Does a nursing home operator owe sales tax on the disposable diapers it buys for use on its resident patients, or does the medical-supplies exemption cover them?

Subject

, is whether Petitioner is required to pay sales tax on his purchases of disposable diapers for use on his nursing home patients.

What this means for you

A skilled nursing facility operator provides both "routine" services (nursing, dietary, housekeeping, laundry/linen -- which by regulation can't be separately charged) and "ancillary" services (physical therapy, occupational therapy, enteral feeding, lab tests -- which can be separately billed) to private-pay and Medicare/Medicaid patients. He supplies disposable diapers to residents who need them at no additional charge to the patient.

New York exempts drugs, medicines, and medical equipment/supplies used to treat illness or alleviate a physical incapacity -- and the Department's own published guidance (Publication 822) already treats incontinent liners, pads, and pants (and, by extension here, adult disposable diapers) as exempt when an individual buys them for personal use. But the exemption statute carves out an exception: medical equipment/supplies "purchased at retail for use in performing medical and similar services for compensation" don't qualify. Because the nursing home operator is performing medical services (nursing care, defined broadly under the regulations to include nursing-home care) for compensation, and buys the diapers at retail specifically to use while delivering that compensated care, his diaper purchases fall into the exception rather than the exemption -- he owes sales tax on them. The opinion separately notes this doesn't create a double tax: the nursing home's charges to its own patients stay untaxed either way, since there's no general sales tax on nursing home services.

Q&A

Q: An individual patient or family member buys the same disposable diapers for personal use at home -- are those taxed?
A: No -- per the Department's Publication 822, incontinent liners/pads/pants (and comparable adult diapers) bought by an individual for personal use qualify for the medical-supplies exemption under Tax Law § 1115(a)(3).

Q: Why does the same item become taxable when a nursing home buys it?
A: Because the exemption statute has a built-in exception for medical equipment/supplies bought at retail specifically for use in performing medical services for compensation -- a healthcare provider buying supplies to use while delivering paid care falls into that exception, unlike an individual buying for their own use.

Q: Does this mean nursing homes pass the sales tax on to their patients as a separate charge?
A: Not per this opinion -- there's no sales tax on nursing home service charges themselves; the tax here applies only to the facility's own retail purchase of the diapers from its supplier, not to what it bills patients.

Citations

• Tax Law § 1115(a)(3) -- exempts drugs, medicines, and medical equipment/supplies used to treat illness/incapacity, but excepts equipment/supplies purchased at retail for use in performing medical or similar services for compensation.
• 20 NYCRR § 528.4(h)(2) -- defines "medical services for human beings," including nursing-home services.
• New York State Department of Taxation and Finance Publication 822 (7/87), Taxable Status of Medical Equipment and Supplies, Prosthetic Supplies and Related Items -- treats incontinent liners/pads/pants as exempt when not purchased for use in performing compensated medical services.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1994.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a94_49s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-94 (49)S
Sales Tax
October 18, 1994

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S940825A

On August 25, 1994 a Petition for Advisory Opinion was received from Paul C. Maggio d/b/a
Patchogue Nursing Ctr., 25 Schoenfeld Blvd., Patchogue, New York 11772.
The issue raised by Petitioner, Paul C. Maggio d/b/a Patchogue Nursing Ctr., is whether
Petitioner is required to pay sales tax on his purchases of disposable diapers for use on his nursing
home patients.
Petitioner is the operator of a skilled nursing facility and as such provides medical and hotel
type services to his residents. He is compensated for these services by private patients who pay
directly for the services and from third parties, either the Medicate or Medicaid programs who pay
for 90% of the patient costs.
The Medicare program divides the services into two categories: routine and ancillary.
Included in the routine services are nursing, dietary, housekeeping, laundry and linen. The ancillary
services include items like physical therapy, occupational therapy, enteral feeding and laboratory
tests. By regulation there can be no additional charge for any item considered routine, but each of
the ancillary services can be charged for. The same rules are applied to private paying patients.
Petitioner supplies disposable diapers to residents of the nursing home who require them
without any additional charge.
Section 1115(a)(3) of the Tax Law provides an exemption from sales tax for:
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.
Section 528.4(h)(2) of the Sales and Use Tax Regulations provides that:

-2­
TSB-A-94 (49)S
Sales Tax
October 18, 1994
Medical services for human beings include but are not limited to the practices of
medicine, dentistry, physical 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.
Taxable Status of Medical Equipment and Supplies, Prosthetic Supplies and Related Items,
New York State Department of Taxation and Finance Publication 822 (7/87), in accordance with
Section 1115(a)(3) of the Tax Law, states that the purchase of incontinent liners, incontinent pads
and incontinent pants are exempt from sales tax unless purchased for use in performing medical or
similar services for compensation. Disposable diapers purchased for use on adults in a nursing home
are similar to the above items and are entitled to the same exemption from sales tax.
However, in the instant case Petitioner's purchases of disposable diapers to be used on
patients who are resident in his nursing home are not exempt from sales tax since he is operating a
nursing home providing medical services for human beings as defined in Section 528.4(h)(2) of the
Sales and Use Tax Regulations and he is purchasing the diapers at retail for performing medical and
similar services for compensation which purchases are an exception to the exemption provided for
in Section 1115(a)(3) of the Tax Law.
It is noted that Petitioner's charges to the patients in the nursing home are not subject to sales
tax, even though Petitioner may as part of his services provide disposable diapers for their use, since
there is no provision in the Sale Tax Law imposing sales tax on nursing home services.

DATED: October 18, 1994

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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