Are dialysis machines, artificial kidneys, and their disposable blood-line tubing exempt from sales tax when a manufacturer sells them to New York hospitals and clinics?

Plain-English summary

Cobe Laboratories manufactures and sells hemodialysis machines, artificial kidneys, and the disposable tubing/connectors ("blood lines") used to connect a patient to the equipment, selling to hospitals and dialysis clinics throughout New York. It asked the Department whether these items qualify as exempt prosthetic devices under Tax Law § 1115(a)(4), rather than taxable medical equipment.

The Department said yes, all three items qualify. Applying the same function-based test used in its dialysis-provider rulings, the Department found that the dialysis machine, artificial kidney, and connecting tubing operate together to replace the filtering function of a person's failed kidneys, pumping blood through the artificial kidney for purification and back into the body. Because the equipment is not used unless someone has diseased or nonfunctioning kidneys, and because it genuinely replaces (rather than merely supports) that vital bodily function, the whole system qualifies as a prosthetic aid. That matters because prosthetic aids are exempt from sales tax under § 1115(a)(4) whether or not the buyer uses them in performing medical services for compensation, unlike ordinary medical equipment, which loses its exemption when purchased by a compensated provider under § 1115(a)(3).

What this means for you

Medical device manufacturers selling dialysis equipment into New York

You can sell dialysis machines, artificial kidneys, and their connected disposable tubing to hospitals and clinics without charging sales tax, since the whole system qualifies as an exempt prosthetic device -- confirm your specific product performs the actual blood-filtration function rather than merely supporting or maintaining that process (see the companion ruling on dialyzer reprocessing systems, which came out the other way).

Hospitals and dialysis clinics purchasing equipment

Ask your equipment vendor whether it's treating dialysis machines, artificial kidneys, and connected tubing as exempt prosthetic devices -- this ruling confirms the exemption applies to compensated healthcare providers too, unlike the ordinary medical-equipment exemption.

Accountants and tax professionals

This ruling essentially mirrors the Department's same-week TSB-A-98(51)S ruling for a dialysis clinic's own equipment purchases, extending the same prosthetic-device analysis upstream to the manufacturer's sales, and adding disposable connecting tubing/blood lines to the exempt category as an integral part of the prosthetic system.

Common questions

Q: Does the prosthetic-aid exemption apply to disposable dialysis tubing, or just the machines?
A: Both. The tubing and connectors that carry blood to and from the body during dialysis are treated as part of the prosthetic system, since the treatment can't function without them.

Q: Does it matter that hospitals and clinics buy this equipment to perform paid medical services?
A: No. Unlike ordinary medical equipment, which is taxable when bought by a compensated provider, prosthetic aids under Section 1115(a)(4) are exempt regardless of whether the buyer uses them in performing medical services for compensation.

Q: Is a dialyzer reprocessing system also exempt?
A: No -- a companion ruling issued the same week found that a dialyzer reprocessing system, which just cleans and readies the artificial kidney for reuse rather than replacing a body function itself, is taxable medical equipment when bought by a compensated provider.

Q: Can another equipment manufacturer rely on this ruling?
A: No. It's an Advisory Opinion binding the Department only as to Cobe Laboratories and the specific equipment it described.

Citations and references

• Tax Law § 1105(a) (tax on retail sales)
• Tax Law § 1115(a)(3) (medical equipment and supplies exemption)
• Tax Law § 1115(a)(4) (prosthetic aids and artificial devices exemption)
• 20 NYCRR § 528.4(g), (h) (medical supplies; taxable medical equipment)
• 20 NYCRR § 528.5(b), (c) (prosthetic aid qualifications; replacement parts)
• Microvasive, Inc., TSB-A-89(9)S (March 28, 1989)

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_53s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-98(53)S
Sales Tax
August 6, 1998

