Texas Sales Tax: IV Systems and Catheters
Use-Based Exemption or Product-Based Exemption?
The Comptroller's office has received questions regarding the clarification of policy expressed in the May 2008 Tax Policy News article, "Catheters - Infusion versus Intravenous," particularly whether a catheter that delivers contrast medium into an artery during a medical procedure qualifies for exemption as an intravenous (IV) system.
Tax Code Section 151.313(a)(15) provides an exemption from tax for IV systems, supplies and replacement parts used in the treatment of humans. Examples of IV system components and supplies include access ports, adapters, bags and bottles, clamps, needles, poles and volumetric chambers. A purchaser must give an exemption certificate to the seller stating that the components and related supplies are for IV systems used in treating humans.
In addition, Tax Code Section 151.313(a)(4) exempts hypodermic syringes and needles from sales and use tax. IV systems and hypodermic syringes can be used to deliver drugs and medicines into the human body. The statutes, however, do not exempt those items only when used to administer medication; nor does the Tax Code provide an exemption for all equipment and supplies used to deliver drugs and medicines into the human body. For example, there is no exemption for intra-arterial, intramuscular or subcutaneous delivery systems. The statutory exemption for IV systems is a product-based exemption for specific equipment, not a use-based exemption for any equipment that delivers or infuses drugs or medicines into a human body. For sales and use tax purposes, the IV system exemption under 151.313(a) (15) does not include items used to deliver medications or fluids into the human body through an artery, muscle or other bodily passageway or cavity. "Intravenous" is defined in Merriam-Webster's Dictionary to mean, "situated, performed, or occurring within or entering by way of a vein." Therefore, in order for an item to qualify for exemption as an IV system, it must be a component part of a system that is delivering fluids, drugs or medicines into a vein.
The taxability of a catheter is generally determined based on both its characteristics and its use. While a catheter can be inserted intravenously, it can also be inserted into arteries, other passageways or body cavities. A catheter that is a component part of an IV system qualifies for exemption under Tax Code Section 151.313(a) (15). A catheter used to deliver drugs, medicines or other fluids into the body by other methods does not qualify for exemption as an IV system. For example, an epidural catheter is not exempt as part of an IV system because it is not inserted into a vein to infuse drugs or medicines. Similarly, an apparatus or piece of equipment that is used to perform a medical procedure (e.g. angioplasty), and that may also infuse a drug or medicine such as contrast medium into the body, is not considered an IV system.
A catheter can also qualify for exemption as a prosthetic device under 151.313(a)(5). For example, catheters used in gastro-intestinal feeding, or Foley catheters placed in the body to drain and collect urine from the bladder, qualify for exemption as prosthetic devices because the catheters take the place of a body part or function. A catheter used to excise and retrieve plaque from diseased coronary arteries, however, is taxable as a medical tool used by a health care provider.
Statutory exemptions from taxation are subject to strict construction because they place a greater burden on other tax-paying businesses and individuals. See Bullock v. National Bancshares Corp., 584 S.W.2d 268 (Tex. 1979) and Teleprofits of Texas v. Sharp, 875 S.W.2d 748 (Tex. Civ. App. - Austin, 1994). A catheter is not, in and of itself, an IV system. Therefore, a catheter does not qualify for the IV systems exemption on its own. A catheter that is a component part of an IV system or prosthetic device will, however, qualify for exemption.