If my company sells human- or animal-tissue surgical implant products to hospitals, is that sale exempt from New York sales tax as a prosthetic aid?

Plain-English summary

A company that processes and sells biological soft tissue products — one derived from donated human skin tissue, the other from processed porcine (pig) dermis — asked whether its sales to hospitals and medical service providers are subject to New York sales tax. Both products are implanted during surgery (reconstructive surgery, hernia repair, burn treatment, and similar procedures) to replace missing or damaged soft tissue, and both remain separately identifiable inside the body after implantation rather than being absorbed and replaced by the patient's own tissue.

The Department held both products are exempt from sales and use tax as prosthetic aids under Tax Law §1115(a)(4). That's a meaningfully better outcome than ordinary "medical equipment and supplies," which is exempt under a different provision (§1115(a)(3)) unless it's purchased for use in performing medical services for compensation — in which case it becomes taxable. Prosthetic aids escape that trap entirely: the exemption applies whether or not the item is used in a paid medical procedure.

The key test, from the Department's regulations, is whether the item completely or partially replaces a missing body part or the function of a permanently inoperative or malfunctioning body part, and is primarily and customarily used for that purpose rather than being generally useful outside an illness or injury context. Because these tissue products permanently replace missing or damaged soft tissue (unlike, say, a bone filler that gets absorbed and replaced by the body's own bone, which would NOT qualify) and aren't cosmetic, they satisfy that test.

What this means for you

Medical device and biologic-tissue product companies

If your product is implanted to permanently replace missing, damaged, or non-functioning soft tissue (or another body part) — and stays there, rather than being absorbed and replaced by the body — it likely qualifies as an exempt prosthetic aid regardless of whether the hospital or provider buying it charges the patient for a medical service. That's a real advantage over the "medical equipment and supplies" exemption, which has a carve-out for items used in paid medical services.

Hospitals and medical service providers

When purchasing implant products, ask your supplier whether the item is being sold as a prosthetic aid versus general medical equipment — it affects whether sales tax applies to your purchase, independent of how you bill the patient for the procedure.

Accountants and tax professionals

This opinion applies the two-part regulatory test from 20 NYCRR §528.5(b)(1) (replaces a missing/malfunctioning body part; not generally useful absent illness or injury) and contrasts it with the Department's earlier ruling on synthetic bone filler (Orthovita, Inc., TSB-A-02(14)S), where one bone filler product qualified as a prosthetic aid because it permanently replaced bone structure, but a second bone filler did not, because it was absorbed and replaced by the patient's own bone rather than remaining as a distinct implant. The "does it stay, separately identifiable, as a permanent replacement" distinction is the throughline across both opinions.

Common questions

Q: Isn't all medical equipment sold to hospitals exempt from sales tax anyway?
A: No. The general medical equipment and supplies exemption (Tax Law §1115(a)(3)) has an exception: it doesn't apply when the equipment or supplies are purchased at retail for use in performing medical services for compensation. The prosthetic aid exemption under §1115(a)(4) has no such exception.

Q: What's the difference between a taxable medical device and an exempt prosthetic aid?
A: The prosthetic aid test asks whether the item completely or partially replaces a missing or permanently malfunctioning body part (or its function) and isn't generally useful except because of illness, injury, or physical incapacity. A device that's absorbed by the body and later replaced by the body's own tissue (like one type of bone filler in an earlier ruling) does not qualify; one that stays in place as a permanent, separately identifiable replacement does.

Q: Does this ruling cover cosmetic implants?
A: No — the opinion specifically notes that cosmetic items (the ruling cites decorative dental devices like laminate veneers as an example from a different context) don't qualify as prosthetic aids, since the regulation requires the item not be generally useful in the absence of illness, injury, or physical incapacity.

Q: Can any biologic-tissue company rely on this exact opinion?
A: No. An advisory opinion binds the Department only as to the taxpayer who requested it and only on the facts described (including the specific products' FDA classification and clinical use). A different tissue product would need its own analysis under the same test.

Citations and references

Statutes and regulations:

• Tax Law §1115(a)(3) (medical equipment and supplies exemption, with paid-service carve-out)
• Tax Law §1115(a)(4) (prosthetic aids, hearing aids, eyeglasses, and artificial devices exemption)
• 20 NYCRR §528.5 (prosthetic aid qualifications)

Cited opinions:

• Comprehensive Dialysis Center of WNY, Inc., Adv Op Comm T&F, August 4, 1998
• Orthovita, Inc., TSB-A-02(14)S (synthetic bone filler — one product qualified, a second did not)
• TSB-M-06(5)S (dental restoration devices as prosthetic aids, cosmetic dental devices excluded)
• Publication 822, Taxable Status of Medical Equipment and Supplies, Prosthetic Devices, and Related Items

Source

• Landing page: NY Sales Tax Advisory Opinions, 2009
• Original opinion: TSB-A-09(16)S

Original ruling text

New York State Department of Taxation and Finance

TSB-A-09(16)S
Sales Tax
April 17, 2009

Office of Counsel
Advisory Opinion Unit
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S090223A

