Hailey Tran
Veterinary hospitals, like many businesses, are subject to sales tax on the goods and services they provide. Sales tax is a tax levied by the government on the sale of goods, products, and some services, and is usually calculated as a percentage of the purchase price. In the US, sales tax is applied at the state, county, and municipal levels, and so the sales tax rate varies depending on the location of the veterinary hospital. While some veterinary services are taxable, others are tax-exempt, and this also varies depending on the state and the type of service provided. For example, in some states, grooming services are subject to sales tax, while in others they are not. Additionally, some veterinary hospitals are structured as non-profit organizations and are therefore tax-exempt. These hospitals provide access to important medical and surgical services for animals owned by underserved populations.
Are veterinary for-profit hospitals tax-exempt?
| Characteristics | Values |
|---|---|
| Sales and use tax | Sales tax is levied by the government on the retail sales of goods, products, and some services. It is calculated as a percentage of the purchase price. |
| Sales tax rate | The sales tax rate varies depending on the state, ranging from 4% to 7%. There may also be additional taxes, such as county or municipal taxes, that further increase the total tax percentage. |
| Nexus for sales tax | A business has a nexus for sales tax if it has employees, locations, or property within a state. |
| Taxable transactions | There are two major categories of taxable transactions for veterinarians: product sales and service sales. Product sales are typically taxable, while service sales can be more complex and depend on the specific circumstances. |
| Tax exemptions | Some items are exempt from sales tax, such as drugs used on farm livestock or work stock and products for resale. Services provided specifically for horses are also exempt from sales tax in certain states. |
| Taxable services | Boarding services, grooming services, and durable medical equipment are often subject to sales tax. |
| Non-taxable services | Examples of non-taxable service sales include exams, vaccinations, x-rays, surgery, prescribing drugs, and ordering lab tests. Pet cremation, training services, and transportation services are also generally not taxable. |
| Personal tax law changes | Veterinary hospital owners should consider changes to individual tax rates, the elimination of personal exemptions, the increase in the standard deduction, and limitations on state and local tax deductions. |
| Corporate tax rates | The Tax Cuts and Jobs Act lowered the maximum corporate tax rate from 35% to 21%, benefiting businesses. |
| Tax-exempt organizations | Veterinary not-for-profit and tax-exempt clinics and hospitals provide access to medical and surgical services for animals owned by underserved populations. These organizations must comply with federal, state, and local regulations. |
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What You'll Learn
- Veterinary practices are taxed on product and service sales
- Some services are tax-exempt, like exams, surgeries, and prescribing drugs
- Sales of drugs are tax-exempt transactions
- Boarding services are taxable, but not for hospitalisation or observation
- Cremation services are not taxable, but urns and containers are
Veterinary practices are taxed on product and service sales
Veterinary practices are subject to sales tax on product and service sales. Sales tax is a tax levied by the government on the retail sales of goods, products, and some services. Sales tax is calculated as a percentage of the purchase price and collected by the seller. There can be multiple layers of sales tax, including state, county, and municipal levels.
There are two major categories of taxable transactions for veterinarians: product sales and service sales. Product sales are typically taxable, while service sales can be more complex and may be taxable or exempt depending on the circumstances. For example, a product sale may be exempt if it is used in conjunction with normal veterinary services or if it is considered a drug. Service sales that are provided exclusively by a veterinarian, such as exams, vaccinations, and prescribing drugs, are generally tax-exempt, while other services may be taxable.
Veterinary practices should also be aware of use tax, which applies to purchases made outside of one's state of residence for taxable items that will be used, stored, or consumed in one's state of residence. Use tax may also apply if a business does not pay sales tax on a taxable purchase. For example, if a veterinary practice buys equipment or supplies from a seller who does not charge sales tax, the practice may owe use tax on the cost of those items.
The specific sales and use tax rules that apply to a veterinary practice can vary by state and locality. For example, in Alabama, veterinarians pay a use tax on drugs administered in clinics, while in Connecticut, they pay a use tax on consumables used in practice. In Nevada, veterinarians must collect sales tax on the retail price and itemize it on invoices, while in Ohio, veterinarians must pay sales tax when purchasing from a supplier and for over-the-counter medicines.
It is important for veterinary practices to understand the difference between sales and use tax to ensure they are paying the correct amount. Working with accounting professionals who specialize in veterinary practices can help navigate the complexities of sales and use tax rules.
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Some services are tax-exempt, like exams, surgeries, and prescribing drugs
Veterinary practices must navigate a complex web of sales and use tax rules, with some services and products being tax-exempt and others not. The general rule of thumb is that any sales transaction is taxable unless there is a specific exemption.
Drugs are a retail sales tax-exempt transaction as the veterinarian is deemed the consumer of the drugs, and the burden of paying the tax lies with them. This includes compounded drugs, which are a combination of multiple drugs, and drugs used on farm livestock or work stock. Durable medical equipment and prosthetics intended for animal use are also exempt from sales tax.
In the context of agricultural production, consumable materials and supplies for agricultural animals and horses are exempt from sales tax. This includes items administered, attached, or that become part of the animal. Services provided specifically for horses are also exempt.
