PERMANENT RULES
Date of Adoption: October 17, 2002.
Purpose: WAC 458-20-151 (Rule 151) provides tax-reporting information for dentists and other health care providers, as well as for dental laboratories and dental technicians. This rule has been revised to reflect a change in the tax-reporting responsibilities of dental laboratories and dental technicians as a result of EHB 1042 (chapter 168, Laws of 1998). That legislation amended the term "to manufacture" in RCW 82.04.120 to include the production or fabrication of dental appliances, devices, restorations, substitutes, or other dental laboratory products by a dental laboratory or dental technician. Thus, dental laboratories and dental technicians are now treated as manufacturers for purposes of business and occupation (B&O) tax. Gross income earned by dental laboratories and dental technicians had previously been subject to service and other activities B&O tax. This rule also incorporates information about the sales and use tax exemption provided by EHB 1042 for dental appliances, devices, restorations, and substitutes, and the components thereof, including but not limited to full and partial dentures, crowns, inlays, fillings, braces and retainers. Lastly, the scope of this rule has been expanded to include general tax-reporting information for health care providers licensed under Title 18 RCW. As a result, Rule 151 will provide guidance to many more taxpayers.
Citation of Existing Rules Affected by this Order: Amending WAC 458-20-151 Dentists((, dental laboratories and
physicians)) and other health care providers, dental
laboratories, and dental technicians.
Statutory Authority for Adoption: RCW 82.01.060(2) and 82.32.300.
Adopted under notice filed as WSR 02-16-015 on July 26, 2002.
Changes Other than Editing from Proposed to Adopted Version:
• The phrase "(d)entists who manufacture molds or other articles of tangible personal property" in subsection (3)(b) has been revised to read as follows: "(d)entists who manufacture impressions, dental casts, models, or other articles of tangible personal property";
• The term "mold" used in subsection (3)(d) has been replaced with the terms "dental cast" and "model"; and
• A reference to WAC 458-20-112 (value of products) has been added to subsection (3)(d).
Number of Sections Adopted in Order to Comply with Federal Statute: New 0, Amended 0, Repealed 0; Federal Rules or Standards: New 0, Amended 0, Repealed 0; or Recently Enacted State Statutes: New 0, Amended 0, Repealed 0.
Number of Sections Adopted at Request of a Nongovernmental Entity: New 0, Amended 0, Repealed 0.
Number of Sections Adopted on the Agency's Own Initiative: New 0, Amended 1, Repealed 0.
Number of Sections Adopted in Order to Clarify, Streamline, or Reform Agency Procedures: New 0, Amended 0, Repealed 0.
Number of Sections Adopted Using Negotiated Rule Making:
New 0,
Amended 0,
Repealed 0;
Pilot Rule Making:
New 0,
Amended 0,
Repealed 0;
or Other Alternative Rule Making:
New 0,
Amended 1,
Repealed 0.
Effective Date of Rule:
Thirty-one days after filing.
October 17, 2002
Russell W. Brubaker
Assistant Director
Legislation and Policy Division
OTS-5469.5
AMENDATORY SECTION(Amending WSR 91-15-023, filed 7/11/91,
effective 8/11/91)
WAC 458-20-151
Dentists((, dental laboratories and
physicians)) and other health care providers, dental
laboratories, and dental technicians.
(((1) Business and
occupation tax. Dentists, dental laboratories, and physicians
are subject to the business and occupation tax as follows:
(a) Service and other business activities. These persons are taxable under the service and other business activities classification on the gross income from charges for performing professional services.
(i) This includes any separate charge to the patient for drugs, medicines, and other substances used by a dentist, or physician, or administered to a patient as part of the dental or medical services to the patient.
(ii) Dental laboratories provide professional services. The product which results from those services is merely evidence of those services. Dental laboratories are taxable under the service and other business activities classification on income from providing their services.
