NY TSB-A-17(22)S Sales Tax 2017-09-29

Is a temporary embolic-protection filter used in heart-valve replacement exempt as a prosthetic device, or taxable medical equipment?

Short answer: It's taxable medical equipment, not a prosthetic device. The filter is implanted in a patient's carotid artery at the start of a heart-valve replacement to catch debris and prevent stroke, then removed entirely at the end of the procedure. Because it's temporary, doesn't replace a missing or permanently inoperative body part, and isn't a component of the replacement valve, it isn't a prosthetic aid (which would be exempt even when used for compensation). It does qualify as medical equipment, but the medical-equipment exemption doesn't apply to items bought for use in performing medical services for compensation — so sales to hospitals and physicians are taxable. Sales to a § 1116(a) exempt organization (with a proper certificate within 90 days) are exempt.

Disclaimer: This is an official New York State Department of Taxation and Finance Advisory Opinion (TSB-A), issued by the Office of Counsel at a taxpayer's request. It is limited to the facts set forth in it and binds the Department only with respect to the petitioner to whom it was issued, and only if that petitioner fully and accurately described all relevant facts; another taxpayer cannot rely on it. It reflects the law, regulations, and Department policy in effect when issued and may since have changed. Taxpayer-identifying details are redacted. New York State and local sales taxes are administered centrally by the Department. This summary is informational only and is not legal or tax advice. Consult a licensed New York tax professional about your specific situation.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked at the bottom of this page, or PDF in the sidebar) is the authoritative source for any reliance.

View original ruling (PDF)

Plain-English summary

A manufacturer makes an embolic-protection filter (FDA-cleared) used during heart-valve replacement. The filter is implanted in the patient's carotid artery at the start of the procedure to capture debris (valve tissue, calcification) and keep it from reaching the brain, reducing stroke risk — then it's removed entirely when the procedure ends. It's used with a replacement valve the manufacturer doesn't make, and has no other use. The manufacturer asked whether the filter is a component of a prosthetic device (exempt).

The Office of Counsel said no — it's taxable medical equipment:

Prosthetic devices (and their components) are exempt under Tax Law § 1115(a)(4) even when bought to perform medical services for compensation. To qualify, the item must replace a missing body part or the function of a permanently inoperative/malfunctioning body part, be primarily used for that, and not be generally useful absent illness (20 NYCRR 528.5(b)(1)).
The filter is temporary — it's removed after the procedure — and doesn't replace any body part or function, nor is it a component of the replacement valve. So it's not a prosthetic device or component (cf. TSB-A-02(14)S: synthetic bone filler that doesn't stay in the body isn't a prosthetic aid).
The filter is medical equipment under § 1115(a)(3) — but that exemption doesn't apply to equipment/supplies "purchased at retail for use in performing medical and similar services for compensation," which includes sales to hospitals and physicians (TSB-M-14(8)S). So those sales are taxable.
Exception: sales to a § 1116(a) exempt organization are exempt, even when used for compensated services, if a proper exemption certificate is furnished within 90 days.

What this means for you

Medical-device makers

The key split: prosthetic devices (replace a body part/function, stay in the body) are exempt even when used by paid providers; medical equipment (everything else that treats/mitigates) is taxable when sold to providers billing for services. A temporary, removed device that merely protects during a procedure is medical equipment — taxable to hospitals and physicians.

Hospitals and physicians

You generally can't buy this kind of device tax-free as "medical equipment"; the exemption excludes equipment used to render services for compensation. The path to exemption is being (or selling to) a § 1116(a) exempt organization with a certificate within 90 days.

Accountants

Run the prosthetic vs. medical-equipment test first (does it permanently replace a body part/function?), then apply the for-compensation carve-out to medical equipment.

Common questions

Q: The filter is implanted — why isn't it a prosthetic device?
A: Because it's temporary and removed after the procedure and doesn't replace a missing or permanently malfunctioning body part (or a component of one). Prosthetic status requires replacing a body part or its function.

Q: It's clearly medical — why taxable?
A: As medical equipment, the exemption doesn't apply when it's bought to perform medical services for compensation, which covers sales to hospitals and physicians.

Q: When is a sale exempt?
A: When sold to a § 1116(a) exempt organization that provides a proper exemption certificate within 90 days — then exempt even if used for compensated services.

Q: Can I rely on this opinion?
A: It binds the Department only as to the petitioner. Use it as guidance and confirm your own facts.

