Must a manufacturer collect sales tax on orthopedic braces and splints that normally qualify as exempt medical equipment?

Plain-English summary

Orthopedic Technology, Inc. manufactures and sells orthopedic devices -- post-operative rehabilitation braces, knee braces, cervical collars, finger splints, wrist supports, and the like -- at wholesale and to medical practitioners. It asked whether it must collect sales tax on these catalog items.

The Department explained the medical-equipment exemption has a carve-out:

• The products are generally exempt. Tax Law 1115(a)(3) exempts drugs, medicines, and medical equipment (and component parts and supplies) used to cure, treat, or prevent illness, or to correct or alleviate physical incapacity. The petitioner's braces and splints qualify.
• But not when bought "for use in performing medical services for compensation." The same statute says the exemption does not apply to medical equipment (other than drugs and medicines) purchased at retail for use in performing medical and similar services for compensation. So if a buyer purchases the devices at retail to use them in providing medical services for a fee, the sale is taxable and the manufacturer must collect the tax.
• Resale and exempt-organization sales stay tax-free. If the sale is to a wholesaler or other reseller, or to an organization exempt under section 1116(a), no tax is due -- but the manufacturer must obtain the appropriate resale or exemption certificate.

What this means for you

Sellers of medical equipment

Don't assume "medical equipment = always exempt." The section 1115(a)(3) exemption is cut off when the equipment is bought at retail for use in delivering medical services for compensation. Look at how the buyer will use it, not just what the item is.

Practitioners buying devices to use on patients for a fee

If you buy braces or similar equipment at retail to use in your paid practice, expect to pay tax on those purchases -- the exemption doesn't cover equipment used to perform services for compensation.

Get the right certificate

For legitimately tax-free sales (resale, or to a section 1116(a) exempt organization), the seller must collect and keep a resale certificate or exemption certificate to support not charging tax.

Common questions

Q: Aren't braces and splints exempt medical equipment?
A: Yes, as a category under section 1115(a)(3) -- but the exemption is lost when they're purchased at retail for use in performing medical or similar services for compensation.

Q: I sell to a hospital or clinic -- do I charge tax?
A: If the buyer is an organization exempt under section 1116(a), no -- but get an exemption certificate. If it's a for-profit practitioner buying at retail to use in paid services, the sale is taxable.

Q: What about wholesale sales?
A: Sales for resale are tax-free with a resale certificate; the reseller handles tax on any later retail sale.

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

Citations and references

• Tax Law section 1115(a)(3) (exemption for drugs, medicines, and medical equipment; carve-out for equipment used in performing services for compensation)
• Tax Law section 1116(a) (exempt organizations)

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_41s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-93 (41)S
Sales Tax
June 29, 1993

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S930325C

On March 25, 1993 a Petition for Advisory Opinion was received from Orthopedic
Technology, Inc., 1905 N. Mac Arthur Dr., Tracy, CA 95376.
The issue raised by Petitioner, Orthopedic Technology, Inc., is whether it is required to
collect sales tax on certain sales of medical equipment set forth in its catalog of items sold.
Petitioner manufactures and sells orthopedic devices which are sold at wholesale and to
medical practitioners. Petitioner devices include such items as post-operative rehabilitation braces,
knee-braces, cervical collars, finger-splints, and wrist supports as illustrated in its catalog of items
sold.
Section 1115(a)(3) of the Tax Law provides for an exemption from sales tax for:
(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. (Emphasis supplied)
Petitioner's products as set forth in its catalog of items sold are products that qualify for the
exemption contained in Section 1115(a)(3) of the Tax Law.
However the exemption contained in Section 1115(a)(3) of the Tax Law does not apply to
the sale of medical equipment and supplies, other than drugs and medicines, purchased at retail for
use in performing medical and similar services for compensation.
Therefore, when Petitioner sells products which are described in its catalog of items sold to
someone who purchases the products at retail for use in performing medical and similar services for
compensation, Petitioner must collect the sales tax due from the purchaser. However if the sale is

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TSB-A-93 (41)S
Sales Tax
June 29, 1993
to an organization exempt under Section 1116(a) of the Tax Law or to someone who will resell them
such as a wholesaler, then no sales tax will be due. In such a case the Petitioner must obtain the
appropriate exemption certificate from the purchaser.

DATED: June 29, 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.