Is a company's lease of mobile MRI tractor-trailer units exempt from New York sales tax under the heavy tractor-trailer exemption, or taxable because of the MRI machine inside?

Plain-English summary

A company operated mobile MRI units — custom tractor-trailers, each weighing about 75,000 pounds, carrying magnetic-resonance-imaging equipment on a route serving hospitals and physician groups that could not justify buying their own MRI. The trailer and the MRI equipment were built together as one inseparable unit; the company leased the whole thing from a financing company and asked whether the lease qualified for New York's heavy tractor-trailer exemption (Tax Law § 1115(a)(26)).

The Department said the exemption does not save the lease. Section 1115(a)(26) exempts tractors, trailers, and "property installed on such vehicles for their equipping, maintenance or repair" when the combination exceeds 26,000 pounds — but the regulation's examples show "equipping" property means optional truck gear like sleeper units, radios, splash guards, and wind deflectors. The MRI machine is not that; it is medical equipment under § 1115(a)(3).

Medical equipment is normally exempt, but not when it is purchased at retail for use in performing medical services for compensation — which is exactly what the company did with the MRI. So the MRI portion is taxable. And under § 1101(b)(3), when the components of a sale cannot be bought separately, the whole sale is treated as one (the Penfold and Crushing Enterprises rule). Because the tractor and trailer here could not be purchased apart from the MRI unit, the entire charge for the tractor/trailer/MRI lease is subject to sales and use tax.

What this means for you

Mobile medical, imaging, and diagnostic operators

Do not assume a heavy custom rig qualifies for the tractor-trailer exemption just because it drives on the highway and exceeds the weight threshold. The exemption covers the truck and ordinary truck-equipping gear, not a medical machine built into it. And the medical-equipment exemption itself flips off when you use the equipment to provide services for compensation — so an imaging provider's own MRI, CT, or ultrasound rig is taxable to it.

Businesses leasing bundled or inseparable equipment

New York's single-sale rule (§ 1101(b)(3)) can make an entire lease taxable when a taxable component cannot be bought separately from an otherwise-exempt one. If you want the exempt piece taxed separately, it generally has to be genuinely available for separate purchase. Bundled-and-inseparable means taxed as one.

Accountants and tax professionals

Two doctrines combine here: the medical-equipment-used-for-compensation carve-out in § 1115(a)(3) (see also the Advanced Technology Laboratories ultrasound opinion) and the single-sale rule of § 1101(b)(3). Even if the truck and the MRI could be separately stated on the invoice, inseparability at purchase pulls the whole charge into tax.

Common questions

Q: Doesn't the heavy tractor-trailer exemption cover this rig?
A: It covers the tractor and trailer and ordinary equipping property (like sleepers and radios), but not the MRI machine. The MRI is medical equipment, not "equipping" property under § 1115(a)(26).

Q: Isn't medical equipment exempt in New York?
A: Generally yes, but § 1115(a)(3) withdraws the exemption when the equipment is purchased at retail for use in performing medical or similar services for compensation. The company used the MRI to provide paid imaging services, so it is taxable.

Q: Why is the whole lease taxable rather than just the MRI?
A: Under § 1101(b)(3), when components of a sale cannot be purchased separately, the combination is treated as a single sale. Because the tractor and trailer could not be bought apart from the MRI unit, the entire charge is taxed.

Q: Could the company have separated the charges?
A: The Department noted that even separately stating components does not help if they cannot be separately purchased. Genuine availability for separate purchase is what matters.

Q: Can another operator rely on this opinion?
A: No. An advisory opinion binds the Department only as to the petitioner and the facts described. It shows the Department's reasoning, but your facts may differ.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(3) (receipts; components that cannot be purchased separately are treated as a single sale)
• Tax Law § 1115(a)(3) (medical equipment exemption; not for equipment purchased to perform medical services for compensation)
• Tax Law § 1115(a)(26) (exemption for tractors, trailers, semi-trailers, and equipping property over 26,000 lbs combined)
• 20 NYCRR § 528.4 (drugs, medicines, medical equipment and supplies)
• 20 NYCRR § 528.26(c)(1) (purchase or lease of qualifying tractor-trailer vehicles; exemption certificate)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1993.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a93_22s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-93 (22)S
Sales Tax
March 31, 1993

