Are the membership charges for a medical-records service taxable when what the member receives is a medical-data booklet and a microfilm history?

Plain-English summary

Dalmed Corporation operates a medical and emergency data and records organization and asked whether its membership charges — $25 for the first year and $15 for each subsequent year — are subject to State and local sales tax. Members receive a Medical and Emergency Data booklet and a microfilm medical history.

The Department held the membership charges are taxable.

• The general rule taxes tangible personal property. Section 1105(a) taxes receipts from every retail sale of tangible personal property unless otherwise exempt.
• The medical exemptions don't fit. Section 1115(a)(3) exempts drugs, medicines, medical equipment and supplies (with limits), and § 1115(a)(4) exempts prosthetic aids, hearing aids, eyeglasses and artificial devices. The booklet and microfilm history are none of these.
• What the member really buys is tangible personal property. Because the booklet and microfilm are tangible personal property that isn't medical equipment, supplies, prosthetic aids or artificial devices, the membership charges are taxable receipts from a retail sale under § 1105(a), subject to State and local sales tax.

What this means for you

Calling a sale a "membership" doesn't change what's being sold. If a member's fee buys tangible goods — here, a printed booklet and a microfilm record — the charge is taxed as a retail sale of tangible personal property, regardless of the "membership" label.

The medical exemptions are narrow. Section 1115(a)(3) and (a)(4) cover specific categories — drugs and medicines, qualifying medical equipment and supplies, prosthetic aids and artificial devices. Informational or record-keeping products, even health-related ones, generally fall outside those categories and are taxable.

Analyze the deliverable, not the purpose. The health-safety purpose of Dalmed's product didn't make it exempt; what mattered was that the deliverable was ordinary tangible personal property. Identify the actual item the customer receives when deciding taxability.

Common questions

Q: The service is health-related — isn't it exempt as medical?
A: No. The § 1115(a)(3) and (a)(4) exemptions cover drugs, medicines, medical equipment, supplies, prosthetic aids and artificial devices. A medical-data booklet and microfilm history are none of those, so they're taxable tangible personal property.

Q: Does structuring the charge as annual "membership dues" avoid sales tax?
A: Not here. The Department looked at what the member receives — tangible personal property — and taxed the charge as a retail sale under § 1105(a).

Q: Are both the first-year and renewal charges taxable?
A: Yes. Both the $25 first-year and $15 subsequent-year charges are receipts from the retail sale of tangible personal property and are subject to State and local sales tax.

Citations and references

Statutes, regulations and authority:

• Tax Law § 1105(a) — imposes sales tax on receipts from every retail sale of tangible personal property
• Tax Law § 1115(a)(3) — exempts drugs, medicines, medical equipment and supplies (subject to limits, e.g., not items used in performing medical services for compensation)
• Tax Law § 1115(a)(4) — exempts prosthetic aids, hearing aids, eyeglasses and artificial devices used to correct or alleviate physical incapacity

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1981.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/h81_103s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-H-81(103)S
Sales Tax
May 21, 1981

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S810224A

On February 24, 1981 a Petition for Advisory Opinion was received from
Dalmed Corporation, 114 No. Main Street, Spring Valley, New York 10977.
The issue raised is whether the charges for membership in Petitioner's
medical and emergency data and records organization is subject to State and local
sales tax.
Section 1105(a) of the Tax Law imposes a tax on "The receipts from every
retail sale of tangible personal property, except as otherwise provided in this
article."
Section 1115(a) of the Tax Law provides for an exemption from such tax with
respect to "(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...and supplies...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."
Accordingly, as the Medical and Emergency Data booklet and the microfilm
medical history which Petitioner sells to its members constitute tangible
personal property which is not medical equipment, supplies, prosthetic aids or
artificial devices, the charges to members of $25 for the first year and $15 for
each subsequent year constitute receipts from the retail sale of tangible
personal property, and are subject to State and local sales taxes.

DATED: May 7, 1981

TP-8 (4/80)

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau

JAMES H. TULLY, JR., COMMISSIONER
LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR