Are a medical-equipment company's rentals of prescription therapeutic hospital beds and wound-care (V.A.C.) devices subject to New York sales tax?

Plain-English summary

A company that rents specialized therapeutic hospital beds (for conditions like spinal cord injury, severe burns, and pressure ulcers) and sells V.A.C.® wound-closure devices (which use suction to promote wound healing) to hospitals, nursing homes, and patients' homes asked whether its receipts are subject to New York sales tax. Every bed and device is furnished only on a doctor's prescription for a specifically named patient, installed and monitored by the company's own technicians and nursing staff, then retrieved, disinfected, and reused for the next patient.

The Department confirmed both products qualify as exempt "medical equipment" under Tax Law § 1115(a)(3) -- unlike ordinary adjustable beds marketed to the general public (which a 1987 case, Craftmatic, held do NOT qualify), these beds and devices are available only by prescription and are genuinely used to treat a documented medical condition. But qualifying as medical equipment isn't the end of the analysis: New York's exemption specifically does NOT apply to medical equipment purchased by someone who will use it in performing medical or similar services for compensation. Because the facts show the company is renting its beds and devices to hospitals and other providers who bill patients for the medical services in which the equipment is used, those rental receipts ARE taxable -- unless the renting facility is itself a tax-exempt governmental or nonprofit entity under § 1116(a).

What this means for you

Durable medical equipment (DME) companies

Qualifying as "medical equipment" is necessary but not sufficient for the exemption. Who is doing the actual purchasing/renting matters: a sale or rental directly to the patient (or to an exempt hospital/entity as final user) is exempt, but a rental to a for-profit hospital, physician practice, or ambulance service that will use the equipment to perform medical services for compensation is taxable, even though the same equipment would be exempt in the patient's hands.

Hospitals, nursing homes, and other care facilities

If you're renting specialized medical equipment to use in delivering billed patient care, expect to pay sales tax on that rental (unless your facility itself has exempt-organization status under § 1116(a) and can furnish an Exempt Organization Exempt Purchase Certificate).

Accountants and tax professionals

Keep the two-step test straight: (1) does the item qualify as medical equipment/supplies under § 1115(a)(3) and 20 NYCRR 528.4(e)/(g) (prescription-driven, primarily and customarily medical, not generally useful absent illness), and (2) who is the actual purchaser/renter -- a patient or exempt entity (nontaxable) versus a provider using it to perform medical services for compensation (taxable). Documentation should include invoices made out to the patient, or a governmental purchase order/Form ST-119.1 for exempt-entity sales.

Common questions

Q: Is a rental of a prescription hospital bed to a nursing home taxable?
A: Yes, if the nursing home is billing patients for medical services in which the bed is used -- the medical-equipment exemption doesn't apply to equipment purchased or rented by someone performing medical services for compensation.

Q: Is a sale or rental of the same bed directly to a patient taxable?
A: No, as long as the equipment qualifies as prescribed medical equipment and isn't purchased by a compensated medical-service provider.

Q: Does it matter that the beds have "medicinal qualities" and require a doctor's prescription?
A: Yes -- that's exactly what distinguishes exempt prescription medical equipment from the non-exempt general-use adjustable furniture at issue in the Craftmatic case.

Q: What records should a DME company keep to support exempt sales?
A: Invoices showing the sale or rental was made directly to the patient, or -- for sales to exempt entities -- a governmental purchase order or Exempt Organization Exempt Purchase Certificate (Form ST-119.1).

Citations and references

Statutes, regulations, and case law:

• Tax Law § 1101(b)(5) (sale, selling or purchase, including rentals)
• Tax Law § 1115(a)(3) (drugs, medicines, medical equipment and supplies exemption)
• Tax Law § 1116(a) (exempt governmental and nonprofit entities)
• 20 NYCRR 528.4(e), (g), (h) (medical equipment/supplies; taxable when purchased for compensated medical services)
• 20 NYCRR 529.2(b), 529.3(b), 529.7 (governmental and exempt-organization purchaser rules)
• Matter of Craftmatic Comfort Mfg. Corp. v NYS Tax Commn., 69 NY2d 755 (1987)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2005.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a05_36s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-05(36)S
Sales Tax
September 27, 2005

Office of Tax Policy Analysis
Technical Services Division
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S050401A

