Is the sale of orthopaedic braces to physicians, hospitals, and clinics subject to New York sales tax?

Plain-English summary

Medical Technology, Inc. manufactures and sells orthopaedic braces to physicians, hospitals, clinics, and other health care providers, who in turn use them for their patients. It asked whether these sales are subject to New York sales and use tax.

New York generally exempts medical equipment -- and Department guidance (Publication 822) specifically lists braces for ankles, arms, elbows, knees, legs, and spines as exempt medical equipment. But that exemption has an important carve-out: medical equipment isn't exempt if the buyer purchases it for use in performing medical or similar services for compensation. Physicians, hospitals, and clinics generally do perform medical services for pay, so under this carve-out, Medical Technology's sales of braces to these buyers are taxable retail sales -- the health care providers are using the braces to render paid medical services to their patients, not simply reselling them or using them personally.

There's still an important exception, though. Sales to entities that qualify as exempt organizations under Tax Law § 1116(a) -- many nonprofit hospitals, clinics, health maintenance organizations, and government entities -- aren't subject to sales tax at all, regardless of the medical-equipment exemption's carve-out, as long as Medical Technology receives a properly completed Exempt Organization Certification (Form ST-119.1) from the buyer, or a government purchase order from a government buyer, within 90 days of delivery.

What this means for you

Manufacturers and sellers of orthopaedic devices, braces, or similar medical equipment

Don't assume every sale of medical equipment is automatically tax-exempt just because it fits the general medical-equipment category. If your buyer performs medical services for compensation (a physician, hospital, or clinic in the ordinary business sense), the sale is taxable unless that buyer is separately recognized as a tax-exempt organization or government entity, backed by the right paperwork.

Physicians, hospitals, and clinics purchasing medical equipment

Expect to pay sales tax on equipment purchases used in your paid medical practice, unless your organization independently qualifies for exempt-organization status and you provide your supplier a completed Exempt Organization Certification (or, for government entities, a purchase order) within the required window.

Accountants and tax professionals

The controlling regulatory language is 20 NYCRR § 528.4(e)(4) and (h): medical equipment is not exempt "if purchased by a person performing medical or similar services for compensation." This overrides the general exemption in Tax Law § 1115(a)(3) whenever the buyer is a paid-service provider, but the separate exempt-organization exemption in § 1116(a) can still apply on top of that, with its own certification requirement under § 1132(c) and Part 529 of the regulations.

Common questions

Q: Are sales of medical braces to doctors and hospitals tax-exempt in New York?
A: Not automatically. They're taxable when the buyer uses the equipment to perform medical services for compensation -- the general case for physicians, hospitals, and clinics -- unless the buyer separately qualifies as a tax-exempt organization or government entity.

Q: What paperwork does a seller need to skip charging tax to an exempt hospital or clinic?
A: A properly completed Exempt Organization Certification (Form ST-119.1) from the buyer, or a government purchase order for a government entity, received within 90 days of delivery.

Q: Does the medical-equipment exemption ever apply to sales to a health care provider?
A: It can, if the provider is not using the item to perform paid medical services -- for example, a purchase by an individual patient or an organization that isn't performing medical services for compensation.

Q: Does this ruling apply to my medical-device sales?
A: Not automatically. An Advisory Opinion binds the Department only for the taxpayer and facts it was issued to, and it can't be relied on by anyone else. Whether a specific buyer qualifies as an exempt organization depends on its own facts.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1998.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a98_24s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-98(24)S
Sales Tax

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S971002A

On October 2, 1997, the Department of Taxation and Finance received a
Petition for Advisory Opinion from Medical Technology, Inc., 2601 Pinewood, Grand
Prairie, TX 75051.
The issue raised by Petitioner, Medical Technology, Inc., is whether the
sale of orthopaedic devices, commonly referred to as braces, to physicians,
hospitals, clinics and other health care providers are subject to New York State
and local sales and use taxes.
Petitioner submits the following facts as the basis for this Advisory
Opinion.
Petitioner is engaged in the business of manufacturing and selling
orthopaedic braces. Petitioner's primary customers are physicians, hospitals,
clinics and other health care providers.
Petitioner manufactures these
orthopaedic braces and sells them to these physicians, medical facilities and
providers for use by their patients.
Applicable Laws and Regulations
Section 1105(a) of the Tax Law imposes a tax on the “receipts from every
retail sale of tangible personal property . . . . ”
Section 1101(b)(4)(i) of the Tax Law defines “retail sale,” in part, as
follows:
A sale of tangible personal property to any person for any
purpose, other than (A) for resale as such or as a physical
component part of tangible personal property, or (B) for use by that
person in performing the services subject to tax under paragraphs
(1), (2), (3), (5), (7) and (8) of subdivision (c) of section eleven
hundred five.
Section 1115(a) of the Tax Law provides, in 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:
*

