1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 5901 GREEN VALLEY CIRCLE 3 CULVER CITY, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 JANUARY 31, 2012 10 11 SALES AND USE TAX APPEAL HEARING 12 APPEAL OF 13 TEAM POST-OP, INC. 14 NO. 447342, 448811 (EA) 15 AGAINST PROPOSED ASSESSMENT OF 16 SALES AND USE TAX 17 18 19 20 21 22 23 24 25 Reported by: Juli Price Jackson 26 CSR No. 5214 27 28 1 1 P R E S E N T 2 For the Board Jerome E. Horton of Equalization: Chairman 3 4 Michelle Steel Vice-Chairwoman 5 6 Betty T. Yee Member 7 8 George Runner Member 9 10 Marcy Jo Mandel Appearing for John 11 Chiang, State Controller (per Government Code 12 Section 7.9) 13 Diane G. Olson, 14 Chief Board Proceedings 15 Division 16 For Board of David Levine 17 Equalization Staff: Staff Counsel 18 19 For Department: Cary Huxsoll Tax Counsel 20 Kevin Hanks 21 Chief, Headquarters Operations Division 22 Robert Tucker 23 Legal Department 24 For Petitioner/Claimant: Patrick Leone 25 Representative 26 Jeff Solomon Taxpayer 27 28 ---oOo--- 2 1 5901 GREEN VALLEY CIRCLE 2 CULVER CITY, CALIFORNIA 3 JANUARY 31, 2012 4 ---oOo--- 5 MR. HORTON: Okay. 6 MS. OLSON: So, our next item is C9, Team 7 Post-0p, Incorporated. Please come forward. 8 MR. HORTON: Mr. Levine, please introduce the 9 issues in the case. 10 MR. LEVINE: The issues in this petition and 11 claim for refund of Team Post-Op, Inc. are whether 12 certain devices sold by Petitioner qualify as medicines 13 for purposes of the exemption and, if so, whether for 14 purposes of computing the deficiency a useful life of 12 15 to 18 months should be used for the GR units. 16 MR. HORTON: Thank you. 17 When the taxpayer is settled, you will have ten 18 minutes to make your presentation. We ask that you 19 commence with your introductions for the record. 20 MR. LEONE: Good morning, Mr. Chairman and 21 Board Members. 22 MR. HORTON: Good morning. 23 MR. LEONE: My name's Patrick Leone and I'm 24 representing Team Post-Op. To my right -- well, to my 25 left but soon to be to my right is Jeff Solomon, he's 26 the President of Team Post-Op. 27 He's brought a -- as you can see, he's brought 28 a couple of exhibits here. And I believe you got my 3 1 handout that I presented this morning, okay. 2 So, our case is really fairly simple. The case 3 is whether these devices that Mr. Solomon is setting up 4 for your viewing qualify as exempt medicines. And, of 5 course, it's our position that they do. And I believe 6 they qualify under Revenue and Taxation Code 6369 as 7 orthotic devices. And as you'll -- as I'll demonstrate, 8 after I'm done with the orthotic device argument -- then 9 we'll present them -- also they qualify as prosthetics 10 under the same Code sections. 11 So, I'd like to point out, first of all, what 12 we have to immediate right here is a CPM machine. And 13 we had a previous -- a Board memorandum decision that -- 14 that looked at the Revenue and Taxation Code and 15 compared it to the regulation and effectively said that 16 the Revenue and Taxation Code requires, in order for 17 something to be considered an exempt orthotic device 18 that it's -- that it's worn by the patient. 19 And the memorandum decision -- and this is the 20 Action Medical case I'm referring to, basically said -- 21 they looked at the CPM machine that was fully worn and 22 they looked at a CPA -- a CPM machine that was partially 23 worn, both were worn -- they looked at the Revenue and 24 Taxation Code and saw that the requirement was that 25 the -- that the device is worn by the patient. 26 They looked at the definition in the Regulation 27 1591 and they noticed there's an extra word in the 28 regulation and it says, "fully worn." However, that 4 1 language is not in the taxation code -- in the statute. 