Are hemodialysis kidney machines and their single-use disposable supplies exempt from New York sales tax, and as what kind of exempt item?

Plain-English summary

Althin CD Medical, Inc. makes hemodialysis (kidney dialysis) machines out of state and sells them to New York hospitals and clinics. A hemodialysis system pumps a patient's blood through tubing into a filter that removes toxins and returns the cleaned blood to the body; the needles, tubing, and filters are single-use (one patient) to avoid transmitting blood-borne diseases. Althin asked whether the machines and disposable supplies are exempt from sales and use tax as prosthetic aids under Tax Law § 1115(a)(4).

The Department's answer: they're exempt, but as medical equipment under § 1115(a)(3), not as prosthetic aids:

• Medical equipment, not a prosthetic aid. Under regulation § 528.4(e)(1), "medical equipment" means machinery/apparatus/devices (other than the prosthetic aids, hearing aids, eyeglasses, and artificial devices that qualify under § 1115(a)(4)) intended for use in treating illness or correcting physical incapacity. A dialysis machine and its supplies fit that definition.
• Backed by the guidance and legislative history. Publication 822 lists "hemodialysis equipment" as exempt "unless purchased for use in performing medical or similar services for compensation," and the 1976 legislative history expressly names a "dialysis machine" as exempt medical equipment "when purchased for an individual."
• The retail-for-compensation carve-out. Section 1115(a)(3) exempts medical equipment and supplies except those "purchased at retail for use in performing medical and similar services for compensation." So the exemption is aimed at purchases for the individual patient; equipment bought to render paid medical services can remain taxable.
• Exempt-organization sales. Sales of the equipment/supplies to organizations that are exempt under § 1116(a) are also exempt.

What this means for you

"Medical equipment" and "prosthetic aid" are different exemption tracks

New York exempts prosthetic aids and artificial devices under § 1115(a)(4), and medical equipment and supplies under § 1115(a)(3). A dialysis machine is treated as medical equipment, not a prosthetic aid — the categorization matters because the two paragraphs carry different conditions.

The exemption is built for the individual patient

The § 1115(a)(3) exemption comes with a "retail-for-compensation" carve-out: medical equipment and supplies purchased at retail for use in performing medical and similar services for compensation are not covered. This is the same carve-out the Department has applied to other diagnostic and treatment devices (see, e.g., the ultrasound and artificial-kidney opinions of 1992).

Single-use supplies ride with the equipment

The disposable needles, tubing, and filters used with the dialysis machine are treated as exempt supplies for that equipment under the same rule — subject to the same retail-for-compensation limit.

Common questions

Q: Are dialysis machines exempt from New York sales tax?
A: Yes, as medical equipment under § 1115(a)(3) — unless purchased at retail for use in performing medical or similar services for compensation.

Q: Aren't they "prosthetic aids"?
A: No. The Department held a hemodialysis machine is medical equipment (§ 1115(a)(3)), not a prosthetic aid (§ 1115(a)(4)), under regulation § 528.4(e)(1), Publication 822, and the 1976 legislative history.

Q: What is the "retail-for-compensation" carve-out?
A: Medical equipment and supplies bought at retail for use in performing medical or similar services for compensation stay taxable; the exemption is aimed at purchases for the individual.

Q: What about the disposable needles, tubing, and filters?
A: They're exempt supplies used with the exempt equipment, subject to the same carve-out.

Citations and references

Statutes, regulations, and authorities:

• Tax Law § 1115(a)(3) (exemption for drugs, medicines, medical equipment and supplies; except equipment/supplies purchased at retail for use in performing medical or similar services for compensation)
• Tax Law § 1115(a)(4) (exemption for prosthetic aids, hearing aids, eyeglasses, and artificial devices)
• 20 NYCRR § 528.4(e)(1) (defines "medical equipment," excluding items that qualify as prosthetic aids under § 1115(a)(4))
• Publication 822, Taxable Status of Medical Equipment and Supplies, Prosthetic Devices and Related Items (7/87) (hemodialysis equipment exempt unless purchased for use in performing medical/similar services for compensation)
• 1976 Legislative Annual, at 343 (Assembly memorandum listing dialysis machines as exempt medical equipment when purchased for an individual)
• Tax Law § 1116(a) (sales to exempt organizations are exempt)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1991.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a91_72s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-91 (72)S
Sales Tax
November 26, 1991

