You request a letter ruling concerning the application of the Massachusetts sales tax, G.L. c. 64H, to sales and rentals of various medical supplies and equipment by a for-profit provider to patients with renal failure who are receiving dialysis. In support of your request, you state the facts below.
The need for dialysis to replace the malfunctioning human kidney is somewhat different than the replacement of other malfunctioning body parts. In many other medical conditions a device is the actual replacement (i.e. a prosthesis for a missing limb, a pacemaker for a malfunctioning heart, a hearing aid for a malfunctioning ear, etc.). However, dialysis is a process which involves equipment, supplies, a water system, an artificial kidney (dialyzer), blood lines to take the blood to and from the dialyzer, and the reprocessing of the dialyzer for subsequent re-use. In addition, various test strips and chemicals are necessary to make sure the entire systems and processes are free of residual chemicals, which, if processed into the patient, could result in substantial harm or death. No one part of this entire process standing or acting without the rest could, of itself, substitute for the malfunctioning kidney. The dialysis process and equipment used in connection with the overall treatment are described as follows:
I. WATER SYSTEM
The water system in a dialysis unit is the fundamental building block for the dialysis treatment. Without safe, high quality water, dialysis cannot occur. The water system in a dialysis unit is categorized by the FDA as a Class II medical device and must be maintained as such.
A. The water system consists of all or part of the following:
- Reverse osmosis unit for filtration
- Carbon filters for chlorine removal
- Water softener
- Deionization tanks
- Water heater
- Multi media filter
- Storage tanks for the purified water
- Various pressure gauges, control devices, piping to connect all of the equipment into an appropriate loop
- Piping to run throughout the dialysis unit delivering the water to each machine while preserving its quality
- Various back flow preventers and flow control devices
B. In order to evaluate and maintain the quality of the water system, the following supplies are consumed routinely:
- Test strips to check for bacterial growth
- Test strips to check for abnormalities
- Sterilant (such as Actril) used periodically to flush any bio film out of the piping and equipment
- Salt for the water softener
II. DIALYSIS PROCESS
A. Dialysis machine
B. Dialysis supplies on a physician's prescription:
- Reusable or disposable disposable dialyzer.
- Blood tubing set / blood lines
- Fistula needles / catheter needles (disposable)
- Dialysate solution with additives
- Bicarbonate concentrate, powder or centrally delivered solution
C. To carry out the general physician prescription for a dialysis treatment, all of the following additional supplies are required:
- Non-latex gloves
- Gauze pads (sterile and non-sterile)
- Material for sterilizing the access site (betadine solution or alcohol pads)
- Tape to secure needles in place
- Wash cloths or towels (disposable)
- Needles and syringes (disposable)
- Bandaids or Sure Seal Strips to secure access site after dialysis
- Test strips to test the dialyzer for any residual chemicals
- Test strips to test the machines for any residual chemicals
D. The following non-patient specific supplies are consumed to maintain the sterile and sanitary condition of the equipment:
III. REPROCESSING OF DIALYZERS
When a facility practices reusing of dialyzers as an alternative to using a new dialyzer with each treatment, the dialyzer must be re-sterilized after each treatment. To accomplish this, the following is required:
- A reprocessing machine
- A computer to run diagnostics on each dialyzer as it is reprocessed
- Sterilant (Renalin, gluteraldahyde, etc.)
- Test strips to check for residual chemicals in the dialyzer
- Non-latex gloves
- Poly bags into which to place the sterile dialyzers
IV. PROTECTIVE CLOTHING AND EQUIPMENT
In order to perform the process safely, personnel are required to properly protect themselves from exposure to blood borne pathogens. Such protection includes:
- Face shields
- Fluid impervious gowns
Massachusetts imposes a five percent sales tax on sales of tangible personal property in Massachusetts by any vendor, unless otherwise exempt. See G.L. c. 64H, § 2. The exemptions to the sales tax, found in section 6 of chapter 64H, include an exemption for
[s]ales of medicine, insulin needles and insulin syringes on prescriptions of registered physicians and sales of insulin; sales of oxygen, blood or blood plasma; sales of artificial devices individually designed, constructed or altered solely for the use of a particular crippled person so as to become a brace, support, supplement, correction or substitute for the bodily structure including the extremities of the individual; sales of artificial limbs, artificial eyes, hearing aids and other equipment worn as a correction or substitute for any functioning portion of the body; sales of artificial teeth by a dentist and the materials used by a dentist in dental treatment; sales of eyeglasses, when especially designed or prescribed by an ophthalmologist, oculist or optometrist for the personal use of the owner or purchaser; sales of crutches and wheel chairs for the use of invalids and crippled persons; and sales of baby oil, and the rental, sales and repairs of kidney dialysis machines, enteral and parental feedings, and feeding devices, suction machines, oxygen concentrators, oxygen regulators, oxygen humidifiers, oxygen masks, oxygen cannulas, ultrasonic nebulizers, life sustaining resuscitators, incubators, heart pacemakers, canes, all types of hospital beds for home use, tripod quad canes, breast prosthesis, alternating pressure pad units and patient lifts, when prescribed by a physician.
