Is propane used to heat a homeowner's pool -- prescribed by her doctor as medically necessary water therapy after knee surgery -- exempt from sales tax as a medical supply, and if not, is there any other exemption available?

Subject

Issue raised by Petitioner, Suburban Propane, is whether the sale of propane used to heat a swimming pool is exempt from sales tax as a medical supply when the heated pool is temporarily being used as part of a physical therapy program following knee surgery.

What this means for you

A patient recovering from knee surgery (cartilage/joint injury requiring arthroscopy and related procedures) was prescribed a daily, temperature-regulated water-therapy program by her treating physician at a Boston sports-medicine clinic. Her propane supplier asked whether the propane used to heat her home pool for this medically necessary therapy could be exempt as a medical supply.

New York's medical-supplies exemption (drugs, medical equipment, and supplies to correct or alleviate physical incapacity) only applies to items taxed under Tax Law § 1105(a) (retail sales of tangible personal property). But propane sold in containers of 100 pounds or more for heating is instead taxed as a gas service under § 1105(b) -- a different section the medical-supplies exemption doesn't reach at all. So no matter how medically necessary the pool heating was, the medical-supplies exemption legally couldn't apply to this propane purchase.

That's not the end of the story, though: New York has separately reduced the state sales tax rate on residential propane (100+ lb. containers) to 0% since October 1, 1980. Following an existing Department policy that treats energy used for an individual homeowner's personal recreational equipment (like a home pool), used non-commercially, as "residential" use, the Department found this propane qualified for the residential 0% rate -- entirely apart from any medical-necessity argument. Because the supplier had been charging the full rate, the homeowner needed to file a residential-use certification (Form TP-385) going forward, and could separately apply for a refund (Form AU-11) of the state tax already erroneously collected, within the 3-year statute of limitations. The opinion also noted the customer's county hadn't adopted a local tax on residential gas/propane, so no local tax applied either.

Q&A

Q: We supply propane for a customer's home pool that's used for prescribed medical therapy -- can we treat it as exempt medical equipment?
A: No -- the medical-supplies exemption only reaches items taxed as retail sales of tangible personal property under § 1105(a), and propane gas service is instead taxed under the separate § 1105(b) gas-service provision, which that exemption doesn't cover.

Q: Is there any other way this propane escapes tax?
A: Yes -- residential propane (100+ lb. containers) already gets a 0% state sales tax rate, and Department policy treats a homeowner's personal, non-commercial recreational equipment (like a pool) as residential use. That 0% rate applies regardless of the medical-therapy angle.

Q: What paperwork does the customer need to get the reduced rate going forward, and to recover past overcollected tax?
A: A properly completed Form TP-385 (Certification of Residential Use of Energy Purchases) to lock in the 0% rate prospectively, and a Form AU-11 (Application for Credit or Refund) to recover any state tax erroneously collected within the preceding three years.

Q: Does a local sales tax ever apply to residential propane?
A: Only if the customer's county/locality has specifically elected to impose one under Tax Law § 1210(a)(3) -- in this case, the customer's county hadn't, so no local tax applied.

Citations

• Tax Law § 1105(a) -- imposes sales tax on retail sales of tangible personal property.
• Tax Law § 1105(b) -- imposes sales tax on gas service, including propane in containers of 100+ pounds.
• Tax Law § 1105-A -- reduces the state sales tax rate on residential propane (100+ lb. containers) to 0% effective October 1, 1980.
• Tax Law § 1115(a)(3) -- exempts drugs, medicines, and medical equipment/supplies purchased to correct or alleviate physical incapacity, applicable only to § 1105(a) sales.
• Tax Law § 1139 -- provides refunds of erroneously collected tax, with a 3-year filing window.
• 20 NYCRR 527.2(b)(1) -- taxes gas service/containers of 100+ lbs. for heating under § 1105(b).
• 20 NYCRR 527.13 -- defines residential/nonresidential energy use, certification procedure (Form TP-385), and vendor collection duties for the reduced rate.
• Gabe Silver, Adv Op Comm T&F, August 8, 1994, TSB-A-94(34)S -- energy for an individual homeowner's personal, non-commercial recreational equipment (like a pool) is residential-purpose use.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1995.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a95_3s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-95 (3)S
Sales Tax
January 19, 1995