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK

COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S910827A

On August 27, 1991, a Petition for Advisory Opinion was received from Althin CD Medical,
Inc., 14600 N.W. 60th Avenue, Miami Lakes, FL 33014.
The issue raised by Petitioner, Althin CD Medical, Inc., is whether hemodialysis kidney
machines and the disposable supplies used in conjunction with the machines are exempt from sales
and use taxes as prosthetic aids under Section 1115(a)(4) of the Tax Law.
Petitioner manufacturers dialysis machines out-of-state and sells them to hospitals and clinics
in New York State.
A person afflicted with kidney failure must undergo hemodialysis three times a week or
submit to successful surgery whereby a functioning kidney donated by another human being is
transplanted into his/her body. The alternative is death within two weeks. The hemodialysis system
includes one needle inserted into the patient's bloodstream, usually through an access opening in the
arm. The blood is transported through a plastic tube connected to the needle, into a filter that
removes the toxic impurities. The cleansed blood is returned through a second tube and needle
combination to the patient's body via a second arm opening. A specially designed machine provides
the power to move the blood through the entire process. The needles, tubing, and filters are intended
for single use with only one patient. This prevents inadvertent transmission of blood conducted
diseases like Hepatitis and AIDS. Hemodialysis is usually performed in a hospital or clinic although
a patient trained with a family member can do it at home. Most hemodialysis invoices whether to
individuals or institutions are paid by Medicare and private insurance.
Section 1115(a) of the Tax Law, as amended September 1, 1976, provides as follows:
Sec. 1115. Exemptions from sales and use taxes.--(a) Receipts from the
following shall be exempt from the tax on retail sales imposed under subdivision (a)
of section eleven hundred five and the compensating use tax imposed under section
eleven hundred ten:
*

*

*

(3)
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 but not including cosmetics or toilet articles
notwithstanding the presence of medicinal ingredients therein or medical equipment

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TSB-A-91 (72)S
Sales Tax
November 26, 1991

(including component parts thereof) and supplies, other than such drugs and
medicines, purchased at retail for use in performing medical and similar services for
compensation.
(4)
Prosthetic aids, hearing aids, eyeglasses and artificial devices and
component parts thereof purchased to correct or alleviate physical incapacity in
human beings. (emphasis added)
Section 528.4(e)(1) of the Sales and Use Tax Regulations defines the term "medical
equipment" to mean:
(e)
Medical equipment. (1) Medical equipment means machinery,
apparatus and other devices (other than prosthetic aids, hearing aids, eye glasses and
artificial devices which qualify for exemption under section 1115(a)(4) of the Tax
Law), 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.
Moreover, Taxable Status of Medical Equipment and Supplies, Prosthetic Devices and
Related Items, Publication 822 (7/87) at page 1, provides that "Hemodialysis equipment" shall be
exempt from sales and use tax "unless purchased for use in performing medical or similar services
for compensation."
The legislative history as to what constitutes "medical equipment" (Assembly mem, 1976
Legis Ann, at 343) provides that "[m]edical equipment, including iron lungs, wheelchairs, dialysis
machine, etc. will be exempt from the Sales Tax when purchased for an individual. Services for
exempt medical equipment and devices will also be exempt. The Sales Tax exemption offers relief
only to individuals -purchases for use in the performance of services for compensation will continue
to be taxed." (emphasis added)
A hemodialysis kidney machine and the disposable supplies used in conjunction with the
machine constitute medical equipment rather than a prosthetic aid. This opinion is supported by
Section 528.4(e)(l) of the Sales and Use Tax Regulations, Publication 822 (7/87), supra, and the
legislative history concerning Section 1115(a)(3) of the Tax Law, supra. Accordingly, pursuant to
Section 1115(a)(3) of the Tax Law, the receipts from the sale of hemodialysis kidney machines and
its disposable supplies by Petitioner are exempt from sales and use taxes unless purchased at retail
for use in performing medical and similar services for compensation.

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TSB-A-91 (72)S
Sales Tax
November 26, 1991

It is noted that sales of such equipment and supplies to exempt organizations as defined in
Section 1116(a) of the Tax Law are exempt from the imposition of sales tax.

DATED: November 26, 1991

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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