SALES TO MEDICAL AND DENTAL SERVICE PROVIDERS IN COLORADOCO State Exempted Sales May Still Be Taxable! Beware of Use Tax!

There are several important issues for vendors of medical supplies and equipment and for medical and dental service providers to address. Colorado home-rule city exemptions often differ from the State’s exemptions. Home-rule cities have their own tax codes and commonly tax goods and services that the State exempts.

Since the principal focus of these medical service providers is the sale of services, they are considered to be the consumers of the equipment and supplies they purchase and use to provide their services. The sale of any taxable items to these providers is considered a retail sale, not a wholesale sale. Tax is to be charged.

Medical and dental service providers may owe use tax for several reasons. Vendors commonly assume their sales are exempt since Colorado State exempts the items, but consideration must be given to taxability within home-rule cities. Additionally, out-of-state vendors with no nexus in Colorado or vendors with no nexus in their customer’s home-rule city do not have to collect tax even on taxable sales. A third issue is the undercharging of tax since mailing addresses cannot be relied upon to properly determine the jurisdictions involved and the correct tax rates.

These problems are further compounded when vendors ignore home-rule cities and only collect sales tax for Colorado State and state-collected jurisdictions. This may be done due to the compliance burden of registering and filing with multiple home-rule cities. Most other states do not have home-rule cities and their varied laws and registration requirements for vendors to deal with.

However, home-rule cities in Colorado do audit both service providers and their vendors. Auditors assess use tax upon the service providers if sales tax was not charged. Use tax assessments often surprise taxpayers in general and especially service providers. If no use tax return was ever filed, auditors can and often do go back to day-one of operations in their city! Auditors may also audit the vendors they find that are required to, but are not properly collecting city sales tax. Assessments for tax, interest and penalties can be very significant.

The good news is that remedies are often available when you’ve discovered obligations before auditors contact you. Even if you are already under audit, we can often help. See Colorado Home-Rule City Audit Case Study.

To learn more about how we can help with these or the following issues, please Contact us today:

• Assistance with proactive minimization of prior period sales/use tax liabilities
• Help with nexus questions and issues
• Other sales and use tax related questions

What are your priority issues and when do you want them resolved?

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* This tip is intended to provide general information only and is not to be considered as a substitute for professional advice.