Dentists pay state sales tax on materials, supplies, dental laboratory products and other “tangible personal property” that are used in the performance of their services. Sales tax is collected in either one of two ways. The primary method is for a dentist to pay sales tax to the supplier upon purchase of product. The state regards dentists as consumers in this regard. The supplier then reports the sales tax to the state. The second method requires the dentist to collect sales tax from the patient, who ultimately uses the product, and to report sales to the California Department of Tax and Fee Administration (CDTFA).
The second method is used when a dentist does not pay sales tax to the product supplier and sells the product to patients. The dentist must obtain a seller’s permit and collect and report sales tax. If a dentist purchases and pays sales tax on a product then sells the same product to a patient at a price higher than originally paid, the dentist owes tax on the difference between the purchase price and the selling price. If a dentist sells a product without a markup in price and sales tax was already paid to the original supplier, the dentist does not have to collect sales tax from the patient.
In most cases, it is the seller’s responsibility to collect sales tax on tangible personal property. Examples of tangible personal property are toothbrushes and teeth-whitening kits. Services that may include an incidental transfer of property are not subject to sales tax. An example of such services is in-office teeth whitening where a tray is fabricated and given to the patient.
Sales tax does not apply to medicines furnished by a dentist to a patient in the course of treatment. Tax also does not apply to sales of medicines to licensed dentists for use in treating patients. The regulatory definition of “medicines” includes permanently implanted articles such as dental implant systems, including dental bone screws and abutments. Orthodontic appliances are specifically excluded from the definition of “medicines,” as are auditory, ophthalmic, ocular and some prosthetic devices and appliances.
Dental laboratories are the retailers of the plates, inlays and other products that they manufacture for dentists or other consumers. Tax applies to their entire charges for such products regardless of whether a separate charge or billing is made for materials and manufacturing services.
Use tax is similar to sales tax except that the purchaser, not the seller, pays the tax directly to the state. Use tax is applied to purchases from out-of-state vendors when the items are to be used or consumed primarily in California and the seller has not collected California sales tax. Use tax rates are the same as sales tax rates and products and services that are exempt from state sales tax are also exempt from use tax.
A dentist with a seller’s permit pays use tax through the seller’s tax return. Effective 2009, “qualified purchasers” (includes most dental practices) that generate $100,000 in revenue annually from business operations must register with the CDTFA if they do not already hold a seller’s permit or a use tax direct payment permit or are not otherwise registered with the board. More information about use tax, which was first implemented in the 1930s, and the registration and reporting requirements can be found on the CDTFA website (see links provided below).
Note: On July 1, 2017, the California Board of Equalization was restructured. The sales and use tax program was moved to the newly created California Department of Tax and Fee Administration. Information on the sales and use tax program may reside on one or both websites for a year or longer.