My company sells FDA-classified copper IUDs to both patients and medical providers — do they qualify for New York's sales tax exemption for drugs and medicines?

Plain-English summary

A medical supplier that sells the ParaGard® copper intrauterine device (IUD) — a plastic, copper-wrapped device inserted by a physician that can remain in place up to 10 years, working by releasing copper ions toxic to sperm and interfering with fertilization — asked whether its IUD sales qualify for New York's sales tax exemption for drugs and medicines under Tax Law §1115(a)(3).

The Department said no. The taxpayer argued the IUD functions similarly to the birth control pill or morning-after pill (both classified as drugs), because the copper ions it releases are "intended to affect the structure or function of the human body." But New York's regulations first look to whether a product is recognized as a drug or medicine in authoritative medical reference works (the U.S. Pharmacopeia, Homeopathic Pharmacopeia, or National Formulary) — and the taxpayer conceded the ParaGard IUD isn't listed there. The Department also pointed out that the FDA itself classifies the ParaGard IUD as a medical device, not a drug, and that New York's own regulations specifically list "an I.U.D. or intrauterine device" — without regard to type or brand — as an example of taxable medical equipment. Because statutory tax exemptions are read narrowly against the taxpayer, the FDA's device classification controlled, and the "affects the structure/function of the body" argument wasn't enough to override it.

That doesn't mean the IUD is fully taxable, though — it just gets a different rule. As medical equipment rather than a drug, the IUD is exempt from sales tax when sold to a patient, but taxable when sold to a medical services provider who will use it in performing paid medical services (a limitation built into the medical equipment exemption that doesn't apply to drugs). So the same product's tax treatment depends entirely on who's buying it.

What this means for you

Medical device and IUD suppliers

Don't assume a device that clinically functions like a drug (affecting hormones, chemistry, or the body's structure) gets drug-exemption treatment. New York looks first to whether the product is listed in the recognized pharmaceutical reference works, and heavily weighs the FDA's own device-vs-drug classification. If your product is FDA-classified as a device, expect it to be taxed as medical equipment, not as an exempt drug — meaning it will be taxable when sold to a paid medical provider even though exempt when sold directly to a patient.

Pharmacies and drugstores

Track who's actually buying the IUD (or similar FDA-classified device): the same item is exempt for a patient purchase but taxable for a purchase by a physician's office or clinic that will use it in a billed medical service.

Accountants and tax professionals

This opinion is a clean application of the narrow-construction-of-exemptions principle (Allied New York Services, Inc. v Tully) and the two-tier drug/device test in 20 NYCRR §528.4(b)(1) — worth using whenever a client's product straddles the drug/device line and its manufacturer argues for drug treatment based on physiological function rather than formal medical classification.

Common questions

Q: If a product affects the body's chemistry or structure the same way a drug does, shouldn't it be taxed as a drug?
A: Not necessarily. New York first looks to whether the product is recognized as a drug or medicine in specific pharmaceutical reference works, and gives significant weight to the FDA's own classification. A device-classified product doesn't become an exempt drug just because of how it functions physiologically.

Q: Are all IUDs treated the same regardless of brand?
A: Yes — the opinion notes there's no statutory or precedential basis for treating one type or brand of IUD differently from another; New York's own regulations list "an I.U.D. or intrauterine device," generically, as an example of taxable medical equipment.

Q: Who actually pays sales tax on an IUD in New York?
A: It depends on the buyer. Sales to patients are exempt (as medical equipment purchased by the end user). Sales to medical service providers — who will use the device in performing a paid medical or similar service — are taxable, because the medical-equipment exemption doesn't extend to that scenario.

Q: Can any medical device supplier rely on this exact opinion?
A: No. An advisory opinion binds the Department only as to the taxpayer who requested it and the facts described — here, a specific FDA-classified device. A genuinely different product (one actually recognized in the pharmaceutical reference works, for example) could be analyzed differently.

Citations and references

Statutes and regulations:

• Tax Law §1115(a)(3) (drugs, medicines, and medical equipment exemption, with a paid-medical-service carve-out for equipment)
• 20 NYCRR §528.4(b)(1)(i), (ii) (definition of drugs and medicines; reference-work recognition test)
• 20 NYCRR §528.4(e), Example 4 (IUD listed as an example of medical equipment)

Cited case and publications:

• Allied New York Services, Inc. v Tully, 83 AD2d 727 (3d Dept 1981) (tax exemptions construed narrowly against the taxpayer)
• Publication 822, Taxable Status of Medical Equipment and Supplies, Prosthetic Devices, and Related Items
• Publication 840, Guide To Sales Tax For Drugstores and Pharmacies

Source

• Landing page: NY Sales Tax Advisory Opinions, 2009
• Original opinion: TSB-A-09(13)S

Original ruling text

New York State Department of Taxation and Finance

TSB-A-09(13)S
Sales Tax
March 9, 2009

Office of Counsel
Advisory Opinion Unit
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S090203A

