Sales & Use Tax Blog

Sales Tax Consulting Firm Succeeds in Expanding Alabama Medical Sales Tax Exemption for Implants

An often-overlooked Alabama medical sales tax exemption that can yield significant refund opportunities and future sales and use tax savings is related to the purchase of implants.  If your Alabama hospital or ambulatory surgery center is acquiring implants for patients and paying sales or use tax on those purchases, Agile Consulting Group can help.  We originated and pioneered this issue by first fighting for the correct application of Section 40-9-30, Code of Alabama 1975, which includes an Alabama sales and use tax exemption that had been “on the books” since August 1, 2014, but not honored by the Alabama Department of Revenue.  Our sales tax consultants then worked hand-in-hand with the Alabama Department of Revenue and local taxing authorities to find mutually agreeable supporting documentation that would enable hospitals and surgery centers to enjoy the benefits of this Alabama medical sales tax exemption for implants.

Background of the Alabama Medical Sales Tax Exemption for Implants

alabama medical sales tax exemption

In the Regular Session of 2014, House Bill 280 was introduced into the Ways and Means Education Committee by Representative Ron Johnson from District 33.  The Bill made its way through both houses and was forwarded to Governor Bentley on April 3, 2014.  House Bill 280 was signed into law and became Act 2014-453 taking effect August 1, 2014.  Act 2014-453 added subparagraph (d) to Section 40-9-30.  Subparagraph (d) reads,

In addition to any other exemptions provided in subsection (b) or (c), any items used for the treatment of illness or injury or to replace all or part of a limb or internal body part purchased by or on behalf of an individual pursuant to a valid prescription and covered by and billed to Medicare, Medicaid, or a health benefit plan shall be exempt from state, county, and municipal sales, use and rental and leasing taxes, including, but not limited to, any of the following: Durable medical equipment, including repair parts and the disposable or single patient use supplies required for the use of the equipment; medical oxygen and related equipment and supplies; prosthetic and orthotic devices; and medical supplies, as defined and covered under the Medicare program, including, but not limited to, items such as catheters, catheter supplies, ostomy bags and supplies related to ostomy care, specialized wound care products, and similar items that are covered by and billed to Medicare, Medicaid, or a health benefit plan.

To paraphrase, this exemption states that any items, including prosthetic devices, used for the treatment of illness, injury or to replace a limb or internal body part that are dispensed per a prescription can be purchased tax exempt if they are covered by and billed to Medicare, Medicaid or any other health insurance provider.

Agile Requests a Sales Tax Ruling from the Alabama Department of Revenue

We first learned of this exemption in early 2018 and according to our discussions with the Alabama Department of Revenue at that time, no Alabama hospital or surgery center had taken advantage of this exemption despite it being available to them for nearly three and a half years.  Agile’s sales tax consultants believed that the Alabama medical sales tax exemption for implants was not being used by taxpayers for several reasons. 

First, Alabama hospitals and surgery centers were largely unaware that the law had even changed because there had been no public discussion of the new Alabama medical sales tax exemption.  Second, subparagraph (d) was vague as to the meaning of “covered by and billed to Medicare, Medicaid, or a health benefit plan.”  Obviously, standard operating procedure in the healthcare industry dictates that Medicare, Medicaid, or a health benefit plan does not itself directly acquire the implants (or other items) used by patients covered by the health care plan.  The hospital or surgery center purchases those items and is then reimbursed by Medicare, Medicaid, or the health benefit plan for the materials used in the hospital or surgery center’s care of the patient in question.  Based on the language in subparagraph (d), it was unclear whether this arrangement would invalidate the exemption.  Third, if this standard arrangement between the medical facility and the patient’s insurer was an acceptable interpretation of the exemption language, then there was no clear guidance on the documentation that an Alabama hospital or surgery center would need to provide to entitle them to acquire the implants (or other items) in a tax exempt manner.

With these thoughts in mind, Agile’s sales tax consultants wrote to the Alabama Department of Revenue in early 2018 requesting guidance on the Alabama medical sales tax exemption for implants.  We received a Private Letter Ruling addressing these and other specific concerns.  This effectively opened a dialogue between our sales tax consultants and the Alabama Department of Revenue through which we learned how to make this exemption an actuality for Alabama hospitals and surgery centers.

Putting it into Practice – Filing Refunds Related to the Alabama Medical Sales Tax Exemption for Implants

With our newly acquired information from the Alabama Department of Revenue, we set about pursuing sales and use tax refunds for one of Agile’s longstanding Alabama hospital clients to prove through our  firsthand experience that we could turn this concept into sales and use tax refunds.  It was an ideal test case because the hospital specialized in orthopedic surgeries, acquired a large volume of implants for these orthopedic surgeries and settled over 99% of its cases through Medicare, Medicaid, or another health benefit plan.

Success!  Sales and Use Tax Refunds Issued to Alabama Hospital and Surgery Center

Beginning in early 2019, Agile began securing refunds related to the Alabama medical sales tax exemption for implants for its first Alabama hospital client.  To date, the hospital has received over $1.8M in sales and use tax refunds related to the Alabama medical sales tax exemption for implants.  In our review, we identified over 20 different vendors from whom the hospital was making purchases that qualified for the Alabama medical sales tax exemption for implants including Arthrex, Globus Medical, Johnson & Johnson (DePuy Synthes Division), Medtronic, Stryker (Howmedica Osteonics Division), LDR Spine (this vendor didn’t charge sales tax, but the hospital accrued use tax on these purchases) and Zimmer Biomet.  Here are examples of three refund checks received by our client in relation to this issue:

alabama sales tax refund check

alabama use tax refund check

alabama sales and use tax refund check

How You Too Can Recover Refunds Related to the Alabama Medical Sales Tax Exemption for Implants

If you are an Alabama hospital or ambulatory surgery center that is acquiring implants for patients and paying sales or use tax on those purchases, Agile Consulting Group can help you recover sales and use taxes paid on such purchases from the prior 36 months.  Not only will you recover refunds for these prior purchases, but going forward we will work with you to update your accounting and tax systems to capture this exemption on future qualifying purchases made.  This will result in an immediate and direct improvement to your facility’s bottom line.

As with all sales and use tax research, the specifics of each case need to be considered when determining taxability.  Additional advice from Agile Consulting Group’s sales tax consultants can be found on our page summarizing Alabama sales and use tax exemptions

Reach Out to Us with Questions

If you have questions, comments or would like to discuss the specific circumstances you are encountering regarding this particular issue or any other sales and use tax issue, please contact any of Agile Consulting Group’s sales tax consultants at (888) 350-4TAX (4829) or via email at info@salesandusetax.com.

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