You request a letter ruling regarding the application of the Massachusetts sales tax, G.L. c. 64H, to sales of *************** (hereinafter "the Product") a product described as a new treatment for pain due to osteoarthritis of the knee. In support of your request, you state the facts as follows:
The Product, a non-pharmacological therapy derived from natural hyaluronan, is used in the treatment of osteoarthritis (OA). The Product was developed to have physical properties comparable to those of healthy joint (synovial) fluid; its goal is to supplement and restore the natural elastic and viscous properties of the synovial joint fluid. The Product is composed of modified hyaluronan molecules called hylans, which are engineered to possess elasticity and viscosity comparable to healthy young synovial fluid.
The Product is used to relieve osteoarthritic knee pain in patients who do not get adequate relief from simple painkillers or from exercise and physical therapy. The Product is injected directly into the knee joint to address the pain and loss of function that drives patients to seek medical treatment. Federal law restricts this product to sale by or on order of a physician or properly licensed practitioner.
Based on the facts as you state them, sales of the Product are exempt from sales tax as "medicine" under G.L. c. 64H, § 6(l) when 1) prescribed by a registered physician for the treatment of osteoarthritis and 2) purchased pursuant to that prescription. Because the Product can only be sold on prescription, sales of the Product by manufacturers and distributors to registered physicians, nursing homes, hospitals or other health organizations are exempt under G.L. c. 64H, § 6(l), whether it is dispensed by the organizations directly, or resold, provided that the requirements for sales of prescription medicines in DOR Directive 91-5 are met.
Massachusetts imposes a five percent sales tax on sales and rentals of tangible personal property in Massachusetts by any vendor, unless otherwise exempt. See G.L. c. 64H, § 2. The exemptions from the sales tax are found in section 6 of Chapter 64H. Under G.L. c. 64H, § 6(l), sales of "medicine...on prescription of registered physicians..." are expressly exempt from sales tax. In Department of Revenue Directive 91-5, we pointed out that although the Massachusetts tax statutes do not define "medicine," the Department's interpretation of the term accords with its common meaning, as evidenced by the definition in Webster's New Collegiate Dictionary (1979) (medicine is "a substance or preparation used in treating disease; . . . something that affects well-being"). Id., citing Letter Ruling 88-4.
The Commissioner has previously ruled that substances used for diagnosis and not for direct medication or treatment of patients are not exempt under this provision, even if such substances are sold on prescription. See Letter Rulings 88-4; 79-15. However, the Product at issue is used in the treatment of osteoarthritis to restore the natural elastic and viscous properties of synovial joint fluid. Because it is used in the treatment of a disease, we rule that the Product constitutes "medicine" within the meaning of G.L. c. 64H, § 6(l). Sales of the Product are exempt from sales tax when sold on prescription of registered physicians, and purchased pursuant to such prescription. Moreover, since the Product qualifies as a "prescription medicine" within the meaning of DOR Directive 91-5, manufacturers' and distributors' lawful sales of the Product to registered physicians, pharmacies, nursing homes, hospitals or other health organizations are exempt under G.L. c. 64H, § 6(l), provided that the requirements of DOR Directive 91-5 are met.
Very truly yours,
Commissioner of Revenue