2 So, they -- they also looked at the forest 3 through the trees, if you will, and they said, you know, 4 the medicinal effect of whether something's fully worn, 5 a CPM machine like this, is, as you can see, is not 6 fully worn because it -- you know, they can't strap the 7 bottom part onto their body, but certainly they can -- 8 they are going to strap their knee -- or I think this is 9 for a leg, is that right, Jeff? 10 MR. SOLOMON: This is for a leg. 11 And this is where the foot would go 12 (indicating), their knee joint (indicating) and their 13 hip (indicating). 14 MS. YEE: Can you speak into the microphone, 15 please? 16 MR. SOLOMON: Oh, sorry about that. 17 This is where your foot would go (indicating), 18 the patient's foot. 19 If you can imagine their leg right in here 20 (indicating) with their foot up to the end here 21 (indicating) and their knee joint right here 22 (indicating) and their hip right here (indicating), 23 lying in -- in -- in a bed, they'd be using this. 24 MR. LEONE: So, I -- I would submit that the 25 case before us, which is the device to the right -- or 26 to your left -- of the CPM machine is very similar in 27 that it is also worn by the patient. 28 I'll describe the medicinal reasons for that in 5 1 a minute -- I'll let Jeff do that. 2 But, in any event, like the CPM machine, it's 3 not fully worn, but the portion of -- that's worn is the 4 portion that delivers the healing -- and just like this 5 (indicating) and just like the actual Revenue and 6 Taxation Code requires. It says, "worn." Again it 7 doesn't say, "fully worn." 8 We'd also like to submit -- so, this -- so, 9 this is exempt in our view under 6369 and 1591 as an 10 orthotic device. 11 And, by the way, the taxpayer's in the 12 business -- the Team Post-Op -- and I'm sure you 13 probably know this, but I'll just state it for the 14 record, Team Post-Op denotes that it's a post-operative 15 procedure. So, they have a surgically -- you know, a 16 surgical supply business, that they work closely with 17 orthopaedic surgeons and after operations they have 18 various devices and machines to promote healing for 19 the -- you know, for the wound or for the part of the 20 body that was injured or operated on. 21 With respect to the cold therapy machine, the 22 analogy I want to draw is that we have a cold therapy 23 machine that, again, is worn on the patient. And the 24 purpose is to deliver temperature-controlled fluids that 25 will inhibit swelling and promote healing with respect 26 to a -- go ahead. 27 MR. SOLOMON: And this would be for a 28 shoulder -- they have knees, ankles. And just like in 6 1 the knee CPM right here (indicating), they have hand 2 CPMs, as well as shoulder CPMs as well that are 3 prescribed post surgically by an orthopaedic surgeon 4 after a surgery. 5 MR. LEONE: Okay. So, again, the big picture 6 is this -- this -- these devices are both -- what they 7 have both in common are that neither of them can be 8 fully worn, because we have the -- the box that isn't, 9 you know, actually worn by the patient. But the -- the 10 portion that's worn is where the -- where the whole 11 purpose of the other part is to bring healing to the 12 part that is worn. 13 So, I believe that's what's required in Revenue 14 and Taxation Code 636 -- 69, part (c)(3)(A), where it 15 talks about orthotic devices. It doesn't, again, 16 require fully worn. 17 Now also with respect to prosthetic devices, 18 which is 6363 (c)(4), it's interesting that the same 19 language is used in that to exempt prosthetic devices as 20 orthotic devices. And it's also interesting that they 21 define, for purposes of the -- of the regulation when 22 they come to interpret it in Regulation 1591 -- that it 23 includes things that wouldn't normally be thought of 24 as -- as prosthetics. 25 I think everybody probably -- generic 26 definition would be a, you know, a limb or artificial 27 leg or a limb, but in Regulation 1591 it extends that 28 definition to include such things as feeding tubes, even 7 1 prescribed wigs, electrical stimulators and things that 2 normally wouldn't be considered or thought of -- at 3 least not by me -- as a prosthetic device. 