Sales tax - DME: She taxes me...She taxes me not?

[Uilleann]

Some states charge sales tax on DME (durable medical equipment) and some don't. In Utah, we do because we do nothing but elect certifiably insane nut jobs to bash out our tax code. :) At any rate, my question for the collective today is this:

If a managed care plan such as VSP or EyeMed requires a "material co-payment" in addition to the lens feature co-payments, should that "material co-payment" be taxed as well?

My answer has always been an unequivocal yes. As here, all DME goods are taxed, and in fact, there's even a specific line denoting prescription eyewear and contact lenses are never to be tax exempt. We do not tax exam or any medical service charges, and therefore do not charge tax on exam co-payments.

I have a co-worker here however, who doesn't collect tax on the material co-payment, thinking that it is somehow separate from the other material charges. I believe this is in error.

What's your take oracle? :)

[Uilleann]

Anything folks? How do you do it in your offices if you are required to charge tax for DME in your state?

[CME4SPECS]

not in CA

[Uilleann]

It was the same in CO when I was there. But UT loves to tax everything and everyone at the drop of hat...

So would you collect tax on the material copay as well as the lens options and frame overages?

[Theresa]

It was the same in CO when I was there. But UT loves to tax everything and everyone at the drop of hat...

So would you collect tax on the material copay as well as the lens options and frame overages?

We don't have tax here for glasses or contacts in Orlando. But if you are taxing on the lens options and upgrades, it makes sense to tax on the material copay also, since its a payment on the material which is taxable. What is the tax rate in Utah? I can't imagine it adding much more to what they are paying since its just the tax on the copay that you're talking about.

[Uilleann]

We don't have tax here for glasses or contacts in Orlando. But if you are taxing on the lens options and upgrades, it makes sense to tax on the material copay also, since its a payment on the material which is taxable. What is the tax rate in Utah? I can't imagine it adding much more to what they are paying since its just the tax on the copay that you're talking about.

Correct. Typically, it's VSP plans, and usually it's no more than $20-$25 of the material co-pay costs. Our rate here is currently 6.85% - so typically not adding more than about $1.75 in tax fees. I'm more concerned about the potential for an audit from the tax commission, as over the course of several years, and tens of thousands of visits, it has the potential to be a costly mistake to keep making.

[EyeCare Rich]

It's only costly if you are not collecting it, but it sounds like you are. We don't have tax on DME in our state, so sorry I can't help you. A quick call to your state revenue office, which you probably have a local office, would probably be worth making. Good luck.

[Uilleann]

The local tax division office isn't much help at all. And as I've been the only one collecting at this practice now...it could go south if it should have been done in the past. Just trying to be as proactive as possible and get the owners in compliance if they aren't doing it correctly till now.

[CME4SPECS]

If it is a copay towards material, and the material is taxable, I'd say you better charge the tax.

[Paul Smith LDO]

In WA, we use to charge tax on the frame. I would charge for the full retail prior to any insurance benefit or some VCP allowance. We still tax non ophthalmics; suns, readers, and the like.

[rbaker]

The friendly folks at your State Department of Revenue will give you the correct answer to this query. They will also haul you off to jail if you don't comply.

As Elmer Fudd used to say "be vewwy vewwy carefuw"

Years ago a friend who ran a small optical shop neglected to file or remit any sales taxes revenues to the Commonwealth of Massachusetts DOR since he only sold three or four pairs on plano sun glasses a year (nod, nod, - wink, wink}and so didn't consider it worth while to bother filing.

The goose hung high for many years until one day he was visited by Elliott Ness and the Untouchables. To make a long story short they demanded to see his "books" which were a joke and hauled him into court. He was convicted of failure to collect state sales taxes (and a few other accounting irregularities) and given substantial fine and required to pay the back sales taxes and penalties. The States claim for thousands of dollars in uncollected sales taxes was upheld by the court.

What really tripped him up on the sunglass sales tax issue was something called "balanced sales" a principal which was used to assume that for every hundred dollars of prescription eye glass sales there are ten dollars of sun glasses sold. He also had some difficulty arguing against the sales invoices that the prosecution subpoenaed from his suppliers.

He lost his shop to bankruptcy and later opened a neighborhood tavern, all in all, not a bad outcome.

[Uilleann]

If it is a copay towards material, and the material is taxable, I'd say you better charge the tax.

In a nutshell, this has always been my understanding...and is what I have done consistently for years. But I don't know if the owner has...which is what prompted my question. Just wanting to be sure.

In WA, we use to charge tax on the frame. I would charge for the full retail prior to any insurance benefit or some VCP allowance. We still tax non ophthalmics; suns, readers, and the like.

So you're charging tax on the full retail of the frame instead of the discounted amount? I wonder if that's incorrect in the other direction. The managed care plans NEVER pay the full retail value of a frame of course, so that would seem to be an over collection on the part of the practice?

