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Revenue Administrative Bulletin 1990-24
Approved: July 12, 1990
SALES AND USE TAX GUIDELINES FOR VETERINARIANS
RAB-90-24. This bulletin offers guidelines to veterinarians regarding the application of the sales and use tax acts to certain transactions that occur when rendering services and selling tangible personal property. Examples are provided at the end of this bulletin.
From a state sales and use tax viewpoint, veterinarians are often engaged in two separate and distinct businesses. The first is the business of providing a service such as the examination or treatment of animals, or consultation services. The second is the business of selling tangible personal property at retail. These businesses result in different tax consequences.
Department of Treasury Sales and Use Tax Rule, 1979 AC, R 205.111, states that veterinarians render nontaxable services.
Veterinarians (including food animal practitioners, small animal practitioners, companion animal practitioners, and equine practitioners) perform a service when examining or treating an animal or consulting with a client, whether the service is performed on the veterinarian's business premises, the client's premises or otherwise.
Although the charge made for the service rendered is nontaxable, any tangible personal property used or consumed by the veterinarian in providing the service is subject to tax and must be paid by the veterinarian at the time the items are purchased. The type of tax and to whom it must be paid are discussed below. See examples 1 and 2.
Veterinarians with a boarding operation are also offering a service. The veterinarian must pay tax on all tangible personal property used or consumed in the provision of this service. See Department of Treasury Sales and Use Tax Rule, 1979 AC, R 205.93.
Examples of tangible personal property subject to tax include drugs or supplies (see list below) the veterinarian provides to a client to administer as the result of a veterinarian's decision or judgment following an examination. Drugs or supplies which the veterinarian uses during surgery and hospitalization are taxable to the veterinarian. Drugs and supplies for outpatient cases in conjunction with examination and consultation are likewise taxable to the veterinarian.
Drugs and supplies which are taxable include, but are not limited to: practice vehicles, office equipment, operating room equipment, syringes, needles, bandages and dressings, administered drugs, vitamins, shampoos, topical sprays, salves, ointments and creams, and other miscellaneous items and supplies.
Purchases from Michigan Suppliers
Veterinarians who purchase tangible personal property from Michigan suppliers for use in rendering services must pay sales tax to the supplier.
Purchases from Out-of-State Suppliers
Veterinarians who purchase tangible personal property from out-of-state suppliers for use in rendering services must pay either sales or use tax on their purchases.
Many out-of-state suppliers collect Michigan tax on their sales to Michigan residents. If the out-of-state supplier is registered to collect Michigan tax, the tax must be paid to the out-of-state supplier.
If the out-of-state supplier is not registered, the veterinarian must pay use tax directly to the Department of Treasury. The veterinarian must remit use tax due on purchases by filing a sales, use and withholding tax return. Form C-3200 must be filed by monthly and quarterly filers, and form C-3204 must be filed by annual filers. For current sales tax license holders, pre-identified sales, use and withholding tax returns indicate the due dates for each return.
RETAIL SALES OF TANGIBLE PERSONAL PROPERTY
When a veterinarian sells drugs and supplies not in conjunction with an examination, treatment or consultation service, those sales are considered retail sales.
Examples of retail sales include: the sale of medications and medication refills when no examination or consultation occurs; the sale of ancillary supplies (such as collars, leashes, etc.); the sale of prescription diets, other than any provided at the time of consultation; the sale of pet supplies; and the sale of other tangible personal property not provided in conjunction with a service. See example 3.
Unless a specific exemption applies to the transaction, veterinarians in the business of making retail sales are subject to 4% sales tax on the gross proceeds of taxable sales. [MCL 205.52(l); MSA 7.522]. These veterinarians must obtain a sales tax license to report their sales and remit any tax due. [MCL 205.53(l); MSA 7.523(l)]. They must remit their sales tax by filing a sales, use and withholding tax return (either form C-3200 for monthly and quarterly filers or form C-3204 for annual filers). See example 4.
The following exemptions have potential relevance to retail transactions in which veterinarians engage: a veterinarian's purchases for resale and the agricultural production exemption.
Veterinarian's Purchase for Resale
Purchases of tangible personal property by a veterinarian holding a sales tax license is exempt from tax if the tangible personal property will be resold. The tax is imposed only upon sales at retail. [MCL 205.52(l); MSA 7.522(l)]. The veterinarian's purchase transaction is not a sale at retail.
To claim the exemption from sales tax on these purchases, the veterinarian must indicate on the purchase document "for sale at retail" and must include his or her sales tax license number.
For property purchased initially for resale but later consumed in the course of rendering a service, the veterinarian must pay use tax. See Department of Treasury Sales and Use Tax Rule, 1979 AC, R 205.9.