On April 1, 2005, the Department of Taxation and Finance received a Petition for
Advisory Opinion from KCI USA, Inc., 8023 Vantage Drive, San Antonio, Texas 78230-4726.
The issues raised by Petitioner, KCI USA, Inc., are:
1) Whether receipts from sales of its beds are subject to the sales tax.
2) Whether receipts from sales of its wound closure devices are subject to the sales tax.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Therapeutic beds
Petitioner is in the business of selling and leasing therapeutic medical beds to acute care
patients in hospital intensive care units, medical and surgical floors, skilled nursing facilities and
patients’ homes. These specialized medical beds are used in the treatment and prevention of
disorders associated with long-term patient immobility such as pneumonia, partial or complete
lung collapse, breathing and circulation problems, pressure ulcerations, skin breakdown and poor
circulation. The beds are prescribed by physicians to treat patients with spinal cord injury,
severe pulmonary complications, multiple trauma, severe burns, and severe pain as well as
patients who have had skin grafting.
Petitioner's beds can be divided into general treatment classifications including: Kinetic
Therapy, Pressure Relief and Reduction Therapies and Bariatric Support Systems. In general,
Kinetic Therapy is the continuous side to side rotation of the patient. The therapy helps to
prevent or treat complications associated with immobility such as pneumonia, partial or complete
lung collapse, and breathing and circulation problems. This therapy is primarily used to treat
patients suffering from spinal cord or head injury. Pressure Relief and Reduction Therapies
provide redistribution of patient weight and reduction in surface interface pressures thereby
maintaining proper blood flow. This therapy is used primarily to treat patients with pressure
ulcerations (bed sores), severe burns, open wounds resulting from trauma as well as patients who
have had skin grafting. Bariatric Support Systems provide pressure reducing surfaces that are
manufactured to meet the needs of larger patients. These products allow the patient to maintain
adequate circulation to the skin and allow the patient to position himself or herself in a cardiac
chair position which helps with ventilation of the lungs.
The placement of an order for Petitioner's beds is initiated with a written prescription in
the form of a doctor's order or certificate of medical necessity issued by the patient's treating

-2­
TSB-A-05(36)S
Sales Tax
September 27, 2005

physician. Typically, the doctor's order is communicated to the purchasing agent for the facility
in which the patient is being treated. Each order is for a specifically named patient as prescribed
by a specific treating physician. Petitioner issues billings for the beds to the facility in which the
patient is being treated.
The beds are installed by Petitioner's medical technicians who are responsible for setting
the controls on the beds to the specifications of the physician in charge of the patient. The bed is
then monitored periodically by Petitioner's nursing staff to ensure that the equipment is working
properly. Once it is determined that the patient is no longer in need of Petitioner's bed,
Petitioner's medical technicians remove it from the treatment facility, disinfect it and make the
bed ready for use by the next patient. The majority of Petitioner's beds are provided to patients
located in hospitals, nursing homes and other long-term care facilities.
Petitioner's beds are furnished for the treatment of one specific patient on the prescription
of that patient's treating physician. The beds are intended by Petitioner to have medicinal
qualities and are intended to substitute for the patient’s natural movements which are the body’s
natural defenses against pressure ulcerations, pneumonia and partial or complete lung collapse.
Patients requiring the use of Petitioner's beds typically have lost the ability to move on their own
due to spinal cord injury, trauma, coma or debilitating illness.
Wound closure devices
Petitioner also sells a V.A.C.® (Vacuum Assisted Closure™ ) device. This device assists
in wound closure by applying localized subatmospheric pressure that helps promote wound
healing. V.A.C. therapy is applied to a special dressing positioned in the wound cavity or over a
graft. This pressure-distributing wound packing helps remove fluids from the wound and
promote the normal healing process.
The V.A.C. system consists of an open-cell reticulated foam. The foam can be cut to the
shape of smaller wounds or multiple pieces of foam can be placed side-to-side or on top of each
other to treat large surface area wounds or deep wounds. A fenestrated (porous) evacuation tube
embedded in the foam allows the application of subatmospheric pressure to the wound. This
evacuation tube allows for the removal of excess fluid which can contain excess bacteria,
undesirable enzymes and the like. The dressing and the distal evacuation tube are covered by a
transparent, occlusive, air permeable drape. The drape provides a seal which allows the
application of subatmospheric pressure to the system.
The free end of the evacuation tube is attached to a longer tube ending in a collection
canister. The canister acts as a limited reservoir to contain the fluid being removed from the
wound. The canister fits into a microprocessor-controlled vacuum unit. The vacuum unit
provides continuous or intermittent subatmospheric pressure selected to meet the needs of the
wound being treated.

