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How the states address the medical industry for sales and use tax will vary among the states, but you will find some commonality. First, let's discuss the issue of medical services in general. Nearly all states say the rendering of a medical service is considered a professional service, and the states generally do not tax professional services. As is the case with most services, if the service is not taxable to the customer, then the tangible personal property used and consumed in the process of providing the non taxable service becomes taxable to the service provider. Second, let's look at the tax applicable to drugs and medicine used in the treatment of patients. Most states hold that the purchase and sale of prescription drugs and controlled substances dispensed through a licensed pharmacy, are non-taxable. Thus when a hospital or doctor dispenses a prescription drug in the treatment of a patient, the purchase of the drug is not taxable.

Some states extend this exemption to non-prescription drugs. Yet other states provide that if the medical service provider purchases the non-prescription drug in treatment, they are not taxable, but if the consumer buys the same drug over the counter, it becomes taxable. Third, Let's discuss supplies and equipment used by the medical service provider. Most states provide that supplies and equipment used in administration of treatments are taxable to the service provider. At first glance this may seem somewhat straightforward, but it is not. States proceed to give fairly detailed list of items excluded by the statue. The common trend among states is to allow tax exemption if the supplies or equipment actually go into, or in some cases, stay in the patient. In most cases if the item is used and then disposed of, it is considered taxable unless it physically goes into the patient, like a needle.

The subtle nuances are very important to understanding and administering sales and use tax law as it applies to the medical industry. Exercise caution when attempting to identify the taxable nature of medical tangible personal property you are buying, and as always, look to the laws of the state where the item being used. We are at your disposal to discuss these and other medical sales and use tax issues.

 

 

Feel free to call or e-mail us to discuss any tax issues you may have.

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Sales Tax Advisors, Inc.
9168 Village Lane
Ozawkie, KS 66070-6102

Last modified on Sat Oct 18 2014 16:40:20 MST.
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