4 It includes needles, syringes, tubing 5 connectors that are an integral part of the tubing. So, 6 like this -- if we could that this is the tubing 7 (indicating), the black hose, if you will, is the tubing 8 and the rest of this an integral part of the tubing to 9 bring the fluid through the tube to the -- to the part 10 that's worn by the patient to promote healing, I think 11 it could also be qualified under prosthetic device. 12 What's also interesting to me is that in the 13 regulation, unlike the orthotic devices, the regulation 14 doesn't add any additional language in the prosthetic 15 device exemption. It doesn't say, "fully worn" as it 16 does in the orthotic device. 17 So, I think the regulation added something that 18 wasn't in the original text or in the original statute 19 and I don't think that that -- but it did -- so, it's 20 inconsistent. It added it for orthotic devices but it 21 didn't add it in prosthetic devices. And I know that, 22 you know, regulations are an interpretation of the 23 existing statute, but I don't believe that they're 24 supposed to go beyond what the statute says. 25 The rest of the handout that I gave you is just 26 kind of a picture -- a pictorial of different things 27 that are -- that qualify. And in every page the top 28 picture will signify something that is exempt, as an 8 1 exempt medicine. So, we have Ace bandages that are 2 prescribed and worn by the patient are exempt. 3 Yet what we're talking about is the bottom 4 picture and you can see that's the -- you know, that's 5 the part that's worn. And We're saying that this is all 6 one integral unit and it's like that Ace bandage, it's 7 even better because it's, you know, more sophisticated. 8 Again it's temper -- it's climate or 9 temperature-controlled. 10 MR. SOLOMON: It provides compression as well. 11 MR. LEONE: And it provides compression. 12 So, we all have the next picture showing an 13 orthotic device worn by the person. This is a cervical 14 traction device (indicating), which is exempt. 15 And then this is a picture, again, of the item 16 in question that we're talking about with the device or 17 the part's that worn on the person's lower extremities, 18 on his leg. 19 The next -- the next picture is a prosthetic 20 device. Now we see the -- the feeding tube. We see, 21 you know, I don't know if you can say that's a wig, but 22 if it were a wig on this elderly lady, that's exempt. 23 The whole -- you know, the tubing and all of the 24 machinery attached to it is all considered a medicine 25 because, even though only a part of it is worn by the 26 patient -- and again we're drawing an analogy between 27 that and the item in question, which is the Game Ready. 28 And just for the record, the Game Ready is a 9 1 cold therapy device. There's other cold therapy 2 devices. In particular audit, this was one of two. The 3 other device, just for the sake of -- well, we did bring 4 it. I don't know if we have enough room for it, but -- 5 MR. SOLOMON: Is it okay to show you the other 6 one that was in the -- 7 MR. LEONE: -- it's -- it's very similar, just 8 a different manufacturer, but it accomplishes the same 9 function. 10 MR. SOLOMON: It's a smaller one. 11 MR. LEONE: So, as you can see, it's perhaps a 12 little easier to carry around, if they want to be 13 portable with it. 14 But both of these -- both of these devices are 15 cold therapy devices that were subject of this audit and 16 this claim for refund. 17 MR. SOLOMON: That would go on just like so 18 (indicating) as well. 19 MR. HORTON: Could you repeat that, sir, just 20 for the record? 21 MR. SOLOMON: Yes. And this would go the 22 affected limb, just as the original Game Ready would. 23 MR. HORTON: Thank you very much. 24 MS. OLSON: Time has expired. 25 MR. HORTON: Thank you. 26 The Department will have ten minutes to make 27 their presentation. Please commence with your 28 introductions. 