Id. Under this provision, rentals, sales and repairs of kidney dialysis machines are exempt when prescribed by a registered physician. Additionally, medicines sold on prescription and certain medical equipment are expressly exempt from sales tax.
Section 6(l) contains no specific exemption for sales of many of the items you describe. Generally, sales of items not falling within the scope of G.L. c. 64H, § 6(l) are subject to tax, unless another exemption applies. See, e.g. G.L. c. 64H, § 6(d) (sales to certain governmental entities); G.L. c. 64H, § 6 (e) (sales to certain 501(c)(3) organizations). Those provisions are inapplicable to the facts at hand.
The Department has issued two letter rulings involving the taxability of machinery and equipment used in kidney dialysis. See Letter Rulings 83-5; 84-95. Those rulings, construing section 6(l), as then in effect, concluded that sales and rentals of equipment used in connection with kidney dialysis equipment were subject to tax. At that time, this provision contained no specific exemption for kidney dialysis machines or items used in the kidney dialysis process. Shortly after the issuance of Letter Ruling 84-95, the Legislature amended G.L. c. 64H, § 6(l) to specifically exempt, in pertinent part, "sales, rentals, and repairs of kidney dialysis machines…." See St. 1984, c. 409 (approved December 10, 1984, effective March 27, 1985). The Legislature did not specifically exempt items used in connection with the kidney dialysis process.
In response to this amendment, the Commissioner issued Technical Information Release 85-7. That document summarized the newly added items of medical equipment, including sales, rentals and repairs of kidney dialysis machines, when such items are prescribed by a registered physician. It did not, however, discuss the scope of this clause as it relates to other items used in the kidney dialysis process.
In determining whether the supplies and equipment you describe are within the scope of G.L. c. 64H, § 6(l), as amended, we examine subsequently issued Department public written statements construing various clauses of G.L. c. 64H, § 6(l). In addition to considering the specific statutory language, these rulings have considered the purpose of the item at issue and whether that purpose is consistent with the purpose of items specifically enumerated in a particular clause of the exemption. For example, in Letter Ruling 98-5, we concluded that a medical device that assisted the female bladder by preventing accidental leakage of urine was within the scope of the clause exempting "artificial limbs, artificial eyes, hearing aids, and other equipment worn as a correction or substitute for any functioning portion of the body…." Similarly, in Letter Ruling 98-8, we concluded that the purpose of an orthopedic brace which is inserted into a person's shoes to correct structural problems with the back, feet, or legs was "consistent with an artificial device individually designed as a brace, correction or substitute for the bodily structure of a crippled person" and therefore qualified for the exemption under G.L. c. 64H, § 6(l).
In Letter Ruling 98-18, we concluded that the purpose of certain implant products such as bone plates, nails and external fixators that are surgically inserted or attached to the bone for the purpose of bracing and/or supporting fractured bones was "consistent with an artificial device individually designed as a brace, correction or substitute for the bodily structure of a crippled person" and therefore exempt.
In other public written statements issued after the 1984 amendment, we considered whether various items were exempt under the clause exempting "medicine . . . on prescriptions of a registered physician…." or, alternatively, whether such items were merely used for diagnostic purposes, and therefore not exempt as medicine, regardless of whether they are sold pursuant to a registered physician's prescription. See, e.g. Letter Rulings 88-4; 98-6; 99-15; Department of Revenue Directive 91-5. As we have stated previously, "the Department's interpretation of the term accords with its common meaning…. Medicine is a substance or preparation used in treating disease … something that affects well-being." Id. However, we have consistently applied long-standing Department policy restricting the term "medicine" to substances or preparations that treat or cure illnesses, rather than products that merely diagnose medical problems. See Id.
