Letter Ruling  Letter Ruling 24-2: Taxability of Continuous Glucose Monitors Designed for Use in Conjunction with Automated Insulin Delivery Systems

Date:	09/17/2024
Referenced Sources:	Massachusetts General Laws

I. Introduction

You request a letter ruling on behalf of XXXXXXX (the “Company”) on the application of the Massachusetts sales tax, G.L. c. 64H, to the Company’s sales of XXXXXXXX (the “Device”), which is designed for use in conjunction with automated insulin delivery (“AID”) systems. Specifically, you ask whether sales of the Device are exempt from sales tax pursuant to G.L. c. 64H, § 6(l).

II. Facts

The following is your representation of the facts upon which the Commissioner bases this ruling.

The Company is a retailer and wholesaler of pharmaceutical equipment and supplies, including the Device. The Device is intended for single patient use and is generally sold to patients (i.e., end users) on a prescription from a registered physician.

The Device is an integrated continuous glucose monitoring system, classified as a Class II device by the US Food and Drug Administration (“FDA”). It consists of three main components: (i) a sensor, (ii) a transmitter, and (iii) a receiver. The sensor is generally worn on a user’s abdomen or buttock, continuously measures glucose levels, and utilizes the transmitter to wirelessly send data on a user’s glucose level to a display device (i.e., the receiver or a personal mobile device that uses the XXXXXXXX mobile application). The display device displays the glucose data collected by the sensor. The Device provides continuous glucose readings (i.e., glucose levels, trends, and alerts), which are updated approximately every 5 minutes. The Device was designed to (i) replace fingerstick blood glucose testing for diabetes treatment decisions, and (ii) autonomously communicate with AID systems to administer insulin in an automated signal communication and insulin response loop.

In XXXXXXXX, the FDA approved the Device to be used as part of an integrated system with other compatible medical devices and electronic interfaces, including AID systems, insulin pumps, blood glucose meters or other electronic devices used for diabetes management. Integrated systems that include the Device improve and ease the burden of diabetes management by acting as a wearable artificial pancreas, replacing the functions of the pancreas with automated technology. When the Device is used in conjunction with an AID system, these two products work together in an integrated system and have the ability to operate in “automated modes.” These modes will adjust the insulin delivered based on data obtained and transmitted from the digitally connected Device.

III. Questions Presented

Are sales of the Device exempt from the Massachusetts sales tax under G.L. c. 64H, § 6(l) as sales of equipment worn as a correction or substitute for a functioning portion of the body?

IV. Brief Answer

Yes. Retail sales of the Device are exempt from the sales tax under G.L. c. 64H, § 6(l) because the Device is an essential component of an integrated system worn on the body, which operates as a substitute for the pancreas. When used as intended, the Device: (i) monitors blood glucose levels, and (ii) works with insulin dosing systems and insulin pumps to administer insulin when necessary.

V. Discussion of Law

Massachusetts imposes a 6.25% sales tax on sales of tangible personal property in Massachusetts by any vendor, unless the sale is otherwise exempt. G.L. c. 64H, § 2. The exemptions to the sales tax, found in section 6 of chapter 64H, include exemptions for “[s]ales of medicine, insulin needles and insulin syringes on prescriptions of registered physicians and sales of insulin; [and sales of] other equipment worn as a correction or substitute for any functioning portion of the body.” G.L. c. 64H, § 6(l). The Commissioner has ruled that items not expressly designated as exempt under this provision may nonetheless be exempt if they have a purpose and function consistent with otherwise exempt items. See, e.g., Letter Ruling 14-3. Moreover, the Commissioner has found that items that are “inextricably connected to the use” of an exempt item, in that the exempt equipment could not execute its functions without such equipment, are also exempt. See, e.g., Letter Ruling 09-7 (delivery components were “critical and essential to the placement and deployment of” exempt items and, therefore, exempt as inextricably connected with the exempt items); Letter Ruling 02-6 (water system was “so inextricably connected and consistent with the function of the [exempt] kidney dialysis machine itself, so as to fall within the clause exempting the kidney dialysis machine.”)