10 1 MR. HUXSOLL: Good afternoon, Mr. Chairman, 2 Members of the Board. I'm Cary Huxsoll from the Legal 3 Department, along with Robert Tucker and Kevin Hanks 4 representing staff. 5 Petitioner's leases of Game Ready units and 6 sales of cold therapy units do not qualify as exempt 7 transactions. The Game Ready units sit on a floor or 8 table and provide temperature therapy through the 9 circulation of water through tubes inserted into a wrap 10 attached to an injured body part. The cold therapy 11 units perform in a similar manner. Both products also 12 provide compression therapy. 13 The units in question are excluded from the 14 definition of medicines under Regulation 1591, 15 subdivision (c)(2) as they are apparatuses, 16 contrivances, appliances, devices or other mechanical, 17 electronic or physical equipment. 18 They do not meet the definitions found in 19 Regulation 1591, subdivision (b) as preparations and 20 similar substances, permanently implanted articles, 21 artificial limbs and eyes, orthotic devices or 22 prosthetic devices. 23 This is consistent with longstanding 24 interpretation found in Board annotations. Annotation 25 425.0022.700 explains that cold compression devices that 26 use controlled compression and cold to minimize pain and 27 swelling do not qualify as medicines. Annotation 28 425.0726 explains that cryotherapy wraps that are used 11 1 to apply heat or cold therapy to the body, are excluded 2 from the definition of medicines under Regulation 1591, 3 subdivision (c)(2). 4 Petitioner cites Action Medical -- the Action 5 Medical memorandum opinion in support of its position 6 the devices not fully worn on the body can be medicines 7 if they otherwise qualify as an orthotic device. 8 As discussed in the decision and recommendation 9 and hearing summary, the analysis in Action Medical, is 10 all not applicable to the facts at hand because the Game 11 Ready units and cold therapy units are not orthotic 12 devices. 13 We concur with the recommendation of the 14 Appeals Division. Petition for redetermination and 15 claim for refund should be denied. 16 Thank you. 17 MR. HORTON: On rebuttal, please. 18 MR. LEONE: Thank you, Mr. Horton. 19 Yes, it's our position that these are, in fact, 20 orthotic devices and, as previously mentioned, qualify 21 as prosthetic devices. 22 And I'm -- I base that on the definition in the 23 regulation as well as the -- the Revenue and Taxation 24 Code section. The definition for an orthotic device is 25 it's designed to be worn on the person of the user as a 26 brace, support or correction of the body structure. 27 What leads us to believe strongly these are 28 orthotic devices is the nature of the business. Who 12 1 prescribes this? It's all prescription. And it's all 2 prescribed by orthopaedic surgeons. 3 When we read the definition of prosthetic 4 devices, it looks like it qualifies there too. These 5 devices aren't specifically named, but this -- the but 6 the devices that can meet the definition of orthotic or 7 prosthetic are specifically excluded from the other 8 items that -- that the Department is saying are 9 taxable -- the appliances and different devices are 10 taxable, unless they're an a orthotic device or unless 11 they're a prosthetic device. 12 And we're simply saying that these do qualify 13 under both 6369 and under the regulation as just that. 14 I do want to address Action Medical in just a 15 little bit more depth because, again, this is -- just to 16 be consistent. The memorandum opinion was well aware 17 that this item, the CPM, was not fully worn and still 18 came to the conclusion that this was, in fact, a medical 19 device. 20 It says, in part, 21 "Even though all of the machines serve the 22 identical medical rehabilitation purpose, we 23 conclude that the continuous passive motion 24 machines at issue in this case qualify as 25 orthotic devices pursuant to Section 6369, 26 subdivision (c)(3)(A)." 