Are sales of an injectable collagen implant to medical practitioners subject to sales tax?

Plain-English summary

The petitioner sells a Collagen Implant -- a sterile injectable made of highly purified bovine dermal collagen -- to distributors, hospitals, and medical practitioners. It's used only to treat urinary incontinence (from intrinsic sphincter deficiency): injected near the urethra/bladder neck to add tissue bulk. The treatment is not one-time or permanent -- the material is absorbed over time and most patients need repeat sessions. The petitioner asked whether sales of the implant to medical practitioners are subject to sales tax.

The Office of Counsel concluded the implant is a taxable medical supply.

• Not an exempt prosthetic aid/artificial device. A prosthetic aid/artificial device (Tax Law 1115(a)(4); 20 NYCRR 528.5) permanently replaces a missing or malfunctioning body part. Because the implant is absorbed and the therapy must be repeated, it isn't a permanent replacement (following Dental Society on implanted cavity fillers and Orthovita on injectable bone filler).
• Taxable medical/surgical supply. It's a supply item like sutures, ophthalmic shields, and absorbable tissue-regeneration devices, taxable when purchased for use in performing medical services.
• Service-for-compensation exemption bar. Even assuming practitioners use it to treat illness, the 1115(a)(3) exemption doesn't apply to supplies purchased for use in providing medical services for compensation -- so practitioner purchases are taxable (Tax Law 1105(a)).

What this means for you

Practitioners using implants and injectables

An absorbable, repeat-treatment implant is a taxable supply, not an exempt permanent device -- and the medical-supply exemption is turned off for supplies you buy to perform paid services. Expect to owe sales/use tax on these purchases.

Manufacturers and distributors of medical implants

Sales of absorbable injectable implants to practitioners are generally taxable: the practitioner consumes the supply in a paid procedure, so it's an end-use purchase, not a resale.

Common questions

Q: It's surgically implanted -- isn't it an exempt prosthetic/artificial device?
A: No. It's absorbed and the treatment must be repeated, so it isn't a permanent replacement and doesn't qualify as a prosthetic aid or artificial device.

Q: Practitioners use it to treat a real medical condition -- doesn't that exempt it?
A: No. The 1115(a)(3) exemption doesn't reach supplies bought for use in providing medical services for compensation, so the purchases are taxable.

Citations and references

• Tax Law section 1105(a) (sales tax on tangible personal property)
• Tax Law section 1115(a)(3) (drugs/medicines and medical equipment/supplies; exemption denied for supplies used in providing services for compensation and for cosmetics)
• Tax Law section 1115(a)(4) (prosthetic aids and artificial devices)
• 20 NYCRR 528.5 (prosthetic aids/artificial devices defined)
• Dental Society v NYS Tax Commission, 110 AD2d 988 (implanted cavity fillers taxable supplies)
• TSB-A-02(14)S (Orthovita; injectable bone filler is a taxable surgical supply)
• TSB-A-92(43)S (Alcon Surgical) and TSB-A-91(54)S (Alcon Laboratories; sutures/shields)
• TSB-A-92(77)S (John O. Butler; absorbable tissue regeneration device)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2009.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a09_48s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-09(48)S
Sales Tax
October 14, 2009