1.  Prior rulings on glucose monitoring products.

The Commissioner has previously ruled on whether certain equipment that is used by individuals to monitor their blood glucose levels – equipment that is not expressly exempt under § 6(l) – nonetheless qualifies for the § 6(l) exemption. In prior letter rulings, the Commissioner examined whether the equipment at issue could qualify as either medicine, see Letter Ruling 88-4, or as equipment worn as a correction or substitute for any functioning portion of the body. See Letter Ruling 22-1.

In Letter Ruling 88-4, the sale of “portable meters that permit[ed] a diabetic to monitor his or her blood glucose level by measuring… and calculating blood glucose levels over a period of time” were found to be taxable. In part, the Commissioner determined (i) that they were “not exempt by virtue of being analogous to insulin needles, because in fact they do not deliver insulin to the patient's body”, and (ii) that the medical devices at issue were “used for diagnosis and not for direct medication or treatment of patients.”

More recently, Letter Ruling 22-1 examined whether the sale of certain continuous glucose monitors used to detect trends and track patterns in users’ blood glucose levels, were exempt from sales tax. The Commissioner determined that the continuous glucose monitors at issue were “not critical and necessary for medicine to be administered, nor [we]re they an essential component or even akin to an otherwise exempt item….” Moreover, the Commissioner noted that the continuous glucose monitors “[we]re not part of an automated system that administers insulin, nor d[id] they provide users with a reading of their blood glucose levels at any given time.” In light of the foregoing, the Commissioner determined that the continuous glucose monitors were not equipment worn as a correction or substitute for any functioning portion of the body.

2.  Sales of the Device are exempt from sales tax as equipment worn as a correction or substitute for any functioning portion of the body.

Equipment that is worn as a correction or substitute for any functioning portion of the body is exempt under G.L. c. 64H, § 6(l). Additionally, items that are inextricably connected with such exempt equipment are also exempt. See Letter Rulings 05-1 and 02-6.

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 (i) it was equipment, (ii) that was worn on the body, and (iii) that 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 09-7, the Commissioner evaluated whether certain medical products (i) used during minimally invasive surgical procedures and discarded (i.e., delivery components such as catheters, delivery wires, etc.) or (ii) implanted in or attached to the human body to repair damage caused by injury or disease or to assist in the functions of the body (i.e., blood circulation, digestion, excretion, and urination) qualified for the exemption as equipment worn as a correction or substitute for a functioning portion of the body. The Commissioner determined that the items “worn within and without, attached to, or inserted within the body as corrections or substitutes for functioning portions of the body” were exempt. Furthermore, the ruling added that “the related delivery components of the exempt items [were] critical and essential to the placement and deployment of the[ exempt] items[, and therefore] also exempt as being inextricably connected with the exempt Products….”

In this case, an AID system worn or attached to the human body that administers insulin when needed acts as a substitute for an otherwise functioning pancreas by monitoring blood glucose levels and releasing insulin into the bloodstream. As a result, such an AID system qualifies as equipment worn as a correction or substitute for a functioning portion of the body and, therefore, is exempt under G.L. c. 64H, § 6(l). Unlike the continuous glucose monitors at issue in Letter Ruling 22-1, the Device is designed for use with such AID systems. Without the Device, the AID system could not perform the monitoring of blood glucose levels necessary to determine (i) when to administer the insulin, and (ii) how much insulin should be administered. Therefore, the Device is inextricably connected to the use of the exempt automated system, as the Device is critical and essential to the functioning of the automated system. Sales of the Device are therefore exempt pursuant to G.L. c. 64H § 6(l).

VI. Ruling

Based on the above represented facts and legal analysis, the Commissioner concludes that the Company’s sales of the Device are exempt from sales tax under G.L. c. 64H, § 6(l).

                                                                                   Very truly yours,

                                                                                  /s/Geoffrey E. Snyder

                                                                                  Geoffrey E. Snyder
                                                                                   Commissioner of Revenue

GES:RHF:jt

LR 24-2