It never ceases to amaze me as to the types of cases and industries that come up in our practice. In late 2012, a Taxpayer, or its representative, inquired to the Missouri Department of Revenue whether certain sales it made to its customers are subject to Missouri sales and use tax. As a state and local tax attorney and the proud recipient of a recent jawbone graft, this particular ruling caught my attention. Specifically, in LR 732, Mo. Dept. of Revenue (August 10, 2012), a dental supply and service distributor sold single patient use medical materials to its customers. The medical materials happened to be used for structural support for bone tissue during jaw bone grafting.
Like every one of the 45 states and the District of Colombia that has a sales and use tax regime, Missouri has a medical supply exemption. Medical exemptions are often popular ways for Legislatures to look popular by exempting items such as food and medicine that is necessary for people to survive. States take the position that taxpayers should not be burdened with state taxes for items that are essential.
At issue in LR 732, Mo. Dept. of Revenue (August 10, 2012) was Missouri’s exemption for “orthopedic devices” such as rigid or semi rigid leg, arm, back or neck braces that are used to support weak or deformed body, or restrict or eliminate motion in diseased or injured body parts. Sounds delicious, don’t it? In any event, the Taxpayer was curious if jawbone grafting materials fit within this gruesome sounding exemption.
The Missouri Department of Revenue seemed to believe that, when materials are sold to be used for jawbone grafting or jawbone structural support, they are not subject to Missouri sales and use tax. The state then followed its normal routine of summarily ruling without providing an analysis to how far the exemption could be applied.
This ruling serves as a good reminder for practitioners and taxpayers who are unsure of the taxability of a transaction to just go for a ruling. If the ruling appears favorable, then go for the state’s version of a binding ruling that will serve as an insurance policy if the taxpayer is ever audited. Perhaps more importantly, this ruling reminds taxpayers and tax professionals to be creative when using exemptions to fit you or your client’s situation. What else can fit into this type of medical exemption? Many states often have exemptions for food as well as machinery and equipment used by manufacturers. How far can we go as planners to call something manufacturing?
This case also reminds me of some of the interesting clients and facility tours that I have taken in the past few years. As I stated at the outset, the broad scope of companies and industries that are constantly affected by state sales and use tax truly never ceases to amaze me.
About the author: Mr. Donnini is a multi-state sales and use tax attorney and an associate in the law firm Moffa, Gainor, & Sutton, PA, based in Fort Lauderdale, Florida. Mr. Donnini’s primary practice is multi-state sales and use tax as well as state corporate income tax controversy. Mr. Donnini also practices in the areas of federal tax controversy, federal estate planning, Florida probate, and all other state taxes including communication service tax, cigarette & tobacco tax, motor fuel tax, and Native American taxation. Mr. Donnini is currently pursuing his LL.M. in Taxation at NYU. If you have any questions please do not hesitate to contact him via email or phone listed on this page.