On February 23, 2009, the Department of Taxation and Finance received a Petition for Advisory
Opinion from name redacted, address information redacted.
The issue raised by name redacted (“Petitioner”) is whether its sales of biological soft tissue products
described below to hospitals and medical service providers are subject to New York State sales and use taxes.
It is concluded that Petitioner’s products, product name redacted and product name redacted, qualify as
prosthetic aids under Section 1115(a)(4) of the Tax Law and are therefore exempt from New York State sales
and use taxes.
Facts
Petitioner is a processor and marketer of biological soft tissue products made from human and animal
tissues. Petitioner’s products include product name redacted, a human tissue product used in plastic
reconstructive, general surgical, burn and periodontal procedures, and product name redacted, an animal tissue
product used in plastic reconstructive and general surgical procedures.
Product name redacted is derived from donated human skin tissue and has been classified as
banked human tissue by the Food and Drug Administration (FDA). It is predominantly used as a subcutaneous
implant for the replacement of soft tissue in reconstructive surgical procedures in various areas of the body.
Product name redacted is porcine dermis (pig skin) that has been processed to form a tissue matrix. It is
regulated by the FDA as a medical device and is used as a soft tissue patch and for surgical repair of damaged or
ruptured soft tissue membranes.
Petitioner’s products are sold to hospitals and medical service providers and used in procedures such as:
abdominal wall reconstruction, hernia repair, post-mastectomy breast reconstruction, trauma or previous surgery
repair, tumor resection, ENT/head and neck reconstruction, burn graft, wound coverage, mucosal grafts, oral
resurfacing, and rotary cuff tissue repair. Petitioner’s products are incorporated into the patients’ existing soft
tissues, but remain separately identifiable after implantation.
Opinion
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)(3) of the Tax Law exempts from the sales tax imposed by section 1105(a) and from the
compensating use tax imposed under section 1110 medical equipment and supplies required for use in the cure,
mitigation, treatment or prevention of illnesses or diseases in human beings or to correct or alleviate physical
incapacity, unless the medical equipment or supplies are “purchased at retail for use in performing medical and
similar services for compensation.” Section 1115(a)(4) of the Tax Law exempts from tax “[p]rosthetic aids,

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TSB-A-09(16)S
Sales Tax
April 17, 2009

hearing aids, eyeglasses and artificial devices and component parts thereof purchased to correct or alleviate
physical incapacity in human beings.”
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.
The function of the product is key in determining whether it should be classified as medical equipment,
which is taxable when sold for use in performing medical or similar services for compensation, or as a
prosthetic aid, which is exempt from sales tax under section 1115(a)(4) of the Tax Law, whether or not it will be
used in performing medical services for compensation. See Comprehensive Dialysis Center of WNY, Inc., Adv
Op Comm T&F, August 4, 1998. See also Publication 822 (6/01), Taxable Status of Medical Equipment and
Supplies, Prosthetic Devices, and Related Items.
To qualify as a prosthetic aid, the tangible personal 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 Orthovita, Inc., Adv Op Comm T&F, June 25, 2002, TSB-A-02(14)S, it was concluded that a
synthetic bone filler which replaced a patient’s hard outer bone structure satisfied the prosthetic aid
qualifications set forth under Section 528.5 because it either completely or partially replaces a missing body
part (emphasis added). However, a second type of bone filler was found not to qualify as a prosthetic aid. This
bone filler merely repaired the porous inner core of the bone, and after implantation became absorbed by the
body and later replaced by bone. Thus, it did not completely or partially replace a missing body part because it
did not remain in the body.
The function of Petitioner’s product name redacted and product name redacted products is to replace
soft tissues that are missing, permanently inoperative, or permanently malfunctioning. These products either
completely or partially replace the patient’s skin or the function of the skin. As described by Petitioner, these
“products are incorporated into the patients [sic] existing soft tissues, [however,] they remain separately
identifiable after implantation” in the body. Petition at 2.
In Technical Services Bureau Memorandum entitled Sales and Compensating Use Tax Treatment of
Products Used in the Restorations of Teeth, March 20, 2006, TSB-M-06(5)S, dental devices such as implants,
dentures, bridges, full and partial crowns, onlays, and inlays were found to be prosthetic devices exempt from
sales tax because they completely or partially replaced missing teeth or the functions of permanently inoperative
or permanently malfunctioning teeth. However, because of the regulatory requirement that prosthetic aids be
primarily and customarily used for such purposes and not generally useful in the absence of illness, injury, or
physical incapacity, dental devices that are cosmetic in nature, such as laminate veneers, decorative caps, and
specialty or jewelry teeth, were determined not to qualify as exempt prosthetic aids.

TSB-A-09(16)S
Sales Tax
April 17, 2009

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By contrast, the product name redacted and product name redacted products are used to repair defects
resulting from trauma, previous surgery, general failure of tissue, infection, tumor resection, and damaged or
ruptured soft tissue membranes. These products are not cosmetic in nature. Accordingly, they satisfy the
regulatory requirements that they be primarily and customarily used to completely or partially replace a patient’s
skin or the function of the skin and not be generally useful in the absence of illness, injury or physical
incapacity.
Therefore, the product name redacted and product name redacted products qualify as prosthetic aids
under Section 1115(a)(4) of the Tax Law and their sales to purchasers performing medical services for
compensation are exempt.

DATED: April 17, 2009

NOTE:

/S/
Jonathan Pessen
Director of Advisory Opinions
Office of Counsel

An Advisory Opinion is issued at the request of a person or entity. It is limited to the
facts set forth therein and is binding on the Department only with respect to the person
or entity to whom it is issued and only if the person or entity fully and accurately
describes all relevant facts. An Advisory Opinion is based on the law, regulations, and
Department policies in effect as of the date the Opinion is issued or for the specific time
period at issue in the Opinion.