March 15, 2004

 

 Are you charging the correct taxes on veterinary sales and services?

AVMA survey sheds light on state tax laws

 

Posted March 1, 2004

To avoid audits and fines, veterinarians should be sure they understand and are correctly applying their state tax laws, according to an AVMA point person on small business issues in Washington, D.C.

State and local regulations and exemptions on sales tax, also called excise and retail tax, vary greatly from state to state, according to a recent informal survey conducted by the AVMA. The survey asked the executive directors of state VMAs to provide information about state tax laws that apply to small animal practitioners. The survey results do not include city or county taxes, but practitioners should also be aware of their municipal tax laws, which vary greatly.

Dr. Raymond Stock, a 30-year veteran of private practice and now an assistant director of the AVMA Governmental Relations Division, knows firsthand how important it is to be sure you understand all the tax laws in your state. An audit of his practice several years ago showed he and his colleagues had not been paying the correct sales taxes on items they purchased from another state.

"My colleagues and I weren't even aware of (this particular) tax law until the auditor showed up," Dr. Stock said.

To resolve the problem, they had to pay the back taxes with interest. From that point on, they took special measures to ensure they were compliant with all applicable tax laws. In sharing his experience with veterinarians across the country, Dr. Stock discovered that many other veterinarians were unaware of their state tax laws. He believes it's a fairly common situation.

A look at the informal AVMA survey, which includes responses from 40 states and one territory, reveals how complicated it can be. Laws vary widely between states, and different laws may apply to various types of products and services.

According to the survey, in a few states there are no state taxes on veterinary products and services, though some municipal taxes may apply.

In most states, suppliers charge veterinarians a use tax for items such as drugs, syringes, and consumable medical supplies. Rules vary from state to state about whether those taxes can be passed along to clients.

In 22 states, survey respondents said that prescription drugs, vaccines, and medicated products are tax-exempt for veterinarians and clients, but only if the product is administered in a clinic or by a veterinarian. Prescription drugs and medications are subject to retail taxes in 19 states—in some, the client pays the tax; in others, the veterinarian pays.

Over-the-counter drugs or products sold at veterinary clinics are often subject to retail sales taxes. Eight states collect taxes on services, such as grooming and boarding.

Dr. Stock said veterinarians must familiarize themselves with all state laws that apply to veterinary products and services. Veterinarians should check with their state VMAs and state taxing agencies to learn more about those taxes. The Web sites of many state taxing agencies have information specifically for veterinarians.