CA BOE Issues Amendments to Regulation 1591 on Implanted Medical Devices

The California Board of Equalization (“BOE”) has issued amendments to Regulation 1591 relating to medicines and medical devices in order to clarify the rule on taxation of permanently implanted medical devices.

The BOE collects California state sales and use tax, as well as fuel, alcohol, and tobacco taxes and fees that provide revenue for state government and essential funding for counties, cities, and special districts.

According to the BOE, the purpose of the proposed amendments to California Code of Regulations, title 18, sections 1591, Medicines and Medical Devices, “is to amend, subdivision (b)(2), to clarify that tax does not apply to the sale of all ‘permanently implanted articles’ including an implant’s interdependent internal and external components, which operate together as one device, in and on the person in whom the device is implanted (including ear implants), unless the device is excluded from the definition of ‘medicines.’”

The BOE explained that this regulation is necessary to provide clarification to taxpayers and staff regarding the taxation of implanted medical devices.

On February 27, 2008, the BOE heard a sales and use tax appeals case regarding the sales of cochlear implant devices. At issue was whether sales of the external components of the ear implant device qualified for exemption from tax in the same manner as the permanently implanted internal components. The petitioner explained that the internal and external components of the ear implant device are effectively one device, with each component mutually dependent on the other to function. Together, the internal and external components of the ear implant device assist in the functioning of the ear, each necessary and integral to the ongoing function of the ear and, as such, both qualify as “medicines”. The BOE agreed with the petitioner and instructed staff to amend Regulation 1591 to clarify the matter.

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