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S921207A

On December 7, 1992, a Petition for Advisory Opinion was received from Maxum Health
Services Corp., 14850 Quorum Drive, Suite 400, Dallas, TX 75240.
The issue raised by the Petitioner, Maxum Health Services Corp., is whether Petitioner's
leasing of tractor/trailer/MRI Units is exempt from New York State and local sales and use taxes
pursuant to Section 1115(a)(26) of the Tax Law.
Petitioner operates mobile MRI tractor/trailer units in New York State.
The MRI is a magnetic resonance imaging device, which provides high ..... resolution images
of the soft tissues of the body. The equipment and facilities necessary to provide this service are
capital intensive and require highly trained technologists for its operation. Few hospitals or physician
groups have either sufficient volume or adequate capital resources to justify providing this service
on their own. Petitioner makes this equipment and a variety of client services available to numerous
hospitals in a geographical area (the "route") under contract. Thus, smaller hospitals and physicians
in smaller communities, unable to justify the purchase and operation of this equipment, can make
this service available to their community on a daily, outpatient basis. Some hospitals choose to
contract for this mobile service while their own staff becomes familiar with the technology or while
a patient base is being established or, in some cases, to increase in-house capacity. Petitioner's
mobile units are well suited to make this technologically advanced service available in these
circumstances. They can travel on routes whereby the services are shared among a number of
different hospitals or physician groups in different locations on specified days.
When Petitioner takes possession of and places the mobile unit in service, the trailer and
equipment (hereinafter the "MRI Device") are inseparable. The custom built trailer is worthless to
Petitioner without the specially designed mobile equipment installed. The eight week construction
process of the trailer/MRI Unit cannot begin until the equipment is received nor, upon completion,
can the equipment be removed without dismantling the trailer. The equipment is specially designed
as mobile equipment and its use, once installed, in an other than a mobile environment would be cost
prohibitive.
Petitioner would never purchase this equipment apart from the trailer nor could it, in its
business, make any other use of this custom trailer without the equipment. The trailer, however,
could be used to transport property separately from itself. The trailer/MRI Unit is frequently drawn
between locations on the route by the tractor.
Petitioner must negotiate with the manufacturers separately and make arrangements to ship
the equipment to the trailer manufacturer for installation since MRI trailer units are not a stock item.
Petitioner then takes possession of the unit under a lease arrangement with the financing company,

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Highline Financial Services in this instance. Petitioner never takes possession of the separate
components, but rather accepts and places in service the trailer/MRI as a unit.
Petitioner has never dismantled a MRI/trailer unit and sold the components separately.
The tractor/trailer/MRI unit in combination weighs 75,000 pounds and is regularly operated
on public highways and is appropriately registered.
Section 1101(b)(3) of the Tax Law defines receipts as "[T]he amount of the sales price of any
property and the charge for any service taxable...without any deduction for expense..."
Section 1115 of the Tax Law provides, in pertinent part, 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:
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(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
(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.
*

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(26) Tractors, trailers or semi-trailers, as such terms are defined in article one
of the vehicle and traffic law, and property installed on such vehicles for their
equipping, maintenance or repair, provided such vehicle is used in combination
where the gross vehicle weight of such combination exceeds twenty-six thousand
pounds.
Section 528 of the Sales and Use Tax Regulations provides, in part, as follows:
*

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Reg. Sec. 528.4. Drugs and Medicines, medical equipment and supplies ...
*

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Sales Tax
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(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.
(2) To qualify for such equipment must be primarily and customarily used
for medical purposes and not be generally useful in the absence of illness, injury or
physical capacity.
Example 1: Items such as hospital beds, wheel chairs,
hemodialysis equipment, iron lungs, respirators, oxygen tents,
crutches, back and neck braces, trusses, trapeze bars, walkers,
inhalators, nebulizers and traction equipment are exempt medical
equipment.
Example 2: A medical patient purchases an air conditioner to
he used to lower air temperature to alleviate his illness. Since an air
conditioner is non-medical in nature, it is not exempt from the tax.
Example 3: Orthodontic appliances are medical equipment.
Example 4: The purchase of a birth control device commonly
known as an I. U. D. or intrauterine device is the purchase of medical
equipment.
(3) Replacement parts for medical equipment are exempt from tax provided
such replacement parts are identifiable as medical equipment replacement parts. If
a replacement part is not identifiable as a part for medical equipment, the purchaser
must pay the tax at the time of purchase. The purchaser may then apply directly to
the Sales Tax Bureau for a refund of the tax paid provided he can show that the part
was used to replace a defective part on exempt medical equipment.
(4) Medical equipment is not exempt if purchased by a person performing
medical or similar services for compensation. See subdivision (g) of this section.
*

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(g) Supplies. (1) Supplies used in the cure, mitigation, treatment or
prevention of illnesses or diseases or for the correction and alleviation of physical
incapacity are exempt.
Example 1: Colostomy bags and the necessary accoutrements
required for attachment are medical supplies.

