When a kit or package combines taxable and exempt medical items, how is sales tax figured on the kit as a whole?

Subject

Kits — Medical/Dental/First Aid — Taxable And Exempt Items Packaged Together

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9307L1247E01

Plain-English Summary

The taxpayer sells certain medical devices to hospitals, medical clinics, retailers, and doctors, and asked the Comptroller about how Texas sales tax applies to the items on a list it submitted. The Comptroller reviewed the list and marked the taxability of each item.

Items marked taxable are taxable when sold to hospitals, doctors, and clinics — unless the buyer is an entity that qualifies for exemption from Texas sales tax, in which case the buyer may give the seller an exemption certificate instead of paying the limited sales and use tax (citing Rule 3.322 on exempt organizations). Retailers who are purchasing the medical equipment for resale, rather than for their own use, may instead issue a resale certificate in lieu of tax (citing Rule 3.285).

The letter then addresses kits and packages that combine taxable and exempt medical items: the composite cost of the items in the kit determines the taxability of the kit as a whole. If the cost of the taxable items in the kit is greater than the cost of the exempt items, the whole kit is taxable. If the cost of the exempt items is greater, the whole kit is exempt. The letter also references Rule 3.284, Drugs, Medicines, Medical Equipment, and Devices, along with rules and sample certificates for resale and exemption purposes.

The letter closes with the standard caveat that the opinion is based on the facts presented, and that different facts, though similar, may result in different answers.

What This Means For You

A mixed kit is taxed as a whole, based on which items cost more. If you package taxable and exempt medical items together — say, into a first-aid, medical, or dental kit — the letter's rule is straightforward: compare the cost of the taxable items in the kit to the cost of the exempt items. Whichever group costs more decides the taxability of the entire kit. There's no line-item apportionment described here — it's an all-or-nothing determination based on composite cost.

Selling individually taxable items to hospitals, doctors, and clinics doesn't make them exempt by default. The letter is clear that taxable items remain taxable when sold to these buyers unless the specific buyer qualifies for an exemption and provides an exemption certificate. If you're unsure whether a buyer qualifies, the letter notes the Comptroller's toll-free number can be used to verify exempt status.

Resale is a separate path from exemption. If your buyer is a retailer purchasing the medical equipment to resell rather than to use, a resale certificate — not an exemption certificate — is the correct paperwork under Rule 3.285. The letter treats resale and exempt-organization sales as two distinct bases for not collecting tax at the time of sale.

Check Rule 3.284 for how individual drugs, medicines, and devices are classified. The letter points to Rule 3.284 (Drugs, Medicines, Medical Equipment, and Devices) as the source for how individual items are categorized taxable or exempt before you get to the composite-cost kit calculation.

Q&A

Q: If a kit mixes taxable and exempt medical items, is the whole kit taxable or exempt?
A: It depends on the composite cost. The letter states that when a kit or package of medical items is sold, the composite cost of the kit's items determines its taxability — if the cost of the taxable items is greater than the cost of the exempt items, the kit is taxable; if the cost of the exempt items is greater, the kit is exempt.

Q: Are the taxable items on the reviewed list always taxable when sold to hospitals, doctors, and clinics?
A: Yes, unless the buyer qualifies for exemption. The letter says items marked taxable are taxable when sold to hospitals, doctors, and clinics, but entities that qualify for exemption may give an exemption certificate in lieu of the limited sales and use tax.

Q: How can a seller confirm whether a buyer is an exempt entity?
A: The letter says to call the Comptroller's toll-free number for verification if there's a question about whether an entity is exempt.

Q: Can a retailer buy the medical equipment tax-free if it plans to resell it?
A: Yes. The letter states that retailers purchasing medical equipment for resale may issue a resale certificate in lieu of tax, citing Rule 3.285.

Q: What rule covers how individual drugs, medicines, and medical devices are classified?
A: The letter encloses Rule 3.284, Drugs, Medicines, Medical Equipment, and Devices, as the reference for that classification.

Q: Does this letter's determination apply to any similar kit sold by another business?
A: No. The letter states the opinion is based on the facts presented, and different facts, though similar, may result in different answers.

Original ruling text

July 5, 1993

Dear ***:

This is in response to your letter dated June 7, 1993, regarding sales
tax as it applies to certain medical devices sold to hospitals, medical
clinics, retailers and doctors.

The list of items you provided has been reviewed and the taxability of
each item has been indicated.

The items marked as taxable are taxable when sold to hospitals, doctors,
and clinics. Entities that qualify for exemption from the Texas sales tax
may give you an exemption certificate in lieu of the limited sales and
use tax. If you have a question about whether an entity is exempt, please
call our toll free number for verification. Enclosed is Rule 3.322
covering exempt organizations.

When a kit or package of medical items is sold, the composite cost of the
kit items will determine the taxability of the kit. If the cost of the
taxable items is greater than the cost of the exempt items, the kit is
taxable. If the cost of the exempt items is greater, the kit will be
exempt.

Retailers purchasing medical equipment for resale may issue a resale
certificate in lieu of tax. See Rule 3.285.

I am also enclosing a copy of Rule 3.284, Drugs, Medicines, Medical
Equipment, and Devices. The rules on resale and exemption certificates
are enclosed along with one of each of the certificates which may be
reproduced to meet your needs.

This opinion is based on the facts presented. Different facts, though
similar, may result in different answers. If you have any questions or
need more information, please write or call me at 1-800-531-5441,
extension 50330, or 512-475-0330.

Sincerely,

Bettie Peterson
Tax Administration Division

NOTE: Previous Accession Number 9308024L.10 and/or 9308024L