Agricultural Production Exemption
A veterinarian's retail sales of drugs and supplies to persons for use or consumption in agricultural production are exempt from sales tax if a valid exemption claim is presented to the veterinarian as described below. [MCL 205.54a(f); MSA 7.525(f)].
The agricultural production exemption applies to a person engaged in a business enterprise who uses or consumes the tangible personal property in breeding, raising, or caring for livestock, poultry, or horticultural products, including transfers of livestock, poultry, or horticultural products for future growth. [MCL 205.54a(f); MSA 7.525(f)]. See example 5.
The agricultural exemption does not apply to drugs or supplies used by a veterinarian in treating livestock or poultry.
The agricultural production exemption does not apply when tangible personal property sold by the veterinarian is used for a purpose other than the commercial production of agricultural products, even if the purchaser is regularly engaged in the business of agricultural production. See Department of Treasury Sales and Use Tax Rule, 1979 AC, R 205.51(2). For example, a veterinarian's sale of worm pills to a farmer for the treatment of a family pet dog would be taxable.
Items that are exempt from tax when sold pursuant to the agricultural production exemption include: worm medicines for cattle, sheep and hogs; over-the-counter antibiotics such as penicillin; and halters, neck chains, and ID tags for food animals.
To claim the agricultural production exemption from sales tax, the agricultural producer must sign and present to the veterinarian a claim with the following language:
CERTIFICATE UNDER AGRICULTURAL
The undersigned hereby certifies that all items, except as indicated hereon, are purchased for use or consumption in connection with the production of horticultural or agricultural products as a business enterprise, and agrees to reimburse the seller the sales tax if used or consumed otherwise.
This language may be imprinted or rubber stamped upon sales invoices.
- A small animal veterinarian neuters a family pet. This is a service. The charge to the client is not taxable. All supplies, drugs, etc., used by the veterinarian to perform the surgery are subject to sales or use tax and are taxable to the veterinarian at the time he or she acquires the supplies, drugs, etc.
- A food animal veterinarian helps deliver a calf for a livestock farmer. This is a service. The charge to the client is not taxable. All supplies, drugs, etc., used by the veterinarian to perform the delivery are taxable to the veterinarian, even though the client is an agricultural producer. The agricultural production exemption does not apply because the veterinarian is not making a retail sale of the tangible personal property.
- A stallion on a horse-breeding farm develops an upper respiratory infection. The horse-breeding farm is considered an agricultural enterprise. The veterinarian treats the horse and dispenses medication. This is a service. All supplies, drugs, etc., used to perform the service are taxable to the veterinarian. Even though the client is considered an agricultural producer, the agricultural production exemption does not apply because the transaction is not a retail sale, but constitutes the performance of professional services.
The veterinarian later sells the client a refill of the medication. This is a retail sale transaction which may be exempt from sales tax pursuant to the agricultural production exemption, provided that the veterinarian obtains a signed exemption claim from the owner of the horse-breeding farm.
If the same transaction (e.g., the sale of a medication refill) occurred with a pleasure or show horse owner, the agricultural production exemption would not apply and the law would require the payment of 4% sales tax on the refill of the medication.
- A veterinarian sells pet supplies, such as cat carriers, cat and dog food, collars and shampoo, and other items that are not sold in conjunction with an examination, treatment or consultation service. The veterinarian is liable for 4% sales tax based upon the entire selling price. The veterinarian may collect the 4% sales tax from the purchaser or may include the sales tax as part of the selling price. [MCL 205.73; MSA 7.544]. Assuming the veterinarian paid tax (either sales or use tax) when acquiring the pet supplies, a credit is allowed for the tax paid by the veterinarian on the purchase price of the pet supplies.
- A veterinarian sells bag balm over the counter to a dairy farmer. This is not provided in conjunction with a service. The sale of the bag balm to the dairy farmer is not subject to tax pursuant to the agricultural production exemption, provided the veterinarian obtains a signed exemption claim from the dairy farmer.
- A veterinarian stitches up the leg of a horse for the owner of a riding stable. A riding stable is not an agricultural enterprise. The veterinarian is performing a service for the client. The veterinarian must pay tax on all supplies, drugs, etc., used to perform the service.
Later, proud flesh develops and the owner purchases ointment from the veterinarian to apply to the tissue. This is a retail sale. The owner of the riding stable may not claim an agricultural production exemption. Four percent sales tax must be paid on the entire selling price. The veterinarian may collect the 4% sales tax from the purchaser or may include the sales tax as part of the selling price. Credit is allowed for sales tax that the veterinarian paid on the purchase price of the ointment.