Is dialysate, the chemical solution used inside an artificial kidney during hemodialysis, an exempt prosthetic aid, or a taxable medical supply?

Plain-English summary

A medical products company asked whether dialysate -- the specially formulated solution used inside an artificial kidney during hemodialysis -- qualifies as an exempt "prosthetic aid" under New York's sales tax law, or is instead a taxable "medical supply." The distinction matters a lot in practice: ordinary medical supplies lose their exemption when purchased by a healthcare provider performing services for compensation (like a dialysis clinic), but true prosthetic aids stay exempt regardless of who buys them or why.

During hemodialysis, a patient's failed or failing kidneys can no longer filter toxins and excess fluid from the blood. An artificial kidney machine takes over that job: blood flows in, and inside the machine a semipermeable membrane separates the blood from the dialysate solution on the other side. Through diffusion and osmosis, waste products and excess fluid move out of the blood and into the dialysate, which is then discarded, while the cleaned blood returns to the patient.

To count as a prosthetic aid under the regulations, an item must completely or partially replace a missing or permanently malfunctioning body part or function, and be used primarily for that purpose rather than being generally useful outside of illness or injury. The Department had already ruled that the dialyzer itself, the dialysis machine, the blood tubing, and the fistula needles used in the same hemodialysis process all satisfy that test, since together they substitute for the kidney's filtration function. This ruling extends that same logic to the dialysate: without the dialysate's specific composition creating the concentration gradient across the membrane, the filtration simply couldn't happen at all -- dialysate is not just packaging or an incidental supply, it's the working medium the artificial kidney needs to do its job. And because dialysate is formulated specifically for, and used exclusively in, hemodialysis, it isn't "generally useful" outside of treating kidney failure. So dialysate qualifies as an exempt prosthetic aid, and stays exempt even when a dialysis clinic buys it to use while performing dialysis services for compensation -- unlike ordinary IV fluids or other general medical solutions, which the Department expressly distinguished as not prosthetic simply because they're used alongside a prosthetic device.

What this means for you

Dialysis clinics, providers, and equipment/supply companies

Dialysate purchases are exempt from New York sales and use tax, joining the dialyzer, dialysis machine, tubing, and fistula needles as components of the hemodialysis regimen that qualify as prosthetic aids -- this exemption holds even though your clinic buys and uses these items while performing dialysis services for compensation, which would otherwise disqualify an ordinary "medical supply."

Medical device and supply manufacturers/distributors

The favorable "extracorporeal" (outside-the-body) prosthetic classification isn't limited to items implanted in or worn on the body -- it extends to a whole system of components (machine, tubing, needles, solution) that collectively substitute for a failed organ's function, as long as each individual component is essential to and used exclusively for that purpose.

Accountants and tax professionals

Watch the sharp line the Department draws at the end of the opinion: general-purpose medical solutions like sterile water or ordinary IV fluids do NOT become prosthetic just because they're used alongside a prosthetic device -- the item itself must be integral to replacing the lost body function, not merely supportive or incidental. Dialysate's specifically-prescribed formulation and role in the diffusion/osmosis process is what tips it into the exempt category, following the same reasoning applied in Comprehensive Dialysis Center, Cobe Laboratories, and Fresenius USA.

Common questions

Q: Is dialysate taxable when sold to a dialysis clinic that charges patients for treatment?
A: No. Because dialysate qualifies as a prosthetic aid rather than an ordinary medical supply, it stays exempt even when purchased by a provider performing medical services for compensation -- a status that would otherwise make an ordinary medical supply taxable.

Q: What other dialysis-related items has the Department treated as exempt prosthetic aids?
A: The dialyzer (artificial kidney), the dialysis machine itself, the tubing/connectors carrying blood to and from the patient, and the fistula needles connecting the tubing to the patient's blood vessels, per the Department's Comprehensive Dialysis Center, Cobe Laboratories, and Fresenius USA opinions.

Q: Are all IV or medical solutions treated as exempt prosthetic aids?
A: No. The Department specifically noted that general medical solutions like sterile water and other intravenous solutions do not qualify, even when used alongside a prosthetic device, because they don't themselves replace a missing body part or function.

Q: Can another dialysis supplier rely on this ruling?
A: No. This advisory opinion binds the Department only for the petitioner on the facts described, though it applies and extends the same prosthetic-aid analysis from several of the Department's own prior published dialysis-related rulings.