(b) Retailing. A physician or a medical clinic may occasionally make sales of drugs as a convenience to a customer with the sale not being part of the medical services to the patient. These sales are taxable under the retailing classification. The retailing classification applies only when the physician or medical staff do not administer the drug or other medicine to the patient. Adequate records must be kept by the business to distinguish drugs which are administered as part of a medical service from those which are sold outright.
(2) Retail sales tax. Dentists, dental laboratories, and physicians primarily perform professional services and are not required to collect the retail sales tax from clients and others paying for such services.
(a) Sales by supply houses to such persons of materials, supplies, and equipment which are used incidentally in performing professional services are retail sales and the retail sales tax must be collected. Such sales include, among others, sales of dental chairs, instruments, x-ray machines, office equipment, stationery; and sales of supplies, such as dressings, bandages, nonprescription drugs and similar articles. Certain specific items may be purchased without the payment of retail sales tax as discussed below.
(b) Dentists and dental laboratories are required to pay retail sales tax to their suppliers for purchases of orthotic devices or components of such devices which they use or prescribe to their patients as part of the services provided to the patient. Orthotic devices may be purchased exempt of retail sales tax only when prescribed by physicians, osteopaths, or chiropractors for an individual. For example, dentists specializing in the prevention and correction of irregularities in the position of the teeth are required to pay retail sales tax to their suppliers for braces, collars, wires, screws, bands, splints, night guards, etc. See RCW 82.08.0283.
(c) Orthotic devices which are prescribed by physicians, osteopaths, and chiropractors for an individual are not subject to retail sales tax. Orthotic devices are apparatus designed to activate or supplement a weakened or atrophied limb or function. They include braces, collars, casts, splints, and other similar apparatus, as well as parts thereof. Orthotic devices do not include durable medical equipment such as wheelchairs, crutches, walkers, and canes nor consumable supplies such as elastic stockings, arch pads, belts, supports, bandages, and the like, whether prescribed or not.
(d) The sales tax does not apply to sales of ostomic items, insulin, medically prescribed oxygen, and prosthetic devices. Prosthetic devices are artificial substitutes which replace missing parts of the human body such as a limb, bone, joint, eye, tooth, or other organ or part thereof, and materials which become ingredients or components of prostheses. These materials include plastic, wood, hinges, screws, denture acrylic, porcelain, gold, silver, including any alloys of gold or silver. The following is a list of prosthetic devices or components of prosthetic devices that may be purchased or sold by dentists and/or dental laboratories without retail sales tax applying:
(i) Alloy and mercury - used together to form an amalgam to fill existing teeth;
(ii) Casting alloy;
(iii) Cement - to cement crowns or teeth to bridges or dentures;
(iv) Cavity liner;
(v) Composites - filling material used in the place of alloy;
(vi) Filling material;
(vii) Temporary crowns;
(viii) Acrylics - dentures, crown, and bridge replacement of teeth;
(ix) Reline material - to reline dentures;
(x) Pins - used for retention;
(xi) Endo post - used in restoring teeth without any surface on tooth to support restoration;
(e) The retail sales tax does not apply to sales of prescription drugs to dentists, physicians, or other medical practitioners when sold for the diagnosis, cure, mitigation, treatment, or prevention of disease or other ailment in humans. See WAC 458-20-18801.
(3) Use tax. Use tax is due when retail sales tax has not been paid on the purchases of supplies and equipment used by a dentist, dental laboratory, or physician in the providing of professional services. This includes orthotic devices used or prescribed by dentists, or dental laboratories when retail sales tax was not paid to the supplier. Refer to subsection (2) of this section (Retail sales tax) for a further discussion of taxable items.
(a) The use tax does not apply to the purchase or use of ostomic items, insulin, medically prescribed oxygen, prosthetic devices or ingredients/components of prostheses.