It is important to note that most other services provided by veterinarians are taxable. Additionally, items used to operate a veterinary practice, such as office supplies, are typically taxable unless an exemption applies.
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Sales of drugs are tax-exempt transactions
In the United States, the sales of drugs are generally tax-exempt transactions. This includes both prescription and non-prescription drugs and medicines that are intended for internal or external use to diagnose, cure, treat, or prevent illness or disease. However, the taxability of drugs can vary depending on the state and other factors. For example, Illinois imposes a 1% sales tax on prescriptions, while Alaska has no statewide sales tax.
For veterinary practices, the sales of drugs are also considered tax-exempt transactions. This is because the veterinarian is typically deemed the consumer of the drugs, and the burden of paying the tax falls on them. However, there may be exceptions, such as when a customer presents a valid exemption certificate. Additionally, in some states, drugs used on farm livestock or work stock may be exempt from use tax.
While the sales of drugs may be tax-exempt, veterinary practices may still be subject to other taxes, such as sales tax on products and services. For example, boarding services for non-medical reasons are generally taxable, as are pet urns and containers. However, there are specific exemptions for certain services, such as pet cremation, training services, and transportation services.
The tax landscape for veterinary hospitals has also been evolving. The Tax Cuts and Jobs Act, signed in 2020, lowered the maximum corporate tax rate to 21%, benefiting businesses. However, the new law also states that businesses engaged in health services do not qualify for the deduction for pass-through income, and it is unclear if this includes veterinary practices. Additionally, the change in corporate tax rates has raised questions about the preferred entity structure for veterinary hospitals.
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Boarding services are taxable, but not for hospitalisation or observation
The tax status of veterinary services can be complex, with some services and products being taxable, and others not. For example, while sales of drugs are generally exempt from retail sales tax, as the veterinarian is deemed the consumer, any drugs or supplies injected, fed, or applied to a pet are taxable to the customer.
Boarding services are generally taxable, including boarding for animal control. However, boarding is not taxable when it is for hospitalisation, observation, or other veterinary purposes. This means that if a pet is hospitalised or under observation by a veterinarian, the boarding fees are not taxable. It is important to note that giving medication to a pet that is boarded for non-medical reasons is not considered a veterinary purpose, and the boarding service in this case would be taxable.
The distinction between taxable and non-taxable services is often based on whether the service is provided specifically by a veterinarian or could be provided by someone else. For example, exams, vaccinations, x-rays, surgery, prescribing drugs, and ordering lab tests are typically tax-exempt, whereas pet grooming, transportation, and training services are generally taxable.
In the United States, each state imposes its own tax rate, and there may be additional sales tax at the county and municipal levels. Furthermore, certain items and services may be exempt from sales tax depending on the type of animal, such as agricultural animals and horses, which qualify for the agricultural production exemption.
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Cremation services are not taxable, but urns and containers are
The taxation of veterinary services and products can be a complex area, with some items and services being taxable, and others not. Generally, sales transactions are taxable unless there is a specific exemption. Product sales are usually taxable, while service sales can be more complex, sometimes being taxable and sometimes not, depending on the circumstances.
For example, drugs used on farm livestock or work stock are exempt from use tax, as are drugs prescribed by a veterinarian. In the latter case, the veterinarian is deemed the consumer of the drugs, and so the burden of tax falls on them. Other services that are tax-exempt include exams, some vaccinations, x-rays, surgery, and ordering lab testing.
When it comes to cremation services, the fees for cremation are not taxable. However, urns and containers are subject to tax. If a cremation service includes a container to transport the cremains, the service provider owes tax on the cost of the container. If the cremation and urn are sold as one package with a single price, the entire charge is taxable.
This distinction is also seen in the taxation of veterinary services. For instance, the service to implant a microchip is not taxable, but sales tax applies to the purchase of the microchip itself. Similarly, boarding services are generally taxable, but they are not taxable when the boarding is for hospitalization, observation, or other veterinary purposes.
In the context of funeral expenses, cremation costs may be used as tax deductions if covered by the deceased person's estate. These costs can include cremation fees, the transfer of remains, body preparation, memorial services, and funeral services. However, it is important to note that these expenses are only deductible if they are reasonable, necessary, and not reimbursed by insurance or other payments.
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Frequently asked questions
It depends. There are some services that are tax-exempt, such as exams, vaccinations, x-rays, surgeries, and prescribing drugs. However, there are other services that are taxable, such as grooming and boarding.
Yes, there are several tax exemptions for farmers with livestock or farm work stock. Items used in agricultural production are exempt from tax, including consumable materials and supplies for agricultural animals.
Yes, pet cremation, transportation services, and training services are not taxable.
Over-the-counter drugs prescribed and dispensed for extra-label use are exempt if they include the labeling required by federal law. Additionally, drugs or medicines purchased by a veterinarian for livestock or poultry used in farm production can be exempt from sales tax.
The easiest test is to ask, "Can this service only be provided by a veterinarian, or could it be provided by someone else?" If the answer is that it could be provided by someone else, then it is typically a taxable event.