27 I'd like to note that they quoted the law 28 section there as opposed to giving the authority to the 13 1 regulation because the hierarchy, as you know, of 2 authority starts with the -- with the law, not with the 3 interpretation under the regulation, certainly not with 4 the annotations. 5 "Although they were not fully worn on the 6 body." 7 All right, so, they're fully aware these things 8 aren't worn on the body. You can't wear this base 9 (indicating). But you can't wear this piece 10 (indicating) on the body. You can't wear that red box 11 on your body (indicating) for the Game Ready. But 12 certainly that's not the issue. 13 The issue is that the -- the piece that's worn 14 on the body brings healing and the rest of this is an 15 integral part of that piece to make it functional for 16 the purpose that it's designed. So, we feel this is an 17 exempt medicine. 18 MR. HORTON: Discussion, Members? Member Yee. 19 MS. YEE: The last point that Mr. Leone made is 20 one that I wanted to explore and that is, aside from 21 looking at the definition of what category these 22 products fall into, the functioning of these products 23 and whether there is an integral nature with the respect 24 to the portion that is not worn on the body. 25 Should there be some consideration given to 26 that? 27 MR. HUXSOLL: Well, I think the consideration 28 -- in Action Medical one of the issues, as discussed in 14 1 the D & R, was the fact that it was -- the CPM device is 2 a single unit, which, but for the fact it's large and it 3 has a support piece that has to be attached to the 4 ground, it would otherwise qualify. 5 Here you have two operate units, one of which 6 is worn on the patient and the other is not. And, so, I 7 think there's a distinction between the Game Ready units 8 and the CPM unit. 9 If the Board were to determine that it did meet 10 the definition of an orthotic device, I would still 11 contend that it does not qualify as a medicine because 12 it is not fully worn on the body. 13 MS. YEE: Okay. Can I pose the same question 14 to Mr. Levine? 15 I mean, we've had kind of this issue about 16 integral function in the past. 17 MR. LEONE: Yes. 18 MS. YEE: Let me have Appeals respond. 19 MR. LEVINE: The CPM machine in Action Medical, 20 the discussion of the Board, as I recall it, was the 21 small unit would fit on the wrist. And you'd wear it. 22 The big unit which was the same thing, but you'd lie in 23 it. So, at a certain point you're wearing it, you're 24 wearing it, they put it here (indicating), you're 25 wearing it. It's too big. You lie down and you are in 26 it. But it's still one unit and the Board just decided 27 they didn't want to treat them separately or 28 differently. 15 1 MS. YEE: Uh-huh. 2 MS. MANDEL: Is this a lympho -- is this the 3 same thing as a lymphodoma (verbatim) -- your other 4 thing? 5 I can't pronounce these medical terms. 6 MR. SOLOMON: Yes. 7 MS. MANDEL: A lymphodoma pump? 8 MR. SOLOMON: This device, the Game Ready, does 9 have -- it aids in the healing and reduction of DVT 10 thrombosis. 11 You know, the -- 12 MS. MANDEL: The only reason I ask is 'cause 13 there was a case that was decided the same day as Action 14 Medical, but it doesn't have a formal opinion that was a 15 lymphodoma -- lymphodema pumps, which had something that 16 had to sit on a table or cart and that was decided 17 against the taxpayer. 18 So, I was thinking this might be the same kind 19 of equipment. 20 MR. SOLOMON: It has some similar function, but 21 it's used for the cold therapy. 22 MS. MANDEL: Okay. Like when someone has a 23 shoulder -- 24 MR. SOLOMON: Like a -- you know, like an ACL 25 reconstruction -- 26 MS. MANDEL: -- surgery? 27 MR. SOLOMON: -- a shoulder, you know, status 28 post surgery and the physician will write orders for 16 1 it. 2 MS. MANDEL: All right, thanks. 3 MS. STEEL: Mr. Levine, is that -- we count it 4 as two units, but it doesn't work unless we put 5 together. So, how we can count as two units for that? 6 MR. LEVINE: The Board has to decide. 