|Sales Tax on Laboratory Services|
Information provided by NYSVMS Legal Counsel Barbara J. Ahern, Esq.
During an audit recently conducted by the NYS Department of Taxation and Finance of a veterinary practice located in the Capital District, auditors determined that diagnostic laboratory services performed by an outside laboratory should be treated like the purchase of any other product or service by the veterinarian, and concluded this purchase is subject to sales tax. An intermediate result of the audit charged sales tax on the purchase of those outside services to the veterinarian for whom the services were provided. This determination is a new
ruling from the department and has a significant impact on every veterinary practice using outside laboratory services.
Several years ago, the NYS Department of Taxation and Finance produced guidelines, at the request of the New York State Veterinary Medical Society, to explain when veterinary practices should pay sales tax on purchases and when they were obligated to charge sales tax on services provided and items sold to clients. Those guidelines are compiled in NYSDTF Publication 851, A Guide to Sales Tax in New York State for Veterinarians, which is available online at www.tax.ny.gov/pdf/publications/sales/pub851.pdf.
Veterinary services are exempt from sales tax, and that exemption is specifically stated in the guidelines: "Section 1105 of the New York State Tax Law provides an exemption from sales tax for services constituting the practice of veterinary medicine.”
The veterinary exemption does not extend to the purchase of tangible personal property used by the veterinarian to provide veterinary services. All tangible property that will be used by a veterinarian to provide veterinary services are subject to sales tax, including the purchase of drugs and medicines that will be used in the practice.
The Department of Tax and Finance, during the audit, was prepared to treat the "purchase” of diagnostic laboratory services by the veterinarian as the purchase of any other item by the veterinarian used in providing veterinary services to patients. That classification would have required the veterinarian to either pay sales tax on the laboratory services, or, if the laboratory is not a registered sales tax vendor, to report and remit the sales tax on those services with the veterinarian’s sales tax return.
The veterinary practice and its accountant, assisted by NYSVMS, argued that the provision of diagnostic laboratory services was essentially the same as providing veterinary services to the patient, which is exempt from sales tax. NYSVMS also pointed out that in prior audits of veterinary practices, this item has never been singled out as something subject to sales tax that should have been paid by the veterinarian.
The Department has now agreed that outside laboratory services will be exempt from any sales tax paid by the veterinarian, but has also ruled that, "the only way the diagnostic services would be exempt is if they were performed by, or under the supervision of, a licensed veterinarian.” In addition, NYSDTF is asking for additional information on the veterinarian(s) employed by the laboratory to perform the diagnostic testing, or supervising all the diagnostic testing performed by the laboratory for veterinary practices.
NYSVMS is working with all laboratories that provide diagnostic services to veterinary practices in New York to ensure that they will provide the information to their veterinary clients to allow their services to be exempt from sales tax.
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