(b) The use tax also does not apply to purchases of prescription drugs when purchased for the diagnosis, cure, mitigation, treatment, or prevention of disease or other ailment in humans. See WAC 458-20-18801.)) (1) Introduction. This rule explains the application of business and occupation (B&O), retail sales, and use taxes to the business activities of dentists and other health care providers, dental laboratories, and dental technicians. For purposes of this rule, a "health care provider" is a person who is licensed under the provisions of Title 18 RCW to provide health care services to humans in the ordinary course of business or practice of a profession. The department of revenue (department) has adopted other rules dealing with the taxability of various activities relating to the provision of health care. Readers may want to refer to the following rules for additional information:
(a) WAC 458-20-150 (Optometrists, ophthalmologists, and opticians);
(b) WAC 458-20-168 (Hospitals, medical care facilities, and adult family homes);
(c) WAC 458-20-18801 (Prescription drugs, prosthetic and orthotic devices, ostomic items, and medically prescribed oxygen); and
(d) WAC 458-20-233 (Tax liability of medical and hospital service bureaus and associations and similar health care organizations).
(2) Tax-reporting information for dentists and other health care providers. This subsection provides specific tax-reporting information for dentists and more generalized tax-reporting information for other health care providers. Dentists who employ dental technicians to produce or fabricate dental appliances, devices, restorations, substitutes, or other dental laboratory products should refer to subsection (3)(b) and (e) of this rule for additional information.
(a) Taxability of dental and other health care services. Dentists and other health care providers are subject to the service and other activities B&O tax on their gross income from performing dental and other health care services. The term "gross income" includes any separate charge for drugs, medicines, and other substances administered or provided to a patient as part of the dental or other health care services delivered to the patient. "Gross income" also includes any separate charges for orthotic devices, prosthetic devices, and dental appliances, devices, restorations, substitutes, or other dental laboratory products that are provided as part of the dental or other health care services delivered to patients.
(b) Sales of tangible personal property apart from dental and other health care services. A dentist or other health care provider may make sales of tangible personal property such as drugs, medicines, and bandages as a convenience to a buyer apart from any health care services provided to the buyer. These are sales of tangible personal property only when the dentist or other health care provider does not supply or administer the drug, medicine, or other item in the course of delivering heath care services to the buyer. The gross proceeds of these retail sales of tangible personal property are subject to the retailing B&O tax. In addition, the dentist or other health care provider must collect and remit retail sales tax, unless the sale is specifically exempt by law. See WAC 458-20-18801 for detailed information regarding retail sales tax exemptions available for sales of items commonly associated with health care services. Adequate records must be kept by the dentist or other health care provider to distinguish items of tangible personal property that are supplied or administered to patients as part of health care services from those that are sold apart from health care services delivered to the buyer.
Purchases of tangible personal property for resale without intervening use are not subject to the retail sales tax. A dentist or other health care provider purchasing tangible personal property for resale must furnish a resale certificate in the usual form to the seller to document the wholesale nature of the sale. For additional information regarding resale certificates, refer to WAC 458-20-102.
(c) Equipment and supplies used by dentists and other health care providers. Purchases of equipment and supplies used by dentists and other health care providers in performing dental or other health care services are purchases at retail and subject to retail sales tax unless specifically exempt by law. If the seller does not collect retail sales tax, the dentist or other health care provider must remit the retail sales tax (commonly referred to as "deferred sales tax") or use tax directly to the department unless specifically exempt by law. For detailed information regarding the use tax, refer to WAC 458-20-178.
Dental appliances, devices, restorations, and substitutes, or the components of these items, are exempt from retail sales and use taxes. RCW 82.08.0283 and 82.12.0277. Exempt items include, but are not limited to, full and partial dentures, crowns, inlays, fillings, braces, retainers, collars, wire, screws, bands, splints, night guards, gold, silver, alloys, acrylic materials, filling material, reline material, cement, cavity liner, pins, and endo post.
(d) Examples. The following examples identify a number of facts and then state a conclusion. These examples should be used only as a general guide. The tax results of other situations must be determined after a review of all of the facts and circumstances.
