in-20250326-IR-045250141NRA: DEPARTMENT OF STATE REVENUE

DEPARTMENT OF STATE REVENUE FINAL ORDER DENYING REFUND: 04-20242047 Sales Tax For the 2020, 2021, and 2022 Tax Years HOLDING Taxpayer failed to establish that items it purchased were exempt from sales tax. ISSUE

I. Sales Tax – Medical Devices and Supplies.

Authority: IC 6-2.5-1-17; IC 6-2.5-1-21.5; IC 6-2.5-1-23; IC 6-2.5-2-1; IC 6-2.5-4-1; IC 6-2.5-4-10; IC 6-2.5-5-8; IC 6-2.5-5-9; IC 6-2.5-5-18; IC 6-2.5-5-19; IC 6-2.5-11-5; IC 6-2.5-11-6; Dept. of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579 (Ind. 2014); Wendt LLP v. Indiana Dep't of State Revenue, 977 N.E.2d 480 (Ind. Tax Ct. 2012); Scopelite v. Indiana Dep't of Local Gov't Fin., 939 N.E.2d 1138 (Ind. Tax Ct. 2010); Rotation Prods. Corp. v. Dep’t of State Revenue, 690 N.E.2d 795 (Ind. Tax Ct. 1998); 45 IAC 2.2-4-2; 45 IAC 2.2-4-27; 45 IAC 2.2-5-36; 45 IAC 2.2-5-37; Streamlined Sales Tax, https://www.in.gov/dor/i-am-a/business-corp/sales-tax/streamlined-sales-tax/ (last viewed December 11, 2024). Taxpayer protests a denial of refund for sales tax paid on the purchase of medical supplies. STATEMENT OF FACTS Taxpayer runs an Indiana surgery center and clinic which routinely purchases medical supplies and equipment. Taxpayer submitted a refund claim to the Indiana Department of Revenue (“Department”) for $12,417.20 in sales tax paid to its vendors on those purchases. The Department reviewed Taxpayer’s refund request and agreed with Taxpayer that it paid sales tax on exempt items and was entitled to a partial refund of $1,177.06. The Department denied the remainder of the claim on the ground that some of the items purchased were not exempt from sales tax. Taxpayer timely protested this denial. The Department held a hearing, and this Final Order Denying Refund results. Additional facts will be provided as necessary.