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S940825B

On August 25, 1994 a Petition for Advisory Opinion was received from Suburban Propane,
P.O. Box 206, Whippany, New Jersey 07981.
The issue raised by Petitioner, Suburban Propane, is whether the sale of propane used to heat
a swimming pool is exempt from sales tax as a medical supply when the heated pool is temporarily
being used as part of a physical therapy program following knee surgery.
Petitioner's customer, Barbara Kelly, in June 1994 was under the medical supervision of Dr.
Lyle J. Micheli at The Children's Hospital, Boston Massachusetts in the Sports Medicine clinic. She
was being treated for articular cartilage degeneration, medial femoral condyle, and medial tibial
plateau and was in status-post arthroscopy, debridement, and chondroplasty of her knee. Due to this
particular injury and necessity for surgical intervention, performed on February 16, 1994, Dr.
Micheli prescribed an intensive program of water therapy for her. He felt that it was medically
necessary for the temperature of the pool to be regulated in order for her to benefit completely from
this therapy. This water therapy had to be performed on a daily basis as a beneficial and necessary
part of her rehabilitation.
Section 1105(a) of the Tax Law imposes sales tax upon "[T]he receipts from every retail sale
of tangible personal property, except as otherwise provided in this article".
Section 1105(b) of the Tax Law imposes sales tax upon "[T]he receipts from every sale, other
than sales for resale, of gas,...and gas...service of whatever nature...".
Section 1105-A of the Tax Law states, in part:
Notwithstanding any other provisions of this article, but not for the purposes of the
taxes imposed by section eleven hundred seven or eleven hundred eight or authorized
pursuant to the authority of article twenty-nine of this chapter, the taxes imposed by
subdivision (a) or (b) of section eleven hundred five on the ... receipts from every
sale, other than for resale, of propane (except when sold in containers of less than one
hundred pounds),...used for residential purposes shall be paid ...at the rate of zero
percent on and after October first, nineteen hundred eighty....
Section 1115(a)(3) the Tax Law provides an exemption from the sales tax imposed under
Section 1105(a) of the Tax Law for:

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January 19, 1995
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 527.2(b)(1) of the Sales and Use Tax Regulations provides in part that "[A]ll types
of gas service and gas sold...in containers with a capacity of 100 pounds of gas or more, for
heating...purposes by residential...users are subject to the tax imposed under subdivision (b) of
section 1105 of the Tax Law".
Section 527.13 of the New York State Sales and Use Tax Regulations states, in part:
Certain energy sources and services. [Tax Law, 1105-A]
(d) Definitions. (1) The term residential purposes means any use of a structure or
part of a structure as a place of abode, maintained by or for a person, whether or not
owned by such person, on other than a temporary or transient basis with the exclusion
of accommodations subject to tax under subdivision (e) of section 1105 of the Tax
Law.
(2) The term nonresidential purposes means any use other than for residential
purposes, as defined in paragraph (1) of this subdivision, including any use in the
conduct of a trade, business or profession, whether such trade, business or profession
is carried on by the owner of the structure or some other person.
(e) Certification and allocation. (1) Purchases of energy sources used exclusively
for residential purposes shall receive the reduced tax rate without the necessity of
certification.
(f) Customer classification. (1) Vendors of energy sources which are regulated by
the New York State Public Service Commission and which have on file therewith a
tariff or rate schedule which classifies its customer either as residential or
nonresidential, may request from the Department of Taxation and Finance approval
to use such classifications for determining the eligibility of its customer for a reduced
sales tax rate without certification.
(3) Every supplier of energy sources who has received from his customer a
certification claiming eligibility for a reduced sales tax rate shall not be held liable,
except in the case of his fraud, for any misrepresentations made by the customer on
the certification or for any tax not collected by granting the sales tax rate reduction
based on such certification.

