Are a mobile medical company's charges for imaging/treatment equipment it brings to a facility and operates a tax-exempt medical service, or a taxable equipment rental?

Plain-English summary

The petitioner provides mobile medical equipment plus operating staff to health care facilities and doctors under a written "Services Agreement." Its technicians deliver, set up, operate, and remove the equipment (typically imaging such as x-ray or ultrasound, or treatment such as extracorporeal shockwave lithotripsy), and only the petitioner's staff may operate it. The contract says it is a service contract, not a lease. The petitioner asked whether its charges are an exempt medical service.

The Office of Counsel concluded the equipment charges are taxable. A "sale" includes a lease or license to use where possession, but not title, passes to the customer (Tax Law 1101(b)(5), 1105(a)). Possession transfers when the customer gets custody, the right to custody, or the right to use, control, or direct the use of the property (20 NYCRR 526.7(e)(4)). The parties' label ("service, not a lease") does not control over the facts.

The key fact: although the petitioner's technician physically runs the machine, the attending physician -- who is connected to the customer, not the petitioner -- directs the technician on targeting, the strength/timing of the imaging, and (for lithotripsy) the number of shocks, and has the final say. Because the customer (through the attending physician) directs the use of the equipment, possession has passed to the customer. That makes the equipment charge a taxable sale/lease (1105(a)).

Three follow-on points:
- Operator labor: the petitioner's separately stated charges for its employees to operate the equipment are not taxable (operator wages excludible when separately stated; 526.7(e)(5) ex. 15).
- No medical exemption: Tax Law 1115(a)(3) exempts medical equipment, but not when bought at retail for use in performing medical services for compensation. The customer uses the equipment to provide medical services for compensation, so the exemption does not apply.
- Maintenance/repair: the petitioner's payments to its own employees to maintain or repair the equipment are not taxable, but if it pays an outside contractor/subcontractor to do so, that is a taxable repair service (1105(c)(3)).

What this means for you

Mobile medical / equipment-with-operator providers

A "we provide a service, not a lease" label will not control. If your customer (or its physicians/staff) directs how the equipment is used, you have transferred possession and your equipment charge is taxable -- separately state your operator labor so that part stays untaxed.

The medical-equipment exemption has a big limit

Tax Law 1115(a)(3) does not exempt medical equipment bought to perform medical services for compensation. A provider buying or renting diagnostic/treatment equipment to treat paying patients generally cannot claim it.

Common questions

Q: Our contract says it's a service, not a lease -- isn't that enough?
A: No. The Department looks at the facts: if the customer controls or directs the equipment's use, possession passed and the charge is taxable.

Q: Our own technician runs the machine -- how is the customer in control?
A: Because the attending physician (tied to the customer) directs the technician on targeting, strength, and timing and has the final say.

Q: Can we exclude the labor to run the equipment?
A: Yes, if it is separately stated -- those operator charges are not taxable. The equipment charge still is.

Q: Is our maintenance taxable?
A: Your own employees maintaining/repairing the equipment is not taxable; paying an outside contractor to do it is a taxable repair service.

Citations and references

• Tax Law section 1105(a) (sales tax on tangible personal property)
• Tax Law section 1101(b)(5) (definition of sale; lease/license to use)
• Tax Law section 1115(a)(3) (medical equipment exemption; not if used for compensation)
• Tax Law section 1105(c)(3) (taxable repair/maintenance services)
• 20 NYCRR section 526.7(e)(4),(5) (transfer of possession; operator-with-equipment)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2013.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a13_21s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-13(21)S
Sales Tax
July 19, 2013

