Ruling 2017-5 - Sales and Use Taxes - Medical Equipment

FACTS:

The Company designs, develops, and markets spinal orthotics, such as back braces and cervical collars (the “Products”). Although the Products are not custom-made by the Company for each specific individual, the Products require varying levels of fitting and/or adjustment for each patient. The Company’s customers consist primarily of physicians, hospitals, orthotists, chiropractors, and clinics (the “Medical Providers”). The Company also sells the Products to third-party resellers whose customers are Medical Providers. 

The Products are intended for individual use, and cannot be returned to a Medical Provider to resell or reuse once they have been fitted to a patient. The Products must be fitted for each individual patient and are designed to allow licensed Medical Providers to modify them to accommodate a patient’s specific condition, and to provide individualized customization. Modifications can include steps such as trimming, bending, and heat-molding of structural components of the Products.

ISSUE:

Are sales of the Products exempt from sales and use tax pursuant to the provisions of Conn. Gen. Stat. § 12-412(19)(B) because the Products are artificial devices individually designed, constructed or altered solely for the use of a particular person with a physical disability so as to become a brace, support, supplement, correction or substitute for the bodily structure, including the extremities of the individual?

RULING:

Because the Products are customized to a particular patient by a person in a medical practice who has medical expertise, the Products are artificial devices individually altered solely for the use of a particular person with a physical disability so as to become a brace, support, supplement, correction or substitute for the bodily structure, including the extremities of the individual. Thus, sales of the Products are exempt from sales and use tax pursuant to the provisions of Conn. Gen. Stat. § 12-412(19)(B).

DISCUSSION:

Retail sales of tangible personal property in the State of Connecticut are subject to sales and use taxes, unless specifically exempt. Conn. Gen. Stat. §§ 12-407 and 12-408.

When considering a tax exemption, the Connecticut Supreme Court has stated: 

To ascertain the intention of the legislature with respect to a tax exemption, we employ three overlapping presumptions. First, statutes that provide exemptions from taxation are a matter of legislative grace that must be strictly construed against the taxpayer. Second, any ambiguity in the statutory formulation of an exemption must be resolved against the taxpayer. Third, the taxpayer must bear the burden of proving the error in an adverse assessment concerning an exemption.

Oxford Tire Supply, Inc. v. Commissioner, 253 Conn. 683, 690, 755 A.2d 850 (2000).

Gross receipts from “the sale of artificial devices individually designed, constructed or altered solely for the use of a particular handicapped person so as to become a brace, support, supplement, correction or substitute for the bodily structure, including the extremities of the individual” are exempt from sales and use taxes under Conn. Gen. Stat. § 12-412(19)(B). A regulation provides examples of items exempted by this provision, all of which are braces or supports to be worn on the body: “Sales of trusses, abdominal supports, uterine supports, maternity supports, obesity supports, kidney supports and postoperative supports and standardized or stock devices, braces or supports are exempt, provided such items are altered for the use of a particular handicapped person.” Conn. Agencies Regs. § 12-426-14(4). Spinal orthotics such as the Products at issue in this Ruling are braces or supports to be worn on the body.

However, the exemption also requires that such items be individually designed, constructed, or altered solely for the use of a particular patient. Thus, standard devices that are available for sale to the general public “over the counter” do not qualify for this exemption, even if the devices are capable of minor adjustments either by the user or a medical provider, because the adjustments to size them to a particular user do not reach the level of being “individually designed, constructed or altered solely for the use of a particular handicapped person.” Examples of such taxable devices include stock braces or supports that come in small, medium or large sizes, or with hook-and-loop closures, or with Velcro strapping, or with a mechanism to pump air into the brace or support to adjust it each time it is worn.

In contrast, devices, such as the Products, that are purchased by Medical Providers to be customized to a particular patient by a person with medical expertise do qualify for exemption under Conn. Gen. Stat. § 12-412(19)(B).

LEGAL DIVISION

September 21, 2017