Items necessary for human survival and well-being, things like food and prescription medications, have long been exempt from sales tax. Like all individuals and businesses, health care providers have certain liabilities for sales tax filing and remittance. The advent of the Affordable Care Act has prompted physicians to take a closer look at their tax obligations, including sales tax liabilities.
Traditionally, the seller of goods is responsible for the collection and remittance of sales tax. If no tax is collected by the seller during the sales transaction, the purchaser may still be subject to use tax when the item is used. There are several important points to consider when purchasing items to use in a practice setting, or when reselling items to patients.
Like all business owners, physicians purchase items for use in their medical practice. Purchases may be directly linked to one of two uses - office or patient. Office items include calculator tape, notepads, pens and pencils. These normal office supplies are subject to Indiana sales tax which is typically paid at the time of purchase. If the purchase is made via the Internet and sales tax is not charged, it should be calculated and submitted as a use tax on the annual corporate tax return. There are no exceptions to this rule if you are a physician in a for-profit setting.
Physicians also purchase items for patient use. These items include bandages, swabs, needles and other medical supplies not requiring a prescription. These supplies are non-exempt for sales tax filings.
Certain items purchased by physicians for resale and covered by a medical prescription, such as orthopedic devices, are not subject to sales tax when sold. For example, an orthopedic surgeon may keep a stock of knee braces or other orthopedic items on hand. When these items are prescribed and sold or rented to patients, no sales tax is due. Sales tax is not paid on the initial purchase, as they are items for resale, and tax is not collected or remitted when sold to the end user.
Other examples include dermatologists who keep a line of skin treatments in their office for resale or a podiatrist who has orthotic inserts available for purchase. None of these items are subject to tax if they have a valid medical prescription.
In Indiana, items exempt from sales tax, even when not prescribed, include:
There are some exceptions to the “prescription rule.” Cosmetic wrinkle creams or other nonessential medical creams sold in a dermatology practice are taxable. Over-the-counter medications, even if prescribed, are taxable.
Other medical professionals are subject to further detailed sales tax rules. Veterinarians who purchase food for use in feeding animals on their premises are subject to sales tax unless covered by a prescription. Since sales tax is a state-driven tax, it is best to review the state rules where the physician’s practice is domiciled to ensure accurate reporting and payment.
A prudent office manager will train medical office staff to accurately mark invoices and check for taxability. Again, items not taxed that should have been assessed tax are subject to use tax. The best advice is to be knowledgeable about your particular practice in your particular state. Your tax professional can guide you and help your office manager become proficient in spotting potential problems. If you have any questions determining what is taxable versus what is tax exempt for your practice in Indiana, Michigan, or surrounding states, the tax professionals at Kruggel Lawton are standing by ready to help!
Written by: Rita J. Miller, CPA, CPM, CGMA - Manager