Were breast implants used for augmentation exempt as prosthetic or durable medical devices?

Plain-English summary

Virginia upheld tax on the breast implants used for augmentation while recognizing that qualifying reconstructive implants were exempt. The audit had not taxed implants identified as purchased for reconstructive surgery.

The durable-medical-equipment and prosthetic-device exemption required the item to replace a missing body part or function or satisfy all statutory medical-equipment criteria. The contested implants were used to enlarge small or underdeveloped breasts, restore volume reduced by pregnancy, weight loss, or aging, or improve breast balance.

Virginia found that those assessed uses did not satisfy the required medical-purpose and illness-or-injury criteria. Whether an insurer or other third party paid did not change the tax status at the time of sale.

The tax remained due and no refund issued. Separately, Virginia removed a 20% amnesty penalty because its records showed the assessment had been paid on time.

What this means for you

• Classify each implant purchase by the specific patient's medical or reconstructive use.
• Maintain records showing replacement of a missing body part or function.
• Third-party reimbursement does not determine exemption.
• Separate the underlying tax from any incorrectly applied penalty.

Common questions

Q: Were reconstructive-surgery implants taxed in this audit?
A: No. They had already been excluded.

Q: Why were the contested augmentation implants taxed?
A: The ruling found they did not meet the required medical-purpose and illness-or-injury criteria.

Q: What happened to the amnesty penalty?
A: Virginia abated it because payment was timely.

Citations and references

• Va. Code § 58.1-609.10(10).
• 23 VAC 10-210-940(B)(1).
• Virginia Public Documents 91-43 (March 19, 1991) and 94-127 (April 25, 1994).
• 2007-2011 Virginia Sales and Use Tax Expenditure Study, discussed in the ruling.

Subject

Tax assessed on purchases of breast implants used in breast augmentation.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 11-141

Original ruling text

August 3, 2011

Re: § 58.1-1821 Application: Retail Sales and Use Tax

Dear *:

This is in response to your letter in which you seek correction of a retail sales and use tax assessment issued to * (the "Taxpayer"), for the period July 2004 through June 2010. I note that the bill at issue has, been paid in full. I apologize for the delay in responding to your letter.

FACTS

The Taxpayer performs cosmetic and reconstructive breast surgery for (i) post mastectomy patients, (ii) patients, with a lumpectomy or partial removal of a segment of the breast and (iii) patients with significant abnormalities in development that result in very little or no breast volume, or significant differences between one breast and the other. As a result of the Department's audit, the Taxpayer was assessed the tax on breast implants used in breast augmentation. Breast implants deemed to have been purchased for reconstructive surgery were not taxed. The Taxpayer protests the tax assessment and asserts that the contested implants are used to replace a missing body part and qualify for the exemption in Title 23 of the Virginia Administrative Code (VAC) 10-210-940.

DETERMINATION

Virginia Code § 58.1-609.10 10 provides that the retail sales and use tax does not apply to:

Wheelchairs and parts therefor, braces, crutches, prosthetic devices, orthopedic appliances, catheters, urinary accessories, other durable medical equipment and devices, and related parts and supplies specifically designed for those products; and insulin and insulin syringes, and equipment, devices or chemical reagents that may be used by a diabetic to test or monitor blood or urine, when such items or parts are purchased by or on behalf of an individual for use by such individual. Durable medical equipment is equipment that (i) can withstand repeated use, (ii) is primarily and customarily used to serve a medical purpose, (iii) generally is not useful to a person in the absence of illness or injury, and (iv) is appropriate for use in the home.

Title 23 VAC 10-210-940 B 1 (formally VR 630-10-65 B 1) defines prosthetic devices as "devices which replace a missing part or function of the body and shall include any supplies physically connected to such devices."

The application of the exemption to durable medical equipment and devices has been addressed in the 2007-2011 Virginia Sales and Use Tax Expenditure Study. This document, prepared by the Department of Taxation as mandated by the Virginia General Assembly, sets out the Department's longstanding position that the exemption was enacted as a means of providing tax relief to people who, because of medical necessity, must purchase various items or types of equipment in order to facilitate their recovery, rehabilitation, or return to normal or near-normal functioning.

The Department addressed the taxability of breast and chin implants in Public Document (P.D.) 94-127 (4/25/94). The Tax Commissioner ruled that breast and chin implants that are used to replace a missing body part, as in reconstructive surgery may be purchased exempt from the tax when such purchases are made by or on behalf of specific individuals. However, implants used for cosmetic purposes are not replacing a missing body part or function and thus do not qualify for exemption from the tax, regardless of whether they are purchased by or, on behalf of an individual.

Further, the Department has traditionally held that the tax status of transactions in which an item is sold to an individual but billed to a third party payor ( e.g. , Medicaid or an insurance company) for payment is determined as of the time of sale to the individual and does not depend upon the availability or source of reimbursement for the item sold. See P.D. 91-43 (3/19/91). Thus, unless the breast implants sold by the Taxpayer are exempt under Va. Code § 58.1-609.10 10 as durable medical equipment, the tax applies.

In order to qualify for the durable medical equipment exemption, the contested breast implants must meet the criteria established in Va. Code § 58.1-609.10 10. Based on the information provided on the Taxpayer's web site, breast implants for breast augmentation are typically, performed to enlarge small or underdeveloped breasts, restore the natural breast volume that may have decreased as a result of pregnancy, weight loss, aging or for women that desire improved breast balance when each breast is a different size. It is clear that the contested breast implants can withstand repeated use and are appropriate for use in the home. However, the final two criteria are not met because the breast implants used in breast augmentation do not appear to serve a medical purpose and because they are not used to address some illness or injury. Because the contested breast implants do not meet the mandatory requirements set out in the statute, they do not qualify for exemption. This determination is consistent with the Department's prior decision as reflected in P. D. 94­127. Accordingly, the auditor correctly assessed the tax on purchases of the breast implants used in breast augmentation.

CONCLUSION

Based on the foregoing, the assessment is correct. Accordingly, there is no basis to refund any portion of the tax previously paid. On an unrelated issue, the Department's records indicate that a 20% amnesty penalty was applied to the bill for failure to remit payment within the 30-day period on the tax due under the terms of Virginia's amnesty program. The Department's records show that the Taxpayer paid the assessment in a timely manner. Therefore, the amnesty penalty will be abated.

The Code of Virginia section, regulation and public documents cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. The Virginia Sales and Use Tax Expenditure Study cited is available in the Publications/Education section of the Department's web site. If you have any questions regarding this determination, you may contact * in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-4586521445.T