For those in the healthcare industry, it’s easy to assume that all medical-related purchases are exempt from sales tax. Although there are broad sales tax exemptions that apply in the area of medical purchases, there are many medical-related purchases that are not exempt.
Examples of exempt items include: prescription drugs, many over-the-counter drugs and remedies, as well as prosthetic and orthopedic devices. Examples of items that are not exempt include: equipment such as hospital beds and diagnostic equipment purchased by hospitals, clinics, physician’s practices and other medical establishments. Similarly, medical supplies and devices are also taxable unless issued pursuant to a prescription or order by a licensed practitioner and are intended for use on a single patient and are not intended to be reusable. An example falling into this category is surgical kits as they are issued by order of a physician and the contents are intended for one-time use on a single patient.
One exception to this rule pertains to equipment and devices purchased and utilized predominantly for research and development (R&D), which are tax-exempt in Florida. If you’re not sure whether a particular item is tax-exempt, check the Florida Department of Revenue’s list of nontaxable medical and food products (Form DR-46NT).
Another area of sales/use tax compliance for hospitals and other medical establishments arises when they operate taxable enterprises, such as a cafeteria or gift shop. The establishment is required to register for sales tax purposes and to collect and remit sales tax on food and beverage sales by the cafeteria and on merchandise sales of the gift shop – even when the establishment is a nonprofit hospital. Nonprofit hospitals can apply their sales/use tax exemption to their purchases of goods and services and to any equipment that they lease, but they are not exempt from the responsibility to charge, collect and remit sales tax on taxable food and beverage and/or merchandise sales. Also, in order for nonprofit hospitals to acquire exempt status of their purchases, they must first complete Form DR-5 to apply for a sales/use tax exemption certificate from the Florida Department of Revenue.
Keeping good accounting and tax records is imperative to documenting compliance in the event of a sales/use tax audit. The Florida sales/use tax law generally provides for a 3-year statute of limitations for these types of audits. The period can be longer under certain circumstances such as fraud, substantial underpayments, substantially incorrect return or grossly false return.
No doubt, this is a complicated area of the tax law. Staying in compliance with these laws requires in-depth knowledge of the sales/use tax law governing these types of transactions. Consulting a tax professional knowledgeable in Florida sales/use tax law is likely a worthwhile investment rather than attempting to maneuver through these complex tax laws on your own. Contact me to learn more about how these laws apply to your healthcare practice or organization.
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Dan Wagner is an associate tax principal in Kaufman, Rossin’s State and Local Tax (SALT) practice. Kaufman, Rossin & Co. is one of the top CPA firms in the country. He can be reached at dwagner@kaufmanrossin.com.
