Medtronic Tax Break Plea Gets Mixed Takes From California Panel

Medtronic USA Inc.'s argument that its implantable heart monitors are “medicines” exempt from sales tax seemed to divide two justices on a California appeals court panel at oral arguments Monday.

Justice James A. Richman appeared skeptical that the company’s FDA-approved devices assist the functioning of an organ as required by the state statute laying out the exemption. “If a patient didn’t have one of these inside him or her, their heart would operate just the same as it does, right?” he asked Medtronic’s attorney Nathaniel Garrett of Jones Day.

Garrett acknowledged that the monitors don’t directly assist the heart the way pacemakers do, but argued the statute is more flexible and covers indirect assistance such as alerting a physician to an abnormal heart rhythm.

“That’s why you’re analogizing it to the breast tissue markers,” Justice Therese M. Stewart said, showing sympathy to the company’s position. “You’re saying that the reg indicates that those fall within ‘assist the functioning,’ and that shows that ‘assist the functioning’ doesn’t have to be direct.”

The statute explicitly exempts breast tissue markers, which are used to flag an area that was biopsied for future monitoring.

Medtronic wants the California Court of Appeal, First Appellate District, to overturn a trial court ruling that it isn’t entitled to a refund of $3.3 million in sales tax it paid under protest.

The state exempts from sales tax “medicines,” but excluded from that definition are devices and appliances. An exception to that exclusion makes tax-exempt any articles permanently implanted in the body to assist with organ function. The California Department of Tax and Fee Administration argued the monitors don’t fall under the exception because they are merely diagnostic tools.

“The legislature intended the term ‘device’ to be interpreted broadly,” not in the “creative way” Medtronic advocates for, Rachel Yoo of the California Justice Department argued for the agency. Exemptions are strictly construed against the taxpayer, she said.

“If we accept Medtronic’s interpretation, we’ll open the door to practically all medical devices out there,” Yoo said. Medtronic tries to downplay the consequences of such an expansion by saying only a few devices will be added, “but with how fast technology advances, that is an overly optimistic view,” she said.

Justice Tara M. Desautels also served on the panel.

Greenberg Traurig LLP also represents Medtronic.

The case is Medtronic USA Inc. v. Cal. Dep’t of Tax & Fee Admin., Cal. Ct. App., 1st Dist., No. A169290, argued 2/24/25.