Citations and references

Tax Law § 1105(a) (tax on retail sales of tangible personal property)
Tax Law § 1115(a)(3) (exemption for medical equipment; excludes purchases for use in performing medical services for compensation)
Tax Law § 1115(a)(4) (exemption for prosthetic aids and artificial devices, even when used for compensation)
Tax Law § 1116(a) (exempt organizations)
20 NYCRR 528.4(a); 20 NYCRR 528.5(b)(1); TSB-A-02(14)S; TSB-M-14(8)S

Source

Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2017.htm
Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a17_22s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Counsel

TSB-A-17(22)S
Sales Tax
September 29, 2017

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S170612A

The Department of Taxation and Finance received a Petition for an Advisory Opinion from
REDACTED REDACTED REDACTED REDACTED REDACTED REDACTED RE (“Petitioner”).
Petitioner asks whether a device it produces, a filter Redacted redacted redacted redacted redacted redacted
redacted redacted redacte, constitutes a component of a prosthetic device for sales tax purposes. We conclude
that Petitioner’s filter is not a component of a prosthetic device, and that its sale to non-exempt hospitals and
physicians is subject to New York State and local sales tax.
Facts
Petitioner produces a filter that recently received clearance from the United States Food and Drug
Administration to be used in heart valve replacement procedures Redacted redacted redacted redacted
redacted redacted redacted. The purpose of this filter is to stop, capture and remove debris that may enter the
blood stream Redacted redacted redacted, thereby reducing the risk of a stroke. The filter works by being
implanted into a patient’s carotid artery at the beginning of a heart valve replacement procedure, which is
done by inserting a catheter into a patient’s right arm. Once implanted, the filter collects any debris that is
released during the procedure (such as valve tissue, calcification, etc.), and prevents it from traveling to the
patient’s brain. At the completion of the procedure, the filter (and any captured debris) is collected and
recaptured into the catheter, and removed from the patient. Petitioner’s filter can be used with any Redacted
redacted redacted redacted re valve (which petitioner does not produce or sell), and will not have any other
use. Petitioner anticipates selling this filter to hospitals and physicians.
Analysis
Tax Law § 1105(a) imposes sales tax on the retail sale, except for resale, of tangible personal
property. The purchase of medical equipment (including component parts thereof), as well as supplies,
required for use in the cure, mitigation, treatment or prevention of illness or disease, however, are exempt
from this tax unless “purchased at retail for use in performing medical and similar services for compensation.”
Tax Law § 1115(a)(3); 20 NYCRR 528.4(a). See also, e.g., TSB-A-09(16)S. In addition, the purchase of
prosthetic aids and artificial devices (“prosthetic devices”), as well as the component parts thereof, are exempt
from sales and use tax. See Tax Law § 1115(a)(4); TSB-A-09(47)S. Unlike medical equipment, however,
sales of prosthetic devices are exempt from sales and use tax even when purchased for use in performing
medical services for compensation. See Tax Law § 1115(a)(4). See also, TSB-A-09(16)S; TSB-A-98(51)S.
To qualify as a prosthetic device, the tangible personal property at issue must completely or partially replace a
missing body part or the function of a permanently inoperative or permanently malfunctioning body part, be

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TSB-A-17(22)S
Sales Tax
September 29, 2017

primarily and customarily used for such purposes, and not be generally useful in the absence of illness, injury
or physical incapacity. See 20 NYCRR 528.5(b)(1). See also, e.g., TSB-A-09(47)S; TSB-A-09(16)S.
Petitioner’s filter is a device that is temporarily inserted into a patient’s carotid artery Redacted
redacted redacted r. It is delivered via a catheter inserted into patient’s right arm, and its purpose is to prevent
procedure-related debris from entering a patient’s brain. The filter is not a component part of a replacement
valve, nor is it required for the operation of such. In fact, the filter is entirely removed from a patient once the
patient’s heart valve replacement procedure has been completed. The filter, therefore, does not replace a
missing body part or the function of a permanently inoperative or permanently malfunctioning body part, nor
is it a component of anything that does, and its purchase is not exempt from sales and use tax pursuant to Tax
Law § 1115(a)(4). See, e.g., TSB-A-02(14)S (synthetic bone void filler that does not permanently remain in
the body is not a prosthetic aide).
Though Petitioner’s filter is not a prosthetic device or component thereof for sales tax purposes, it
does constitute medical equipment and/or supplies for purposes of Tax Law § 1115(a)(3). As noted above,
medical equipment and supplies “purchased at retail for use in performing medical and similar services for
compensation” are not excluded from sales and use taxes. See Tax Law § 1115(a)(3). This includes sales
made to hospitals and physicians. See Tax Department’s Reclassification of Certain Items and Devices as
Medical Equipment or Prosthetic Aids, TSB-M-14(8)S. See also, e.g., TSB-A-09(47)S (medical supplies
subject to sales tax when purchased for use in the performance of medical and similar services for
compensation).
However, sales of Petitioner’s filter that are made to customers that qualify as exempt
organizations under Tax Law § 1116(a) would be exempt from the imposition of sales tax, even if the filter is
used in providing medical services for compensation, so long as a properly completed exemption certificate is
furnished to Petitioner within ninety days of the date of sale. See TSB-A-02(14)S; TSB-A-00(23)S.

DATED: September 29, 2017

/S/
DEBORAH R. LIEBMAN
Deputy Counsel

NOTE:

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.