Are wheelchair wheel covers exempt as medical equipment, and are the maker's production and subcontracting costs also exempt?

Plain-English summary

New Directions International Inc. manufactures plastic wheelchair wheel covers that clip over the entire spoke area of a wheelchair wheel. Their main purpose is to keep the occupant's fingers from getting caught in the spokes and to keep foreign objects out of the wheels. The company asked whether the covers are exempt as medical equipment, and whether its production costs are exempt too.

The Department held:

• The covers are exempt medical equipment. They are a component part of the wheelchair, so their sale is exempt under Tax Law § 1115(a)(3) — wheelchairs are listed as exempt medical equipment in 20 NYCRR § 528.4(e). It's immaterial whether the covers are sold separately or with the wheelchairs.
• One limit: the exemption does not apply to medical equipment and supplies purchased for use in performing medical (or similar) services for compensation.
• Production machinery is exempt. Because the company produces tangible personal property for sale, the machinery and equipment used directly and predominantly to produce the covers qualifies for the production exemption under 20 NYCRR § 528.13(a).
• Subcontracted processing is for resale. The portions of the work the company subcontracts — silk screening and cutting the plastic — may be purchased for resale under 20 NYCRR § 526.6(c), since they become part of the product it sells.

What this means for you

Components of exempt medical equipment share the exemption

An add-on that functions as a component part of exempt medical equipment — here, a wheelchair — is itself exempt under § 1115(a)(3), whether it's sold with the equipment or on its own. The safety function tying the cover to the wheelchair is what put it inside the exemption.

The exemption stops at equipment used to provide paid services

Section 1115(a)(3) doesn't cover medical equipment bought to perform medical services for compensation. A provider buying equipment as a tool of its paid practice is in a different position from a patient or dealer buying the exempt device itself.

Making an exempt product still gets you the production breaks

Manufacturing an exempt product for sale doesn't cost you the usual production benefits: machinery used directly and predominantly in production is exempt (§ 528.13(a)), and work you subcontract into the product can be bought for resale (§ 526.6(c)).

Common questions

Q: We sell the covers by themselves, not with wheelchairs — are they still exempt?
A: Yes. As a component part of exempt medical equipment, they're exempt under § 1115(a)(3) whether sold separately or with the wheelchair.

Q: Is there any situation where they're taxable?
A: The exemption doesn't apply to medical equipment purchased for use in performing medical or similar services for compensation.

Q: Do we owe tax on our production machinery and subcontracted silk-screening?
A: No. Machinery used directly and predominantly in production is exempt (§ 528.13(a)), and subcontracted work that becomes part of the product can be purchased for resale (§ 526.6(c)).

Citations and references

Statutes and regulations:

• Tax Law § 1115(a)(3) — exemption for drugs, medicines, and medical equipment and supplies
• 20 NYCRR § 528.4(e) — definition of medical equipment; wheelchairs listed as exempt
• 20 NYCRR § 526.6(c) — resale exclusion for property/services that become part of the product sold
• 20 NYCRR § 528.13(a) — exemption for machinery/equipment used directly and predominantly in production for sale

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1989.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a89_34s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-89 (34)S
Sales Tax
September 14, 1989

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S890125A

On January 25, 1989 a Petition for Advisory Opinion was received from New Directions
International Inc., 5678 Main Street, Williamsville, New York 14221.
The issue raised is whether the sale of wheelchair wheel covers qualify for exemption from
sales tax as medical equipment and supplies and, if such sales are exempt, are the costs to produce
the wheel covers also exempt from sales tax.
Petitioner manufactures plastic wheelchair wheel covers. The wheelchair cover clips onto
the wheelchair and covers the entire spoke area of the wheel. They are removable and can be
decorated to give them a more attractive appearance. The covers' main purpose is to prevent the
fingers of the individual who is confined to the wheelchair from getting caught in the spokes of the
wheelchair wheels while in motion and causing serious harm to the occupant. They also prevent any
foreign objects from being caught in spokes thus preventing damage to the wheelchair wheels which
could cause the wheelchair to tip over. Since the wheel covers cover the entire wheel area, they
further reduce the need for maintenance by preventing dirt from accumulating on the wheels as
rapidly as on an uncovered wheel.
Petitioner currently sells its products to dealers of medical equipment and supplies who in
turn sell to institutions such as nursing homes, hospitals and medical supply stores. Petitioner
anticipates selling directly to the users in the near further.
Production costs of the wheelchair wheel covers consist of the cost of the plastic used in
manufacturing the cover and the cost of the silk screening and cutting of the plastic to the desired
size and shape. The latter two processes are performed by subcontractors.
Section 1115(a)(3) of the Tax Law exempts from sales tax:
Drugs and medicines intended for use, internally or externally, in the cure, mitigation,
treatment or prevention of illnesses or diseases in human beings, medical equipment
(including component parts thereof) and supplies required for such use or to correct or
alleviate physical incapacity, and products consumed by humans for the preservation of
health....
Section 528.4(e) of the Sales and Use Tax Regulations defines medical equipment as
"...machinery, apparatus and other devices (other than prosthetic aids, hearing aids, eyeglasses and
artificial devices...), which are intended for use in the cure, mitigation, treatment or prevention of
illnesses or diseases or the correction or alleviation of physical incapacity in human beings".

-2­
TSB-A-89 (34)S
Sales Tax
September 14, 1989

(2)
To qualify for exemption, equipment must be primarily and customarily used
for medical purposes and cannot be generally useful in the absence of illness, injury or
physical incapacity.
Example 1:

Items such as hospital beds, wheel chairs, hemodialysis equipment, iron
lungs, respirations, oxygen tents, crutches, back and neck braces, trusses,
tropeze bars, walkers, inhalators, nebulizers and traction equipment are
exempt medical equipment.

Petitioner's wheel chair wheel covers are considered to be a component part of the wheel
chairs and thus their sale qualifies for exemption under section 1115(a)(3) of the Tax Law. (This
exemption does not apply to medical equipment and supplies purchased for use in performing
medical or similar services for compensation. It is immaterial whether the covers are sold separately
or along with the wheel chairs.
Regarding the production of the wheelchair wheel covers, the following provisions of the
sales tax regulations apply:
§526.6(c) Resale exclusion. (1) Where a person, in the course of his business operations,
purchases tangible personal property or services which he intends to sell, either in the form
in which purchased, or as a component part of other property or services, the property or
services which he has purchased will be considered as purchased for resale, and therefore not
subject to tax until he has transferred the property to his customer.
§528.13(a) (1) An exemption is allowed from the tax imposed under section 1105(a) of the
Tax Law, and from the compensating use tax imposed under section 1110 of the Tax Law,
for receipts from sales of:
(i) machinery or equipment used or consumed directly and predominantly in the production
for sale of tangible personal property, gas, electricity, refrigeration or steam, by manufacturing,
processing, generating, assembling, refining, mining or extracting... .
Since Petitioner does produce tangible personal property for sale, machinery and equipment
used directly and predominately to produce such tangible personal property qualifies for exemption.
Also, that portion of the production of the wheelchair wheel covers which Petitioner subcontracts
may be purchased for resale.
DATED: September 14, 1989

s/FRANK J. PUCCIA
Director
Technical Services

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.