Don't shoot the sales tax collector; it could be you

Don't shoot the sales tax collector; it could be you

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Jun 01, 2004

Those taxes collected on the sales of many goods and products and paid by even more veterinarians are increasing in both amount and complexity.

Cash-strapped state and local governments are raising sales tax rates and stepping up enforcement of their collection rules. In fact, in their efforts to increase revenue from sales taxes, many states are broadening the definition of gross taxable receipts to include services.

Many states now levy a sales tax on services and still others are considering sales taxes on a variety of services as well as many goods and products previously exempt from sales tax levies such as prescriptions, medical equipment and the like. This, of course, increases the burden on the veterinary practice, whether collecting those sales taxes or required to pay sales-and-use taxes.

Unfortunately, sales taxes appear to be a growth industry for many of the 7,500 taxing jurisdictions in the U.S. What's worse, many of those taxing jurisdictions and systems vary widely.

Common definitions can differ greatly. Orange juice, for example, is defined as a fruit in one state and taxed. As a beverage in a neighboring state, however, that same orange juice may not be taxed at all.

Generally sales taxes apply on the sale of just about anything to just about anyone. In most states, as well as in many cities, a veterinarian must collect sales tax on all applicable sales of veterinary products. In addition to adding to the burdens borne by every veterinary practice, whether collecting those sales taxes or required to pay them, mistakes can abound.

Mistakes can be expensive On one hand, a veterinary practice caught not collecting sales taxes must pay those amounts from its pockets. Another veterinarian, unfamiliar with the rules, may pay over to the government tax authorities sales taxes, whether collected or not, on sales where no tax was imposed. Or, even worse, the practice may pay over sales taxes based on the operation's gross sales.

And, then there are those mistakes, errors and omissions that result as an increasing number of states rush to tax the selling price of many services. In addition to imposing sales tax on routine sales of goods and products, there are an increasing number of jurisdictions that are already taxing many types of professional services (doctors, dentists, accountants, attorneys, consultants and, yes, in some cases, veterinary services).

Other types of services that falling under these increasingly more comprehensive sales tax requirements are:

  • Personal services. Services provided on a personal, but not professional, basis. Examples might include haircuts, manicures, home-cleaning, landscape maintenance, laundry or dry cleaning services, etc.
  • Repair services. These services do not create new property, but merely render operable property usable at the site of the user. The fine distinction between assembly and installation is important because states generally tax assembly, but may not tax installation.
  • Business services. The services in this category result in the movement of services or something. The things moved could include freight (freight services), financial instruments or money (banks), persons (transportation companies), electrical or telephone services (utilities), risk (insurance companies), ownership of real property (real estate companies), etc.

Remember, however, individual sales and use tax systems may differ in defining any or all of these categories or may ignore them altogether.

Exception to the rule Obviously, sales tax collection would be far easier if the tax were based on total sales without exceptions, exclusions or exemptions. In addition to taxing or not taxing specific goods, products or services, exceptions to the general rules include sales to resellers, either wholesalers or retailers, which have valid state resale certificates.

Another exception to the general sales tax rules involves sales made to tax-exempt institutions, such as public schools and libraries. No sales taxes need be collected on sales to tax-exempt or other exempted organizations. Further complicating matters, in some states, sales taxes apply only to products, while in other states, sales taxes apply to services as well.

Naturally, every veterinary practice should have a resale certificate of license. Without such certification, every seller is legally obligated to collect sales taxes on many of the practice's purchases.

The importance of records The complexity of the sales tax rules and the need for keeping good records is illustrated by one passage taken from California's sales tax regulations: