Did direct Medicare or Medicaid reimbursement make a medical-equipment sale or rental a tax-exempt federal sale?

Plain-English summary

The Texas Comptroller ruled that medical equipment sold or rented to a Medicare or Medicaid beneficiary was a transaction with the patient, not a sale or rental to the federal government. Direct billing and reimbursement did not change that result.

The patient incurred the legal obligation to pay and received title or possession of the equipment. The federal government received neither, even when it paid some of the purchase or rental price.

The transaction was therefore taxable unless the equipment itself qualified for exemption under Tax Code § 151.313 and Comptroller Rule 3.284. The letter also said there was no federal constitutional barrier to Texas imposing sales and use tax on these patient transactions.

What this means for you

Medical-equipment suppliers

Do not treat Medicare or Medicaid reimbursement alone as a governmental-sale exemption. Determine whether the particular equipment qualifies for its own medical exemption.

Patients and providers

Payment mechanics did not control the buyer's identity. The patient remained the purchaser or renter under the facts presented.

Accountants and tax professionals

Analyze both parts separately: who receives the equipment, and whether the equipment qualifies under the medical-equipment exemption.

Common questions

Q: Was direct reimbursement treated as a federal-government sale?
A: No.

Q: Who was treated as the purchaser or renter?
A: The Medicare or Medicaid beneficiary who received the equipment and incurred the legal obligation to pay.

Q: Was all reimbursed medical equipment taxable?
A: Not necessarily. Equipment qualifying under § 151.313 and Rule 3.284 could be exempt.

Q: Did partial federal payment change the answer?
A: No. The letter says the result was the same regardless of the method or extent of reimbursement.

Citations and references

• Tex. Tax Code § 151.313 (medical-equipment exemption)
• Comptroller Rule 3.284 (medical-equipment exemption rule)
• Tex. Tax Code §§ 151.005(1) and 151.309 (sale and governmental-entity provisions cited in the letter)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8501L0617D06

Original ruling text

January 7, 1985

Dear ***:

Thank you for your December 18, 1984, letter concerning the taxability
of medical equipment sales and rentals to patients for which you receive
reimbursement directly from Medicare and Medicaid.

Sales and rentals of medical equipment to patients for which you bill
Medicare and Medicaid directly and receive reimbursement are taxable
unless the medical equipment qualifies for exemption under Section
151.313 of the Texas Tax Code and Rule 3.284.

The reimbursement by Medicare and Medicaid are not considered a sale to
the federal government. A sale or rental of medical equipment to a
Medicare or Medicaid beneficiary is a sale or rental to an individual and
not to the federal government regardless of the billing, method of
payment, or extent of reimbursement. The patient incurs the legal
obligation to pay for the equipment purchased or rented. There is no
"sale" or "rental", i.e. transfer of title or possession of the
equipment, to the federal government not withstanding the fact that it
may pay part of the purchase or rental price. Texas Tax Code Sections
151.005(1) and 151.309.

There is no federal constitutional impediment to the imposition of Texas
sales and use tax on sales and rentals of medical equipment to patients
covered under the Medicare and Medicaid Programs.

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change.

You may write to the Tax Administration Division.

Sincerely,

Tax Policy Section
Tax Administration Division