September 10, 2009

I. Introduction

You request a letter ruling on behalf of your client, ********** (Company) on the application of the Massachusetts sales tax, G.L. c. 64H, to sales of medical devices known as "bone growth stimulators". Company sells various types of these devices [1] at retail within the Commonwealth. Specifically, you ask whether sales of these bone growth stimulators are exempt from sales tax pursuant to G.L. c. 64H, § 6(l).

II. Ruling

For reasons discussed below, we conclude that sales of bone growth stimulators are exempt from sales tax under G.L. c. 64H, § 6(l).

III. Facts

You provide the following information. Human bone is actually a living tissue and, like skin, has the inherent ability to heal itself when broken or injured. Broken bone helps promote the body's bone healing process by creating its own electrical field. When human bone is bent or broken, it generates an electrical field. This low-level electrical field activates the body's own repair mechanism, which in turn stimulates bone healing. In the same way, application of an electrical stimulator can enhance the body's natural bone healing process.

Bone growth stimulation is the technique of promoting bone growth in difficult to heal fractures, non-fusions and adjunct applications for high risk patients by applying a low electrical current to the fracture/fusion site. Some patients are at greater risk of not generating new bone around the damaged site. For fusion patients, post-surgical application of bone growth stimulation has been shown to increase the probability of fusion, without the need for additional surgery.

Electrical bone growth stimulators are a supplemental form of therapy to help enhance the bone healing process. Company's patented bone growth stimulators are portable, non-invasive, devices which use a low level of PEMF signals to activate the body's natural healing process and to stimulate bone growth in treating fracture non-unions and to stimulate bone fusions. PEMF stands for Pulsed Electromagnetic Field and is a low-energy, time-varying magnetic field that has been proven effective in promoting bony arthrodeses in fracture non-unions and as an adjunct to surgical fusion for patients at high risk for non-fusion. Application of PEMF activates the body's natural repair mechanism when it is absent or not fully functional in certain patients, and enhances bone growth for successful outcomes. Clinical data shows that Company's PEMF signal enhances the body's enzyme activities, induces mineralization, encourages new vascular penetration and results in a process that generates new bone growth and ultimately the healing of the non-union fracture/fusion.

The bone growth stimulator serves as a brace or device that gives support to movable parts, such as a joint or a fractured bone. The external stimulation delivered by these apparatuses stimulates bone cells at the fracture/fusion site to produce insulin-like growth factors. These growth factors are small proteins which have the capability of directly stimulating bone cells to divide and produce collagen, which is the precursor to bone. These events stimulate the production of bone and ultimately the healing of the non-union fracture or fusion. In a normal healing situation, the body produces the growth factor without the need for external stimulation. However, if the fusion fails, the resulting condition presents a serious health risk often resulting in decreased mobility and/or permanent disability. If the fracture is in a weight-bearing bone, failure to intervene and correct this situation may result in the amputation of a limb.

The following are some other key facts relating to Company's bone growth stimulation product:

  • The bone growth stimulator is classified as an FDA Class III device. An FDA Class III device is the most stringent regulatory category for devices. Class III devices are usually those that support or sustain human life, are of substantial importance in preventing impairment of human health, or which prevent a potential, unreasonable risk of illness or injury.
  • Company's bone growth stimulator can only be obtained by a patient with a written prescription from a licensed physician.
  • Company's bone growth stimulators must be used for at least three to nine months, depending on the application, to be effective.
  • The use of the stimulator results in permanent healing of the bone.

IV. Discussion

Under Massachusetts General Laws chapter 64H, section 2, a 6.25 percent sales tax is imposed on all sales at retail of tangible personal property in Massachusetts by any vendor, unless otherwise exempt under another provision of the law. A complementary use tax is imposed on tangible personal property purchased for storage, use or consumption in Massachusetts, unless otherwise exempt. G.L. c. 64I, § 2. In general, sales that are exempt from the sales tax under G.L. c. 64H are also exempt from use tax. See G.L. c. 64I, § 7(b).