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

PETITION NO. S090730A

Petitioner name and address redacted, asks whether sales of Collagen Implant for use by medical
practitioners in the treatment of urinary incontinence are subject to sales tax.
We conclude that the Collagen Implant is a medical/surgical supply item subject to sales tax
when purchased by medical practitioners for use in the performance of medical services for
compensation.
Facts
Petitioner sells its medical product, Collagen Implant, to customers (distributors, hospitals,
medical centers, medical practitioners, etc.). The implant is intended for use only in the treatment of
urinary incontinence due to intrinsic sphincter deficiency (poor or nonfunctioning bladder outlet
mechanism) that may be helped by a locally injected bulking agent. The implant is a sterile nonpyrogenic
device composed of highly purified bovine dermal collagen that is lightly crosslinked with glutaraldehyde
and disbursed in phosphate-buffered physiological saline. The implant is injected into the submucosal
tissue of the urethra and or bladder neck, and into the tissue adjacent to the urethra. The injected product
creates increased tissue bulk and subsequent coaptation of the urethral lumen. After injection, the
collagen forms a soft cohesive network of fibers. Over time the implant takes on the appearance of
normal host tissue. If incontinence persists after the initial treatment or if improvement is followed by
recurrence of symptoms, treatment may be repeated after a minimum of seven days from the last
treatment. Patients are counseled that the implant therapy is not a one-time or permanent therapy and that
most patients will need additional treatment sessions to achieve and maintain improvement or dryness.
Analysis
The Tax Law provides exemptions from sales and use tax for drugs and medicines intended for
use in the cure, mitigation, treatment or prevention of illness or disease in humans; and for medical
equipment (including component parts thereof) and supplies required for use in the cure, mitigation,
treatment or prevention of illness or disease, or to correct or alleviate physical incapacity. The exemption
does not apply to medical equipment and supplies purchased at retail for use in providing medical and
similar services for compensation or to purchases of cosmetic products notwithstanding the presence of
medicinal ingredients in the cosmetic product. (See Tax Law Section 1115(a)(3).)
The Tax Law also provides an exemption for prosthetic aids, artificial devices and component
parts thereof purchased to correct or alleviate physical incapacity in humans. (See Tax Law Section
1115(a)(4)). The Sales and Use Tax Regulations describe prosthetic aids and artificial devices, and
component parts thereof, purchased to correct or alleviate physical incapacity in human beings as
property that either completely or partially replaces a missing body part or the function of a permanently
inoperative or permanently malfunctioning body part and that is primarily and customarily used for such

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TSB-A-09(48)S
Sales Tax
October 14, 2009

purposes. Property that is generally useful in the absence of illness, injury or physical incapacity does not
qualify for the prosthetic aid/ artificial device exemption. (See Regulation Section 528.5)
The Collagen Implant is a medical supply for purposes of Section 1115(a)(3) of the Tax Law,
rather than a prosthetic aid or artificial device for purposes of Section 1115(a)(4).
The Appellate Division in Dental Society of the State of New York v. New York State Tax
Commission, 110 A.D.2d 988 (1985) held that cavity filling materials, although implanted in patients'
teeth, were not prosthetic aids exempt from sales tax under Section 1115(a)(4) of the Tax Law. In
Orthovita, Inc. Adv Op Comm Tx & Fin, June 25, 2002 TSB-A-02(14)S, a surgically implanted
injectable bone filler, regulated as a “device,” used in the repair of the porous inner core of bone, which
served as a template to guide bone regeneration, was determined to be a surgical supply subject to tax
when purchased for use in the provision of medical services for compensation. Sutures, non-cross linked
collagen opthalmic shields, and absorbable tissue regeneration devices have likewise been determined to
be medical supply items used and consumed by the medical practitioner in performing medical
procedures. The Collagen Implant in the present case is similar to these medical supply items. See Alcon
Laboratories, Inc., Adv Op Comm Tx & Fin, August 2,1991, TSB-A-91(54)S; Alcon Surgical Inc., Adv
Op Comm Tx & Fin, May 27,1992, TSB-A-92(43)S); and John O. Butler Company, Adv Op Comm Tx
& Fin, November 4,1992, TSB-A-92(77)S).
Petitioner’s implant injections need to be repeated and the treatment is neither one-time nor
permanent. This implies that the product is absorbed by the body rather than becoming a replacement for
a permanently malfunctioning body part. Accordingly, the Collagen Implant is a medical supply for
purposes of Section 1115(a)(3) of the Tax Law, rather than a prosthetic aid or artificial device exempt
from tax under Section 1115(a)(4) of the Tax Law.
Even presuming that the medical practitioners will use the Collagen Implant in the treatment,
cure, prevention, etc. of illness and disease and the alleviation of physical incapacity, the exemption under
Section 1115(a)(3) of the Tax Law is nonetheless inapplicable to purchases of the implant by the medical
practitioners for their use in their performance of medical services for compensation. Because
Petitioner’s Collagen Implant is a medical supply item, purchases of the implant by medical practitioners
are subject to sales tax under section 1105(a) of the Tax Law.

DATED: October 14, 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.