Letter Ruling  Letter Ruling 22-1: Taxability of Continuous Glucose Monitors

Date:	03/30/2022
Referenced Sources:	Massachusetts General Laws

I. Introduction

You request a letter ruling on behalf of ************************************************* (“Company”) on the application of the Massachusetts sales tax, G.L. c. 64H, to sales of two ******************************* devices: ********************************************************* (together, the “Devices”). Specifically, you ask whether sales of the Devices are exempt from sales tax pursuant to G.L. c. 64H, § 6(l). You also ask whether sales of the Devices to end users who purchase them using MassHealth benefits are exempt from sales tax pursuant to G.L. c. 64H, § 6(d).

II. Facts

The following is your representation of the facts upon which the Commissioner bases this ruling. Company sells durable medical equipment and supplies, including the Devices. Each of the Devices are intended for single patient use and cannot generally be purchased without a prescription from a registered physician.

The Devices have two main parts: (i) a handheld reader (“Reader”), and (ii) a disposable sensor (“Sensor”) that individuals (“Users”) wear on their bodies (generally the back of the non-dominant upper arm). The Sensor measures and stores glucose readings when worn on a User’s body. Generally, a Sensor will function for fourteen days, after which it must be replaced with a new sensor. The Reader obtains glucose readings when it is scanned over the Sensor and, in the case of *************, can issue glucose alarms. The information is obtained when a User holds the Reader within 1.5 inches (4 cm) of a Sensor. At this time, the Sensor wirelessly sends glucose readings to the Reader, and the Reader displays the User’s current glucose reading along with a graph indicating the trend of the User’s glucose activity. Moreover, the Reader can store approximately 90-days of glucose history and notes input by Users. The Reader also includes a built-in meter for blood glucose testing, which allows Users to test their blood glucose levels using a test strip sold by Company.

Continuous Glucose Monitors, including the Devices, are generally used to detect trends and track patterns to aid in the detection of episodes of hyperglycemia and hypoglycemia, facilitating both acute and long-term therapy adjustments. They do not provide users with a reading of their blood glucose levels at any given time, rather they provide the users with a trend arrow, which indicates whether their glucose level is increasing or decreasing.

You represent that Company generally sells the Devices to Users, and that MassHealth, Massachusetts’ Medicaid program, is often ultimately responsible for compensating Company for the Devices. Moreover, you contend that 101 CMR 322.06, which sets the allowable rates and fees that MassHealth will pay for durable medical equipment and oxygen and respiratory equipment, prevents Company from “taxing its insured.”

III. Questions Presented

1.  Are sales of the Devices exempt from the Massachusetts sales tax under G.L. c. 64H, § 6(l) as either (i) sales of medicine on prescriptions of registered physicians, or (ii) sales of equipment worn as a correction or substitute for any functioning portion of the body?

2.  Are sales of the Devices, which are paid for wholly or in part by MassHealth, exempt from the sales tax as sales to the Commonwealth or its respective agencies under G.L. c. 64H, § 6(d)?

IV. Brief Answers

1.  No. Retail sales of the Devices are not exempt from the sales tax under G.L. c. 64H, § 6(l) because (i) the Devices neither treat, nor cure, illness and therefore do not constitute medicine on prescription of a registered physician; and (ii) the Devices do not supply insulin and therefore do not qualify as equipment worn as a correction or substitute for any functioning portion of the body.

2.  No. Payment for the Devices with MassHealth benefits does not render the transactions as exempt sales to the Commonwealth under G.L. c. 64H, § 6(d).

V. Discussion of Law

1.  The Devices are not exempt from the sales tax under G.L. c. 64H, § 6(l).

Massachusetts imposes a 6.25% sales tax on sales and rentals of tangible personal property in Massachusetts of any vendor, unless otherwise exempt. G.L. c. 64H, § 2. The exemptions to the sales tax are found in section 6 of chapter 64H; section 6(l) exempts “[s]ales of medicine, insulin needles and insulin syringes on prescriptions of registered physicians and sales of insulin; [and] other equipment worn as a correction or substitute for any functioning portion of the body…” Id. This section contains no specific exemption for sales of the Devices. Generally, sales of items not falling within the scope of G.L. c. 64H, § 6(l) are subject to tax, unless another exemption applies.  However, the Commissioner has ruled that certain “items not specifically exempt under this provision may nonetheless be exempt if their purpose and function is consistent with the purpose of items that are specifically enumerated in the statute.”  Letter Ruling 09-7 (components of Endoscopic Gastrostomy Kits that were not expressly exempt nevertheless qualified for the exemption because they were “inextricably connected with the use and function” of expressly exempt property, i.e., the exempted items could not execute their functions without the components at issue).[1]

a.  The Devices are not medicine exempt under G.L. c. 64H, § 6(l).