-3­
TSB-A-05(36)S
Sales Tax
September 27, 2005

V.A.C. therapy provides all the benefits of high technology dressings in one system. The
standard dressing change routine of every 48 hours can result in less disturbance to the wound,
improved patient comfort and faster wound closure than traditional dressings.
Applicable law and regulations
Section 1101(b)(5) of the Tax Law defines the term sale, selling or purchase for purposes
of Article 28 of the Tax Law as follows:
Sale, selling or purchase. Any transfer of title or possession or both, exchange or
barter, rental, lease or license to use or consume (including, with respect to computer
software, merely the right to reproduce), conditional or otherwise, in any manner or by
any means whatsoever for a consideration, or any agreement therefor, including the
rendering of any service, taxable under this article, for a consideration or any agreement
therefor.
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:
*

*

*

(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.
Section 1116(a) of the Tax Law provides for exemption from the sales and compensating
use taxes with respect to purchases by New York State governmental entities, United States
governmental entities, certain nonprofit organizations and other entities who have received
New York State sales tax exempt organization status.
Section 528.4 of the Sales and Use Tax Regulations provides, in part:
Drugs and medicines; medical equipment and supplies. (a) 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

-4­
TSB-A-05(36)S
Sales Tax
September 27, 2005

(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.
*

*

*

(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.
Example 1: Items such as hospital beds, wheel chairs . . . iron lungs,
respirators, oxygen tents, crutches, back and neck braces, trusses, trapeze
bars, walkers, inhalators, nebulizers and traction equipment are exempt
medical equipment.
Example 2: A medical patient purchases an air conditioner to be used to
lower air temperature to alleviate his illness. Since an air conditioner is
nonmedical in nature, it is not exempt from the tax.
Example 3: Orthodontic appliances are medical equipment.
Example 4: The purchase of a birth control device commonly known as
an I.U.D. or intrauterine device is the purchase of medical equipment.
(3) Replacement parts for medical equipment are exempt from tax provided such
replacement parts are identifiable as medical equipment replacement parts. If a
replacement part is not identifiable as a part for medical equipment, the purchaser must
pay the tax at the time of purchase. The purchaser may then apply directly to the Sales
Tax Bureau for a refund of the tax paid provided he can show that the part was used to
replace a defective part on exempt medical equipment.
(4) Medical equipment is not exempt if purchased by a person performing medical
or similar services for compensation. (See subdivision (g) of this section.)
*

*

*

-5­
TSB-A-05(36)S
Sales Tax
September 27, 2005

(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.
Example 1: Colostomy bags and the necessary accoutrements required for
attachment are medical supplies.
Example 2: Bandages, gauze and dressings are medical supplies.
Example 3: Disposable hypodermic syringes and litmus paper used by
diabetics are medical supplies.
(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.
Example 1: Stethoscopes, syringes, wheel chairs, etc. purchased by
physicians are not exempt.
Example 2: Resuscitators, stretchers and other
purchased by an ambulance service are not exempt.

such

equipment

Example 3: Bandages, gauze, dressings, etc., are not exempt when
purchased by a physician, ambulance service or other person who will use
them in performing a medical service for compensation.
*

*

*

(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.
(i) Servicing and repairing medical equipment. (1) Servicing and repairing
medical equipment which is exempt from tax under subdivision (e) of this section is
exempt from the tax imposed by paragraph (3) of subdivision (c) of section 1105 of the
Tax Law.

-6­
TSB-A-05(36)S
Sales Tax
September 27, 2005

(2) Servicing and repairing medical equipment which is not exempt is subject to
the tax imposed by paragraph (3) of subdivision (c) of section 1105 of the Tax Law.
Section 529.2(b) of the Sales and Use Tax Regulations provides, in part:
As purchaser. (1) New York State, or any of its agencies, instrumentalities,
public corporations or political subdivisions (hereinafter referred to as New York State
governmental entities) are not subject to sales or use tax when they are the purchaser,
user, or consumer of tangible personal property or services . . . .
Section 529.3(b) of the Sales and Use Tax Regulations provides, in part:
As purchaser. (1) The United States of America, and any of its agencies and
instrumentalities immune from taxation (hereinafter referred to as United States
governmental entities) are not subject to the sales or use tax when they are the purchaser,
user or consumer of tangible personal property or services . . . .
Section 529.7 of the Sales and Use Tax Regulations provides, in part:
Religious, charitable, scientific, testing for public safety, literary or educational
organizations, organizations which foster national or international amateur sports
competition, and organizations for the prevention of cruelty to children or animals.
(a) General. (1) Any corporation, association, trust, or community chest, fund or
foundation, organized and operated exclusively for religious, charitable, scientific, testing
for public safety, literary or educational purposes, or to foster national or international
amateur sports competition (but only if no part of its activities involve the provision of
athletic facilities or equipment), or for the prevention of cruelty to children or animals, no
part of the net earnings of which inures to the benefit of any private shareholder or
individual, no substantial part of the activities of which is carrying on propaganda or
otherwise attempting to influence legislation (except as otherwise provided in subsection
(h) of section 501 of the United States Internal Revenue Code of 1986), and which does
not participate in, or intervene in (including the publishing or distributing of statements),
any political campaign on behalf of any candidate for public office, which meet the
qualifications of this section are exempt from the sales and use tax on any purchases of
tangible personal property, [or] services . . . .
Opinion
Issue 1
Petitioner describes its beds as therapeutic medical beds prescribed by physicians to treat
patients with various medical conditions. Petitioner’s beds as described in this Advisory Opinion

