New York Sales Tax Ruling on usage agreement reversed

The Tax Appeals Tribunal has reversed an a administrative law judge’s (ALJ’s) ruling that the taxpayer’s usage agreement sales were not subject to sales tax. The taxpayer manufactures dermatological disorder treatment products, including a laser used by physicians to treat psoriasis and other skin disorders. While the taxpayer collected sales tax on the laser equipment, it did not collect the tax on its usage agreements with physicians where the physicians paid for each time they used the laser using a specific treatment coding system. The Tribunal found that the ALJ overlooked specific language in the agreement that the taxpayer’s customers were given a license to use the equipment. As such, the Tribunal concluded that the taxpayer made taxable sales of laser equipment also noting that the consideration in the transaction was the purchase of the treatment codes. The Tribunal rejected the taxpayer’s argument that the primary function test applies, finding that the taxpayer sells the laser equipment as a standalone product. In addition, the Tribunal stated that the primary function test is not applied to bundled sales of tangible personal property and services, but is applied to bundled sales of taxable and nontaxable services. (In the Matter of the Petition of Strata Skin Sciences, Inc., N.Y. Tax Appeals Tribunal, Dkt. No. 828704, 05/05/2022.)