The California State Board of Equalization recently amended Regulation 1591 with little to no fanfare. The revision went through the amendment process in relative obscurity, probably because it only added three words to the regulation. The potential impact of those three words, however, could be material for those in the medical products industry.

The proposal for this revision came out of the Board’s Business Tax Committee which is headed by Ms. Diane Harkey. Ms. Harkey, who represents the Fourth Equalization District (Orange County), and her staff have been a great resource for taxpayers, and through this committee have brought about several beneficial policy and procedural changes.

Regulation 1591 provides definitions and addresses the taxability of medicines and medical devices. The revision is a clarification of what constitutes an exempt medicine that is permanently implanted in the body. The words “or otherwise monitor” were added to the definition to include implantable devices such as heart monitors. Here is the revised portion of Regulation 1591(b)(2), with the new language italicized and underlined:

“In addition, articles permanently implanted in the human body to mark the location of or otherwise monitor a medical condition, such as breast tissue markers, qualify as medicines. An article is considered to be permanently implanted if its removal is not otherwise anticipated. Except for devices excluded from the definition of “medicines,” permanently implanted articles include the interdependent internal and external components that operate together as one device in and on the person in whom the device is implanted. Tax does not apply to the sale or use of articles permanently implanted in the human body to assist the functioning of any natural organ, artery, vein or limb or mark the location of or otherwise monitor a medical condition, and which remain or dissolve in the body when such articles are sold or furnished under one of the conditions provided in subdivision (d)(1) through (d)(6).”

The revision was primarily intended to encompass heart monitors, but the broadness of the phrase “or otherwise monitor” opens the door for its application to several other devices (e.g., implanted glucose monitors).
The Board has informed us that very few refund claims have been filed pursuant to the revision, probably due to the lack of publicity in connection with its enactment. We have also been informed that there are expedited refund processes available for products that fall within the applicable reclassification.

If your company sells or purchases medical products that fall within this newly expanded definition, please give me a call at 855-995-6789 or I’d be happy to discuss the matter with you in more detail.

McClellan Davis

McClellan Davis

McClellan Davis has a staff with extensive Board experience. We routinely provide sales tax advice regarding anticipated transactions that may have tax consequences. We also represent taxpayers who need assistance appealing assessments, and filing claims for refund. We also offer managed audits and an initial free consultation to advise you of your options. You can set up an appointment by emailing us at or calling toll free at 855 995-6789.

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