Ezel / Tax Rulings / NY
NY TSB-A-20(68)S Sales Tax 2020-11-24

Is a spinal-cord-stimulator pain system exempt as a prosthetic device or medical equipment when sold to physicians, hospitals, and pain clinics?

Short answer: No — those sales are taxable. The implant blocks pain by delivering electrical pulses to the spinal cord; it doesn't replace a missing or permanently inoperative body part, so it isn't an exempt prosthetic aid. It does qualify as medical equipment (it mitigates pain, and the remote and charger are dedicated accessories). But the medical-equipment exemption in Tax Law § 1115(a)(3) doesn't cover equipment bought for use in performing medical services for compensation — and the buyers here are physicians, hospitals, and pain clinics. So the maker must collect tax on sales of the system (including the trial device) to those providers. Sales to a § 1116(a) tax-exempt organization, such as a not-for-profit hospital, are exempt with Form ST-119.1.
Currency note: this ruling is from 2020
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
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 company makes a spinal-cord-stimulator pain-relief system — a surgically implanted device, plus a wireless remote and charger — for people with chronic pain. It also offers a trial stimulator that a doctor uses for a few days to see whether the implant will help. The buyers are physicians, hospitals, and pain clinics. The company asked whether the system and trial device are exempt as a prosthetic device or as medical equipment.

The Office of Counsel concluded the sales are taxable:

  • Not a prosthetic aid. A prosthetic device must replace a missing body part or the function of a permanently inoperative or malfunctioning body part (20 NYCRR 528.5(b)(1)). The implant blocks or controls pain by delivering electrical pulses; it doesn't replace any body part or function — in fact it impedes a normal nervous-system response (pain). So no § 1115(a)(4) prosthetic exemption.
  • It is medical equipment. The implant mitigates and alleviates a physical incapacity (pain), and the remote and charger are dedicated accessories. But the medical-equipment exemption in Tax Law § 1115(a)(3) does not apply to equipment bought "for use in performing medical services for compensation" (20 NYCRR 528.4(a)). Because the buyers — physicians, hospitals, pain clinics — use the system to provide medical services for pay, their purchases aren't exempt. The maker must collect tax, including on the trial device.
  • Exception: sales to a § 1116(a) tax-exempt organization (e.g., a not-for-profit hospital) are exempt, documented with the buyer's Form ST-119.1.

What this means for you

Medical-device manufacturers and distributors

A device that manages or blocks a symptom (like pain) is medical equipment, not a prosthetic aid — the prosthetic exemption is reserved for things that replace a body part or its function. And the medical-equipment exemption has a big carve-out: it doesn't reach equipment bought by providers who bill patients/insurers for services. Sales to ordinary physician and clinic buyers are taxable.

Hospitals, physicians, and pain clinics

Don't expect to buy this kind of equipment tax-free as "medical equipment" — the exemption excludes equipment used to render services for compensation. The exception is being a qualified exempt organization and giving the seller Form ST-119.1.

Accountants

"Medical equipment" status alone doesn't equal exemption. The dispositive question is who buys it and why — provider-for-compensation = taxable; exempt organization = exempt with the certificate.

Common questions

Q: It's clearly a medical device — why is it taxable?
A: Because the medical-equipment exemption doesn't apply when the equipment is purchased for use in performing medical services for compensation, which is what physicians, hospitals, and pain clinics do.

Q: Why isn't it a tax-exempt prosthetic device?
A: A prosthetic aid replaces a missing or permanently inoperative body part or its function. This device blocks pain rather than replacing any function, so it doesn't qualify.

Q: Is the short-term trial device treated differently?
A: No. The opinion treats the trial device the same as the system — taxable when sold to providers billing for services.

Q: When is a sale exempt?
A: When the buyer is a § 1116(a) exempt organization (such as a not-for-profit hospital) that provides the seller a completed Form ST-119.1.

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)
  • Tax Law § 1116(a) (exempt organizations)
  • 20 NYCRR 528.4(a); 20 NYCRR 528.5(b)(1) (medical equipment; prosthetic device definition)
  • TSB-A-01(5)S; TSB-A-09(16)S; TSB-A-17(11)S; TSB-A-17(22)S; Form ST-119.1

Source

Original ruling text

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Sales taxNovember 24, 2020Office of Counsel

The Department of Taxation and Finance received a Petition for Advisory Opinion from Redacted ("Petitioner").  Petitioner asks: (i) whether its Redacted system—comprised of a spinal cord stimulator device, a wireless remote, and charger—is exempt from sales tax as a prosthetic device or medical equipment; and (ii) whether its spinal cord trial stimulator device is exempt from sales tax as a prosthetic device or medical equipment.  We conclude that Petitioner’s products do not qualify as exempt prosthetic aids and, while the products qualify as medical equipment, purchases of the product by medical service providers for compensation are not exempt purchases of medical equipment.

