Are reusable surgical retractor blades and handles that a manufacturer sells to hospitals and clinics exempt from Texas sales tax as therapeutic medical devices?

Plain-English summary

A manufacturer sells surgical retractor blades and handles to hospitals and clinics for use in orthopedic and neurological surgeries. These reusable metal instruments attach to a retraction system frame and separate the edges of a wound or incision during surgery. The manufacturer asked whether these sales are exempt from Texas sales tax as medical devices. The Comptroller ruled they're taxable.

Texas exempts two categories of medical items sold to patients: orthopedic devices (designed specifically to correct or prevent skeleton, joint, or spine problems) and therapeutic devices (appliances designed to alleviate pain or treat/cure sickness, disease, or deformity, when dispensed or prescribed by a licensed healthcare practitioner for use by the specific patient). The retractor blades separate wound tissue generally rather than specifically treating the skeleton or joints, so they don't qualify as orthopedic devices. They do fit the broader "therapeutic device" description — but that exemption comes with a catch: it only applies when the device is purchased and used by (or prescribed to) the individual patient it's dispensed for. A surgical tool that a hospital buys for its own surgeons to use on many different patients doesn't fit that patient-specific purchase-and-use pattern, so the hospital owes sales tax when it buys the retractor blades and handles from the manufacturer.

There's one narrow way around this: if the buying hospital, clinic, or other provider separately qualifies as a tax-exempt governmental entity or a religious/educational/public-service organization, it can buy the devices tax-free by giving the manufacturer a properly completed exemption certificate — but that exemption comes from the buyer's own organizational status, not from anything about the device itself.

What this means for you

Medical device manufacturers selling to hospitals and clinics

Don't assume a device marketed as "therapeutic" is automatically exempt just because it treats or alleviates a medical condition. The Texas therapeutic-device exemption is keyed to patient-specific dispensing/prescribing and use — surgical tools and equipment that a facility owns and reuses across patients generally fall outside it, even if the device functionally treats disease or injury.

Hospitals, clinics, and nursing homes purchasing medical equipment

Your facility generally owes sales tax on therapeutic devices, appliances, and supplies you use to provide care — the exemption belongs to the individual patient's purchase, not your facility's purchase of tools to render services. The only way to buy such equipment tax-free is through your own exempt organizational status (governmental or § 151.310 nonprofit), documented with an exemption certificate.

Accountants and tax professionals

This ruling is a clean illustration of the orthopedic-vs-therapeutic-device distinction (Rule 3.284(a)(12) vs. (a)(14)) and, more importantly, the "purchased and used by an individual" limitation baked into the therapeutic-device exemption text of § 151.313(a)(6) — a limitation that's easy to overlook if you focus only on whether the device qualifies as "therapeutic" without checking who's buying it and for whom.

Common questions

Q: Would a patient buying the same type of device tax-free at a pharmacy get a different result?
A: Yes — the therapeutic-device exemption is designed for exactly that scenario: an individual patient buying (or being dispensed) a device prescribed for their own use. A hospital buying surgical tools for repeated use across many patients doesn't fit that pattern.

Q: How can a hospital buy this equipment tax-free?
A: Only by qualifying as an exempt governmental entity or a religious/educational/public-service organization under § 151.309 or § 151.310, and providing a properly completed exemption certificate to the seller — not through the therapeutic-device exemption itself.

Q: Does this ruling apply to other reusable medical instruments or equipment?
A: Not automatically. This is a private letter ruling binding only on the Comptroller as to this taxpayer's specific product facts. Other devices should be evaluated against the orthopedic vs. therapeutic definitions and the patient-specific purchase/use requirement with a Texas tax professional.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.051, § 151.010, § 151.009 (sales tax imposition; taxable item; tangible personal property)
• Tex. Tax Code § 151.313(a)(5), (a)(6) (Health Care Supplies — orthopedic and therapeutic device exemptions)
• Tex. Tax Code § 151.309, § 151.310 (governmental and religious/educational/public-service exemptions)
• 34 Tex. Admin. Code § 3.284(a)(12), (a)(14), (d)(11)(C) (Drugs, Medicines, Medical Equipment, and Devices)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/202401025L

Original ruling text

January 30, 2024

RE: Private Letter Ruling No. PLR20230119145559

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 Jan. 19, 2023. Detrimental reliance relief is provided in accordance with Rule 3.10, Taxpayer Bill of Rights.