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S971210C

On December 10, 1998, the Department of Taxation and Finance received a
Petition for Advisory Opinion from Cobe Laboratories, Inc., 1185 Oak Street,
Lakewood, CO 80215-4407.
Petitioner, Cobe Laboratories, Inc., provided
additional information pertaining to the petition on May 20, 1998 and July 20,
1998.
The issue raised by Petitioner is whether dialysis machines, artificial
kidneys and component tubing/connectors (blood lines) used in conjunction with
the hemodialysis regimen are prosthetic devices which are exempt from sales and
compensating use tax under Section 1115(a)(4) of the Tax Law.
Petitioner sells hemodialysis machines, artificial kidneys and related
tubing/connectors used in the dialysis process to hospitals and dialysis clinics
located within New York State.
A person afflicted with kidney failure must undergo dialysis treatment
(filtration of his/her blood) every two to three days so that the toxic
substances that accumulate from metabolism, which the kidney normally gets rid
of, are removed from the body.
Dialysis treatment is not used unless an
individual has diseased kidneys which no longer function properly or at all. The
artificial kidney replaces the filtering function of the human kidney during
dialysis treatment by the use of a membrane which allows the waste products to
be pulled out of the blood. The dialysis machine provides the power to pump the
person’s blood through the artificial kidney and, after cleansing, back into the
body. The blood is transported to and from the body through disposable tubing
which comes with a pre-attached connector for connection to the dialysis machine
and is specifically used for hemodialysis. Each artificial kidney is also used
a single time and then disposed of or it can be cleansed and reused on the same
individual (primarily in home care situations).
Applicable Law and Regulations
Section 1105(a) of the Tax Law imposes a tax on “[t]he receipts from every
retail sale of tangible personal property, except as otherwise provided in this
article.”
Section 1115(a) of the Tax Law, as amended September 1, 1976, exempts from
the sales tax imposed by Section 1105(a) of the Tax Law and from the compensating
use tax imposed under Section 1110:
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*

(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

-2­
TSB-A-98(53)S
Sales Tax
August 6, 1998

alleviate physical incapacity, and products consumed by humans for
the preservation of health but not including ... 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.
(4) Prosthetic aids, hearing aids, eyeglasses and artificial
devices and component parts thereof purchased to correct or
alleviate physical incapacity in human beings.
Section 528.4 of the Sales and Use Tax Regulations provides, in part:
*

*

*

(g) Supplies. (1) Supplies used in the cure, mitigation, treatment
or prevention of illnesses or diseases or for the correction and
alleviation of physical incapacity are exempt.
*

*

*

(2) Medical supplies are 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.
Section 528.5 of the Sales and Use Tax Regulations provides, in part:
(a) Exemption.
Prosthetic aids, hearing aids, eyeglasses and
artificial devices and component parts thereof, purchased to correct
or alleviate physical incapacity in human beings are exempt from the
tax.
(b) Qualifications. (1) In order to qualify as a prosthetic aid, a
hearing aid, eyeglasses or an artificial device, the property must
either completely or partially replace a missing body part or the
function of a permanently inoperative or permanently malfunctioning
body part and must be primarily and customarily used for such
purposes and not be generally useful in the absence of illness,
injury or physical incapacity.
*

*

*

(c) Replacement parts. (1) Replacement parts for prosthetic aids,
hearing aids, eyeglasses and artificial devices must be identifiable
as such at the time the retail sale is made. . . .
(2) Supplies used in conjunction with prosthetic aids, hearing aids,
eyeglasses and artificial devices are not exempt from the tax.

-3­
TSB-A-98(53)S
Sales Tax
August 6, 1998

Opinion
Petitioner sells dialysis machines, artificial kidneys and related
disposable tubing/connectors (blood lines) used in conjunction with the
hemodialysis regimen to hospitals and dialysis clinics located within New York
State. It is the function of each item that is key in determining whether they
should be classified as prosthetic devices which are exempt from sales tax
pursuant to Section 1115(a)(4) of the Tax Law, or as medical equipment or
supplies which are taxable when purchased at retail for use in the performance
of medical or similar services for compensation pursuant to Section 1115(a)(3)
of the Tax Law (see Microvasive, Inc., Adv Op Comm T&F, March 28, 1989,
TSB-A-89(9)S).
The function of the dialysis machine is to pump the blood through the
artificial kidney for purification and propel the cleansed blood back to the
patient. The function of the artificial kidney is to replace the life-sustaining
filtration function of the human kidney in the case of injury or physical
illness. The artificial kidney cannot perform its function without the pumping
action of the dialysis machine. The tubing, which comes with a pre-attached
connector for connection to the dialysis machine, transports the blood to and
from the body and is essential to the dialysis process.
This hemodialysis
regimen replaces the function of a failed, vital body part as required by Section
528.5(b)(1) of the Sales and Use Tax Regulations. It is not used unless an
individual has diseased kidneys which no longer function properly or at all.
Accordingly, it is the Department’s position that, as presented by Petitioner,
dialysis machines, artificial kidneys and component tubing/connectors used in the
prosthetic process qualify as prosthetic aids under Section 1115(a)(4) of the Tax
Law.
Therefore, the receipts from Petitioner’s sales of dialysis machines,
artificial kidneys and tubing/connectors used in hemodialysis are exempt from
sales and use taxes pursuant to Section 1115(a)(4) of the Tax Law whether or not
such devices are purchased for use in performing medical or similar services for
compensation.

DATED: August 6, 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.