*

*

(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

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TSB-A-98(24)S
Sales Tax

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 1116 of the Tax Law provides, in part:
Sec. 1116. Exempt organizations. (a) Except as otherwise provided in
this section, any sale or amusement charge by or to any of the
following or any use or occupancy by any of the following shall not
be subject to the sales and compensating use taxes imposed under
this article:
(1) The state of New York, or any of its agencies,
instrumentalities,
public
corporations
(including
a
public
corporation created pursuant to agreement or compact with another
state or Canada) or political subdivisions where it is the
purchaser, user or consumer, or where it is a vendor of services or
property of a kind not ordinarily sold by private persons;
(2) The United States of America, and any of its agencies and
instrumentalities, insofar as it is immune from taxation where it is
the purchaser, user or consumer, or where it sells services or
property of a kind not ordinarily sold by private persons;
*

*

*

(4) Any corporation, association, trust, or community chest,
fund or foundation, organized and operated exclusively for
religious, charitable, scientific, testing for public safety,
literary or educational purposes, or to foster national or
international amateur sports competition (but only if no part of its
activities involve the provision of athletic facilities or
equipment), or for the prevention of cruelty to children or animals,
no part of the net earnings of which inures to the benefit of any
private shareholder or individual, no substantial part of the
activities of which is carrying on propaganda, or otherwise
attempting to influence legislation, (except as otherwise provided
in subsection (h) of section five hundred one of the United States
internal revenue code of nineteen hundred fifty-four, as amended),
and which does not participate in, or intervene in (including the
publishing or distributing of statements), any political campaign on
behalf of any candidate for public office;
*

*

*

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TSB-A-98(24)S
Sales Tax

(7) A not-for-profit corporation operating as a health
maintenance organization subject to the provisions of article forty­
four of the public health law.
Section 528.4 of the Sales and Use Tax Regulations provides, in part:
(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.
*

*

*

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.
*

*

*

(4) Medical equipment is not exempt if purchased by a person
performing medical or similar services for compensation. . . .
*

*

*

(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.
*

*

*

(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.
Opinion
Publication 822, Taxable Status of Medical Equipment and Supplies,
Prosthetic Devices and Related Items, (7/87), provides that braces which are used
for ankles, arms, elbows, knees, ankles, legs and spines are exempt unless
purchased for use in performing medical or similar services for compensation.

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TSB-A-98(24)S
Sales Tax

Bruce Mac Corkindale, CPA, Adv Op Comm T&F, June 21, 1993, TSB-A-93(37)S
held that purchases made by an orthotist of custom made braces and parts used to
manufacture braces were not subject to sales tax since the activities of an
orthotist do not constitute a medical service.
Petitioner is engaged in the business of manufacturing and selling
orthopaedic braces. Petitioner's primary customers are physicians, hospitals,
clinics and other health care providers who buy the product for the use of their
patients.
Publication 822 indicates that the sales of orthopaedic braces are exempt
from sales and use tax unless purchased for use in performing medical or similar
services for compensation. Physicians, hospitals, clinics and other health care
providers generally perform medical or similar services for compensation.
Therefore, pursuant to Section 1115(a)(3) of the Tax Law and Section 528.4 of the
Sales and Use Tax Regulations, Petitioner's sales of orthopaedic braces to
physicians, hospitals, clinics and other health care providers are subject to
sales and use tax since the sales are being made to persons performing medical
and similar services for compensation. Petitioner's sales to health care
providers are retail sales, since the health care providers use the braces to
perform medical or similar services that are not one of the enumerated services
taxable under Section 1105(c) of the Tax Law.
It is noted, however, that purchases made by organizations described in
Section 1116(a) of the Tax Law are not subject to sales and use tax. Therefore,
Petitioner's sales of its braces to hospitals, clinics, health maintenance
organizations and other entities that have been designated as exempt
organizations under Section 1116(a) of the Tax Law, or to New York State or
United States government entities, will not be subject to sales tax provided
Petitioner receives a properly completed Exempt Organization Certification (Form
ST-119.1), or, in the case of government entities, a government purchase order,
from the purchaser within 90 days of the date of delivery. See Section 1132(c)
of the Tax Law and Part 529 of the Sales and Use Tax Regulations.

DATED: April 14, 1998

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau

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