DRS: Ruling 2015-3, Sales and Use Taxes, Medical Devices


STATE OF CONNECTICUT
DEPARTMENT OF REVENUE SERVICES

25 Sigourney Street
Hartford CT 06106-5032
 
RULING 2015-3

SALES AND USE TAXES
MEDICAL DEVICES

FACTS:

 

Company is dedicated to the development and commercialization of a cancer treatment therapy that uses low-intensity, alternating electric fields to exert physical forces on the electrically charged components of dividing cancer cells, which is intended to disrupt cell division and cause cancer cell death (“Therapy”).  To this end, Company created a product to treat solid tumors of the head using Therapy (the “Product”).  The United States Food and Drug Administration (“FDA”) approved Company’s premarket approval application for the Product as a stand-alone treatment for adult patients with confirmed glioblastoma multiforme.  Such FDA approval is required for devices that are deemed by the FDA to support or sustain human life.  Glioblastoma multiforme is an aggressive brain tumor that without other treatment is combatted by the immune system.  The Product is intended to improve the one-year survival rate and overall survival time for patients with glioblastoma multiforme.

There are three primary components to the Product:

  1. An electric field generator, connection cable, a portable batter, power supply, rack and a power cord;
  2. Transducer arrays; and
  3. Ancillary items and accessories consisting of boxes, bags, operations manuals, and self-exchange kits.

The Product is only available by prescription.  The prescription is submitted to Company and the components of the Product are shipped to the closest local technical support staff specialist or to the prescribing physician’s office.  After initial treatment begins, Company typically ships arrays and other components directly to patients.  Patients pay a monthly fee for the Product, which includes the cost of the durable components, the cost of the transducer arrays, and the cost of technical support.

Company is operating within the State of Connecticut and is registered for sales and use tax.

ISSUE:

Are gross receipts from the retail sale of the Product to patients exempt from Connecticut sales and use tax?

RULING:

Gross receipts from the retail sale of the Product are exempt from Connecticut sales and use tax because it is equipment used in support of vital life functions. Conn. Gen. Stat. § 12-412(19).

DISCUSSION:

Retail sales of tangible personal property in the State of Connecticut are subject to sales and use tax, unless specifically exempt. Conn. Gen. Stat. §§ 12-407 and 12-408.  Gross receipts from the sale of “any equipment used in support of or to supply vital life functions” are exempt from the sales and use tax. Conn. Gen. Stat. § 12-412(19)(E); Conn. Agencies Regs. § 12-426-14(1). 

The relevant portion of Conn. Gen. Stat. § 12-412 states as follows:

any equipment used in support of or to supply vital life functions, including oxygen supply equipment used for humans or animals, kidney dialysis machines and any other such device used in necessary support of vital life functions, and apnea monitors, and repair or replacement parts and repair services rendered to property described in this subparagraph

Conn. Gen. Stat. § 12-412(19)(E).  Although the examples given in both the statute and the regulation for such equipment are of “oxygen supply equipment” and “kidney dialysis machines,” the use of the word “including” and the phrase “and any other such device used in necessary support of vital life functions” indicates that the examples given are not exhaustive and that other devices that support vital life functions are similarly exempt. Conn. Gen. Stat. § 12-412(19)(E); Conn. Agencies Regs. § 12-426-14(1). 

Given the Product’s assistance of the patient’s immune system in the destruction of cancer cells and its improvement of the one-year survival rate and overall survival time for patients with glioblastoma multiforme, the Product qualifies as equipment that is used in support of vital life functions.  Accordingly, the gross receipts from retail sales of the Product are exempt from Connecticut sales and use tax pursuant to the exemption set forth in Conn. Gen. Stat. § 12-412(19)(E).

OFFICE OF COUNSEL

June 24, 2015