2022-2023 Tax Planning Guide
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Traditionally, dentists provided patients solely with personal services – excluding them from collecting on sales tax. But as more and more dental practices turn to ancillary products such as teeth whitening, prescription mouth washes and more, sales tax is becoming a regular line item. Dental prosthetics are now one of those products racking up the sales tax, but not for patients, for dental practices.
Since 1955, the State of Michigan has exempted various prosthetics from sales and use tax. In 1985, the Treasury went on to issue a ruling (Letter Ruling 1985-20) helping define the types of specific devices as any “apparatus, device or equipment used in to replace or substitute for a part of the human body” – making dental prosthetics exempt from sales and use tax. The ruling came as a result of the understanding that “when a dental lab manufactures a device in accordance with specification provided by a dentist it provides a non-taxable service rather than making a sale to the ultimate consumer.”
Later came the passage of 2004 Michigan Public Acts 172 and 173 specifically indicating that dental prosthetics were excluded from the statutory exemption under the definition of “prosthetic device.” These acts defined a “prosthetic device” as “a replacement, corrective, or supportive device, other than contact lenses and dental prosthesis, dispensed under a prescription, including repair or replacement parts for that device, worn on or in the body …” Since Letter Ruling 1985-20 was still in effect, the 2004 Michigan Public Acts did not change how prosthetic devices were taxed.
After further review in June 2017, the Michigan Department of Treasury announced that it had revoked Letter Ruling 1985-20 effective July 1, 2017. For transactions before this date, dental labs do not need to collect sales tax on custom dental products. Moving forward, the Treasury now considers the dentist the end user, as they use the material in the services they provide to their patients. Therefore, dental lab sales of dental prostheses to dentists are subject to sales tax based on the sales price of the prosthetic.
As a result, dental labs may also claim the industrial processing exemption for property used in manufacturing its products, if the property used to make such dental products qualifies for the industrial processing exemption.
With change, always comes questions. Doeren Mayhew’s Dental Division has received many questions on this topic, but the one that has been asked most frequently is, “Should I be charging patient’s sales tax on crowns, implants, and similar items?” Unless an exemption applies, sales tax must be collected by the seller every time a sale of tangible personal property is made at retail. Crowns or prosthetics devices are not considered to be “sold” by the dentist to the patient separate from the dental service. Therefore, you are not required to charge the patient sales tax on the cost of the crown, implants, or other devices.
Taxes for dental practices are not always black and white, and because of this, many practices don’t have a clear idea of what product or service requires which tax and how those taxes need to be collected. The cost of getting caught for unpaid sales and use taxes, plus interest and penalties, can be quite large. Avoid any mistakes with your practice’s sales and use tax by contacting Doeren Mayhew’s Dental CPAs.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
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