In Letter Ruling 88-4, we ruled that the blood glucose meters, lancets, and chemical test strips used by diabetics to monitor their blood were not exempt, because they are "used for diagnosis and not for direct medication or treatment of patients." Id. We distinguished taxable blood diagnostic products from exempt insulin needles, because unlike insulin needles, diagnostic products do not deliver insulin to a patient's body (cf. Letter Ruling 82-111 - infusion pumps used to deliver insulin are exempt from tax).
In Letter Ruling 98-6, we concluded that a product used in the treatment of Osteoarthritis to restore the natural elastic and viscous properties of synovial joint fluid was exempt as "medicine" because it is used in the treatment of a disease. Under the same reasoning, we concluded in Letter Ruling 99-15 that radioactive seeds implanted directly into a cancerous tumor were exempt as "medicine."
We now apply the principles enunciated in the above public written statements to the equipment and supplies at issue.
I. Water System
Because kidney dialysis cannot occur without the use of the water system, we conclude that its purpose is so inextricably connected and consistent with the function of the kidney dialysis machine itself, so as to fall within the clause exempting the kidney dialysis machine. Thus, the water system is exempt when prescribed by a registered physician in connection with kidney dialysis. In contrast, the purpose of the supplies mentioned in Section IB (i.e. test strips, sterilant, and salt for the water softener) is neither consistent with the function of the kidney dialysis machine itself, nor do these items constitute "medicine," because they are not used for medication or treatment of kidney disease. Rather, these items are used for diagnosis. The Department has long ruled that items used for diagnosis rather than treatment of a disease are not exempt as "medicine."
II; III Dialysis Process; Reprocessing of Dialyzers
The dialysis machine itself is expressly exempt from sales tax when prescribed by a registered physician. With respect to the artificial kidney/dialyzers (whether or not disposable), blood tubing set, fistula needles/catheter needles in Section IIB, needles and syringes in Section IIC, dialysate solution, and bicarbonate concentrate described in Section IIB, we conclude that the purpose of such items is consistent with the function of kidney dialysis machine itself, and therefore exempt if sold pursuant to a registered physician's prescription. Even if we did not so conclude, we conclude that some of these items, (e.g. the dialysate solution and bicarbonate concentrate) would nonetheless be exempt under the independent clause of G.L. c. 64H, § 6(l) exempting "medicine", because they are substances used in the treatment of kidney disease. So long as they are prescribed by a registered physician, they are exempt.
In contrast, items enumerated in Section IIC, (except the needles and syringes) IID, and IIIA and B are not exempt, because their purpose is not consistent with the purpose of the kidney dialysis machine itself. Such items also fail to qualify as "medicine" under the analysis discussed above.
IV. Face Shields; Impervious Gowns
For reasons discussed above, we conclude that these items do not qualify for exemption under G.L. c. 64H, § 6(l). Although some types of clothing are exempt under G.L. c. 64H, 6(k), this exemption does not apply to "…special clothing…primarily designed for…protective use and which is not normally worn except when so used." Accordingly, face shields and impervious gowns are not exempt under this provision. Unless another exemption applies, sales of these items are subject to tax.
Based on the above facts and analysis, we conclude as follows:
I. Water System
The items in Section IA form the water system that is directly integrated with the purpose and function of the kidney dialysis machine. These items are exempt when prescribed by registered physician. The items in Section IB are purchased in connection with the water system but are not directly integrated with the purpose and function of the kidney dialysis machine. These items are not exempt.
II. Dialysis Process
The kidney dialysis machine in Section IIA is specifically exempt under G.L. c. 64H, § 6(l) when prescribed by a registered physician. The items in Section IIB are directly integrated with the purpose and function of the dialysis machine and are therefore exempt. With the exception of needles and syringes (which are exempt) the items described in Sections IIC and IID are not exempt, because they are neither directly integrated with the purpose and function of dialysis machine itself, nor are they medicine, within the meaning of G.L. c. 64H, § 6(l).
III. Reprocessing of Dialyzers
Items purchased for use in connection with reprocessing of dialyzers described in Sections IIIA and B are not exempt under G.L. c. 64H, § 6(l).
IV. Face Shields and Impervious Gowns
Items described in Section IV are not exempt because they fall outside the clothing exemption under G.L. c. 64H, § 6(k).
In order to substantiate a claim of exemption for the exempt items, the registered physician must properly complete Part A of Department of Revenue Form ST-12B by providing a description of the items prescribed for use in connection with kidney dialysis.
Very truly yours,
Commissioner of Revenue