Facts

Petitioner’s Redacted system (“System”) is a type of spinal cord stimulator that is designed to be a long-term solution for persons who have permanent chronic pain due to an injury or other disorder.  The System consists of the Redacted implant (“Implant”), a wireless remote, a charger and charger components.  Petitioner submits that the Implant inhibits pain by emitting a high frequency pulse, thereby allowing the user to move more freely and use affected musculoskeletal areas in a way that is not possible without the System.  The System is indicated as an aid in the management of chronic pain of the trunk and/or limbs, including pain associated with failed back surgery syndrome, intractable low back pain, and leg pain.  It operates to interrupt pain receptors by delivering electrical energy to the spinal cord through a high frequency pulse.

Purchasers of the System include physicians, hospitals, and pain clinics.  The Implant must be surgically installed by a doctor and the System may not be purchased at retail by a patient separate from the surgical procedure.  The Implant is surgically installed in the patient's spinal cord above the injured or affected area.  The patient uses the wireless remote to turn the stimulation on or off and control the stimulation strength.  The Implant runs on battery power and is recharged through the patient’s skin.  To recharge, the patient places the charger in a holster and attaches it to a charger belt.  The patient positions the belt to align the charger with the Implant.  The belt can be placed over a thin layer of clothing.  The charger itself is recharged using a separate power adapter.  The wireless remote and charger are designed solely for use with the Implant and have no other functionality or purpose.

Before receiving the Implant, a doctor may first provide the patient with a trial stimulator device to determine how well the Implant might work for the patient.  Petitioner offers the trial device solely to evaluate whether the Implant is right for a patient and not for long-term use.  The trial device uses the same technology as the Implant, but it is a temporary device that externally adheres to the spine.  A doctor implants thin insulated wires, known as “leads” near the spine and the leads attach to the device.  The patient will use the trial device for a test period of typically 5 to 7 days and then return the device to their doctor.  The trial device is reused and not sold for individual use on each patient.  For purposes of this Advisory Opinion, references to the System does include the trial device.

Analysis

Tax Law § 1105(a) imposes sales tax on the retail sale, except for resale, of tangible personal property.  As relevant here, Tax Law § 1115(a)(4) exempts purchases of prosthetic aids and artificial devices (“prosthetic devices”), as well as their component parts, from the tax imposed by Tax Law § 1105(a).  Tax Law § 1115(a)(3) exempts purchases of medical equipment and their component parts, and supplies, that are required for use in the cure, mitigation, treatment or prevention of illness or disease, or the correction or alleviation of physical incapacity, from the tax imposed by Tax Law § 1105(a).  However, the Tax Law §1115(a)(3) exemption for medical equipment does not include purchases of medical equipment and supplies for use in performing medical services for compensation. See Tax Law § 1115(a)(3); 20 NYCRR 528.4(a); see also, e.g., TSB-A-09(16)S. 

The function of a device is key in determining whether it should be classified as medical equipment or as a prosthetic device. See TSB-A-01(5)S.  To qualify as a prosthetic device, the property must: (i) completely or partially replace a missing body part or the function of a permanently inoperative or permanently malfunctioning body part; (ii) be primarily and customarily used for such purposes; and (iii) not be generally useful in the absence of illness, injury or physical incapacity. See 20 NYCRR 528.5(b)(l). Petitioner’s Implant is installed into a patient’s spinal cord and it functions to inhibit pain through electrical energy or pulses. The Implant does not replace a missing body part or perform the function of a permanently inoperative or permanently malfunctioning body part.  Rather, the System is intended to block or control pain that would otherwise naturally occur in the patient.

The Department has previously ruled that certain products would qualify as prosthetic devices in circumstances where they replace all or part of an inoperative or malfunctioning body part. See, e.g., TSB-A-17(11)S (product implanted permanently into the male urinary tract partially replaces function of the urethra); TSB-A-12(5)S (implantable or paracorporeal cardiac device replaces function of a malfunctioning human heart); TSB-A-09(16)S (skin matrix product replaces function of the skin); and TSB-A-01(5)S (ventilator replaces function of permanently malfunctioning lungs or respiratory system).

Petitioner submits that the System is used to deliver a pain relief treatment through variable frequency emissions within the spine.  The System cannot be said to replace a function of an inoperative or malfunctioning part of the body (e.g., the nervous system).  The product actually operates to block the transmission of pain, a natural response to a bodily injury and thus impedes a normal function of the nervous system.  Thus, the System does not qualify as an exempt prosthetic aid. 

Instead, Petitioner’s System is considered medical equipment because the Implant mitigates and alleviates physical incapacity (pain); and the wireless remote and charger are designed specifically for use with the Implant and have no other functionality or purpose.  Petitioner maintains that purchasers of the System are medical service providers, such as physicians, hospitals, and pain clinics.  Because the exemption for medical equipment does not extend to purchases for use in performing medical services for compensation, such purchases of the System are not exempt purchases of medical equipment. See Tax Law § 1115(a)(3). Petitioner must collect tax on sales of the System to medical service providers for compensation.

We note that sales of the System to a qualified tax-exempt organization under Tax Law § 1116(a) that provides medical services for compensation, such as a not-for-profit hospital, would be exempt from sales tax. See TSB-A-17(22)S.  Petitioner's records for each sale to an exempt organization should include a copy of Petitioner's invoice listing the exempt organization as the purchaser and a copy of Form ST-119.1, Exempt Organization Exempt Purchase Certificate, completed by the organization.

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.