7 Obviously, in Action Medical the Board decided 8 against staff view. If the Board hand not adopted this 9 memo opinion, we'd still be applying the same rule that 10 we applied when we brought this case to the Board, which 11 is the reg says, "fully worn on the body," which is the 12 what statute says, "worn on the body." That's what it 13 means. So, it wouldn't matter at all. 14 If the Board decides -- it's whatever the Board 15 decides. It wouldn't make a difference to me because I 16 think it has to be worn on the body. But I do see a 17 difference between two pieces, that one can -- under any 18 circumstances, the unit is separate. 19 And the problem faced with the Board in Action 20 Medical where it was just bigger. It was something that 21 you either wore or wore you, in effect. 22 MR. LEONE: If I could just add something to 23 that? 24 MR. HORTON: One second, sir. 25 Ms. Steel? 26 MS. STEEL: I'm through. 27 MR. HORTON: Mr. Runner. 28 MR. RUNNER: Yeah, just a couple of follow-up 17 1 on some of the discussion. 2 The idea of fully worn versus worn, my 3 understanding the statute says "worn" and the regulation 4 says "fully worn." Is that a fair understanding? 5 MR. LEVINE: That's correct. 6 MR. RUNNER: Okay. In my mind those look like 7 two different issues -- something that is worn on the 8 body that may have to have some other piece is still 9 worn on the body -- is still worn on the body. 10 "Fully worn on the body" then is a much 11 narrower definition and, it seems to me, potentially 12 outside the scope of the statute because of the word 13 "fully." 14 Do you -- I guess -- let me ask the Department, 15 do you see know difference between the phrase "fully 16 worn on the body" and "worn on the body". 17 MR. TUCKER: This is the interpretation that 18 the Board decided at the time. 19 MR. RUNNER: Okay. 20 MR. TUCKER: This was a matter that was taken 21 up by the Board and it's the Board's interpretation of 22 the statute. 23 MR. RUNNER: Okay, "fully worn"? 24 MR. TUCKER: Correct. 25 MR. RUNNER: So -- okay. But the Board added 26 then the thought of fully worn in the reg? 27 MR. TUCKER: It's part of the regulatory 28 process. 18 1 MR. RUNNER: Right. 2 MR. TUCKER: The Board interprets the reg -- or 3 the statutes and provides regulations to clarify -- 4 MR. RUNNER: Right. 5 MR. TUCKER: -- what the meaning was. 6 MR. RUNNER: And again, I guess the other issue 7 of it, along with Member Steel, the; idea of two 8 separate units, I struggle with because two separate 9 units -- define to me units that operate independently 10 of one another as opposed to an integrated unit that has 11 two parts to it. So, I guess a struggle a bit with the 12 idea of it being two separate items. 13 What -- in certain terms of definition, I am 14 just trying to find some definition to -- an orthotic 15 device. 16 Let me ask the folks, the taxpayer, how -- what 17 is -- in your thought and definition of that, how did -- 18 how broad is that? 19 MR. LEONE: Yeah, I believe that it has 20 something to do with -- with orthopaedic, with muscle or 21 bone healing. And then again because it's prescribed 22 usually by an orthopaedic surgeon, it would support 23 that. 24 MR. RUNNER: So, I guess the crux of this 25 discussion comes down to the issue of the Board's 26 previously -- previous determination of application of 27 the statute to define as "fully worn" versus "worn." 28 Mr. Levine, you're shaking your head 19 1 differently. Help me understand. 2 MR. LEVINE: Staff has argued -- and Appeals 3 agrees -- this is not an orthotic device. 4 MR. RUNNER: Okay. 5 MR. LEVINE: It is not a brace. It is not a 6 support. The CPM was concluded -- as I recall, was 7 concluded an orthotic device because it caused the arm 8 to move, which the Board concluded -- and I don't 9 remember if we agreed or not -- but the Board concluded 10 that it was causing the muscle to move and that was a 11 support or aid. 12 An orthotic device is something that supports, 13 which is why it's worn on the body, because normally 14 you wear a brace and you walk away, it helps you move. 15 MR. RUNNER: Right. 