I. Sales Tax – Medical Devices and Supplies.

DISCUSSION Taxpayer argues that several purchases of personal property that it made for its medical practice are exempt from sales tax under Indiana law. Where a taxpayer is challenging the imposition of sales tax, the taxpayer is required to provide documentation explaining and supporting its challenge. Poorly developed and non-cogent arguments are subject to waiver. Scopelite v. Indiana Dep't of Local Gov't Fin., 939 N.E.2d 1138, 1145 (Ind. Tax Ct. 2010); Wendt LLP v. Indiana Dep't of State Revenue, 977 N.E.2d 480, 486 n.9 (Ind. Tax Ct. 2012). When a taxpayer seeks an exemption, the exemption statute is strictly construed against the taxpayer, and it will have the burden to prove that it qualifies for the exemption. Rotation Prods. Corp. v. Dep’t of State Revenue, 690 N.E.2d 795, 798 (Ind. Tax Ct. 1998). Additionally, “when [courts] examine a statute that an agency is ‘charged with enforcing…[courts] defer to the agency’s reasonable interpretation of [the] statute even over an equally reasonable interpretation by another party.’” Indiana Dep’t of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579, 583 (Ind. 2014). Thus, all interpretations of Indiana tax law contained within this decision are entitled to deference. Indiana imposes a sales tax on all retail transactions made in Indiana. IC 6-2.5-2-1(a). Indiana law provides “licensed practitioners” with certain exemptions from sales tax. IC 6-2.5-5-18; IC 6-2.5-5-19. A licensed practitioner is “an individual who is a doctor, dentist, veterinarian, or other practitioner licensed to prescribe, dispense, and administer drugs to human beings or animals in the course of the practitioner's professional practice of treating patients.” IC 6-2.5-1- 21.5. Indiana has chosen to adopt the Streamlined Sales and Use Tax Agreement (“SSTA”), a multi- state program intended to “simplif[y] the process of collecting sales and use tax on business operating in multiple states.” Streamlined Sales Tax, https://www.in.gov/dor/i-am-a/business- corp/sales-tax/streamlined-sales-tax/ (last viewed December 11, 2024); see IC 6-2.5-11-5. However, Indiana law is clear that the adoption of the SSTA did not change or repeal any provision of Indiana law. IC 6-2.5-11-6. Further, none of the SSTA’s provisions or conditions applies to Indiana law unless the state affirmatively adopts them. Id. In other words, the SSTA’s provisions are not law in Indiana unless they appear in the Indiana Code or in the Department’s regulations. Taxpayer makes three arguments against the Department’s partial refund denial: first, that the Department denied it refunds on qualifying purchases of prosthetic devices; second, that the Department denied it refunds on qualifying purchases of oxygen; and third, that the Department denied it refunds on qualifying drugs. Taxpayer argued in its written Statement of Protest that several of the items it purchased fall under the legal definition of “prosthetic devices,” and that the Department was wrong to deny it a refund for those items. Taxpayer appealed to two authorities to support its argument: the definition of “prosthetic device” in the Indiana Code, and Appendix L of the SSTA, which specifically names several of the denied items as prosthetic devices. Although Taxpayer stated at the hearing that it did not intend to pursue a prosthetic-device exemption for any of these items (hence waiving the argument), the Department will briefly consider whether it applies. Licensed practitioners are exempt from paying sales tax on the purchase of various medical devices, including “[p]rosthetic devices,” if “the end user acquires the property upon a prescription or drug order” from a licensed practitioner. IC 6-2.5-5-18(c). A prosthetic device is “a replacement, corrective, or supportive device, including repair and replacement parts for the device” that is worn “in or on” the body to either replace a missing body part, “prevent or correct physical deformity or malfunction,” or “support a weak or deformed part of the body.” IC 6- 2.5-1-25. However, licensed practitioners must still pay sales tax on “[s]urgical instruments, equipment and supplies” and “[b]andages, splints, and all other medical supplies consumed in professional use.” 45 IAC 2.2-5-36. Some of the items that Taxpayer argues should be exempt from sales tax as prosthetic devices do not qualify for an exemption because they are not prosthetic devices under Indiana statutes and regulations. For example, Taxpayer argues that bandages, gauze, staples, and splints are prosthetic devices. However, the Department’s regulations state that sales tax “shall apply” to purchases of “[s]urgical instruments, equipment and supplies” and “[b]andages, splints, and all other medical supplies consumed in professional use.” 45 IAC 2.2-5-36. The Department cannot agree that Taxpayer is entitled to a refund for sales tax paid on any of these items. Taxpayer correctly states that Appendix L of the SSTA specifically names some of these items as prosthetic devices (for example, splints and staples). However, Indiana law clearly states that nothing in the SSTA is law in Indiana unless the State takes affirmative steps to adopt them, and Taxpayer pointed