-7­
TSB-A-05(36)S
Sales Tax
September 27, 2005

qualify as medical equipment pursuant to section 1115(a)(3) of the Tax Law. See section
528.4(e) of the Sales and Use Tax Regulations. Unlike the furniture predominantly marketed
and sold to individuals for use regardless of medical necessity which has been determined in
Matter of Craftmatic Comfort Manufacturing Corp. v New York State Tax Commn., 69 NY2d
755, [1987] to not qualify for exemption from sales tax under section 1115(a)(3) of the Tax Law,
Petitioner’s equipment is typically only available pursuant to a physician’s recommendation and
prescription. Upon such physician’s recommendation, the equipment is leased by the patient’s
hospital, long-term care facility, hospice provider, etc. for use by the specified patient. The use
of the equipment is monitored by Petitioner’s personnel and when no longer needed by a
specified patient the equipment is retrieved by Petitioner for preparation for use by subsequent
patients.
The exemption in section 1115(a)(3) of the Tax Law for medical equipment and supplies
does not apply to retail sales of such equipment and supplies for use by the purchaser in
performing medical or similar services for compensation. See section 528.4(e)(4) of the Sales
and use Tax Regulations. Leases or rentals are included in the definition of sale, selling or
purchase for sales tax purposes. See section 1101(b)(5) of the Tax Law.
Accordingly, if Petitioner makes retail sales or leases of its hospital beds to persons other
than a person who uses the bed in performing medical or similar services for compensation, or to
an otherwise exempt entity, Petitioner is not required to collect sales or use tax on such sale. See
sections 1115(a)(3) and 1116(a) of the Tax Law and sections 528.4(h)(1), 529.2, 529.3, and
529.7 of the Sales and Use Tax Regulations. Petitioner should maintain records showing that it
sold or leased the bed directly to the exempt purchaser. Such record should include a copy of
Petitioner’s invoice made out to the patient, or, in the case of sales to exempt entities, a copy of
the governmental purchase order or Exempt Organization Exempt Purchase Certificate (Form
ST-119.1). It appears from the facts in this Opinion that Petitioner is renting its beds to persons
performing medical or similar services for compensation. Such rentals are taxable, unless the
purchaser is an exempt entity under section 1116(a) of the Tax Law.
Issue 2
Petitioner’s V.A.C.® (Vacuum Assisted Closure™ ) device as described in this Advisory
Opinion also qualifies as medical equipment pursuant to section 1115(a)(3) of the Tax Law.
Accordingly, if Petitioner makes retail sales or leases of V.A.C. devices to persons other than a
person who uses the device in performing medical or similar services for compensation, or to an
otherwise exempt entity, Petitioner is not required to collect sales or use tax on such sale. See
sections 1115(a)(3) and 1116(a) of the Tax Law and sections 528.4(h)(1), 529.2, 529.3, and
529.7 of the Sales and Use Tax Regulations. Petitioner should maintain records showing that it
sold or leased the device directly to the exempt purchaser. Such record should include a copy of
Petitioner’s invoice made out to the patient, or, in the case of sales to exempt entities, a copy of
the governmental purchase order or Exempt Organization Exempt Purchase Certificate (Form
ST-119.1). It appears from the facts in this Opinion that Petitioner is renting its devices to

-8­
TSB-A-05(36)S
Sales Tax
September 27, 2005

persons performing medical or similar services for compensation. Such retail sales or rentals are
taxable, unless the purchaser is an exempt entity under section 1116(a) of the Tax Law.

DATED: September 27, 2005

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.