Are dialysis machines and a dialyzer reprocessing system purchased by a dialysis clinic exempt from New York sales tax?

Plain-English summary

Comprehensive Dialysis Center of WNY asked the Department whether the dialysis machines and one dialyzer reprocessing system it purchased were exempt from sales and use tax. Dialysis machines pump a patient's blood through an artificial kidney (dialyzer), treat and deliver the dialysate fluid, remove excess fluid, and continuously monitor the treatment for safety -- together with the dialyzer, they perform the filtering function of a failed human kidney. The separate dialyzer reprocessing system doesn't treat patients at all; it cleans and purifies a used dialyzer so it can be reused.

The Department drew a line based on function. Because the dialysis machine, working together with the dialyzer, actually replaces the function of a failed, vital body part -- filtering the blood the way a healthy kidney would -- it qualifies as a prosthetic aid under Tax Law § 1115(a)(4). Prosthetic aids are exempt from sales tax no matter who buys them or why, even a healthcare provider using them commercially. The dialyzer reprocessing system, though, doesn't replace any body function itself; it just prepares equipment for reuse. That makes it "medical equipment" rather than a prosthetic device, and medical equipment purchased by a provider for use in performing medical services for compensation is taxable under § 1115(a)(3).

What this means for you

Dialysis clinics, hospitals, and healthcare equipment buyers

Not every piece of equipment used in a medical treatment gets the same tax treatment. Ask whether the specific item itself replaces a failed body part or function (exempt prosthetic device, tax-free regardless of commercial use) versus merely supports or maintains that treatment process (taxable medical equipment when bought by a provider for compensated services).

Medical device manufacturers and distributors selling into New York

When advising healthcare customers on the tax treatment of your equipment, look at what the specific device does functionally, not just its role in the broader treatment regimen -- devices that are essential to a treatment can still be taxed differently depending on whether each one replaces a body function or merely supports the process.

Accountants and tax professionals

This ruling applies the same function-based prosthetic-vs-equipment test as the Department's Microvasive precedent, and is a useful companion to any dialysis- or medical-device-related fact pattern in this corpus.

Common questions

Q: Are all dialysis-related purchases exempt from New York sales tax?
A: No. It depends on whether the specific item replaces a body function (exempt prosthetic device) or merely supports or maintains the treatment process (taxable medical equipment when bought by a compensated provider).

Q: Why are dialysis machines exempt even though a for-profit clinic buys them?
A: Because they qualify as prosthetic aids under Section 1115(a)(4), and prosthetic aids are exempt regardless of whether the buyer uses them in performing medical services for compensation, unlike ordinary medical equipment.

Q: Why is the dialyzer reprocessing system taxable?
A: It doesn't itself replace any body part or function -- it just cleans and readies the dialyzer (artificial kidney) for reuse. That makes it medical equipment, which is taxable when purchased by a provider for use in performing medical services for compensation.

Q: Can another dialysis provider rely on this ruling?
A: No. It's an Advisory Opinion binding the Department only as to Comprehensive Dialysis Center of WNY 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(e) (medical equipment definition)
• 20 NYCRR § 528.5(b) (prosthetic aid qualifications)
• 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_51s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-98(51)S
Sales Tax
August 4, 1998

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S971209B

On December 9, 1997, the Department of Taxation and Finance received a
Petition for Advisory Opinion from Comprehensive Dialysis Center of WNY, Inc.,
6010 Main Street, Williamsville, NY 14221.
The issue raised by Petitioner, Comprehensive Dialysis Center of WNY, Inc.,
is whether the dialysis machines and dialyzer reprocessing system it has
purchased are exempt from sales and compensating use tax.
Petitioner submitted the following facts as the basis for this Advisory
Opinion.
The human kidney is one of the most important organs in the human body.
It is a life-sustaining organ whose primary function is to filter blood to remove
toxic substances from it. In patients with failed kidneys, an artificial kidney
(dialyzer) performs the filtering function of the human kidney.
There is an interrelationship between a dialyzer and a dialysis machine.
The dialyzer cannot perform without the aid of a dialysis machine. The dialysis
machine performs various functions. The first is water treatment, where the
machine takes in cold distilled water, heats it to body temperature, and mixes
it with the prescribed amount of pre-mixed chemicals (sodium bicarbonate and
acid). Secondly, the machine controls the temperature of the dialysate fluid,
and delivers it to the dialyzer. The machine pumps the patient’s blood through
this artificial organ and returns it to the patient in a continuous manner,
during the treatment. Another function of the dialysis machine is fluid removal.
Without the use of kidneys, patients are often unable to eliminate fluid. After
the precise amount to be removed is determined, the ultrafiltration gauge is
adjusted. The fluid is then removed out of the blood as it travels through the
dialyzer.
Throughout the process the dialysis machine monitors various aspects of the
treatment to ensure the safety of the patient. Gauges to help monitor the speed
of the blood, the temperature of the water and the blood, and the pressure of the
blood lines are in place, since any variation in these factors can adversely
affect the patient. The machine also monitors the blood lines to ensure that no
air is introduced. Air that reaches the patient can be fatal.
Petitioner has submitted with its petition a list of equipment purchased
which it believes qualifies for exemption from sales and compensating use tax.
Petitioner’s list is comprised of dialysis machines and one dialyzer reprocessing
system. The dialyzer reprocessing system readies the dialyzer for treatment by
cleaning and purifying it.

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Sales Tax
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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:
*

*

*

(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
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(e) of the Sales and Use Tax Regulations provides, in part:
Medical equipment.
(1) Medical equipment means machinery,
apparatus and other devices (other than prosthetic aids, hearing
aids, eyeglasses 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.
(2) To qualify, such equipment must be primarily and
customarily used for medical purposes and not be generally useful in
the absence of illness, injury or physical incapacity.
*

*

*

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

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(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.
Opinion
Section 1115(a)(3) of the Tax Law exempts medical equipment and supplies
from sales and compensating use tax, unless purchased at retail for use in
performing medical and similar services for compensation. Section 1115(a)(4)
exempts prosthetic aids and artificial devices used to correct or alleviate
physical incapacity in human beings, even when purchased at retail by providers
of medical services.
The function of the dialysis machine is key in determining whether it
should be classified as medical equipment or as a prosthetic device (see
Microvasive, Inc., Adv Op Comm T&F, March 28, 1989, TSB-A-89(9)S). In patients
with diseased kidneys, an artificial kidney (dialyzer) performs the filtering
function of the human kidney. The dialyzer cannot perform without the aid of a
dialysis machine.
The functions of the dialysis machine, as described by
Petitioner, are to prepare the dialysate fluid, deliver it to the dialyzer, pump
the patient’s blood through the dialyzer for purification then propel the
cleansed blood back to the patient and monitor the dialysis treatment. 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.
Accordingly, it is the Department’s position that, as presented by Petitioner,
dialysis machines qualify as prosthetic aids under Section 1115(a)(4) of the Tax
Law. Therefore, Petitioner’s purchases of dialysis machines 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.
The dialyzer reproccessing system, which prepares and readies the dialyzer
for use in dialysis, does not replace a missing body part or function and
therefore does not qualify for exemption as a prosthetic device under Section
1115(a)(4) of the Tax Law. It does, however, constitute medical equipment as

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defined in Section 528.4(e)(1) of the Sales and Use Tax Regulations. Therefore,
pursuant to Section 1115(a)(3) of the Tax Law, its purchase at retail by
Petitioner for use in performing medical and similar services for compensation
is subject to sales tax.

DATED: August 4, 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.