Citations and references

Statutes and regulations:

• Tax Law § 1105(a) (tax on retail sales of tangible personal property)
• Tax Law § 1115(a)(3) (drugs, medicines, and medical supplies exemption; retail-for-compensation carve-out)
• Tax Law § 1115(a)(4) (prosthetic aids, hearing aids, eyeglasses, and artificial devices exemption)
• 20 NYCRR § 528.4 (medical equipment and supplies; taxable when used to perform services for compensation)
• 20 NYCRR § 528.5(b)(1) (prosthetic aid qualification standard)
• 20 NYCRR § 528.5(c)(2) (supplies used with prosthetic aids not separately exempt)

Prior rulings referenced:

• Comprehensive Dialysis Center of WNY, Inc., Adv Op Comm T&F, Aug. 4, 1998, TSB-A-98(51)S
• Cobe Laboratories, Inc., Adv Op Comm T&F, Aug. 6, 1998, TSB-A-98(53)S
• Fresenius USA, Inc., Adv Op Comm T&F, Feb. 29, 2000, TSB-A-00(12)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2000.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a00_41s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-00(41)S
Sales Tax
October 12, 2000

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S000628A

On June 28, 2000, the Department of Taxation and Finance received a Petition for Advisory
Opinion from Prime Medical, Inc., c/o Tax Department, 95 Hayden Avenue, Lexington, MA 02420­
9192.
The issue raised by Petitioner, Prime Medical, Inc., is whether the dialysate used in
hemodialysis treatment is a prosthetic aid that is exempt from sales and compensating use tax under
Section 1115(a)(4) of the Tax Law.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
A patient afflicted with kidney failure must undergo hemodialysis treatment, i.e., filtration
of the blood, so that toxins and excess fluids, 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.
During dialysis treatment, an artificial kidney replaces the filtering function of a human
kidney through the use of a semipermeable membrane and a prescribed dialysis solution (dialysate)
specifically formulated for each patient. Blood from the patient flows into the artificial kidney.
Inside the artificial kidney, blood and dialysate are separated by the semipermeable membrane.
Through the processes of diffusion and osmosis, and dependent upon the composition of the
dialysate solution on the side of the membrane opposite the blood, waste products and excess fluids
pass from the blood across the membrane and into the dialysate. The cleansed blood is returned to
the patient, and the waste-containing dialysate solution is discarded.
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 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

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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 . . . 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:
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(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.
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(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.
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(c)(2) Supplies used in conjunction with prosthetic aids, hearing aids,
eyeglasses and artificial devices are not exempt from the tax.
Opinion
Section 1115(a)(4) of the Tax Law exempts from sales and compensating use taxes receipts
from the sales of prosthetic aids (and their component parts) which alleviate physical incapacity in
human beings. To qualify as a prosthetic aid, 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. See Section 528.5(b)(1) of the Sales and Use
Tax Regulations.
In patients with diseased kidneys that are malfunctioning or have totally ceased functioning,
the hemodialysis regimen replaces the function of these failed, vital organs. Utilizing the principles
of diffusion and osmosis, the hemodialysis process removes toxic substances and excess fluids from
the patient’s blood, thereby substituting the life-sustaining filtration function of the human kidney.
Therefore, certain items essential to the dialysis process, despite their extracorporeal nature, fall
within the criteria for prosthetic aids established in Section 528.5(b)(1) of the Sales and Use Tax
Regulations and qualify as such under Section 1115(a)(4) of the Tax Law (see Comprehensive
Dialysis Center of WNY, Inc., Adv Op Comm T&F, August 4, 1998, TSB-A-98(51)S; Cobe
Laboratories, Inc., Adv Op Comm T&F, August 6, 1998, TSB-A-98(53)S). These items include the
dialyzer (artificial kidney), dialysis machine, tubing/connectors (blood lines) which transport the
patient’s blood to and from the body and fistula needles that connect the blood lines to the patient’s
blood vessels (see Fresenius USA, Inc., Adv Op Comm T&F, February 29, 2000, TSB-A-00(12)S;
Cobe Laboratories, Inc., supra).
Similar to the items described above, dialysate replaces a missing body part or function, as
it helps replace the lost filtration function of the kidney as part of the hemodialysis regimen. Inside
the artificial kidney, blood and dialysate are separated by a semipermeable membrane. Due to the
specifically prescribed composition of the dialysate solution that flows on the side of the membrane
opposite the blood, waste products and excess fluids are pulled from the blood through the processes
of diffusion and osmosis, and pass across the semipermeable membrane into the dialysate. The
waste-containing dialysate is then discarded. The filtration function could not be performed without
the dialysate. Moreover, since dialysate is specifically designed for and exclusively used in
hemodialysis treatment, it satisfies the regulatory requirement that it be primarily and customarily
used for medical purposes and is not generally useful in the absence of illness, injury or physical
incapacity. Accordingly, it is the Department’s position that, as presented by Petitioner, the dialysate
solution used in the hemodialysis process qualifies for the sales tax exemption for prosthetic aids
under Section 1115(a)(4) of the Tax Law and is not classified as a medical supply which, under
Section 1115(a)(3) of the Tax Law, is taxable when purchased at retail for use in the performance

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of medical or similar services for compensation (see Comprehensive Dialysis Center of WNY, Inc.,
supra; Fresenius USA, Inc., supra). Therefore, receipts from sales of dialysate used in hemodialysis
are exempt from the imposition of sales and use tax whether or not it is purchased for use in
performing medical or similar services for compensation.
It is noted that medical solutions in general, e.g., sterile water and other intravenous
solutions, do not prosthetically replace missing body parts or functions and do not qualify as
prosthetic aids or devices under Section 1115(a)(4) of the Tax Law, even when used in conjunction
with prosthetic aids. See Section 528.5(c)(2) of the Sales and Use Tax Regulations.

DATED: October 12, 2000

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist III
Technical Services Division

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