Are orthopedic braces and therapy devices exempt from Utah sales tax as home medical equipment when sold to hospitals and physicians?

Plain-English summary

A manufacturer of orthopedic braces (ankle, elbow, and fracture-support braces), cold compression therapy units, a hospital-based blood-clot-prevention pump system, and a lymphedema-treatment compression system — sold primarily to hospitals, physicians, and medical dealers, occasionally directly to patients — asked the Commission to classify each of its four product categories as taxable or exempt.

The Commission declined to give a per-product answer, explaining that Utah sales tax liability turns on the type of TRANSACTION, not the nature of the product itself. It laid out the framework instead:

The home medical equipment exemption (§ 59-12-104(40)) has a three-part statutory test (§ 59-12-102(9)): the item must be (1) prescribed or authorized in writing by a licensed physician as necessary to treat a medical illness/injury or mitigate an impairment, (2) used exclusively by the person for whom it's prescribed, and (3) listed as eligible for payment under Medicare (Title 18) or Medicaid (Title 19) of the federal Social Security Act. The Commission noted Medicare/Medicaid eligibility often depends on the specific patient's individual circumstances — something it can't determine in the abstract, relying on outside experts for that judgment — so the manufacturer would have to make this call case by case.

Critically, the exemption explicitly EXCLUDES equipment purchased by or for a health care facility, doctor, nurse, or other health care provider for use in their own professional practice — and "health care facility" is defined broadly (§ 26-21-2(11)(a)) to include hospitals, clinics, doctors' offices, nursing homes, and similar providers. Since the manufacturer's customers specifically include doctors and hospitals, its direct sales to those customers do NOT qualify for the home medical equipment exemption, regardless of which product category is involved.

Two other exemptions might still apply to those same sales, though:

• The resale exemption (§ 59-12-104(27)): if a hospital or provider buys the manufacturer's product to resell to the patient, the manufacturer's sale to that hospital is tax-exempt (the final consumer — the patient — is meant to bear the tax, not the intermediate reseller).
• The religious/charitable institution exemption (§§ 59-12-104(9), 59-12-104.1): if the buying hospital or provider is itself a qualifying 501(c)(3) organization, registered with the Commission for a religious/charitable exemption number, and the purchase occurs in the normal conduct of its charitable activities, the sale can be exempt on that separate basis.

To claim any of these three exemptions, the manufacturer needs an exemption certificate (Form TC-721 — the same form covers all three) from the buyer, kept with its tax records; receiving the certificate releases the manufacturer from liability on that specific sale. Rental transactions are taxed the same way as sales. On shipping: Utah exempts intrastate delivery/freight charges (§ 59-12-104(17)(a)), an exemption the Commission has extended by policy to interstate delivery/freight charges too (per Rule R864-19S-71) — except when the shipment happens before title passes and the shipping cost is baked into the sale price.

What this means for you

Medical device manufacturers selling to hospitals, physicians, and dealers

Don't assume your products are exempt as "home medical equipment" just because they meet the physical/functional description of the statute — the exemption is knocked out entirely for sales to doctors, hospitals, or other health care providers buying for their own professional use. Get an exemption certificate (Form TC-721) for each qualifying sale, and determine on a transaction-by-transaction basis whether the resale exemption (buyer resells to the patient) or the charitable exemption (buyer is a qualifying 501(c)(3)) applies instead.

Hospitals, clinics, and medical providers

If you're reselling medical equipment or supplies to your patients (rather than consuming them yourself in treatment), give your supplier a resale exemption certificate so the sale to you isn't taxed — the tax is meant to land on the patient as final consumer, not on you as the reseller.

Accountants and tax professionals

Note this ruling predates and closely parallels the later "durable medical equipment" reasoning in this corpus's PLR 04-004 (AED defibrillators) — both turn on the same Medicare/Medicaid payment-eligibility test rather than on whether a prescription was written. Also useful: the delivery-charge exemption analysis (intrastate by statute, interstate by Commission policy extension) applies broadly beyond medical equipment.

Common questions

Q: Is my medical device automatically exempt from Utah sales tax if a doctor prescribes it?
A: No — a prescription alone isn't enough. The exemption also requires exclusive use by the patient and Medicare/Medicaid payment eligibility, AND it doesn't apply at all to sales to a doctor, hospital, or other provider buying for their own professional practice.

Q: If I sell to a hospital that prescribes and resells the device to the patient, is my sale to the hospital exempt?
A: Possibly, but under the resale exemption rather than the home medical equipment exemption — if the hospital is genuinely reselling the item to the patient.

Q: Are rental transactions of medical equipment taxed differently from sales?
A: No — Utah taxes rentals under the same principles as sales.

Q: Are shipping charges for medical equipment taxable?
A: Generally exempt, both intrastate and (by Commission policy) interstate, unless the shipment happens before title passes and the shipping cost is built into the sale price.

Q: Can I rely on this 1996 ruling today?
A: Not directly — it binds the Commission only for the taxpayer and facts it addressed, and Utah's statutes and rules have been renumbered and amended repeatedly since (this ruling notes the exemption itself was newly enacted at the time). Verify current law before relying on it.