(i) Dr. A is a physician who specializes in the treatment of allergies. Dr. A treats many of her patients with injections of allergy extracts (antigens). Dr. A separately itemizes the charges for the antigen, the administration of the injection, and the office call in her patients' billings. Dr. A is subject to service and other activities B&O tax on the entire charge for the antigen, administration of the injection, and office call. Even though Dr. A separately itemizes the charges for antigens, these are not retail sales because Dr. A administers the antigens to her patients.
(ii) Dr. B made mail-order purchases of a computer, books, and magazines for use in her dental practice. Dr. B did not pay retail sales tax to the sellers on these purchases. Therefore, Dr. B is liable for deferred retail sales or use tax on the computer, books, and magazines, and must remit the tax directly to the department.
(3) Tax-reporting information for dental laboratories and dental technicians. This subsection provides tax-reporting information for dental laboratories and dental technicians.
(a) Producing or fabricating dental laboratory products for sale. The production or fabrication of dental appliances, devices, restorations, substitutes, or other dental laboratory products by dental laboratories and dental technicians is a manufacturing activity. RCW 82.04.120 and chapter 168, Laws of 1998. Thus, dental laboratories and dental technicians are subject to manufacturing B&O tax on the value of the dental laboratory products they manufacture. The value of products manufactured is generally the gross proceeds of sales of such manufactured products. For additional information about the manufacturing B&O tax, refer to WAC 458-20-136.
(i) Sales of dental laboratory products manufactured by dental laboratories and dental technicians. Dental laboratories and dental technicians who make sales within this state of dental laboratory products they have manufactured are subject to either the retailing or wholesaling B&O tax, as the case may be. In such cases, the dental laboratory or dental technician must report under the manufacturing as well as the wholesaling and/or retailing B&O tax classifications. However, a multiple activities tax credit (MATC) may be claimed. For detailed information about the MATC, refer to WAC 458-20-19301. Dental laboratories or dental technicians making wholesale sales must obtain a resale certificate from the buyer to document the wholesale nature of the sale. For additional information regarding resale certificates, refer to WAC 458-20-102.
As noted above in subsection (2)(c) of this rule, sales of dental appliances, devices, restorations, and substitutes, and their components, including, but not limited to, full and partial dentures, crowns, inlays, fillings, braces, and retainers are exempt from retail sales tax. RCW 82.08.0283.
(ii) Taxability of income earned by dental laboratories and dental technicians prior to October 1, 1998. Gross income earned by dental laboratories and dental technicians prior to October 1, 1998, is subject to service and other activities B&O tax. Prior to October 1, 1998, dental laboratories and dental technicians were considered to be providing professional services rather than engaging in manufacturing activities. The products produced by a dental laboratory or dental technician were considered the tangible representation of those professional services.
(b) In-house manufacturing of dental laboratory products by dentists. As noted above, the production or fabrication of dental appliances, devices, restorations, substitutes, or other dental laboratory products by dental laboratories and dental technicians is a manufacturing activity. However, the production or fabrication of dental laboratory products by dentists in the course of providing dental care services to their patients is not a manufacturing activity under the law and, therefore, manufacturing B&O tax does not apply to this activity. A dentist may personally produce or fabricate dental appliances, devices, restorations, substitutes, or other dental laboratory products, or the dentist may have an employee who is a dental technician produce or fabricate the dental laboratory products. These dental laboratory products are considered a tangible representation of professional services that the dentist provides to his or her patients. Dentists who manufacture impressions, dental casts, models, or other articles of tangible personal property that they use in producing or fabricating dental appliances, devices, restorations, substitutes, or other dental laboratory products should refer to subsection (3)(d) of this rule for tax reporting instructions applicable to this activity.
The following examples identify a number of facts and then state a conclusion. These examples should be used only as a general guide. The tax results of other situations must be determined after a review of all of the facts and circumstances.