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Sales Tax
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Example 2: Bandages, gauze and dressings are medical
supplies.
Example 3: Disposable hypodermic syringes and litmus paper
used by diabetics are medical supplies.
(2) Medical supplies are not exempt if purchased by a person performing
medical or similar services for compensation. (See subdivision (h) of this section.)
(h) Taxable medical equipment and supplies. (1) Medical equipment and
supplies purchased for use in performing medical or similar services for
compensation are not exempt from tax.
Example 1: Stethoscopes, syringes, wheel chairs, etc.
purchased by physicians are not exempt.
Example 2: Resuscitators, stretchers and other such
equipment purchased by an ambulance service are not exempt.
Example 3: Bandages, gauze, dressings, etc. are not exempt
when purchased by a physician, ambulance service or other person
who will use them in performing a medical service for compensation.
Example 4: Dental supplies such as porcelain, mercalloy,
gold, silver, acrylic denture base, amalgam, composite resin, silicate,
and dental floss are not exempt when purchased by a dentist who will
use them in performing a dental service for compensation.
(2) Medical services for human beings include but are not limited to the
practices of medicine, dentistry, therapy, chiropractic, nursing, podiatry, optometry
and radiology, whether performed by a private practitioner, clinical laboratory,
hospital, nursing home, ambulance service, clinic, or health maintenance facilities.
(3) It is immaterial whether the compensation is paid to the practitioner or
institution by the patient or another source.
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Section 528.26(c)(1) of the Sales and Use Tax Regulations states:
(c) Purchases. (1) Generally, the purchase or lease of a qualifying vehicle
or property installed on such vehicle for its equipping, maintenance or repair may be
made without the payment of sales tax provided the purchaser gives to the vendor a
properly completed Exemption Certificate for Tractors, Trailers and Semi--Trailers
within 90 days of the delivery of the property.

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Example 1: An individual engaged in the transportation of
property purchases a new tractor from a dealer. The purchase
agreement calls for the tractor to be fully equipped for long haul
situations. Such optional equipment includes the addition of a sleeper
unit, an AM-FM stereo radio, splash guards, roof-mounted wind
deflector and a built-in toolbox with hand tools included. The
purchaser intends to use the tractor in combination with a trailer
which when loaded will exceed 26,000 pounds gross vehicle weight.
The purchase of the tractor and all optional equipment is exempt from
sales tax provided the purchaser gives the vendor a properly
completed Exemption Certificate for Tractors, Trailers or SemiTrailers, within 90 days of the delivery of the property. (emphasis
added)
In Advanced Technology Laboratories, Inc., Adv Op Comm T & F, March 6, 1992, TSB-A­
92(19)S the Commissioner opined that diagnostic imaging systems using ultrasound technology
constituted medical equipment pursuant to Section 1115(a)(3) of the Tax Law and Section
528.4(e)(1) of the Sales and Use Tax Regulations and the receipts from the sale such machines
would be exempt from sales and use taxes unless purchased at retail for use in performing medical
and similar services for compensation.
Pursuant to Section 1115(a)(26) of the Tax Law and Section 528.26(c)(1) of the Sales and
Use Tax Regulations while the tractor and trailer leased by Petitioner, excluding the MRI Units,
would be exempt from sales and use taxes, the MRI Unit does not fall within the purview of
equipment installed on such vehicle to extend such exemption to the MRI Unit. The phrase "property
installed on such vehicle for it equipping" as set forth in Section 528.26(c)(1) of the Sales and Use
Tax Regulations, Example 1 refers to "optional equipment" commonly added to vehicles such as
sleeper units, radios, splash guards, wind deflectors, etc.
Moreover, pursuant to Section 1115(a)(3) of the Tax Law, Section 528.4 of the Sales and Use
Tax Regulations, and Advanced Technology Laboratories, Inc., supra, the MRI Unit constitutes
medical equipment. Therefore, the purchase of such equipment by Petitioner would be subject to
sales and use taxes since the MRI Unit is being purchased at retail for use in performing medical and
similar services for compensation.
It is noted that the effect of Section 1101(b)(3) of the Tax Law is to treat as a single sale any
sale in which any of the components cannot be singly purchased. Thus, even though the components
of a particular sale can be separately stated, calculated or estimated, if they cannot be separately
purchased, the combination of the items listed must be considered as one. Penfold v. State Tax
Commission, 114 AD2d 696 (1985); Crushing Enterprises, Inc., Adv Op Comm T & F, October 19,
1990, TSB-A-90(30.1)S.

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Therefore, in the instant case if the tractor and trailer cannot be purchased separately from
the purchase of the MRI Unit, the combination of the items listed must be considered as one, and the
entire charge for the tractor/trailer/MRI Unit would be subject of sales and use taxes.

DATED: March 31, 1993

/s/
PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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