Are single-use osmolarity test cards used to diagnose dry eye disease subject to NY sales tax when sold to eye-care practitioners?

Plain-English summary

The Petitioner sells dry-eye diagnostic equipment and single-use osmolarity test cards to eye-care practitioners. Each card is an individually packaged microchip that collects a tiny tear-fluid sample and lets the practitioner's osmolarity system measure it; the card is used once and discarded. The Petitioner asked whether selling the cards in New York is taxable.

The Office of Counsel concluded the cards are taxable as sold here:

• The cards are medical equipment/supplies. Section 1115(a)(3) exempts medical equipment and supplies required to cure, mitigate, treat, or prevent illness in humans. Cards used to diagnose a medical condition fall within that scope.
• But there's an exception for providers. The exemption does not cover medical equipment and supplies (other than drugs and medicines) purchased for use in performing medical and similar services for compensation.
• Sold to paid providers = taxable. Because the cards are sold to eye-care practitioners who use them to provide medical services for compensation, the sales are subject to sales tax.

What this means for you

Sellers of diagnostic/medical supplies to providers

Don't assume "medical supply" means "exempt." New York's exemption has a built-in exception: items (other than drugs and medicines) bought by a provider to use in delivering paid medical services are taxable. Selling a diagnostic consumable to a doctor or clinic that bills patients generally means collecting tax.

Who the buyer is, and how they use it, controls

The same item can be exempt when bought by a patient/end-user for their own care but taxable when bought by a provider for use in compensated services. Track the buyer and the use.

Drugs and medicines are different

The compensation exception expressly excludes drugs and medicines -- those keep their exemption even in a provider's hands.

Common questions

Q: Aren't medical supplies exempt in New York?
A: Often, but not when a provider buys them to use in performing medical services for compensation -- then they're taxable (except drugs and medicines).

Q: Why are these eye-test cards taxable?
A: They're sold to eye-care practitioners who use them to provide compensated medical services, which falls under the section 1115(a)(3) exception.

Q: Would they ever be exempt?
A: The medical-equipment exemption can apply when the item isn't being purchased for use in providing medical services for compensation -- for example, certain purchases by the patient/end-user.

Citations and references

• Tax Law section 1115(a)(3) (exemption for medical equipment and supplies; exception for use in performing medical services for compensation)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2014.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a14_33s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Counsel
Advisory Opinion Unit

TSB-A-14(33)S
Sales Tax
August 26, 2014

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S140421A

The Department of Taxation and Finance received a Petition for Advisory Opinion
from Redacted Redacted Redacted Redacted Redacted Redacted Redacted Redacted
Redacted Redacted. Petitioner asks whether the sale of test cards used in the diagnosis of
eye disease is subject to sales and use tax when the cards are sold in New York State.
We conclude that the test cards qualify as medical equipment or supplies for
purposes of Tax Law § 1115(a)(3). Therefore, sales of the test cards in New York will be
taxable if sold to persons using the cards to provide medical services for compensation.
Facts
Petitioner sells equipment used to diagnose dry eye disease to eye care
practitioners. It also sells osmolarity test cards, which are used to collect tear fluid from
human eyes. The cards are individually packaged, non-sterile, polycarbonate microchips
containing (a) a microfluidic channel used to collect nanoliters of tear fluid and (b) gold
electrodes embedded in the card that enable measurement of impedance of the tear fluid
sample. Cards work in conjunction with Petitioner’s osmolarity system, which analyzes the
tear samples. The cards are used only once and are discarded after the analysis is
completed.
Analysis
Tax Law § 1115(a)(3) exempts from sales and use tax the retail sale of medical
equipment (including component parts thereof) and supplies required for the cure,
mitigation, treatment or prevention of illnesses or diseases in human beings, but not
including medical equipment and supplies, other than such drugs and medicines, purchased
at retail for use in performing medical and similar services for compensation. While the
test cards are either medical equipment or supplies used to diagnose a medical condition,
and, thus, come within the scope of section 1115(a)(3), they are not exempt from sales and
use tax when sold for use in performing medical and similar services for compensation.

-2-

TSB-A-14(33)S
Sales Tax
August 26, 2014

Accordingly, Petitioner’s sale of the cards to eye care practitioners will be subject to sales
tax if they are used to provide medical services for compensation.

DATED: August 26, 2014

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.