On February 3, 2009, the Department received a petition for an advisory opinion from name and
address redacted. Petitioner asks if its sales of ParaGard® intrauterine devices qualify for exemption
from sales tax as drugs and medicines under Tax Law §1115(a)(3). Because the State classifies
ParaGard® intrauterine devices (IUDs) as medical equipment, the sale of the ParaGard® IUD to patients
is exempt from sales tax, but its sale to medical providers is not.
Facts
Petitioner supplies drugs, medicines, medical equipment and supplies to medical services
providers and patients. Among the products that it sells is the ParaGard® IUD. Because a physician’s
order is required for the purchase of the product, sales to both medical services providers and patients are
shipped to physicians or medical facilities.
Petitioner concedes that the U.S. Food and Drug
Administration (USFDA) has classified the ParaGard® IUD as a medical device.
Petitioner represents that the ParaGard IUD is a plastic T-shaped device that is wrapped in copper
wire. The IUD has a federal warning label that restricts it to sale by or on the order of a physician. The
IUD is inserted by a physician into the uterus of the patient. The IUD may remain implanted in the
woman’s uterus for up to 10 years. The function of the “copper-bearing” IUD is to kill the sperm. It
releases copper ions, and copper is toxic to sperm. The copper-bearing IUDs interfere with fertilization
and make the uterus a “spermicidal environment.” The copper helps to prevent eggs from implanting in
the uterus, and it stimulates the production of prostaglandins, which are chemicals that affect the
hormones needed to support a pregnancy. The IUD may also be used as an emergency contraceptive to
prevent pregnancy for up to 5 days after having unprotected sexual intercourse.
Issue
Do Petitioner’s sales of the ParaGard® IUD qualify for the sales tax exemption provided for
drugs and medicines under Tax Law §1115(a)(3)?
Analysis
No, Petitioner’s sales of the ParaGard® IUD do not qualify for the sales tax exemption provided
for drugs and medicines under Tax Law §1115(a)(3).
Petitioner argues that the function, performance, and effect of the ParaGard® IUD on a woman’s
uterus through the release of copper ions are similar to those of other forms of birth control, including the
birth control pill and the morning-after pill, that the State has classified as drugs, and that it therefore
should be classified as a drug. Notably, Petitioner does not claim, nor could it, that its product has been

TSB-A-09(13)S
Sales Tax
March 9, 2009

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recognized as a drug or medicine in the United States Pharmacopeia, Homeopathic Pharmacopeia of the
United States, or National Formulary, which could classify it as a drug or medicine pursuant to 20
NYCRR 528.4(b)(1)(i). Instead, Petitioner claims that the copper ions released by its IUD are “intended
to affect the structure or any function of the human body,” bringing it within the definition of drugs and
medicines included within 20 NYCRR 528.4(b)(1)(ii).
Petitioner seeks to circumvent the findings of the USFDA and the medical reference works, cited
in 20 NYCRR 528.4(b)(1)(i) as authoritative with respect to the recognition of products as drugs and
medicines, with an argument concerning its product’s function, performance, and effect that might bring
it within the definition of drugs and medicines for purposes of Tax Law §1115(a)(3). However, statutory
exemptions are construed narrowly against the taxpayer. See Allied New York Services, Inc. v Tully (3d
Dept 1981) 83 AD2d 727, 728. The USFDA classification of the ParaGard® IUD as a device supports
the conclusion that this IUD is not a drug or medicine within the commonly understood meaning of these
terms, regardless of the effect that copper ions may have in preventing pregnancy. Further, the IUD is not
a product consumed by humans for the preservation of health, for purposes of Tax Law §1115(a)(3).
Rather, the IUD is medical equipment. See 20 NYCRR 528.4(e), Example 4, which specifically cites
IUDs, without regard to type or brand, as an example of medical equipment.
(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 incapacity.
*

*

*

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.
While Tax Law §1115(a)(3) provides that medical equipment is exempt from sales tax, this
section also provides that the exemption does not apply when the medical equipment is sold at retail to
medical services providers for use in performing medical and similar services for compensation.
See 20 NYCRR 528.4(e) and Departmental publications that have consistently included IUDs on
the list of medical equipment. See Publication 822, Taxable Status of Medical Equipment and Supplies,
Prosthetic Devices, and Related Items (6/01); Publication 840, Guide To Sales Tax For Drugstores and
Pharmacies (8/98), pp. 11, 29.

TSB-A-09(13)S
Sales Tax
March 9, 2009

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There appear to be neither statutory nor precedential grounds for treating one type or brand of
IUD differently than another. Thus, sales of the ParaGard® IUD are considered sales of medical
equipment: exempt upon sale to patients, but taxable when sold to medical services providers.

DATED: March 9, 2009

NOTE:

/S/
Jonathan Pessen
Director of Advisory Opinions
Office of Counsel

An Advisory Opinion is issued at the request of a person or entity. It is
limited to the facts set forth therein and is binding on the Department only
with respect to the person or entity to whom it is issued and only if the
person or entity fully and accurately describes all relevant facts. An
Advisory Opinion is based on the law, regulations, and Department
policies in effect as of the date the Opinion is issued or for the specific
time period at issue in the Opinion.