Sales of Substances Injected into Knee to Treat Osteoarthritis Are Exempt in New York

Tuesday, August 7th, 2012

New York

The New York Department of Taxation and Finance (DTF) recently released an advisory opinion concluding that sales of substances injected into knee to treat osteoarthritis are exempt. N.Y. Advisory Op. of the Commr. of Taxn. and Fin. TSB-A-12(16)S (July 5, 2012).

The taxpayer that petitioned the DTF for the opinion explained how three products--Orthovisc, Euflexxa, and Hyalgan--are used to treat osteoarthritis of the knee. These products are administered by physicians as a series of injections into the knee. A healthy knee is surrounded by a joint fluid that acts as a shock absorber to cushion and protect the knee, but a knee damaged by osteoarthritis has little joint fluid, which causes pain. These products contain hyaluronan or hyaluronic acid (HA), which are naturally derived substances that supplement the knee's fluid, which helps to relieve the pain associated with osteoarthritis. The petitioner asked the DTF whether these products are exempt from sales tax.

New York exempts sales of the following: (1) drugs and medicines intended for use treatment or prevention of illness or disease in human beings; (2) medical equipment (including component parts thereof) and supplies required for such use or to correct or alleviate physical incapacity; and (3) products consumed by humans for the preservation of health. N.Y. Tax Law sec. 1115(a)(3); see also 20 N.Y. Comp. Codes R. and Regs. 528.4[b][3]. The DTF reasoned that when these three substances are injected into the knee, they supplement the knee's fluid, and, thus, improve the operation of the knee, and, thereby, maintain the patient's mobility. Accordingly, the DTF concluded that Orthovisc, Euflexxa, and Hyalgan are exempt because they are products consumed by humans for the preservation of health.

We previously reported on an opinion released by the DTF discussing Synvisc, a product similar to the three discussed in this article. Also note that, although the DTF's opinion did not use these terms, these products are commonly referred to as "viscosupplements," and the related treatment is known as "viscosupplementation."

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