Does sales tax apply to a mobile-MRI company's tractor-trailers and to its imaging-equipment leases to hospitals?

Plain-English summary

InSight Health Services Corp. runs a "shared" mobile diagnostic-imaging business: it permanently installs MRI equipment on a trailer, tows the trailer with a tractor to hospitals on a regular rotating schedule, and leases the equipment to each hospital for a set period so the hospital can scan its own patients. Some customers also buy a separate service package that adds technical staff to operate the equipment (under the clinical supervision of the hospital's own radiologist). InSight asked the Department two things: whether its purchases of the tractor-trailer combinations are taxable, and whether its purchases or leases of the MRI equipment itself qualify for the resale exclusion.

On the tractor-trailers, the answer was mostly good news. New York exempts tractors, trailers, and semi-trailers -- plus property installed on them "for their equipping" -- from sales and use tax, as long as the combination's gross weight tops 26,000 pounds, which InSight's easily did. But the Department followed its own earlier ruling for this same company's predecessor (Maxum Health Services Corp., TSB-A-93(22)S): the exemption for equipping only covers ordinary add-ons like sleeper units, radios, and wind deflectors, not a permanently mounted MRI scanner. So the bare tractor-trailer purchase or lease is exempt, but the MRI unit riding on it is a separate, non-exempt item.

On the MRI equipment itself, the Department worked through who actually controls it. Under the hospital's Service Agreement, the hospital's own licensed radiologists direct how the equipment is used and supervise the patients' scans -- meaning the hospital, not InSight, controls the equipment's use. That control is what New York's rules call a "transfer of possession," which makes InSight's lease to the hospital a taxable sale. Because InSight is using the equipment solely to make these taxable leases, it can buy or lease the MRI equipment itself tax-free as a purchase for resale -- but it then has to collect sales tax on what it charges hospitals, unless a particular hospital is a tax-exempt organization under § 1116(a).

What this means for you

Mobile-equipment or shared-equipment businesses (imaging, testing, specialized machinery)

The heavy-vehicle exemption for tractors, trailers, and semi-trailers only covers ordinary vehicle add-ons -- it does not extend to specialized equipment permanently mounted on the trailer, no matter how central that equipment is to your business. Budget separately for tax treatment of the vehicle versus the payload.

Equipment lessors whose customers control day-to-day use

If your customer -- not you -- directs how leased equipment is used (here, the hospital's radiologists controlled the scans), that's a taxable "transfer of possession" under 20 NYCRR § 526.7(e). That works in your favor on your own purchases (you can buy tax-free for resale), but it means you must collect tax on your lease receipts unless your customer is itself tax-exempt.

Accountants and tax professionals

This is a clean two-step analysis: first classify the vehicle exemption narrowly (equipping items only, per Maxum Health Services Corp., TSB-A-93(22)S), then apply the possession/control test in 20 NYCRR § 526.7(e)(4) and (6) to determine whether a lease is a taxable "sale" that supports a resale exemption on the lessor's own purchase.

Common questions

Q: Are all tractor-trailer purchases exempt from New York sales tax?
A: Only combinations with a combined gross vehicle weight over 26,000 pounds qualify under Tax Law § 1115(a)(26), and the exemption for "equipping" only covers routine add-ons -- not payload equipment like an MRI unit.

Q: If a lessor keeps title to leased equipment, does that avoid a taxable transfer?
A: No. What matters is who controls the use of the equipment, not who holds title. If the lessee's staff directs how the equipment is used, that's enough for a taxable transfer of possession.

Q: Does this ruling apply to my equipment-leasing business?
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. It shows how the Department reasons, but your facts may differ.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(4)(i)(A) (resale exclusion)
• Tax Law § 1101(b)(5) (definition of "sale, selling or purchase")
• Tax Law § 1115(a)(26) (tractor/trailer/semi-trailer exemption)
• Tax Law § 1115(a)(3) (medical equipment used by a compensated provider)
• Tax Law § 1116(a) (exempt organizations)
• 20 NYCRR § 526.7(e)(4), (6) (transfer of possession)
• 20 NYCRR § 528.26(b)(6), (c)(1) (qualifying vehicle exemption)
• 20 NYCRR § 541.2(p) (rental, lease and license to use)

Prior rulings referenced:

• Maxum Health Services Corp., Adv Op Comm T&F, March 31, 1993, TSB-A-93(22)S

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_41s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-98(41)S
Sales Tax

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S971231G

On December 31, 1997, the Department of Taxation and Finance received a
Petition for Advisory Opinion from InSight Health Services Corp. as successor in
interest to Maxum Health Services Corp., 4400 MacArthur Blvd., Suite 800, Newport
Beach, California 92660.
The issues raised by Petitioner, InSight Health Services Corp., are:
1.

Whether Petitioner’s purchases and leases of tractor-trailer combinations
are subject to State and local sales and use taxes.

2.

Whether Petitioner’s purchases and leases of medical diagnostic imaging
equipment (the “Equipment”) qualify for the resale exclusion under Section
1101(b)(4)(i)(A) of the Tax Law.

Petitioner submits the following facts as the basis for this Advisory
Opinion.
Petitioner makes Equipment available to customers on a “shared” basis in
various states including New York.
In a shared arrangement, Petitioner
transports Equipment to customers in a particular geographic area on a regular
basis (e.g., once a week, twice a month, etc.). Under written “Equipment Lease
Agreements,” the customers lease the Equipment for a scheduled time period (e.g.,
per day or per month) so that they may provide diagnostic imaging services to
their patients.
The Equipment is permanently installed on a trailer which is towed by a
tractor to the customer’s location (the Equipment/trailer combinations are
hereinafter referred to as “mobile units”). Petitioner’s trailers are vehicles,
not propelled by their own power.
Petitioner’s tractors are motor vehicles
designed and used as the power unit in combination with trailers. Petitioner’s
tractor-trailer combinations without the Equipment installed weigh in excess of
26,000 pounds.
Petitioner’s tractor/mobile unit combinations weigh in excess
of 75,000 pounds.
Petitioner’s tractors and mobile units are appropriately
registered under the motor vehicle laws of New York and the other states in which
they operate.
Petitioner acquires, either by purchasing or leasing, Equipment along with
trailers and tractors from unrelated manufacturers or from affiliated
corporations who, in turn, purchase or lease the property from manufacturers.
Petitioner acquires each mobile unit with the intention that it will be used
exclusively in connection with specific customers in New York State and other
states.

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In addition to leasing Equipment, Petitioner may also provide upon a
customer’s request, under a separate Services Agreement, a technical staff to
operate the Equipment under the supervision of a licensed radiologist provided
by Petitioner’s customers. Petitioner also keeps a daily record of all patients
receiving imaging services, provides marketing services and develops quality
control programs under its Services Agreement. The fees paid under the Services
Agreement are charged on either a per scan (i.e., patient scan), per day or per
month basis. Petitioner does not provide to every customer technical staff or
other incidental services, and customers are free to sign only the Equipment
Lease Agreement without agreeing to the Services Agreement.
As part of its Petition for Advisory Opinion, Petitioner furnished copies
of an Equipment Lease Agreement and a Service Agreement.
Pursuant to the Equipment Lease Agreement, Petitioner shall be responsible
for transporting the Equipment to and from the hospitals.
In addition,
Petitioner, at its expense, shall arrange for maintenance and repair of the
Equipment as may be necessary to keep the Equipment in good working order during
the Initial Term and any Extended Terms. Moreover, the hospital acknowledges
that title to the Equipment shall at all times be vested in Petitioner, and no
right, title or interest in the Equipment shall pass to the hospital and the
Equipment shall at all times be and remain personal property.
The Service Agreement provides that the hospital shall maintain on its
staff at all times that imaging services are scheduled, one or more board­
certified radiologists licensed in the State of New York, with training and
experience in diagnostic imaging services to supervise the performance of the
imaging services and the operation of the Equipment. Such licensed radiologists
shall be solely responsible for the determination of the services to be provided
to each patient and the clinical supervision of the technical staff, including,
without limitation, interpretation of the test results.
Applicable Law and Regulations
Section 1105(a) of the Tax Law imposes sales tax on the receipts from
retail sales (including rentals) 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.

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Sales Tax

Section 1101(b)(5) of the Tax Law defines the terms “sale, selling or
purchase,” in part, to mean:
Any transfer of title or possession or both, exchange or
barter, rental, lease or license to use or consume, . . . for a
consideration, or any agreement therefore, including the rendering
of any service, taxable under this article, for a consideration or
any agreement therefor.
Section 1115 of the Tax Law provides, in part:
(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:
*

*

*

(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 526.7(e)(4) and (6) of the Sales and Use Tax Regulations provides,
in part:
(4) “Transfer of possession” with respect to a rental, lease
or license to use, means that one of the following attributes of
property ownership has been transferred:
(i)

custody or possession of the tangible
personal property, actual or constructive;

(ii)

the right to custody or possession of the
tangible personal property;

(iii)

the right to use, or control or direct the
use of, tangible personal property.
*

*

*

(6) When a lease of equipment includes the services of an
operator, possession is deemed to be transferred where the lessee
has the right to direct and control the use of the equipment. The
operator’s wages, when separately stated, are excludible from the
receipt of the lease, provided they reflect prevailing wage rates.
Example 15: A company enters into an agreement to lease a
crane, together with the services of the operator of the crane. The
operator will take instructions from the company’s foreman, and the

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Sales Tax

company determines the working hours and locations. The operator’s
wages are separately stated. This transaction is within the
definition of sale, and the transfer of possession has occurred by
reason of the company’s right to direct and control the use of the
equipment by the operator.
The taxable receipt excludes the
operator’s wages.
Section 528.26 of the Sales and Use Tax Regulations states, in part:
(b) Definitions.
this section.

The following terms shall apply for purposes of

*
*
*
(6) Qualifying vehicle is a tractor, trailer or semitrailer,
provided such qualifying vehicle is used in combination with any
vehicles where the gross vehicle weight of such combination exceeds
26,000 pounds. Trailers and semitrailers which otherwise meet the
requirement for exemption when combined with a tractor are
considered a qualifying vehicle though combined with a truck.
(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.
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 Semi-Trailers, within 90 days
of the delivery of the property.
Section 541.2(p) of the Sales and Use Tax Regulations provides, in
(1) The terms “rental, lease and license to use” refer to all
transactions in which there is a transfer of possession of tangible
personal property without a transfer of title to the property.

part:

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(2) For the purposes of this Part, when a rental, lease or
license to use a vehicle or equipment includes the services of a
driver or operator, such transaction is presumptively the sale of a
service, rather than the rental of tangible personal property, where
dominion and control over the vehicle or equipment remain with the
owner or lessor of the vehicle or equipment. Dominion and control
remain with the owner or lessor of the vehicle or equipment when
pursuant to an agreement or contract the lessor:
(i) does not transfer possession, control and/or use of the
equipment or vehicle to the lessee during the term of the agreement
or contract;
(ii) maintains the right to hire and fire the drivers and
operators;
(iii) uses his own discretion in performing the work (even
though the lessee may designate the area where material is to be
picked up and delivered) and generally selects his own routes;
(iv) retains responsibility for the operation of the equipment
or vehicle; and
(v) directs the work, pays all operating expenses, including
drivers’ and/or operators’ wages, insurance, tolls and fuels.
Opinion
In Maxum Health Services Corp., Adv Op Comm T&F, March 31, 1993,
TSB-A-93(22)S, it was concluded that pursuant to Section 1115(a)(26) of the Tax
Law and Section 528.26(c)(1) of the Sales and Use Tax Regulations, the tractor
and trailer leased by the petitioner, excluding the MRI Units, were exempt from
sales and use taxes, but the MRI Unit did not fall within the purview of
equipment installed on such vehicle, and was not covered by such exemption. The
phrase "property installed on such vehicle for its equipping" as set forth in
Section 528.26(c)(1) of the Sales and Use Tax Regulations was held to refer to
"optional equipment" commonly added to vehicles such as sleeper units, radios,
splash guards, wind deflectors, etc.
In this case, Petitioner acquires, either by purchasing or leasing,
tractor-trailer combinations weighing in excess of 26,000 pounds for use in
transporting its Equipment which is permanently installed on the trailer to
customers in a particular geographic area on a regular basis. Petitioner leases
the Equipment to its customers for a scheduled period of time so that they may
provide diagnostic imaging services to their patients. In addition to leasing
the Equipment, Petitioner may also provide, upon a customer’s request and under
a separate Services Agreement, a technical staff to operate the Equipment under
the clinical supervision of a licensed radiologist provided by Petitioner’s
customers.

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Sales Tax

With respect to issue “1”, under Section 1115(a)(26) of the Tax Law, the
purchase of tractors, trailers, or semi-trailers and any property installed on
such vehicles for their equipping, maintenance or repair, provided the vehicles
are used in combination and have a gross weight in combination in excess of
26,000 pounds, is exempt from sales and compensating use taxes. In accordance
with Section 528.26(c)(1) of the Sales and Use Tax Regulations and Maxum Health
Services Corp., supra, magnetic resonance imaging systems installed on such
vehicles do not come within the purview of the exemption for property to be used
for “equipping” the vehicles. Therefore, where Petitioner purchases or leases
tractor-trailer combinations which weigh in excess of 26,000 pounds, such
purchases or leases of tractor-trailer combinations, without regard to the
magnetic resonance imaging system installed thereon, are not subject to sales and
compensating use taxes. Petitioner’s purchase or lease of the Equipment would
not, however, be exempt from tax under Section 1115(a)(26) of the Tax Law.
Concerning issue “2”, pursuant to Section 526.7(e)(4) and (6) of the Sales
and Use Tax Regulations, the rental of tangible personal property is deemed to
be a “sale” where a transfer of possession has taken place. This happens when
the right to use, or control or direct the use of the tangible personal property
is granted to the lessee by the lessor. Under Petitioner’s Services Agreements
with its customers, the customers control the use of the Equipment in order to
provide diagnostic imaging services to their patients.
Since Petitioner’s
customers control the use of the Equipment, Petitioner’s rental of the Equipment
to its customers is deemed a sale. Petitioner’s leases of Equipment to its
customers under its Equipment Lease Agreement also qualify as sales. Thus, under
the facts presented, Petitioner uses the Equipment solely to make sales. In
accordance with Section 1101(b)(4)(i)(A) of the Tax Law, tangible personal
property purchased exclusively for resale (or rental) as such is not subject to
sales tax.
Therefore, Petitioner may purchase or lease the Equipment exempt
from tax as a purchase for resale.
Since Petitioner’s customers use the Equipment to provide medical and
similar services for compensation, Petitioner’s sales (leases) to its customers
are not exempt from sales and use taxes under Section 1115(a)(3) of the Tax Law,
and Petitioner should collect tax unless the customer is an exempt organization
described in Section 1116(a) of the Tax Law.

DATED: July 1, 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.