to no source of Indiana law that adopted Appendix L. The Department, therefore, cannot agree that the SSTA’s definitions require it to provide Taxpayer with a refund. Some of the items that Taxpayer references do qualify as “prosthetic devices” under Indiana law. However, Taxpayer failed to show that the end users acquired these devices through a prescription, as the exemption requires. A person who acquires tangible personal property for “resale, rental, or leasing in the ordinary course of the person’s business without changing the form of the property” is exempt from paying sales tax on those purchases. IC 6-2.5-5-8(a). Taxpayer argues that it does not have to submit documentary proof that it acquired these various pieces of property for resale. Taxpayer argues that, as a business that makes “transfers of personal property for consideration” as part of the services it provides, it is presumed to be making retail transactions under 45 IAC 2.2-4-2(a) when it transfers these devices to its customers. Therefore, Taxpayer argues, the Department has the burden to show that these transactions are not retail transactions. However, Taxpayer misstates the law. First, Indiana law is clear that exemptions are strictly construed against the taxpayer who claims them, and that the taxpayer has the burden of proof to show that it is eligible for any exemptions. Second, a complete reading of 45 IAC 2.2-4-2(a) shows that Taxpayer has missed an important exception to the presumption that it claims relieves it of the burden of proof: (Emphasis added.) Here, the Department’s regulations note that there are some circumstances in which Taxpayer would not be selling its prosthetic devices at retail. It is undisputed that Taxpayer primarily sells services, just like it is undisputed that the prosthetic devices are “used or consumed as a necessary incident” to Taxpayer’s orthopedic services and that Taxpayer pays sales tax when it buys the prosthetic devices. Therefore, if Taxpayer charges its customers an “inconsequential” price for these prosthetic devices, then it does not sell the devices at retail, and hence its purchases of the devices are not eligible for the “sale for resale” exemption under IC 6-2.5-5-8. Taxpayer has provided no documentation that would allow the Department to determine whether the price that it charges for these prosthetic devices is “inconsequential,” so the Department cannot agree that Taxpayer is entitled to claim the “sale for resale” exemption on its purchases of these devices. The Department denied Taxpayer a refund on several rentals of oxygen canisters on the ground that the canisters were rented, not purchased. Taxpayer argues that Indiana’s statutory exemption for the purchase of returnable containers should still apply. Taxpayer stated at the hearing that it rents the oxygen canisters at issue in this protest. When a person rents a piece of property, that piece of property is still owned by the lessor, even if the renter is allowed to possess and use the property. Therefore, Taxpayer’s canister rentals constitute “acquir[ing] tangible personal property owned by another person,” so the rentals are not sales at retail under IC 6-2.5-4-1. The Department cannot agree that Taxpayer is entitled to the sales tax exemption it claimed on these canisters. Taxpayer claims that the diagnostic reagents that it uses to test its patients for various diseases are “drugs” under Indiana law, and that it is exempt from paying sales tax when it purchases these reagents for use in its practice. Licensed practitioners are exempt from sales tax when they purchase drugs and oxygen to be “direct[ly] consum[ed]” when treating patients. IC 6-2.5-5-19(c)(1). For drugs and oxygen to be directly consumed, they must be administered by a licensed practitioner or an agent of one, and they must also be provided “as a part of a single charge for professional service.” 45 IAC 2.2-5-37(b). However, a licensed practitioner must still pay sales tax on “[d]rugs of a type not requiring a prescription” when those drugs are not purchased for resale. 45 IAC 2.2-5-36(a)(2). In other words, a licensed practitioner is exempt from sales tax on purchases of drugs that require a prescription and not on purchases of drugs that do not. A “drug” under Indiana law is “a compound, substance, or preparation[,] and any component of a compound, substance, or preparation that is . . . intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease . . . ” IC 6-2.5-1-17. A “prescription” is “an order, a formula, or a recipe issued in any form of oral, written, electronic, or other means of transmission by a licensed practitioner authorized by Indiana law.” IC 6-2.5-1-23. Even if, for the sake of argument, Taxpayer is correct that the testing reagents are drugs under Indiana law, Taxpayer has not shown that they are “of a type . . . requiring a prescription.” Because Taxpayer has the burden to prove that it is eligible for any exemption it claims, and because Taxpayer has not successfully carried that burden, the Department is unable to agree that Taxpayer is entitled to claim an exemption for its testing reagents. FINDING Taxpayer’s protest is respectfully denied. January 14, 2025 Replaces Finding Document at: New