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

PETITION NO. S101214C

The Department of Taxation and Finance received a Petition for Advisory Opinion from
name and address redacted. Petitioner asks whether its mobile medical services sold to medical
facilities are exempt from New York State and local sales and use taxes.
We conclude that, because attending physicians at Petitioner’s customers’ sites direct
Petitioner’s employees in the use of Petitioner’s equipment, Petitioner has made retails sales of its
equipment to its customers and Petitioner must collect sales tax on the charges for the equipment.
Petitioner’s separately stated charges to its customers for providing employees to operate its
equipment would not be taxable. Petitioner’s charges for the equipment are not exempt under Tax
Law § 1115(a)(3), because Petitioner’s customer uses the equipment to provide medical services for
compensation.
Facts
Petitioner submitted the following facts. Petitioner provides certain medical equipment and
staff to its customers, which are typically health care facilities or doctors. Petitioner enters into a
written “Services Agreement” contract (“Agreement”) with its customer. The Agreement
specifically details the responsibilities of Petitioner and its customer. For consideration, Petitioner
will provide to its customer, on a non-exclusive basis, the services of Petitioner’s staff to operate
Petitioner-owned equipment, at the customer’s facility. (“Non-exclusive basis” means that
Petitioner may provide the same staff and equipment to its other customers in various states, under
separate contracts with similar terms.) Generally, the equipment is used in an out-patient setting
and therefore overnight stays by the customer’s patients are not needed. Petitioner’s equipment
varies based upon the type of patient testing or treatment to be performed at the customer’s facility,
but the testing is generally some type of imaging, such as x-ray or ultrasound, or both. An example
of a treatment procedure is extracorporeal shockwave lithotripsy.
Petitioner’s employees deliver the equipment to the customer’s facility and set it up in an
agreed upon location. Petitioner’s employees also test and quality check the equipment to ensure
that it is functioning properly. At the end of each day of service, Petitioner’s employees remove the
equipment from the customer’s facility and deliver it to the next customer’s location based upon the
employee’s route.
A properly licensed technician operates the equipment while it is at the customer’s facility.
This licensed technician is an employee or subcontractor of Petitioner. Under the Agreement, only
Petitioner’s employees or subcontractors may operate the equipment. The Agreement also requires
Petitioner to ensure that its personnel that operate the equipment are properly trained, qualified, and

-2-

TSB-A-13(21)S
Sales Tax
July 19, 2013

licensed to operate the equipment. Petitioner must also ensure that all services its employees
provide are rendered in a professional manner and in accordance with all applicable facility policies
and procedures, in addition to compliance with 10 NYCRR § 89.2. The only other person involved
with a procedure performed using Petitioner’s equipment is the attending physician, who generally
is not an employee of Petitioner’s customer if the customer is a health care facility but who has
rights to admit patients to the health care facility for medical care. This attending physician is not
an employee or subcontractor of Petitioner and does not operate Petitioner’s equipment.
At the time the test or procedure is to be performed, Petitioner’s technician employee would
ask the attending physician about the “targeting” of the area of interest of the test or procedure and
the strength of the X-ray or other type of imaging tool being used or, for example, the number of
shocks to be applied to a kidney stone in an extracorporeal shockwave lithotripsy procedure. The
attending physician advises the technician about the target location, what strengths should be used,
or, for example, the number of shocks for a kidney stone. The attending physician is in charge as to
the test or procedure and has the final say about these matters. The technician operates under the
supervision of the attending physician and cannot override what the attending physician wants to
do. Thus, the technician will not perform the test or procedure without the approval of the attending
physician, as Petitioner cannot take responsibility for the patient’s care.
Petitioner’s Agreement with its customer also requires Petitioner to maintain the equipment
in good working condition. Therefore Petitioner maintains its own repair and maintenance
department to address any operating problems that may arise as its employees operate the
equipment at the customer’s facility. If Petitioner’s equipment breaks down, Petitioner's service
engineers address and repair the problem. The Agreement specifically provides that only
Petitioner’s employees or subcontractors may operate the equipment. Thus, the equipment is at all
times under the control of the Petitioner for purposes of maintenance, repair, and operation.
Petitioner’s typical Agreement with its customer also provides that it is a contract for
services, not a lease, and no agency, employment, partnership or joint venture is intended to be
created by the Agreement. In addition, Petitioner will not be responsible for failure to provide
services as a result of conditions created by its customer, and the Agreement will be governed by
the laws of the state where the services will be performed.
Analysis
Retail sales of tangible personal property are subject to sales tax, unless specifically
exempted or excluded from tax. Sales, other than for resale, of certain enumerated services are also
subject to sales tax. Likewise, uses of tangible personal property and certain services are subject to
compensating use tax, unless an exemption or exclusion applies. For sales and use tax purposes,
“sale” includes an outright sale where title transfers to the customer; it also includes a lease, rental,
or license to use if possession, but not title, passes to the customer. See Tax Law, §§ 1101(b)(5),
1105(a) and (c), 1110.
In this case, Petitioner charges its customer for providing certain medical equipment and for
the services of its employees to operate the equipment at the customer’s site. The question is

