Continuing in the vein of addressing fairly broad topics early on with this blog, I will focus this particular posting on the taxability of medical devices. I will address the topic by looking at each individual state to determine what constitutes a medical device by definition and whether items fitting that definition are taxable or non-taxable pursuant to the applicable law.
Clarifying details and/or exceptions will be noted below, but in general, all 45 taxing states (jurisdictions) follow the United States Federal Drug Administration’s (FDA) definition of a medical device:
A medical device is "an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including a component part, or accessory which is:
- recognized in the official National Formulary, or the United States Pharmacopoeia, or any supplement to them,
- intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals, or
- intended to affect the structure or any function of the body of man or other animals, and which does not achieve any of its primary intended purposes through chemical action within or on the body of man or other animals and which is not dependent upon being metabolized for the achievement of any of its primary intended purposes."
This definition provides a clear distinction between a medical device and other FDA regulated products, such as drugs, and that distinction is important to keep in mind when one is reviewing the taxability of an item in a particular state. A good way of thinking about it is if the primary intended use of the product is achieved through a chemical action or reaction, then the product is likely a drug and not a medical device. For more information regarding the definition and taxability of drugs, please reference my previous post, “Which States Tax Prescription Medicine”. Durable medical equipment, prosthetic aids and items such as crutches and wheelchairs are generally considered to fall within the definition of a medical device.
While states generally agree on what constitutes a medical device, the taxability of such items varies greatly. The following states generally exempt medical devices from tax when they are sold on a written order (prescription) provided by an individual who is required to hold, and actively holds, a state license (physician, therapist, etc.): Arizona, Arkansas, California, Colorado, District of Columbia, Florida, Hawaii, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, North Carolina, Oklahoma, South Carolina, South Dakota, Texas, Utah, West Virginia.
Specific state treatments of medical devices are provided below:
- Alabama: medical devices are subject to tax unless the item is used for the treatment of illness or injury or to replace all or part of a limb or internal body part, purchased by or on behalf of an individual pursuant to a valid prescription, and covered by and billed to Medicare, Medicaid, or a health benefit plan. The exemption includes, but is not limited to, any of the following: durable medical equipment, including repair parts and the disposable or single patient use supplies required for the use of the equipment; medical oxygen and related equipment and supplies; prosthetic and orthotic devices; and medical supplies, as defined and covered under the Medicare program, including, but not limited to, items such as catheters, catheter supplies, ostomy bags and supplies related to ostomy care, specialized wound care products, and similar items that are covered by and billed to Medicare, Medicaid, or a health benefit plan.
- Connecticut: medical devices are generally exempt with or without a prescription.
- Georgia: exemptions apply to the sale or use of any durable medical equipment or prosthetic device sold or used pursuant to a prescription, and to the sale or use of all mobility enhancing equipment prescribed by a physician.
- Illinois: medical devices are taxed at a 1% reduced rate.
- Maine: medical devices are generally exempt with or without a prescription.
- Minnesota: durable medical equipment is generally subject to tax unless it’s sold for home use or is paid for or reimbursed by Medicare or Medicaid, regardless of whether sold for home use.
- Mississippi: exemptions allowed for: home medical equipment/supplies, prosthetics, orthotics, hearing aids, hearing devices, prescription eyeglasses, oxygen and oxygen equipment if prescribed and paid for under Medicare/Medicaid; durable medical equipment and home medical supplies if prescribed.
- Missouri: medical devices are generally exempt with or without a prescription.
- Nebraska: for mobility enhancing equipment, a prescription is required. For durable medical equipment, home medical supplies, oxygen equipment, and prosthetic devices, a prescription is required and they must be of the type eligible for coverage under the medical assistance program established pursuant to the Medical Assistance Act.
- Nevada: medical devices are generally exempt with or without a prescription.
- New Jersey: medical devices are generally exempt with or without a prescription.
- New Mexico: medical devices are exempt only if delivered by a licensed practitioner incidental to the provision of a service and the value of the device is included in the cost of the service.
- New York: medical devices are generally exempt with or without a prescription.
- North Dakota: medical devices are generally exempt with or without a prescription.
- Ohio: prescription is required for exemption unless the item is medical oxygen and medical oxygen-dispensing equipment, not sold for home use, and is purchased by hospitals, nursing homes, or other medical facilities.
- Pennsylvania: medical devices are generally exempt with or without a prescription.
- Rhode Island: medical devices are generally exempt with or without a prescription.
- South Carolina: medical devices are generally subject to tax unless the item is paid directly by funds of South Carolina or the United States under the Medicaid or Medicare programs, state or federal law or regulation authorizing the payment prohibits payment of the sales or use tax, and the equipment is sold by a provider who holds a South Carolina retail sales license and whose principal place of business is located in the state.
- Tennessee: medical devices are generally exempt with or without a prescription.
- Vermont: medical devices are generally exempt with or without a prescription.
- Virginia: medical devices are generally exempt with or without a prescription.
- Washington: medical devices are generally subject to tax unless they are ostomic items, prosthetic devices that are prescribed, furnished or fitted by a person licensed to do so, or medically prescribed oxygen components or systems.
- Wisconsin: medical devices are generally exempt with or without a prescription.
- Wyoming: medical devices are generally exempt with or without a prescription.
There are obviously many more aspects, both in product mix and underlying details, that can be addressed within this broad category. I plan to address more facets of this topic by delving into specific states and products in subsequent posts.
NOTE: The COMMENTS feature is no longer available for this post. If you are a BUSINESS with any questions regarding a specific product or jurisdiction, feel free to contact me directly. If however you are a CONSUMER with questions, please contact your state’s Department of Revenue (or equivalent) for assistance.
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