In determining whether items constitute medicine for purposes of the exemption under G.L. c. 64H, § 6(l), the Commissioner has referred to the definition of ”medicine” from Webster's New Collegiate Dictionary: “a substance or preparation used in treating disease; …something that affects well-being.” DOR Directive 91-5.[2] Moreover, the Commissioner has similarly ruled that products which merely diagnose, detect, or identify medical problems do not fit within the exemption’s definition of medicine. Id. In Letter Ruling 88-4, the Commissioner ruled that blood glucose meters, lancets, and chemical test strips used by diabetics to monitor their blood glucose levels did not fit within the G.L. c. 64H, § 6(l) exemption because they did not treat a condition. Rather, the Commissioner found that the items simply informed diabetics whether administering insulin was, in fact necessary.

Similar to the products at issue in Letter Rulings 88-4, the Devices are not used to directly treat a disease or administer insulin. They simply inform users when a treatment is needed. The Commissioner therefore concludes that the Devices are not medicine that is exempt under in G.L. c. 64H, § 6(l).

b.  The Devices are not considered equipment worn as a correction or substitute for any functioning portion of the body exempt under G.L. c. 64H, § 6(l).

To be exempt under G.L. c. 64H, § 6(l), the Commissioner has indicated that an item must be equipment that is worn as a correction or substitute for any functioning portion of the body, or, in the alternative, the item must have a purpose and function consistent with items worn in this way. Letter Ruling 14-3.

In Letter Ruling 14-3, a commercial stage oncology company requested a ruling that a portable medical device it sold qualified for an exemption under G.L. c. 64H, § 6(l). The device was used to treat solid tumors of the head by producing alternating electrical fields, which were believed to disrupt the rapid cell division exhibited by cancer cells, thereby causing cancer cell death. The device applied the fields to the brain through electrodes placed on a patient’s scalp. The Commissioner ruled that the device qualified for exemption pursuant to G.L. c. 64H, § 6(l) because it was (i) equipment, (ii) worn on the body, and (iii) that it acted as a correction for the human brain by generating electric fields to exert physical forces on the electrically charged components of dividing cancer cells in a cancerous human brain.

In Letter Ruling 02-6, the Commissioner evaluated whether certain equipment used in the kidney dialysis process qualified for an exemption from sales tax. In his analysis, the Commissioner acknowledged that “[t]he need for dialysis to replace the malfunctioning human kidney is… different than the replacement of other malfunctioning body parts[, as] dialysis is a process which involves [myriad equipment, supplies, etc.].” Letter Ruling 02-6. The Commissioner then proceeded to list all of the components of the dialysis system and concluded that those components, the purpose of which was “so inextricably connected and consistent with the function of the kidney dialysis machine itself,” were exempt under G.L. c 64H § 6(l)’s exemption for sales of kidney dialysis machines. Id.

Similarly, in Letter Ruling 09-7, the Commissioner examined whether medical products used during surgical procedures could qualify for an exemption, notwithstanding the fact that the items at issue were neither medicine nor exempt equipment. The Commissioner found that the “delivery components” of expressly exempt items were “critical and essential to the placement and deployment of the[ exempt items, and therefore we]re also exempt as being inextricably connected with the exempt products….” Letter Ruling 09-7. 

The Commissioner has ruled that medical products with a “purpose and use” that is consistent with that of items worn as a correction or substitute for a functioning part of the body will qualify for the § 6(l) exemption. Letter Ruling 05-1. To meet this threshold, the products at issue must be used in such a manner that they supplement a functioning part of the body.[3]

The Devices are not critical and necessary for medicine to be administered, nor are they an essential component or even akin to an otherwise exempt item (i.e., a substitute for a functioning body part). The Devices assist Users in determining if a test should be taken to determine if insulin should be administered. The purpose and function of the Devices is to monitor glucose level trends and inform users when they should consider testing their blood glucose levels. The Devices detect trends and track patterns to aid in the monitoring of glucose levels; they are not part of an automated system that administers insulin, nor do they provide users with a reading of their blood glucose levels at any given time. The Commissioner therefore concludes that the Devices are not equipment worn as a correction or substitute for any functioning portion of the body under G.L. c. 64H, § 6(l).

