State revenue department bound by 1998 ruling

The Indiana Department of State Revenue should have granted a medical equipment company’s request for a sales tax refund, the Indiana Tax Court ruled, finding the department is bound by its published ruling interpreting the exemption at issue.

Fresenius USA Marketing Inc., a Delaware corporation that sells products such as dialysis machines and blood lines, collected sales tax on the medical equipment and supplies it sold in Indiana to medical clinics that provide dialysis to patients. It then sought a refund with the revenue department in December 2007 for sales tax paid between Jan. 1, 2004, to Oct. 31, 2007. The department denied the refund in 2010, leading to this tax appeal. Both parties filed for summary judgment in 2013.

In 1998, the revenue department interpreted the predecessor to the Durable Medical Equipment Exemption to apply to sales of medical equipment made to health care service providers for treating patients with a prescription. In 2008, the department issued two Revenue Rulings that again exempted those purchases. But the department later revoked those 2008 rulings and replaced them with new ones that changed the interpretation of the Durable Medical Equipment Exemption to exempt only sales made directly to patients with a prescription, according to the court opinion.

Fresenius argued that it’s entitled to the exemption because the department is bound to follow the interpretation of the exemption from the 1998 ruling, which was published in the Indiana Register. Because it was published there, the department is bound by it, despites its claims otherwise, Judge Martha Wentworth wrote in Fresenius USA Marketing, Inc. v. Indiana Department of State Revenue, 49T10-1008-TA-45.

“Fresenius designated evidence demonstrating that its facts are substantially identical to those in the 1998 Ruling. Moreover, the Department did not demonstrate that Fresenius’s factual situation varied in some material respect to the facts set forth in the 1998 Ruling,” she wrote. “Indeed, the Department has stipulated, among other things, that Fresenius has facts identical to the facts in the 1998 Ruling. For example, the parties have stipulated that, like the taxpayer in the 1998 Ruling, Fresenius sold medical equipment and supplies to healthcare service providers to treat patients, that the healthcare service providers used the equipment to treat patients with prescriptions for its use, and that federal law required the equipment to be used by licensed practitioners or under a licensed practitioners’ direction.”

Wentworth granted Fresenius’ motion for summary judgment and ruled against the department. She remanded the matter to the department to grant the refund, with applicable interest, after Fresenius provides the department with verification that it has refunding to its customers the full amount of sales tax it erroneously collected from them during the period at issue.