The exemptions to the sales tax are found in section 6 of chapter 64H. Section 6(l) of chapter 64H specifically exempts:

Sales 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 parenteral 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.

In two prior letter rulings, the Commissioner ruled that two other types of stimulators, electrical muscle stimulators (Letter Ruling 81-78) and nerve stimulation systems (Letter Ruling 82-24) were not exempt. These devices were described as items whose purpose was to control pain by electrical stimulation of nerve structures or to exercise muscle groups. Unlike the device at issue here, those devices did not activate the body's natural healing process by promoting bone growth, or any permanent healing.

The Commissioner has ruled that certain items not specifically exempt under various clauses of G.L. c. 64H, § 6(l) may nonetheless be exempt if their purpose and function is consistent with the purposes of items that are specifically enumerated in the statute. See, e.g., Letter Rulings 05-1, 02-6, 98-18, 98-8, 98-5. In Letter Ruling 05-1, the Commissioner concluded that a device worn on the skin acted as a correction or substitution for the skin during the wound healing process. In so doing, we noted that although the device was not worn in the precise sense that a hearing aid or prosthetic device might be worn, the device and associated therapy were used in such a manner as to protect the body from contamination and to act as a substitute for the skin during the wound healing process. The Commissioner ruled that its purpose and use was consistent with items worn as a correction or substitute for a functioning part of the body, i.e., the skin. As such, the device and related supplies fell within the scope of the § 6(l) exemption.

In Letter Ruling 02-6, the Department ruled on the taxability of sales and rentals of kidney dialysis machines and various medical supplies and equipment to patients who were receiving dialysis. While the kidney dialysis machine itself was specifically exempt when prescribed by a physician, other items used in the dialysis process were not expressly exempt. In analyzing the taxability of those items, we examined whether they were directly integrated with the purpose and function of the machine. We concluded that if an item was so inextricably connected to the use of the kidney dialysis machine that dialysis could not be performed without it, then the item was exempt ( e.g., the water system used in connection with the dialysis unit), because it fell within the scope and purpose of the exemption for the kidney dialysis machine. We concluded that the purpose of artificial kidney dialyzers (whether or not disposable), blood tubing sets, fistula needles/catheter needles, syringes, dialysate solution was consistent with the purpose of exempt kidney dialysis machines and that the items were therefore exempt if sold on a physician's prescription.

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. See also Letter Rulings 98-18; 98-8 (exempting certain implant products and medical devices as being consistent with certain artificial devices expressly exempt under a different clause of G.L. c. 64H, § 6(l)).

Applying the reasoning of the above rulings to the bone growth stimulators at issue, we agree that the stimulators correct a deficiency in the body's natural healing process by generating electrical currents that normally are produced by the bones. We further conclude that although a bone growth stimulator is not worn in the precise manner that a hearing aid or prosthetic device is worn, its purpose is consistent with items worn as a correction or substitute for a functioning part of the body (i.e., bones).

V. Conclusion

Based upon the information and our reasoning provided above, we conclude that Company's sales of bone growth stimulators in Massachusetts qualify for exemption under the clause in G.L. c. 64H, § 6(l) exempting sales of "other equipment worn as a correction or substitute for any functioning part of the body."

Very truly yours,

/s/Navjeet K. Bal

Navjeet K. Bal
Commissioner of Revenue

NKB:MTF:wrd

LR 09-6



[1] Company sells the following types of bone growth stimulators:

Spinal Stimulators - One size fits all. Adjustable straps allow patient ability to adjust the product. Also, suspenders are available for smaller patients to help keep the product in place. The Spinal Stimulator generates a magnetic field strength of approximately 160 MilliGauss.

Cervical Stimulators - One size fits all. The Cervical Stimulator generates a magnetic field strength of approximately 790 MilliGauss.

Physio Stimulators - Six different models. Depending upon the application site the model will differ. The Physio Stimulator generates a magnetic field strength of approximately 790 MilliGauss.