 2.  Sales of the Devices are not exempt from sales tax under G.L. c. 64H, § 6(d).

Sales to the United States, the Commonwealth of Massachusetts, or any political subdivision thereof, or their respective agencies are exempt from the sales tax. G.L. c. 64H, § 6(d). The transactions you describe are purchases of the Devices by end-user individuals. You represent that most of the sales are wholly or partially paid for by benefits under MassHealth, Massachusetts’ Medicaid program, and therefore you reason that these sales are exempt under G.L. c. 64H, § 6(d) as sales to an agency of the Commonwealth.

In Letter Ruling 84-19, the Commissioner ruled that sales of health care products which were eligible for Medicare or Medicaid reimbursement were not exempt sales under § 6(d). In reaching this conclusion, the Commissioner noted that a “sale” was defined as a transfer of title or possession of tangible personal property for a consideration, G.L. c. 64H, § 1(12)(a), and title to the products at issue was transferred to the Medicare and Medicaid beneficiaries. In evaluating the transaction at issue in Letter Ruling 84-19, the Commissioner found that neither Medicare nor Medicaid acquired title to or possession of any of the products sold. Rather these entities only paid a portion of amounts due on sales to insured end-users covered by the Medicare or Medicaid plan.

Sales of the Devices, like the sales of products in Letter Ruling 84-19, are non-exempt retail sales to individual customers, not to the United States, the Commonwealth, or an agency thereof. MassHealth is not a customer of Company. Rather, it is a third party, which either pays Company for the Devices on behalf of a purchaser or reimburses purchasers directly for their purchases. Any amount of sales tax lawfully due by a purchaser, but not collected by a vendor may be recoverable at law by the vendor in the same manner as other debts. G.L. c. 64H, § 3. Sales of the Devices to users which are partially or fully paid for, or reimbursed by, MassHealth are retail sales and are subject to the sales tax. Such sales are not exempt under G.L. c. 64H, § 6(d).

VI. Ruling

Based on the above facts and analysis, we conclude that Company’s sales of the Devices are retail sales subject to tax under G.L. c. 64H.

                                                                                    Very truly yours,

                                                                                    /s/Geoffrey E. Snyder

                                                                                    Geoffrey E. Snyder
                                                                                    Commissioner of Revenue


GES:RHF:jjt

March 30, 2022

LR 22-1

[1] See also Letter Ruling 05-1 (wound closure device exempt because it acts as a correction or substitute for the skin during the wound healing process, and related supplies also exempt because their purpose and use is consistent with exempt items worn as a correction or substitute for a functioning part of the body); Letter Ruling 02-6 (items that are directly integrated with the purpose and function of exempt items are also exempt); Letter Ruling 98-18 (products surgically inserted to support fractured bones were exempt because their purpose was consistent with an exempt artificial device individually designed as a brace, correction or substitute for bodily structure); Letter Ruling 98-5 (medical device that prevents the accidental leakage of urine found within the scope of the clause exempting sales of equipment worn as a correction or substitute for any functioning portion of the body).

[2] See also Letter Ruling 09-7, n. 5 (noting that the Commissioner has adopted this definition in several public written statements); Letter Ruling 08-3 (Commissioner found that a non-resorbable aesthetic injectable implant used for the correction of nasolabial folds (smile lines) was an inert material and an anesthetic, and therefore was taxable because it neither treated a disease nor affected the physical condition of an individual); Letter Ruling 98-6 (non-pharmacological therapy used to relieve osteoarthritic knee pain exempt as medicine because it was used in the treatment of a disease); Letter Ruling 88-4 (lancets and test strips were not medicine, as they did not treat a condition, but rather diagnosed a medical condition).

[3] See, e.g., Letter Ruling 09-7 (catheters and stents were exempt because they were worn/inserted as corrections or substitutes for functioning parts of the body, e.g., blood circulatory, digestive, and respiratory systems); Letter Ruling 09-6 (electrical bone growth stimulators were exempt because they “corrected a deficiency in the body's natural healing process by generating electrical current that is normally produced by the bones.”); Letter Ruling 05-1 (wound closure device was exempt because it protected the body from contamination and acted as a substitute for the skin during the wound healing process); Letter Ruling 98-18 (bone plates, nails and external fixators, which supported fractured bones found to be sufficiently consistent with enumerated exempt item (brace, correction or substitute for the bodily structure of a crippled person) so as to be exempt); Letter Ruling 98-5 (medical device that assisted the female bladder by preventing accidental leakage of urine was exempt as its purpose and use was consistent with that of a functioning human bladder).