Are Vitoss and Cortoss, two synthetic bone void fillers, exempt from New York sales tax as prosthetic aids when sold to hospitals and physicians?

Plain-English summary

Orthovita, Inc. manufactures two synthetic bone void fillers, surgically implanted to fill defects caused by illness, trauma, or tumor removal. Vitoss repairs the porous inner core of bone: implanted as a scaffold matrix or injectable material, it guides new bone regeneration and is gradually absorbed into the body, eventually replaced entirely by the patient's own bone. Cortoss is different — it replaces the hard outer bone structure and, unlike Vitoss, is not absorbed or replaced; it acts as a permanent bone filler.

New York exempts both "prosthetic aids" (devices that replace a missing body part or a permanently malfunctioning one) and, separately, "medical supplies" used in treating illness or injury — but medical supplies are taxable when bought by someone performing medical services for compensation (like a private physician), while prosthetic aids are exempt for everyone, even paid practitioners. Because Vitoss dissolves and is ultimately replaced by the patient's own bone rather than permanently standing in for a missing body part, the Department held it doesn't qualify as a prosthetic aid — following its own earlier rulings on similarly dissolving medical devices (a corneal shield, a periodontal-tissue-guide device). Instead, Vitoss is an exempt medical supply only when sold to (or used by) a qualifying hospital or similar tax-exempt organization with a proper exemption certificate; sold to a physician or practice using it in paid medical services, it's taxable. Cortoss, because it permanently replaces bone structure rather than dissolving away, does qualify as a prosthetic aid — assuming it's primarily and customarily used for that purpose and not generally useful absent illness or injury — making its sale tax-exempt to everyone, including paid medical practices.

What this means for you

Medical device manufacturers selling implantable products

Whether your product is exempt turns on a specific, factual distinction: does it permanently replace a missing or malfunctioning body part (prosthetic aid, exempt for all buyers), or does it dissolve/get absorbed and eventually get replaced by the body's own tissue (medical supply, taxable when sold to paying medical practitioners)? Products in the same general implant category can land on opposite sides of that line, as Vitoss and Cortoss did here.

Hospitals and other exempt organizations buying medical supplies

Even a non-permanent, dissolving medical supply like Vitoss can be purchased tax-free if you're a qualifying exempt organization (such as a hospital under § 1116(a)(4)) and you give the seller a properly completed exemption certificate within 90 days of the sale — regardless of whether you'll use it in paid medical services.

Accountants and tax professionals

This applies the settled Alcon Surgical/John O. Butler Company line distinguishing dissolving therapeutic devices (medical supplies, taxable to paid practitioners) from permanent body-part replacements (prosthetic aids, exempt to everyone). Useful template for any future implantable-device ruling: check whether the device is absorbed/replaced by the body, or stays as a permanent replacement.

Common questions

Q: Is Vitoss exempt from sales tax?
A: Only when sold to (or used by) a qualifying exempt organization like a hospital with a proper exemption certificate — sold to a physician or practice for use in paid medical services, it's taxable, since it's a medical supply, not a prosthetic aid.

Q: Is Cortoss exempt from sales tax?
A: Yes, to all purchasers, including paid medical practices, because it qualifies as a prosthetic aid — it permanently replaces bone structure rather than being absorbed and replaced.

Q: Why the different treatment for two similar bone-filler products?
A: Because Vitoss dissolves and is eventually replaced by the patient's own bone (making it a medical supply, not a permanent replacement), while Cortoss stays in place permanently as a bone substitute (qualifying as a prosthetic aid).

Q: What paperwork does a hospital need to buy Vitoss tax-free?
A: A properly completed exemption certificate furnished to Orthovita within 90 days of the sale.

Q: Can another medical device company rely on this Vitoss/Cortoss classification for a similar product?
A: No. This opinion binds the Department only for these specific products' facts, though the dissolving-vs-permanent distinction illustrates the Department's general approach.

