RESCINDED (September 17, 2014) LR 2002-01 Sales and Use Tax Medical Equipment Exemption: the Meaning of "Device"

This Letter Ruling explains the meaning of the phrase "apparatus, device, or equipment" that is contained in the medical equipment exemption of both the sales and use tax acts.

In addition to hearing aids, hearing aid batteries, prescribed eyeglasses, and prescribed contact lenses under certain conditions, the sales and use tax exemptions for medical equipment also cover two other general categories of medical equipment described as "any other apparatus, device or equipment (1) used to replace or substitute for a part of the human body, or (2) used to assist the disabled person to lead a reasonably normal life if the tangible personal property is purchased on a written prescription or order issued by a health professional." MCL 205.54a (1) (h); see also MCL.94 (1) (p) of the Use Tax Act for nearly identical language.

Words and phrases in a statute are construed according to their common and approved usage, unless they are otherwise defined in a statute or the construction is inconsistent with the manifest intent of the Legislature. Advo-Systems, Inc. v Dep't of Treas, 186 Mich App 419, 424 (1991). In determining the "common and approved usage" of a word, dictionary definitions, while instructive, are not always conclusive authority since they may unnecessarily broaden the term beyond the legislative intended usage and custom. Id. at 425. Regulatory treatment, such as administrative requirements, practice and licensure, that are intended to cover the same subject matter may also provide a useful reference point in construing industry-specific terms. See Canterbury Health Care, Inc. v Dep't of Treas., 220 Mich App 23, 35-36 (1997) (supporting the holding that a skilled care nursing home did not meet the definition of "hospital" contained in the sales and use tax because the nursing home was not licensed as a hospital by the Michigan Department of Health). See Satterley v City of Flint, 373 Mich 102, 110 (1964); Cf. The American Heritage College Dictionary (1993) 65, 380, 464.

The Federal Food, Drug and Cosmetics Act (FFDCA), 21 USC 301, et. seq., regulates the manufacture, labeling, advertising and sale of medical devices. Federal law requires every entity manufacturing medical devices to register with the Secretary of Health and Human Services and receive an assigned registration number. 21 USC 360 (b), (e). Registrants are required to file with the Secretary a list of all medical devices and are required to update the list semi-annually to account for new medical devices. 21 USC 360 (j). This list contains a short synopsis regarding why the device is a medical device. All medical devices, unless specifically exempt, are also required to bear labels containing information required by federal law. 21 USC 352. Medical devices that may be used only with the supervision of a licensed medical practitioner and only sold on prescription must contain a label that describes the method of the device's application and the following statement, "Caution: Federal law restricts this device to sale by or on the order of a (physician, dentist or other medical doctor)." 21 CFR 801.109. The Federal Drug Administration (FDA) lists summaries of approved medical devices on the Internet (http://www.fda.gov).

Though the FFDCA's definition of "device" is broader than Michigan's medical equipment exemption, in those instances in which requirements of the Michigan exemption have been met the federal definition provides substantial proof that the item in question is a "device, apparatus or equipment". For example, the FFDCA's definition provides a reasonable distinction between a prescription drug and a medical device, requiring that the devices be, intended to affect the structure or function of the body … and not achieve its primary intended purpose through chemical action within or on the body …and is not dependent on being metabolized for the achievement of its primary intended purpose.

Therefore, items that are submitted to and accepted by the FFDCA as medical devices will be considered devices for Michigan medical equipment exemption purposes. As a result if the device either (1) replaces or substitutes for a part of the human body, or (2) is used to assist a disabled person to lead a reasonably normal life, and is purchased on a written prescription or order issued by a qualified health professional, it will be exempt from Michigan sales and use taxes. On the other hand, devices that are used to diagnose, to treat apart from compensating for a nonfunctioning body part, to enhance a body's natural function and structure or to clean (i.e. toothbrush) are not devices exempt under Michigan's medical equipment exemption even if they  fall within the broad definition of the FFDCA.

Taxpayers with questions regarding a particular medical device and its potential exemption from sales and use tax should consult the Customer Contact Division in writing at the following address:

Michigan Department of Treasury
430 W. Allegan St.
Lansing, MI 48922

In submitting their inquiry, taxpayers should have available information regarding the device's approval by the FDA, the registration number of the manufacturer and exact language of any accompanying label, and any other pertinent information concerning the device, its use, and purchase.