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January 19, 1995
(4) Where a customer is eligible for the reduced tax rate, as a residential customer
described in paragraph (1) ... of subdivision (e)[sic] of this section, but the supplier
of energy sources has not classified him as a residential user, the customer should
furnish the supplier with a certification.
(g) Collection of tax. (1) Every vendor, making a sale of energy sources to a
customer who is classified as a residential customer, shall collect the sales tax at the
reduced sales tax rate on such customer's total purchase.
(2) Every supplier of energy sources who has received from his customer a
certification shall collect the sales tax at the reduced rate on the portion of the
purchase shown as being used for residential purposes and shall collect the tax at the
full rate on the remainder which is used for nonresidential purposes.
(3) Every vendor making sales of energy sources which are used for nonresidential
purposes shall collect the sales tax at the full rate.
The propane gas sold by Petitioner to Barbara Kelly is sold to her in containers with a
capacity of 100 pounds of gas or more for residential heating purposes and thus, in accordance with
Section 527.2(b)(1) of the Sales and Use Tax Regulations, is subject to the tax imposed under
Section 1105 (b) of the Tax Law and not the tax imposed under Section 1105(a) of the Tax Law.
Since the exemption for medical supplies provided by Section 1115(a)(3) of the Tax Law only
applies to those things that are taxable under Section 1105(a) of the Tax Law, it cannot be used to
provide an exemption from sales tax of the sale of propane gas as described above which is taxable
under Section 1105(b) of the Tax Law. Therefore, the sales of propane gas by Petitioner to Barbara
Kelly are subject to sales tax unless otherwise exempted from tax as sales of gas for residential
purposes.
However it is Department policy that purchases of electricity and gas for use in the operation
of an individual homeowner's personal residential recreational appurtenances and equipment, in a
non-commercial manner, are considered purchases of gas and electricity for residential purposes.
Gabe Silver, adv op comm T&F, August 8, 1994, TSB-A-94(34)S.
Therefore, in the instant matter, Barbara Kelly's purchases of propane gas for use in the
operation of her pool are considered to be purchases of propane gas for residential purposes and thus
are not subject to State sales tax after October 1, 1980 in accordance with the meaning and intent of
Section 1105-A of the Tax Law since such section reduces the rate to 0% after said date.
However, in accordance with section 527.13(f)(4) of the Regulations, since Petitioner
collected and continues to collect sales tax at the full rate on the receipts from sales of energy for use
in the operation of Barbara Kelly's swimming pool, Barbara Kelly should give Petitioner a properly
completed form TP-385, Certification of Residential Use of Energy Purchases. Under the provisions
of Section 527.13(g)(2) of the Sales and Use Tax Regulations, Petitioner, upon receipt of the
completed form TP-385, should collect the statewide sales tax at the reduced rate of 0% on the
receipts from sales of energy for use in the operation of Barbara Kelly's swimming pool. Under the

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January 19, 1995
provisions of Section 527.13(f)(4) of the Regulations, form TP-385 will also substantiate that
Petitioner is relieved from any liability to collect the statewide sales tax on the receipts from sales
of energy for use in Barbara Kelly's swimming pool.
Additionally, since the State sales tax was collected erroneously from Barbara Kelly, she is
entitled to a refund of such erroneously collected tax. Section 1139 of the Tax Law provides that
"the tax commission shall refund ... any tax ... erroneously ... collected ... if application therefor shall
be filed with the tax commission (i) in the case of tax paid by the applicant to a person required to
collect tax, within three years after the date when the tax was payable by such person to the tax
commission...." Accordingly, Barbara Kelly may apply for a refund of the statewide sales tax which
was erroneously collected during the three year period immediately preceding the filing date of her
claim, by completing a form AU-11, Application for Credit or Refund and mailing such form to State
of New York Department of Taxation and Finance, Office Audit Bureau Sales Tax, W. A. Harriman
Campus, Albany, NY 12227.
It is noted that Section 1210(a)(3) of the Tax Law authorizes localities to impose a tax on
sales of residential gas (including propane in containers of 100 pounds or more) service.
However, in the instant matter, the customer's residence is located within Saratoga County
which has not elected to impose a local tax on residential gas (including propane in containers of 100
pounds or more) service. Accordingly, the customer was not required to pay a local sales tax on
purchases of propane in containers of 100 pounds or more used to heat the pool located at her home.

DATED: January 19, 1995

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

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