensed or prescribed by a licensed practitioner of the healing arts, and only when the items are purchased and used by an individual for whom the items were dispensed or prescribed. Comptroller’s Decision No. 108,253 (2015), referencing Comptroller’s Decision No. 39,457 (2004). Pursuant to Rule 3.284(d)(11)(C), health care providers owe tax on therapeutic appliances, devices, and related supplies they use in providing nontaxable health care and medical services. STAR Accession No. 201111249L (Nov. 7, 2011). Taxpayer’s trial stimulator and trial leads are used by health care providers, not by the patient, to provide medical services and are subject to Texas sales and use tax. Unless the health care provider qualifies as an exempt organization under Tax Code, Section 151.309 or Section 151.310, sales or use tax must be paid by the health care provider on the purchase, lease, or rental of all therapeutic appliances, devices, and related supplies.

Comptroller’s Decisions and 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. 20190402094714.

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.