I recently had occasion to review California’s sales tax treatment of orthotic devices and I wanted to share some of my findings with medical device (durable medical equipment- DME) retailers, manufacturers and distributors.
California Code of Regulations, title 18 (Regulation), section 1591, subdivision (b)(4) addresses the taxability of medicines and medical devices in the state. Orthotics are regarded as medicines pursuant to Revenue and Taxation Code section 6369, subdivision (c)(3), and accordingly, the sale or use of an orthotic device, as defined within the Regulation, is not subject to tax when dispensed on a written order (prescription) of a physician or podiatrist. The item doesn’t necessarily need to be dispensed by a pharmacist. It can be furnished by a medical device retailer, clinic, physical therapist, etc., so long as the item is being dispensed on prescription.
To qualify as an exempt medicine, an orthotic device must be worn on the body and act as a brace, support or correction for a bodily part. Orthopedic shoes and foot orthotics will not be regarded as medicines unless the shoe is part of a leg brace or artificial leg or the foot orthotic is custom-made for the patient involved.
As with most tax exemptions, the devil is in the details. When in doubt, your best approach is to obtain an advance opinion from a sales tax expert rather than taking your chances with a potential audit later on. If necessary, your consultant can also request written advice from the state on your behalf, without revealing your identity if you so desire.
If you have any (business) questions about the taxability of medicines or medical devices in California (or any other state), please feel free to contact me. We frequently interact with medical device retailers, manufacturers and distributors so we are uniquely familiar with the tax concerns within the industry. Further, our firm routinely addresses sales and use tax exemptions as they relate to medicine and durable medical equipment (DME) and we would be happy to discuss any questions you might have on a no-cost, no-obligation basis.
Other recent “Medical Industry Tax” posts by James R. Dumler:
- Hospitals & Medical Services: Proposed Changes to CA Reg 1503
- Taxability of Orthotic Devices in California
- New Medical Equipment Tax Refund Opportunities in Missouri
- California Medical Marijuana Retailers: Tax Update & Exemption Rules
- Sales & Use Tax Refund Opportunities: Durable Medical Equipment