Citations and references

Statutes:

• Utah Code Ann. § 59-12-104(40) (home medical equipment and supplies exemption)
• Utah Code Ann. § 59-12-102(9) (definition of home medical equipment and supplies, and its exclusions)
• Utah Code Ann. § 26-21-2(11)(a) (definition of "health care facility")
• Utah Code Ann. § 59-12-104(27) (resale exemption)
• Utah Code Ann. §§ 59-12-104(9), 59-12-104.1 (religious/charitable institution exemption)
• Utah Code Ann. § 59-12-104(17)(a) (intrastate delivery/freight charge exemption)

Rules:

• Utah Admin. Code R864-19S-71 (Commission's extension of the delivery/freight exemption to interstate charges)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original PDF: https://files.tax.utah.gov/tax/commission/ruling/96-139.htm

Original ruling text

96-139

Response
October 2, 1996

Request

August 7, 1996

XXXXX

Utah State Tax Commission

210 North 1950 West

Salt Lake City, UT 84134

Dear XXXXX:

Our firm represents a client located outside of your
state who is involved in the manufacture of products used primarily in the
health care and sports medicine areas.
These products are sold primarily to hospitals, physicians, medical
dealers and occasionally directly to the patient.

While little doubt exists that several of these
products are exempt from tax, we have broken our primary products into four
categories and request you advise us in writing as to the taxability of each
item in your state.

The four categories of products they offer are:

1. Braces - They manufacture a wide range of braces
   to treat a wide variety of injuries.
   Products are available that treat everything from tennis elbow to stable
   fractures of the lower leg. The
   cornerstone of the business is a line of ankle braces used to treat various
   sprains and strains. The braces
   stabilize the ankle inside and outside, but allow movement up and down. The braces aid a bodily function, alleviate
   physical incapacity, support part of the human body, are a supportive devise
   external support prescribed for the purpose of correction or injuries to the
   bone, restore the function of the human skeletal system, are designed for
   individual personal use, correct or alleviate physical illness or incapacity,
   are an apparatus designed to activate or supplement a weaken or atrophied limb
   or function. Because the products are
   classified by the FDA as limb orthosis (Class I) devices, a prescription is not
   necessary. 98% of all sales are based
   on a physician's order or advice.

2. Cold
   Compression Therapy - These units apply controlled compression to minimize
   hemorthrosis (blood filling joint cavities) and swelling along with the cold to
   minimize pain. The system has three
   basic components - a cuff which holds the cold water and covers the injured
   area, a cooler that holds enough water and ice for 6-8 hours of cryotherapy,
   and a tube to exchange the water between the cooler and the cuff. Cuffs are available for almost every part of
   the body. This devise is used for acute
   sprains, strains, post operative surgery, trauma, rehabilitation, contusions
   and other soft tissue injuries. This
   devise alleviates physical incapacity, is designed for individual personal use,
   and corrects or alleviates physical illness or incapacity. This is also
   classified by the FDA as Cold pack (Class I) devise and does not need a
   prescription. It is however, sold under
   a doctor's recommendation.

3. Product #3
   - This hospital based system helps prevent blood clots from forming in the
   veins of the lower leg, a possibility following most surgery. This system increases blood flow velocity to
   prevent clot formation. It may be used
   after surgery in lieu of anticoagulants.
   The system has three components - a pump which provides graduated,
   sequential compression to the air cells, the cuff which covers the leg and
   houses the air cells, and the tube assembly that exchanges air between the pump
   and cuff. The product is classified as
   a Compressible limb sleeve (Class II) devise and is prescribed for a patient
   only under the direction of a physician.
   The manufacturer retains ownership of the pump and sells the cuffs to
   the hospital (A set of cuffs is used for each individual patient and then
   discarded). Distribution is stringently
   regulated by the FDA with a required 510k filing.

4. Product

4 - This system is used to treat lymphedema, venous ulcers, and associated

complications. It treats the condition
of chronic accumulation of excess fluid in the extremities, found especially in
the lower legs. The system has three
basic components - a pump that applies graduated, sequential compression to the
air cells, the leg brace that supports the leg and houses the aircells, and the
tube assembly that exchanges air between the pump and the brace. This product is primarily used by diabetic
patients with compromised circulation of the lower limbs. This devise
alleviates malfunction of a body part, aids a bodily function, alleviated
physical incapacity, is designed for individual personal use, corrects or
alleviates physical illness or incapacity, and is an apparatus designed to
activate or supplement a weakened or atrophied limb or function. Distribution is stringently regulated by the
RDA with a classification as a Compressible limb sleeve (Class II_ device with
a 510k filing.

Our final area of concern is the tax treatment of
shipping charges. All products are
shipped via United Parcel Service with the company paying for all ground
shipments. If a customer requests
overnight or 2nd day service, they are billed for these charges.