16 MR. LEVINE: A prosthetic device, my 17 understanding is the difference is it replaces 18 something. 19 MR. RUNNER: Right. 20 MR. LEVIEN: You have a piece -- and, of 21 course, you wear it on the body, and that's the basic 22 difference. 23 We concluded that this is not an orthotic 24 device. So, the Board needs to -- 25 MR. RUNNER: And not an orthotic device 26 because -- from the Department? 27 MR. HUXSOLL: It's not being used as a brace, 28 support or correction for the body structure. It's 20 1 being worn to apply cold therapy to different parts of 2 the body, it's not being used as a brace or a support to 3 body structure. 4 MR. RUNNER: What would be the purpose of then 5 the -- what would be the purpose -- well, let me ask the 6 taxpayer first. 7 What would be the purpose for a prescription 8 for this kind of a device? 9 MR. LEONE: It's exactly what the definition of 10 orthotic device is, it's a correction of a body 11 structure. It's no different than the CPM machine. 12 That moves your muscle passively. This prevents 13 swelling or it aids in the relief of swelling so you can 14 move your joints -- it's elbows or knees or what have 15 you. So, I mean it's functionally the same thing with 16 different methodologies. 17 MR. RUNNER: Would an insurance -- how does an 18 insurance company handle this particular item? 19 MR. SOLOMON: They pay for this. 20 MR. RUNNER: They pay for this? 21 MR. SOLOMON: Yes, based upon a prescription 22 from a physician, medical -- deeming medical 23 necessity. 24 MR. RUNNER: So, prescription from the doctor 25 who says this is the device that my patient needs in 26 order to continue with their healing? 27 MR. SOLOMON: Yes, it's very standard. All 28 these products right here are standard of care in 21 1 orthopaedics. 2 MR. RUNNER: Okay. Let me go back to the 3 Department then. 4 Help me understand then why this would not meet 5 the definition if a doctor, who's in -- dealing with the 6 healing aspect of somebody's bone structure, whatever, 7 says this is what they need in order for them to be 8 healed correctly, why does this not meet the definition 9 of an orthotic device? 10 MR. TUCKER: I think what we're looking at at 11 is whether or not it provides support. 12 For example, you can have -- a doctor can 13 prescribe a number of items, for example, a cold 14 compress. In the case of a cold compress, which is more 15 akin to what this is doing, you're simply providing 16 cooling therapy in order to reduce the swelling and 17 that's how staff has viewed this. 18 And staff interprets the use of these devices 19 that they provide cooling therapy in order to reduce the 20 swelling, as opposed to something that's going to 21 provide support that would be used, for example, I think 22 it lists binder supports and ankle brace. This isn't an 23 ankle brace, it's more akin to a cold compress. In 24 essence, it's a cooling pad. 25 MR. RUNNER: And how would you describe -- why 26 is this not just a simple cooling pad in terms of just 27 something that somebody could use? 28 MR. SOLOMON: Well, a cooling -- this is a 22 1 continuous cooling device that brings a very specific 2 temperature to the surgical site, post surgical, that -- 3 you know, then provides a lot of different, you know, 4 benefits at the end of the day -- reduction of swelling, 5 reduction of hemarthrosis, reduction of -- you know, 6 prevention of DVT formations, which is one of the 7 highest incidence, you know, of mortality post surgical 8 in orthopaedics. 9 You know, I think that the question is, you 10 know, what is a medicine? And -- and the best person 11 to, you know, should have had here, was one of the 12 doctors -- 13 MR. RUNNER: Uh-huh. 14 MR. SOLOMON: -- that prescribes this, a 15 medical doctor that can tell us what is a medicine at 16 the end of the day. 'Cause all these different 17 medicines, physical medicine, you know, a plethora of 18 different medicines out there. 