What is Sales and Use Tax? What California hospitals should know
California’s sales tax applies generally to the sale of any merchandise in the state. The use tax applies to the use, storage, or consumption of those same goods in the state, and is paid to the CA Department of Tax and Fee Administration (CDTFA). Any retailer of tangible goods is subject to California’s sales and use taxes unless an exemption applies. How those laws apply to healthcare facilities is a complex question. Read on for a general discussion of sales and use tax considerations that hospitals should be aware of. If you have a healthcare regulatory concern or any other issue involving healthcare law, call a seasoned California healthcare law attorney for assistance.
Hospitals are generally consumers of goods, not retailers
Sales tax applies to retailers of tangible goods. Hospitals, however, tend to provide services rather than the sale of goods. Hospitals typically purchase, rather than sell, tangible personal property such as room furnishings and medical supplies. As consumers, hospitals generally pay sales tax to their suppliers or pay use tax directly to the CDTFA for purchases of property (other than exempt purchases of medicine).
Under certain circumstances, hospitals may be considered retailers required to report and pay tax on sales made to customers. Examples of these circumstances include:
- The hospital furnishes property to persons other than patients or residents
- The hospital makes itemized charges to patients or residents who will remove that property from the medical facility
- The hospital contracts with the patient, resident, or other customers to provide ownership of that property to the customer
Typical hospital sales may include furnishing non-medical equipment to patients for outpatient procedures, or every-day sales like cafeteria, snack bar, gift shop, newsstand, and vending machine sales. In such circumstances, the hospital is acting as a retailer and must file a return and pay tax on those sales. More detailed guidance for healthcare providers has been furnished by the State of California.
Exemptions from sales and use taxes
While most goods are subject to the California sales tax, certain categories of goods are exempt. For California hospitals, sales of prescription medicines, sales of certain medical devices, as well as sales made to the U.S. Government are exempt from the sales tax. Patient services, including room and general nursing services, are not taxed. Additionally, the sale of goods to benefit nonprofits and goods loaned to educational institutions may be exempt, as is the use of medical health information literature purchased by a qualifying charitable organization.
A variety of specific, esoteric exemptions may also apply under certain circumstances. Speak with a seasoned healthcare law legal advisor to find additional exemptions that might apply to your organization.
Unlike the sale of tangible goods, sales of medical services are exempt from the sales tax. Sales of medicine may be subject to sales tax, depending on whether the medicine is prescription and certain other factors. A qualified healthcare law attorney can help you identify which medicine and medical supplies are exempt from sales and use tax.
Know Your Rights and Protect Your Medical Business
For assistance with matters pertaining to healthcare compliance, business disputes, claims of fraud, licensing or any other legal issue, contact the Law Offices of Art Kalantar in Los Angeles or statewide at 310-773-0001.