It would be greatly appreciated if you could respond
to us at your earliest convenience as to the taxability of our clients'
products, as well as, to the taxability of the shipping/delivery charges.

Thank you in advance.

Respectfully requested,

XXXXX

XXXXX

Re:
Taxable status of medical equipment

Dear XXXXX:

We
received your request for an advisory opinion on certain medical products that
your client manufactures. Although you
asked that we identify the taxable status of each item on your list, we cannot
do so. Liability from the Utah Sales tax
depends more on the type of transaction than on the nature of the product being
sold.

The
Utah Legislature recently passed a law providing a sales tax exemption for home
medical equipment. The Utah Code
defines this exemption.

Utah
Code Ann. � 59-12-104 states, �The following sales and uses are exempt from the
taxes imposed by this chapter . . . (40) sale or rentals of home medical
equipment and supplies . . . .� Utah
Code Ann. � 59-12-102 defines home medical equipment by stating:

(9) (a)
�Home medical equipment and supplies� means equipment and supplies
that:

(i) a licensed physician prescribes or authorizes in
writing as necessary for the treatment of a medical illness or injury or as
necessary to mitigate an impairment resulting from illness or injury;

(ii) are used exclusively by the person for whom they
are prescribed to serve a medical purpose; and

(iii) are listed as eligible for payment under Title
18 of the federal Social Security Act or under the state plan for medical
assistance under Title 19 of the federal Social Security Act.

(b) �Home medical equipment and supplies� does not
include:

(i) equipment and supplies purchased by, for, or on
behalf of any health care facility, as defined in Subsection (9)(c), doctor,
nurse, or other health care provider for use in their professional practice;

(ii) eyeglasses, contact lenses, or equipment to
correct impaired vision; or

(iii) hearing aids or hearing aid accessories.

(c) For purposes of Subsection (9)(b)(i), �health
care facility� includes:

(i) a clinic;

(ii) a doctor�s office; and

(iii) a health care facility as defined in
Subsection 26-21-2(11)(a)

Utah Code Ann. � 26-21-2(11)(a) states:

�Health care facility� means general acute
hospitals, specialty hospitals, home health agencies, hospices, nursing care
facilities, residential health care facilities, assisted living facilities,
birthing centers, ambulatory surgical facilities, small health care facilities,
abortion clinics, facilities owned or operated by health maintenance
organizations, end stage renal disease facilities, and any other health care
facility which the committee designates by rule.

Concerning
Medicare and Medicaid (Title 18 and 19 of the federal Social Security Act)
eligibility, we find ourselves in the position of relying on outside experts to
help us make that determination. In our
short experience with Medicare and Medicaid guidelines, we have learned that
eligibility often depends upon the individual circumstances of the person for
whom the equipment is prescribed. Your
client�s products may qualify for the home medical equipment exemption only
when the transaction meets the requirements specified in the statutes. Therefore, your client will have to decide,
case by case, whether the sales of their products meet these requirements.

You
have identified your client�s customers to include doctors and hospitals. The home medical equipment exemption does
not apply to these sales. However, two
other exemptions might apply to sales of your client�s products. These two exemptions are the resale
exemption and the religious or charitable institution exemption. First, the resale exemption provides that
property purchased for resale is tax exempt. Utah Code Ann. �
59-12-104(27). If a hospital or health
care provider purchases your client�s products to resell the products to
patients, then your client�s sale is tax exempt. The idea behind the Utah Sales tax is that the final consumer of
a product, not the retailer, pays the sales tax.

Second,
some hospitals and health care providers in our state qualify for a religious
or charitable institution exemption set out in sections 59-12-104(9) and 104.1
of the Utah Code. To qualify for this
exemption the purchaser must qualify as a 501(c)(3) organization with the IRS,
register with the Tax Commission for a religious or charitable institution
exemption number, and the sales of the institution must occur in the normal
conduct of the organizations activities.

To
claim any of the exemptions described above, your client must obtain an
exemption certificate (form TC-721, the same form applies to all three
exemptions-home medical equipment, resale, and religious and charitiable
institutions) from the party claiming the exemption. The form must be kept with your client�s tax records and receipt
of the form will release your client from tax liability on these specific
sales. A copy of form TC-721 is
enclosed. Your client may copy it as
needed.

For
sales tax purposes, rental transactions are taxed under the same precepts as
sales transactions. Also, regarding
shipping charges, Utah law provides a tax exemption for intrastate delivery and
freight charges. Utah Code Ann. �
59-12-104(17)(a). In accordance with
the Federal Constitution, the Tax Commission has extended this exemption to
interstate delivery and freight charges.
Essentially the exemption applies to delivery and freight charges except
those where the shipment of the property occurs before the passage of title and
the shipping costs are included in the sale price of the item. For specific details of the exemption see
the copy of Utah Admin. Code R864-19S-71, enclosed with this letter.

Hopefully
this information will help your client determine which sales are tax exempt and
which are not. If your client requires
more specific advice, please contact us again for help. You may also call our customer service line
at (801) 297-7500.

For
the Commission,

Alice
Shearer,

Commissioner