19 You know when I look at this CPM machine, a CPM 20 machine post surgical is -- promotes the healing by 21 increasing range of motion, reducing swelling -- a host 22 of other, you know, clinical benefits as to why the 23 doctors prescribe it. 24 MR. RUNNER: Let me ask again, the Department, 25 why isn't this just an extension of healing that 26 would -- that -- is it -- is it the Board regulation 27 that has narrowed it as to terms of the issue that we've 28 come to describe as the brace and all? Is that -- 23 1 MR. TUCKER: I guess -- I mean, simply because 2 something provides for healing purposes does not make it 3 a medicine for the purposes of the Board's regulation. 4 And, so, we simply look to the Board's 5 regulation to decide -- I mean, which medicines would 6 hereby qualify for an exemption. 7 And the fact that it's simply -- that it -- I 8 don't argue that it provides the cooling aspects that 9 Petitioner states. In fact, I would agree fully that 10 that's what it does. However, that is not in the nature 11 of an orthotic device. 12 MR. RUNNER: And by what -- 13 MR. TUCKER: In that it does not provide the 14 support or bracing that we would see in an orthotic 15 device. 16 MR. RUNNER: Which is, by definition, of 17 regulation by the Board? 18 MR. TUCKER: Correct. 19 MR. RUNNER: Right. 20 MR. LEONE: It's in the statute. 21 MR. RUNNER: Oh, it's in the statute? The 22 statute uses that phrase? 23 MR. TUCKER: I believe so. 24 MR. LEVINE: It says, 25 "Designed to be worn on the person, other 26 user, as a brace, support or correction for the 27 body structure." 28 MR. RUNNER: Okay. Let me go back to the 24 1 taxpayer. 2 Tell me how -- help me find where that helps 3 then define in that definition and in statute. 4 MR. LEONE: All right. I believe the last part 5 of the statute says, "or correction of a body 6 structure." 7 MR. RUNNER: Uh-huh. 8 MR. LEONE: If we're talking about a knee 9 that's been -- you know, post-operative knee that needs 10 to be -- it's this big (indicating), that needs to be 11 normal size so they can -- so it can function, so it -- 12 so that the person can walk, I think that's definitely 13 along the lines of the correction of a body structure. 14 MR. RUNNER: Okay, thank you. 15 MR. HORTON: Member Yee. 16 MS. YEE: I think I just had my question 17 answered. 18 It doesn't -- it does have to do with the 19 categorization of the product. And I think the 20 regulation's actually quite prescriptive with respect to 21 what constitutes an orthotic and a prosthetic. 22 And, no doubt, there's benefit of this 23 equipment, but it's used for therapy, to heal injury, 24 not to provide bracing and to improve support or 25 structure. 26 So, I think that's where the distinction is. 27 MR. HORTON: Okay. Further discussion, 28 Members? 25 1 Hearing none, is there a motion? 2 MS. YEE: Move to take the matter under 3 submission. 4 MR. HORTON: Moved by Member Yee to take the 5 matter under submission. 6 Second by Member Steel. 7 Objection, Members? 8 Hearing none, such will be the order. 9 Thank you very much for your presentation here 10 today. The Board will take your matter under 11 consideration later on this evening and send you a 12 written report of our discussion. 13 The Board will take a lunch break -- a break. 14 And we'll report back at 2:15. 15 ---o0o--- 16 17 18 19 20 21 22 23 24 25 26 27 28 26 1 REPORTER'S CERTIFICATE. 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, JULI PRICE JACKSON, Hearing Reporter for the 8 California State Board of Equalization certify that on 9 JANUARY 31, 2012 I recorded verbatim, in shorthand, to 10 the best of my ability, the proceedings in the 11 above-entitled hearing; that I transcribed the shorthand 12 writing into typewriting; and that the preceding pages 1 13 through 26 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: FEBRUARY 27, 2012 17 18 19 ____________________________ 20 JULI PRICE JACKSON 21 Hearing Reporter 22 23 24 25 26 27 28 27