The friendly folks at your State Department of Revenue will give you the correct answer to this query. They will also haul you off to jail if you don't comply.

As Elmer Fudd used to say "be vewwy vewwy carefuw"

Years ago a friend who ran a small optical shop neglected to file or remit any sales taxes revenues to the Commonwealth of Massachusetts DOR since he only sold three or four pairs on plano sun glasses a year (nod, nod, - wink, wink}and so didn't consider it worth while to bother filing.

The goose hung high for many years until one day he was visited by Elliott Ness and the Untouchables. To make a long story short they demanded to see his "books" which were a joke and hauled him into court. He was convicted of failure to collect state sales taxes (and a few other accounting irregularities) and given substantial fine and required to pay the back sales taxes and penalties. The States claim for thousands of dollars in uncollected sales taxes was upheld by the court.

What really tripped him up on the sunglass sales tax issue was something called "balanced sales" a principal which was used to assume that for every hundred dollars of prescription eye glass sales there are ten dollars of sun glasses sold. He also had some difficulty arguing against the sales invoices that the prosecution subpoenaed from his suppliers.

He lost his shop to bankruptcy and later opened a neighborhood tavern, all in all, not a bad outcome.

I agree that we need to be correct and consistent. But we certainly do NOT have friendly OR helpful people staffing our tax commission here. Trying to get a straight answer from them when it comes to managed care, co-payments (when different co-payment amounts exist for exam services and hardware/DME), and how the code relates to said co-payments is an exercise in futility. But it's not for lack of trying. We're collecting on everything else as we need to - but the co-pay issue was one I was hoping to find a definitive answer for. We can't be the only state with this issue can we?

[Robert Martellaro]

Some states charge sales tax on DME (durable medical equipment) and some don't. In Utah, we do because we do nothing but elect certifiably insane nut jobs to bash out our tax code. :) At any rate, my question for the collective today is this:

If a managed care plan such as VSP or EyeMed requires a "material co-payment" in addition to the lens feature co-payments, should that "material co-payment" be taxed as well?

My answer has always been an unequivocal yes. As here, all DME goods are taxed, and in fact, there's even a specific line denoting prescription eyewear and contact lenses are never to be tax exempt. We do not tax exam or any medical service charges, and therefore do not charge tax on exam co-payments.

I have a co-worker here however, who doesn't collect tax on the material co-payment, thinking that it is somehow separate from the other material charges. I believe this is in error.

What's your take oracle? :)

I don't see how you can separate the two, so my money is on your line of thinking.

http://www.tax.utah.gov/forms/pubs/pub-53.pdf

Interesting that for sales tax purposes, Utah doesn't consider CLs or eyeglasses to be prosthetic devices! You got a mean tax man in Utah. We had a governor who wanted to slap a tax on wheelchairs during the early 80's recession. He only served one term.

Wisconsin's sales tax code for ophthalmic lenses, frames, CLs, accessories, and supplies.

https://www.revenue.wi.gov/ise/wtb/175tr.pdf

[Uilleann]

That was my take. It seems reasonable (and legally prudent) to me to tax co-payments for materials the very same way the rest of the fees are taxed.

Along those lines, the only time I might still question what to do is when VSP rolls all co-payments into a single amount - not broken out into exam and materials. In those cases, if the pt is getting an exam AND materials in the same visit, I don't charge the tax on the co-pay amount. But if they're ONLY doing materials, then I will. I can't think of a better way to figure that one out for now... Thankfully that scenarios is rather rare.

[MakeOptics]

Some states charge sales tax on DME (durable medical equipment) and some don't. In Utah, we do because we do nothing but elect certifiably insane nut jobs to bash out our tax code. :) At any rate, my question for the collective today is this:

If a managed care plan such as VSP or EyeMed requires a "material co-payment" in addition to the lens feature co-payments, should that "material co-payment" be taxed as well?

My answer has always been an unequivocal yes. As here, all DME goods are taxed, and in fact, there's even a specific line denoting prescription eyewear and contact lenses are never to be tax exempt. We do not tax exam or any medical service charges, and therefore do not charge tax on exam co-payments.

I have a co-worker here however, who doesn't collect tax on the material co-payment, thinking that it is somehow separate from the other material charges. I believe this is in error.

Publication 53
http://www.tax.utah.gov/forms/pubs/pub-53.pdf

Optometrists and ophthalmologists must collect sales tax
on all tangible personal property sold in connection with eye
examinations. Eyeglasses, contact lenses, nonprescription
sunglasses and cleaning solutions are tangible personal
property. If the optical examination is listed separately on the
invoice, no tax is due on the examination fee. If the fee is not
listed separately, the entire charge is taxable.
Opticians who fill prescriptions for glasses and contact lenses
are considered retailers. Any service is incidental to the sale of
the tangible personal property and is fully taxable.

That last line indicates even the material copay is taxable and glasses or contacts are not considered DME.