Are hospital gowns, urinary drainage bags, cushions, and benzoin swab sticks exempt from Texas sales tax when purchased by a hospital?

Subject

Taxability of several items purchased by hospitals: hospital gowns, urinary drainage bags, cushions, and benzoin swab sticks.

Plain-English summary

A taxpayer wrote to the Comptroller asking whether several specific items purchased by hospitals were exempt from Texas sales tax. The Comptroller answered with a general rule and then applied it item by item.

The general rule: to be exempt when purchased by a hospital, an item must fit into one of four categories defined in Rule 3.284 — (1) drugs or medicines applied to or consumed by persons or animals, (2) hypodermic syringes or needles, (3) braces or orthopedic or prosthetic devices, or (4) ileostomy, colostomy, or ileal bladder appliances and supplies for these items. If an item doesn't fit one of those categories, it's taxable.

Applying that rule to each item:

• Hospital gowns — taxable. A gown doesn't meet the definition of any of the four exempt categories.
• Urinary drainage bags — exempt. These fall under category 4 (ileostomy/colostomy/ileal bladder appliances and supplies).
• Cushions (the ones described in the request) — taxable. The Comptroller found no information showing the cushions met any of the four exempt categories, but invited the taxpayer to submit literature on how the cushions are used so the classification could be reexamined.
• Benzoin swab sticks — it depends on how they're made. Benzoin itself (a liquid adhesive used to help bandages stick) is exempt as a drug or medicine. If the swab sticks are just plain cotton swabs used to apply the benzoin separately, the swabs themselves are taxable. But if the swabs are manufactured with the benzoin already in them as a component, the whole swab qualifies for the exemption.

What this means for you

Hospitals and hospital purchasing departments

Don't assume everything a hospital buys is tax-exempt. Texas ties the hospital exemption to four narrow categories (drugs/medicines, syringes/needles, braces/orthopedic/prosthetic devices, and ostomy/ileal-bladder appliances and supplies), all defined in Rule 3.284. General-purpose supply items like gowns and cushions fall outside those categories and are taxable unless the seller or buyer can show they genuinely fit one of the four boxes.

Medical supply vendors

How a product is packaged and manufactured can change its tax treatment. The benzoin swab example shows this directly: a swab that's simply cotton (taxable) versus a swab manufactured with the medicine built in as a component (exempt) can have different tax results even though both are used to apply the same exempt drug.

Accountants and tax professionals

If a hospital-purchased item's exempt status is unclear, the Comptroller's letter shows it is willing to reexamine a classification if the taxpayer submits literature describing what the item is and how it's used (as it invited for the cushions here). This letter is also a good illustration that "this opinion is based on the facts presented" — a different item description or additional facts could change the outcome.

Common questions

Q: Are hospital gowns exempt from Texas sales tax?
A: No. The letter says hospital gowns are taxable because they don't meet the definition of any of the four exempt categories under Rule 3.284.

Q: Are urinary drainage bags exempt?
A: Yes. They're exempt because they qualify as ileostomy, colostomy, or ileal bladder appliances or supplies (category 4 of Rule 3.284).

Q: What about the cushions described in the request?
A: The Comptroller found them taxable, because no information was submitted showing they met any of the four exempt categories. The letter invited the taxpayer to submit literature on how the cushions are used so the Comptroller could reexamine the classification.

Q: Are benzoin swab sticks exempt?
A: Benzoin itself is exempt as a drug/medicine. If the swab is a plain cotton swab used only to apply the benzoin, the swab is taxable. If the swab is manufactured with the benzoin already incorporated as a component of the product, the whole item is exempt.

Q: Can I rely on this letter for my own hospital's purchases?
A: Only if you're the taxpayer this letter was issued to. Letters on STAR can support a detrimental-reliance claim only for the taxpayer who received them, and the letter itself says the opinion is based on the facts presented — different facts could change the answer.

Citations and references

Statutes and rules:

• Rule 3.284 (defines the categories of items exempt from sales tax when purchased by a hospital: drugs/medicines, hypodermic syringes/needles, braces/orthopedic/prosthetic devices, and ileostomy/colostomy/ileal bladder appliances and supplies)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9305L1259C11

Original ruling text

May 5, 1993

Dear **:

Thank you for your recent letter asking about the taxability of items
purchased by hospitals. The items are listed below with our responses.

General response: To be exempt from sales tax when purchased by a
hospital, items must fit into one of the following categories:

1. drugs or medicines applied to or consumed by persons or animals.

2. hypodermic syringes or needles.

3. braces, orthopedic or prosthetic devices.

4. ileostomy, colostomy, or ileal bladder appliances and supplies for
   these items.

The definitions are found in Rule 3.284. If an item can meet the
definition of one of the four preceding categories, an exemption will
apply. Otherwise, the item will be taxable when sold to hospitals.

HOSPITAL GOWNS:

Response:Taxable. The hospital gown does not meet the
definition of any of the categories.

URINARY DRAINAGE BAGS:

Response: Exempt. Category 4 applies.

Response:Taxable. We have not found any information
showing that these cushions meet any of the definitions for
the categories listed above. If you would like to submit
literature on what and how these cushions are used to qualify them for
exemption, we will be happy to reexamine our classification.

BENZOIN SINGLE SWAB STICKS:

Response:Benzoin (liquid adhesive to hold a bandage) is
exempt from tax. If these sticks are plain cotton swabs used to apply
the benzoin, the swabs would be taxable. However, if the swabs are
manufactured with the benzoin as a component, the swabs will qualify
for exemption.

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

If you have any questions or need more information, you may call me
toll free at 1-800-531-5441, extension 3-4633. The regular
number is 512/463-4633. You may also write to the Tax
Administration Division.

Sincerely,

Wanda Hutcheson
Tax Administration Division

NOTE: Previous Accession Number 93070185L.4 and/or 9307185L