Citations and references

Statutes and regulations:

• Tax Law § 1105(a) (imposition on retail sales)
• Tax Law § 1115(a)(3) (drugs/medicines/medical equipment/supplies exemption)
• Tax Law § 1115(a)(4) (prosthetic aids exemption)
• Tax Law § 1116(a)(4) (charitable/educational organizations, incl. hospitals)
• Tax Law § 1132(a) (exemption certificate requirement)
• 20 NYCRR § 528.4 (drugs, medicines, medical equipment/supplies)
• 20 NYCRR § 528.5 (prosthetic aids)
• 20 NYCRR § 529.7 (exempt organization certificate)

Prior opinions cited:

• TSB-A-92(43)S, Alcon Surgical, Inc., May 27, 1992
• TSB-A-92(77)S, John O. Butler Company, Nov. 4, 1992

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2002.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a02_14s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-02(14)S
Sales Tax
June 25, 2002

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S000727A

On July 27, 2000, the Department of Taxation and Finance received a Petition for Advisory
Opinion from Orthovita, Inc., 45 Great Valley Pkwy, Malvern, PA 19355. Petitioner, Orthovita,
Inc., furnished additional information with respect to the Petition on August 15, 2000.
The issue raised by Petitioner is whether its sales of Vitoss and Cortoss, which are synthetic
bone void fillers described below, to hospitals and physicians are exempt from New York State and
local sales and use taxes as prosthetic aids.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Vitoss and Cortoss are synthetic bone void fillers which are regulated as medical devices.
The products are surgically implanted to take the place of weakened and diseased bone. Vitoss and
Cortoss, when surgically implanted, are meant to take the place of a bone defect caused by illness
or trauma. An example of a bone defect would be a hole caused by the removal of a tumor.
Vitoss is designed to repair the porous inner core of bone. Vitoss, when surgically implanted
in a bone defect, serves as a template to guide bone regeneration throughout the defect. Vitoss,
through absorption into the body and bone, after time is replaced by bone. Vitoss is formed as either
a scaffold matrix or in an injectable form. The matrix version is a porous, spongy material that is
sold in the form of small (9 x 23 mm) blocks or “morsels” (1-4 mm in diameter), which are shaped
during a surgical procedure as necessary to fill a defect.
Cortoss is designed to replace the hard outer bone structure. Cortoss is manufactured in an
injectable form or as a putty. Unlike Vitoss, Cortoss is not replaced by bone but acts as a permanent
bone filler.
Applicable Law and Regulations
Section 1105(a) of the Tax Law imposes sales tax upon "[T]he receipts from every retail sale
of tangible personal property, except as otherwise provided in this article."
Section 1115(a) of the Tax Law provides, in part:
Receipts from the following shall be exempt from the tax on retail sales
imposed under subdivision (a) of section eleven hundred five and the compensating
use tax imposed under section eleven hundred ten:

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Sales Tax
June 25, 2002

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(3) Drugs and medicines intended for use, internally or externally, in the
cure, mitigation, treatment or prevention of illnesses or diseases in human beings,
medical equipment (including component parts thereof) and supplies required for
such use or to correct or alleviate physical incapacity, and products consumed
by humans for the preservation of health but not including cosmetics or toilet articles
notwithstanding the presence of medicinal ingredients therein or medical equipment
(including component parts thereof) and supplies, other than such drugs and
medicines, purchased at retail for use in performing medical and similar services for
compensation.
(4) Prosthetic aids, hearing aids, eyeglasses and artificial devices and
component parts thereof purchased to correct or alleviate physical incapacity in
human beings.
Section 528.4(a) of the Sales and Use Tax Regulations provides, in part:
Exemption. (1) Drugs and medicines intended for the use, internally or
externally in the cure, mitigation, treatment or prevention of illnesses or diseases in
human beings, medical equipment (including component parts thereof) and supplies
required for such use or to correct or alleviate physical incapacity, and products
consumed by humans for the preservation of health are exempt.
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(e) Medical equipment. (1) Medical equipment means machinery, apparatus
and other devices (other than prosthetic aids, hearing aids, eyeglasses and artificial
devices which qualify for exemption under section 1115(a) (4) of the Tax Law),
which are intended for use in the cure, mitigation, treatment or prevention of
illnesses or diseases or the correction or alleviation of physical incapacity in human
beings.
(2) To qualify, such equipment must be primarily and customarily used for
medical purposes and not be generally useful in the absence of illness, injury or
physical incapacity.
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(g) Supplies. (1) Supplies used in the cure, mitigation, treatment or
prevention of illnesses or diseases or for the correction and alleviation of physical
incapacity are exempt.

