How did lump-sum versus separate billing change the tax treatment of dental appliances dispensed to patients?

Plain-English summary

The April 4, 1991 letter answered a February 23 request from a dentist listed with no sales permit. The dentist planned to dispense water-irrigation devices for chronic periodontal conditions, prescription-strength fluoride mouthrinses for hypersensitive teeth, irrigating syringes for post-extraction osteitis, and similar treatment items. Counsel said there appeared to be no question that the listed items were taxable “appliances” under section 6369(b)(2).

Dentists were “doctors” for Regulation 1591's prescription-medicine exemption. The letter said they needed seller's permits unless they sold only exempt prescription medicines or were consumers because medicines and services were billed in a lump sum. Regulation 1506(c) also treated dentists as consumers of materials, supplies, dental-laboratory products, and other property used in their services.

If the dentist included the items in one total charge for dental services, the dentist was the consumer. The supplier owed sales tax—or collected use tax on an applicable out-of-state transaction—and could collect reimbursement from the dentist. The transfer to the patient did not create another sales-tax charge.

If the dentist separately charged the patient for an item, the dentist became its retail seller, had to obtain a seller's permit under section 6066, could buy the item ex-tax for resale with a Regulation 1668 certificate, and owed sales tax on the patient transfer while potentially collecting reimbursement.

Source and live-annotation limits

The PDF does not reproduce the February 23 request, prescriptions, item labels and specifications, supplier transactions, patient treatments and bills, resale certificates, seller's-permit application, patient transfers, returns, tax payments, audit, assessment, or later outcome. It says Pamphlet No. 45, “Hospitals,” and Regulations 1506 and 1668 were enclosed, but none appears in the PDF.

The live annotation preserves the listed items, lump-sum consumer rule, separately charged retailer/permit rule, and prescription-medicine exemption. It omits the February 23 request and no-permit notation, dentist-as-doctor rule, permit exceptions, Regulation 1506(c) background, ultimate-consumer explanation, supplier sales/use-tax distinction, resale-certificate mechanics, patient-sale reimbursement, missing enclosures and records, and later-outcome gap.

What this means for you

Dentists, dental offices, and tax professionals

Classify each dispensed item, distinguish exempt prescription medicine from a taxable appliance, and document whether the patient bill is lump sum or separately states the item. Retain prescriptions, product records, supplier tax, permit status, resale certificates, patient invoices, and returns.

Common questions

Could the dentist choose either billing method?

Yes. The letter said the billing choice was a matter of business judgment, but the choice changed who was treated as the consumer or retailer.

Did every dentist need a seller's permit?

The letter said a permit was required for separately charged appliance sales, subject to the distinct rule for dentists selling only exempt prescription medicines.

Did the letter treat the listed treatment items as exempt medicines?

No. It treated them as taxable appliances, while recognizing a separate exemption for qualifying prescription medicines.

Citations and references

• California Revenue and Taxation Code sections 6066, 6369, and 6369(b)(2)
• California Sales and Use Tax Regulations 1506(c), 1591, and 1668
• February 23, 1991 request, treatment-item records, patient bills, supplier transactions, resale certificates, and enclosed Pamphlet No. 45 and Regulations 1506 and 1668 — described or referenced but not included

Verbatim support

From the official April 4, 1991 letter:

If you include the cost of the items which you sell in the total amount which you bill your patients, you will be considered under the above authority to be the consumer (the end purchaser) of those items.

If you charge separately for the items, you will be considered as selling them at retail and must obtain a seller’s permit.

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/360-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/360-0007.pdf

Original ruling text

360.0007

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 324-3828

April 4, 1991

S--- P. M---, D.D.S.
XXX --- Street
--- ---, CA XXXXX
RE: [No Sales Permit]
Dear Dr. M---:
Your letter of February 23, 1991 to the State Board of Equalization has been referred to the Legal Division which has assigned the responsibility of answering to me. You have requested advice as to whether you should include the cost of certain items which you will dispense from your office in the cost of your service or charge separately for them. You set forth the factual background of your problem as follows: “I will be dispensing items out of my office that I feel are necessary for the successful treatment of various dental conditions. Items such as water irrigation devices for the treatment of chronic periodontal conditions, prescription strength fluoride mouthrinses for hypersensitive teeth, irrigating syringes for postextraction osteitis, and the like.” There appears to be no question that sales of the items you list are “appliances” made subject to tax by Revenue and Taxation Code Section 6369(b)(2). Dentists are considered to be “doctors” for the purpose of the prescription medicines exemption from sales and use tax, interpreted and implemented by Regulation 1591 (Sales and Use Tax Regulations are Board promulgations which have the force and effect of law). As such, they must hold seller’s permits unless they sell only exempt prescription medicines, or unless, by virtue of making a lump-sum charge for medicines and services, they are consumers. In addition, dentists are considered to be consumers of materials, supplies, and dental laboratory products and other tangible personal property which they use in performing their services. (Reg. 1506(c).) In California sales and use tax, the taxable event is the sale to the ultimate consumer. Retailers may sell tangible personal property ex-tax for resale when the purchasers are other retailers, but must pay tax and collect sales tax reimbursement when they sell to consumers.

Dr. M---

-2-

April 4, 1991
360.0007

How you wish to charge your patients is a matter solely within your business judgment. If you include the cost of the items which you sell in the total amount which you bill your patients, you will be considered under the above authority to be the consumer (the end purchaser) of those items. Your suppliers must pay sales tax and may collect sales tax reimbursement (or collect use tax if the transaction is not subject to sales tax as, for example, in the case of an out-of-state supplier) on the transactions. Sales tax, then, would not be owed on the transfer of the items to your patient. If you charge separately for the items, you will be considered as selling them at retail and must obtain a seller’s permit. (Rev. & Tax. Code § 6066.) You then may purchase the items ex-tax for resale by issuing your suppliers resale certificates substantially in the form required by Regulation 1668. You would pay sales tax, and may collect sales tax reimbursement, on the transfer of the items to your patients. For your information, I have enclosed copies of Pamphlet No. 45, “Hospitals”, and Regulations 1506 and 1668. I hope the above discussion has answered your question. If you need anything further, please do not hesitate to write again. Sincerely,

John L. Waid
Tax Counsel

JLW:es
3801I
Encs.