** (Taxpayer) has requested guidance on the taxability of specified surgical retraction system blades.

Facts Presented

The relevant facts are based on those provided in Taxpayer’s private letter ruling request, Taxpayer’s product manual, and additional information provided on the U.S. Food and Drug Administration’s (FDA) website.

Taxpayer sells medical devices to healthcare providers. Taxpayer’s devices include surgical retractors and blades. The retractors and blades are used for procedures including orthopedic and neurological surgeries.

Taxpayer provided the following list of product codes for each of the medical devices in question with a copy of their product manuals explaining the use of the products:

875-154 23X50 Discectomy Blade

875-148 Retractable Blade Handled Fixed

875-166 20x60mm Longitudinal

875-160 20x30mm Longitudinal

875-158 23X70 Discectomy Blade

875-162 20x40mm Longitudinal

Taxpayer also provided the Global Medical Device Nomenclature Agency (GMDN) description for its blades and retractors. The GMDN is used by the FDA to provide standard description and identifiers for medical devices.

The GMDN description for Taxpayer's blades and retractors states they are a distal component of a surgical retraction system, surgical retractor, and/or surgical instrument assist arm system designed to function as a parting edge to separate the margins of a wound/incision during a surgical procedure. They are intended to be attached to a frame (e.g., mounting ring/bar) of a surgical retraction system, or may be fixed onto a retractor handle. They are metal devices, sometimes referred to as a variable or vario retractor blades when assembled with a separate retractor handle, because they are available in a variety of lengths and sizes. They are reusable devices.

Question, Ruling, and Analysis

Our restatement of your question is shown below, followed by our response and analysis.

Question: Are Taxpayer’s sales of the retractor blades and handles to health care providers subject to sales and use tax?

Ruling: The retractor blades and handles sold by Taxpayer are therapeutic devices and subject to sales and use tax when sold to health care providers.

Analysis: Texas imposes a sales tax on each sale of a taxable item in this state. Section 151.051 (Sales Tax Imposed). A taxable item is defined as 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).

Section 151.313 (Health Care Supplies) exempts certain health care supplies from sales and use taxes. Section 151.313(a)(5) exempts an orthopedic device, as well as supplies or replacement parts for the device from sales and use tax. An orthopedic appliance is “any appliance or device designed specifically for use in the correction or prevention of human deformities, defects, or chronic diseases of the skeleton, joints or spine.” Rule 3.284(a)(12) (Drugs, Medicines, Medical Equipment, and Devices).

Section 151.313(a)(6) exempts a therapeutic appliance, device, and any related supplies specifically designed for those products if dispensed or prescribed by a licensed practitioner of the healing arts, when those items are purchased and used by an individual for whom the device was dispensed or prescribed. A therapeutic device is defined as an appliance or device that is designed to alleviate pain or for use during the treatment or cure of human sickness, disease, suffering, or deformity under Rule 3.284 (a)(14).

Taxpayer's retractor blades separate the margins of a wound or incision. They are used to separate tissue for various types of procedures and are not specifically for the treatment of the skeleton, joints, or spine. They are therefore not orthopedic devices. The retractor blades and handles are surgical tools used for the treatment or cure of human sickness, disease, suffering, or deformity and are therefore therapeutic devices.

Health care providers, such as doctors, clinics, hospitals, nursing homes, or other institutions providing health care or medical services to individuals owe tax on therapeutic appliances, devices, and related supplies they use in providing nontaxable health care and medical services. A health care provider who qualifies as an exempt organization under Section 151.309, (Governmental Entities) or Section 151.310, (Religious, Educational and Public Service Organization) may purchase the medical device tax exempt by providing a properly complete exemption certificate to Taxpayer. See Rule 3.284(d)(11)(C).

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. 20230119145559.

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.