-3-

TSB-A-13(21)S
Sales Tax
July 19, 2013

whether that transaction constitutes a retail sale of tangible personal property and a separate charge
for the service of Petitioner’s employee to operate the equipment. Or, is the transaction for a
medical service only, and, if so whether that is an enumerated taxable service. If it is, the question
becomes whether an exemption or exclusion applies.
Petitioner’s medical equipment is tangible personal property. Petitioner’s employees deliver
and set up the equipment at the customer’s facility. Petitioner’s Agreement provides that only
Petitioner’s employees or subcontractors can operate the equipment. In addition, Petitioner must
repair and maintain the equipment and uses its own employees to do so. The Agreement makes
clear that Petitioner’s customer is not Petitioner’s agent, partner, or joint venturer. Thus, under the
Agreement, the customer does not operate Petitioner’s equipment and the customer has no
relationship to Petitioner other than as purchaser. Whether the subject transaction is a sale of
tangible personal property together with a separate sale of an operating service, or the transaction is
a sale of a medical service, depends on whether custody or control of Petitioner’s equipment has
been transferred to the customer when it is at the customer’s site.
Sales Tax Regulations § 526.7(e)(4), (5), and (6) provide as follows with respect to the
definition of “sale” in the nature of a rental, lease, or license to use. The transfer of possession with
respect to a rental, lease or license to use, means that one of the following attributes of property
ownership has been transferred to the customer: custody or possession of the tangible personal
property, actual or constructive; or the right to custody or possession of the tangible personal
property; or the right to use, or control or direct the use of, the tangible personal property. It is not
essential for a transfer of possession to include the right to move the tangible personal property
which is the subject of a rental, lease, or license to use. See, e. g., 20 NYCRR § 526.7(e)(5),
examples 12, 13, and 14.
When a lease of equipment includes the services of an operator, possession is deemed to be
transferred where the lessee has the right to direct and control the use of the equipment. The
operator's wages, when separately stated, are excludible from the receipt of the lease, provided they
reflect prevailing wage rates. See, e. g., 20 NYCRR § 526.7(e)(5), example 15.
In this case, the parties’ Agreement provides that it is for services and is not a lease.
However, the parties’ written characterization of the transaction as not being a lease does not
control over the facts of the transaction. Petitioner delivers the equipment to its customer’s facility
at an agreed date and time. Thus, whether this delivery constitutes a sale of the equipment turns on
whether the customer obtains either actual or possessive custody or control over the equipment or
the right to use or direct the control or use of the equipment and whether the customer directs
Petitioner’s employees in using the equipment. The contract also provides, and Petitioner’s facts
indicate, that only its employees or subcontractors may or do operate the equipment. In addition,
Petitioner delivers, sets up, and removes the equipment, and Petitioner is solely responsible to
maintain and repair the equipment. The customer cannot and does not do any of those things.
Petitioner’s facts indicate that the only person other than Petitioner’s employees or
subcontractors involved with the testing or treatment procedure is the attending doctor who is
generally not an employee of the health care facility/customer. Petitioner’s facts also indicate that,

-4-

TSB-A-13(21)S
Sales Tax
July 19, 2013

while Petitioner’s employee operates the equipment, it is the attending physician that controls the
targeting and the strength and timing of exposure, or the number of shocks for one or more kidney
stones in the case of an extracorporeal shockwave lithotripsy procedure. Thus, based on these facts,
while Petitioner’s employee directly controls Petitioner’s equipment, the employee does so at the
direction of the attending physician. The attending physician is not related to Petitioner, but is
involved with the procedure because of his or her relationship to Petitioner’s customer and the
customer’s patient. Thus, Petitioner has transferred to its customer possession of the equipment,
because the attending physician directs Petitioner’s employee in the operation and use of the
equipment. Because petitioner has transferred control of the equipment, Petitioner has made a sale
of the equipment to its customer, and sales tax is due on Petitioner’s charges to its customers for the
sale (rental, lease, or license to use) of the equipment under Tax Law § 1105(a) of the Tax Law,
unless an exemption applies. Petitioner’s separately stated charges for its employees to operate the
equipment while it is at the customer’s site would not be taxable.
The only relevant exemption under these facts would be in Tax Law § 1115(a)(3), which
exempts from sales and use taxes the purchase or use of medical equipment, but not if the medical
equipment is purchased at retail for use in performing medical and similar services for
compensation. Here, Petitioner’s customers use the equipment to perform medical or similar
services for compensation. Thus, the § 1105(c)(3) exemption does not apply and Petitioner must
collect tax from its customers for the separately stated charge for the equipment, but not on its
separately stated charges for its employees to operate the equipment.
In addition, because the equipment is taxable medical equipment, Petitioner’s payment of
wages, salary, or other compensation to its own employees to maintain, service, or repair its
equipment would not be taxable, under the last paragraph of § 1105(c). But Petitioner would be
required to pay sales or use tax under § 1105(c)(3) if it pays others (including any contractor or
subcontractor) to maintain, service, or repair its equipment.

DATED: July 19, 2013

NOTE:

/S/
DEBORAH R. LIEBMAN
Deputy 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. The information provided in this document does not
cover every situation and is not intended to replace the law or change its meaning.