Is a Foley urine meter tray (catheter, urine bag, betadine, and other supplies) exempt from Texas sales tax as a prosthetic device or medicine?

Subject

Urological Catheters/Incontinence Devices/Ureteral Stents — Prosthetic Devices Even If Implanted On Temporary Basis

Plain-English summary

This 1996 letter is a clarification the Comptroller's office sent to a taxpayer, following up on an earlier letter dated September 8, 1995 (specifically, "Item #1 Response" in that letter). The clarification explains more specifically why a particular catheter is exempt, and adds that betadine solution should also have been treated as an exempt item in the tray at issue.

The item in question is a Foley urine meter tray, which contains a urine meter, a Foley catheter, lubricant, saline solution, betadine solution, disposable gloves, and a urine bag. The tray is used in procedures where the ureter needs to be bypassed or assisted so urine can travel from the kidneys to the bladder -- for example, when the ureter is swollen after surgery or trauma. The catheter is lubricated and inserted after the patient is disinfected with betadine; urine then passes through the urine meter into the urine bag, and the gloves are used for sanitary purposes.

The Comptroller ruled:

• The catheter and the urine bag are exempt as prosthetic devices under Rule 3.285(a)(10)(B), because the catheter performs the function of the ureter and the urine bag performs the function of the bladder.
• The betadine solution is exempt as a drug or medicine under Rule 3.284(a)(4) and (b)(2).
• The other items in the tray are taxable. Because the tray mixes exempt and taxable items, whether the whole tray is exempt turns on the predominant cost test: if the cost of the exempt items is more than the cost of the taxable items, the entire tray is exempt.

What this means for you

Medical supply sellers and durable medical equipment (DME) vendors

If you sell prepackaged trays or kits that combine prosthetic items (like a catheter and collection bag) with non-prosthetic supplies (like gloves or lubricant), you can't assume the whole kit is taxable or exempt just because some items qualify. Under this ruling, you need to compare the cost of the exempt items against the cost of the taxable items in the tray -- if the exempt items cost more, the entire tray is exempt.

Hospitals, clinics, and healthcare accounting staff

Catheters and urine bags used to bypass or assist a non-functioning ureter are treated as prosthetic devices because they take over the function of a body part (the ureter and bladder, respectively), not because they are permanently implanted. The letter's subject line itself notes these devices are exempt "even if implanted on temporary basis." Betadine solution used for disinfection in these procedures is separately exempt as a drug or medicine.

Tax professionals researching older STAR letters

This letter is a clarification of an earlier, unpublished 1995 letter's "Item #1 Response" -- it does not restate everything from that earlier letter, only the facts and reasoning needed to explain why the catheter is exempt and to add betadine to the exempt list. Treat it as clarifying, not superseding, that prior response on this narrow point.

Common questions

Q: Is a Foley catheter and urine bag exempt from Texas sales tax?
A: Yes, as described in this letter, the catheter and urine bag are exempt as prosthetic devices under Rule 3.285(a)(10)(B), because the catheter performs the function of the ureter and the urine bag performs the function of the bladder.

Q: Is betadine solution exempt?
A: Yes. The letter states betadine is exempt as a drug or medicine under Rule 3.284(a)(4) and (b)(2), and notes it should have been included as an exempt item in the tray.

Q: Are all the items in the Foley urine meter tray exempt?
A: No. The letter states "other items contained in the tray are taxable." The tray's overall taxability is determined by the predominant cost: if the exempt items cost more than the taxable items, the entire tray is exempt.

Q: What is this letter clarifying?
A: It clarifies "Item #1 Response" from an earlier letter the Comptroller's office wrote to the same taxpayer, dated September 8, 1995 -- specifically, why the particular catheter is exempt, and that betadine solution should also have been an exempt item.

Citations and references

Rules cited:

• Rule 3.285(a)(10)(B) (prosthetic devices)
• Rule 3.284(a)(4) and (b)(2) (drugs or medicine)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9609L1441G04

Original ruling text

September 20, 1996

Dear *:

This letter is being written to make a clarification (to Item #1 Response) in
the letter I wrote to you dated September 8, 1995. This clarification is
intended to more specifically identify why the particular catheter is exempt.
Also, betadine solution should have been included as an exempt item in the
tray.

Item #1 Facts: The Foley urine meter tray consists of the following items:
urine meter, Foley catheter, lubricant, saline solution, betadine solution,
disposable gloves, and urine bag.

The tray is used during procedures where the ureter must be bypassed or
assisted in order to carry urine from the kidneys to the bladder. The catheter
will be lubricated and inserted into the patient after the patient has been
disinfected with betadine solution. The urine will pass through the urine meter
and into the urine bag. The gloves are used for sanitary purposes.

The Foley urine meter tray is used to assist the ureter or by-pass the ureter
when it cannot function properly. For example, if the ureter is swollen due to
trauma after surgery, the Foley urine meter tray may be used to by-pass the
ureter.

Response: The catheter as described above and the urine bag are exempt as
prosthetic devices as defined in Rule 3.285(a)(10)(B). The catheter performs
the function of the ureter and the urine bag performs the function of the
bladder. The betadine is exempt as a drug or medicine in Rule 3.284(a)(4) and
(b)(2). Other items contained in the tray are taxable; therefore, the
taxability of the tray would be determined by the predominate cost. If the cost
of the exempt items is more than the cost of taxable items, the entire tray is
exempt.

If you have any questions or need more information, you may call me toll free
at 1-800-531-5441, ext. 50330. The direct line is 512/475-0330. You may also
write to Tax Policy Division, Comptroller of Public Accounts.

Sincerely,

Bettie Peterson
Tax Policy Division