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Sales Tax
June 25, 2002

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(2) Medical supplies are not exempt if purchased by a person performing
medical or similar services for compensation. (See subdivision (h) of this section.)
(h) Taxable medical equipment and supplies. (1) Medical equipment and
supplies purchased for use in performing medical or similar services for
compensation are not exempt from tax.
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(2) Medical services for human beings include but are not limited to the
practices of medicine, dentistry, physical therapy, chiropractic, nursing, podiatry,
optometry and radiology, whether performed by a private practitioner, clinical
laboratory, hospital, nursing home, ambulance service, clinic, or health maintenance
facilities.
(3) It is immaterial whether the compensation is paid to the practitioner or
institution by the patient or another source.
Section 528.5 of the Sales and Use Tax Regulations provides, in part:
Prosthetic aids. (a) Exemption. Prosthetic aids, hearing aids, eyeglasses and
artificial devices and component parts thereof, purchased to correct or alleviate
physical incapacity in human beings are exempt from the tax.
(b) Qualifications. (1) In order to qualify as a prosthetic aid, a hearing aid,
eyeglasses or an artificial device, the property must either completely or partially
replace a missing body part or the function of a permanently inoperative or
permanently malfunctioning body part and must be primarily and customarily used
for such purposes and not be generally useful in the absence of illness, injury or
physical incapacity.
Opinion
Vitoss is designed to repair the porous inner core of bone. Vitoss, when surgically implanted
in a bone defect, serves as a template to guide bone regeneration. While performing this function,
Vitoss is absorbed by the body and is replaced by bone. In Alcon Surgical, Inc., Adv Op Comm
T&F, May 27, 1992, TSB-A-92(43)S, it was concluded that the corneal shield used to accelerate
healing in postoperative or traumatic corneal injuries, refractive surgical procedures and other
corneal conditions, which subsequently dissolves in the eye, is a medical supply for purposes of
the exemption contained in Section 1115(a)(3) of the Tax Law since it is a therapeutic device similar

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Sales Tax
June 25, 2002

to ophthalmic suture materials. John O. Butler Company, Adv Op Comm T&F, November 4, 1992,
TSB-A-92(77)S, concluded that a bio-medical device which is fastened around the neck of a tooth
to guide in the regeneration of periodontal tissues lost due to disease and which later dissolves in
the patient’s mouth is not a prosthetic aid. Rather, it is a medical supply for purposes
of the exemption contained in Section 1115(a)(3) of the Tax Law. Like the items at issue in Alcon
Surgical, Inc., supra, and John O. Butler Company, supra, Vitoss does not remain in the body.
Vitoss does not completely or partially replace a missing body part or replace the function of a
permanently inoperative or permanently malfunctioning body part within the meaning and intent of
Section 528.5 of the Sales and Use Tax Regulations. Vitoss, therefore, does not qualify as a
prosthetic aid under Section 1115(a)(4) of the Tax Law. Rather, Vitoss is a medical supply for
purposes of the exemption contained in Section 1115(a)(3) of the Tax Law. Accordingly, the
receipts from the sale of Vitoss to persons purchasing the product at retail for use in performing
medical services for compensation are subject to sales tax.
It is noted that the sale of Vitoss to, or its use by, a hospital or other organization qualifying
for exemption under Section 1116(a)(4) of the Tax Law would be exempt from the imposition of
sales and compensating use tax, even if such entity were using the product in performing medical
services for compensation, provided the entity furnished Petitioner with a properly completed
exemption certificate within 90 days of the date of sale. See Section 1132(a) of the Tax Law and
Section 529.7 of the Sales and Use Tax Regulations.
Cortoss, unlike Vitoss, replaces the hard outer bone structure and acts as a permanent bone
filler. Cortoss either completely or partially replaces a missing body part. Assuming that Cortoss
is primarily and customarily used for such purpose and is not generally useful in the absence of
illness, injury or physical incapacity, Cortoss would meet the prosthetic aid qualifications set forth
under Section 528.5 of the Sales and Use Tax Regulations. Cortoss, therefore, qualifies as a
prosthetic aid under Section 1115(a)(4) of the Tax Law and its sale to all purchasers is exempt,
including purchasers who will use it in performing medical services for compensation.

DATED: June 25, 2002

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Technical Services Division

The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.