(i) Example. Jane Doe, an employee of Dentist A, fabricates dental appliances, devices, restorations, and substitutes. Dentist A provides these products to patients in the course of rendering dental care services. Dentist A is subject to service and other activities B&O tax on the gross income she receives for providing dental care services, including any charge for the dental appliances, devices, restorations, and substitutes even if Dentist A separately charges her patients for the dental laboratory products. (See subsection (2)(a) of this rule.)
(ii) Example. The facts are the same as in the previous example except that Dentist A also sells to Dentist B dental appliances, devices, restorations, and substitutes produced by Jane Doe in the course of her employment with Dentist A. For these sales of dental laboratory products to Dentist B, Dentist A is acting as a dental laboratory and, therefore, is liable for both manufacturing B&O tax and retailing B&O tax with respect to the manufacture and sale of dental appliances, devices, restorations, and substitutes to Dentist B. Dentist A may also claim a MATC (see subsection (3)(a) and (i) of this rule.) The sales to Dentist B are exempt from retail sales tax under RCW 82.08.0283.
(c) Equipment and supplies used by dental laboratories and dental technicians. Purchases of equipment and supplies by dental laboratories and dental technicians for use in manufacturing dental appliances, devices, restorations, substitutes, or other dental laboratory products are purchases at retail and subject to retail sales tax unless specifically exempt by law. If the seller does not collect retail sales tax, the dental laboratory or dental technician must remit the retail sales tax (commonly referred to as "deferred sales tax") or use tax directly to the department, unless specifically exempt by law. Supplies that become components of dental appliances, devices, restorations, and substitutes are exempt from retail sales and use taxes. RCW 82.08.0283 and 82.12.0277. For detailed information regarding the use tax, refer to WAC 458-20-178.
For example, a dental lab purchases equipment and supplies including gold, silver, alloys, artificial teeth, cement, and tools. The purchases of gold, silver, alloys, artificial teeth, and cement that become components of dental laboratory products are exempt from retail sales and use taxes. The tools are subject to retail sales or use tax unless they qualify for the manufacturing machinery and equipment sales and use tax exemption. Additional information about this exemption is provided below in subsection (3)(e) of this rule.
(d) Dental casts, models, and other articles of tangible personal property manufactured by dental laboratories and dental technicians for commercial or industrial use. Dental laboratories and dental technicians may manufacture dental casts, models, or other articles of tangible personal property that they use in producing or fabricating dental appliances, devices, restorations, substitutes, or other dental laboratory products. In such cases, the dental laboratory or dental technician is manufacturing a product for commercial or industrial use and is subject to the manufacturing B&O tax on the value of the dental cast, model, or other article of tangible personal property. (See WAC 458-20-112 for information regarding the value of products.) As the consumer of the dental cast, model, or other article of tangible personal property manufactured for commercial or industrial use, the dental laboratory or dental technician is also liable for use tax on the value of the dental cast, model, or other article of tangible personal property, unless the use is specifically exempt by law.
(e) Sales and use tax exemptions for manufacturing machinery and equipment. A retail sales and use tax exemption is provided by RCW 82.08.02565 and 82.12.02565 for sales to or use by manufacturers of certain machinery and equipment used directly in a manufacturing operation. This exemption is limited to machinery and equipment used to manufacture products for sale as tangible personal property. Thus, dental laboratories and dental technicians manufacturing dental appliances, devices, restorations, substitutes, or other dental laboratory products for sale may be eligible for this exemption. The exemption is not available if these products are produced or fabricated by a dentist or an employee of a dentist and are provided to patients in the course of delivering dental care services to the patients (as is the case in the example provided in subsection (3)(b)(i) of this rule). Refer to WAC 458-20-13601 for detailed information regarding this exemption.
[Statutory Authority: RCW 82.32.300. 91-15-023, § 458-20-151, filed 7/11/91, effective 8/11/91; 83-07-032 (Order ET 83-15), § 458-20-151, filed 3/15/83; Order 74-2, § 458-20-151, filed 6/24/74; Order ET 70-3, § 458-20-151 (Rule 151), filed 5/19/70, effective 7/1/70.]