When did a dentist's in-office laboratory consume dental materials, and when did it make taxable sales to other dentists?

Plain-English summary

The January 18, 1965 letter answered an undated-year January 7 request and analyzed three proposed ways a dentist and laboratory technician might produce inlays and other dental appliances. The PDF header prints 360.00400 even though the official link and live annotation use 360.0040.

When the dentist's own laboratory produced appliances only for that dentist's patients, the dentist was the consumer. Sales tax applied to the purchased materials, and no additional sales or use tax applied to the finished products used in the practice.

When the same lab made appliances for two other dentists, the lab-owning dentist made taxable sales even if the other dentists reimbursed only the technician's cost and no profit was added. The full receipts for finished products were taxable without deducting the technician's services. The selling dentist needed a seller's permit and could buy incorporated materials for resale or claim a tax-paid-purchases-resold deduction.

If all three dentists separately employed the technician and paid salary and federal and state payroll taxes, the result depended on all circumstances. An independent dental laboratory made taxable sales; a genuine employee working separately on each dentist's property left each dentist paying sales-tax reimbursement only to the dental supply house for its materials. Payroll-tax treatment alone did not decide sales-tax classification.

Source and live-annotation limits

The PDF does not reproduce the January 7 request or identify the proposed dentists, technician, patients, inlays and appliances, laboratory suite and equipment, materials, employment or contractor agreements, salary and payroll-tax records, reimbursements, invoices, seller's permit, resale certificates, tax-paid deduction, returns, completed transactions, audit, assessment, or later outcome. It cites no numbered legal authority, and it does not decide which third-situation worker classification actually applied.

The live annotation preserves the own-practice consumer rule, outside-dentist taxable sales, gross-receipts measure, permit and material options, and independent-contractor/employee alternatives. It omits the three-situation provenance, January 7 request, no-profit reimbursement, two outside dentists, salary and payroll-tax facts, warning that payroll treatment is not controlling, printed 360.00400 source ID, missing records, lack of cited authority, and later-outcome gap.

What this means for you

Dentists, dental laboratories, and tax professionals

Document whose patients receive the appliance, who owns the materials and work in process, the technician's actual relationship to each dentist, contracts, control, salary and payroll records, charges and reimbursements, permit status, resale certificates, and deductions. Labels and payroll tax alone did not control.

Common questions

Did selling at cost avoid sales tax?

No. Reimbursement without profit was still gross receipts from taxable sales of finished appliances.

Did paying payroll taxes prove the technician was an employee?

No. The letter said all circumstances controlled the sales-tax classification.

Was an independent laboratory's charge taxable?

Yes, under the third proposed arrangement.

Citations and references

• January 7 request about three proposed in-office laboratory arrangements — year and copy not provided
• Seller's permit, resale certificate, and tax-paid-purchases-resold rules — described without section or regulation numbers
• No numbered statute, regulation, ruling, case, or other legal authority is cited in the opinion

Verbatim support

From the official January 18, 1965 letter:

In this case, the dentist with the laboratory is making taxable sales to the other dentists. The measure of tax is the gross receipts from the sales of the finished products without deduction for the part of the cost attributable to the technician’s services.

The fact that the dentists pay payroll taxes does not control the determination that the technician is acting in the capacity of an employee for sales tax purposes.

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/360-0040.pdf

Original ruling text

360.00400

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

January 18, 1965
Gentlemen:
This is in reply to your letter of January 7 in which you inquire about the applicability of the sales tax to the purchase of dental supplies by a dentist who operates his own dental laboratory. In the first situation you pose, a local dentist has a laboratory in his suite and is capable of producing inlays and other dental appliances. He contemplates the employment of a competent dental laboratory technician to produce such appliances for the use of the dentist’s patients. Sales tax will be paid on all purchased material. In this instance, there will be no additional sales or use tax payable on the finished products the dentist uses in his practice. The dentist is considered to be the consumer of his purchases. In the second situation, the dentist contemplates employing the same technician to also produce appliances for two other practicing dentists. The two other dentists will reimburse the first dentist for the cost, without profit, of the technician’s services. In this case, the dentist with the laboratory is making taxable sales to the other dentists. The measure of tax is the gross receipts from the sales of the finished products without deduction for the part of the cost attributable to the technician’s services. The dentist-seller, who must apply for a seller’s permit, may buy the materials which make up the sold, finished products under a resale certificate, or, in the alternative, may take a taxpaid purchases resold deduction for the cost of the materials in the products sold to his customers. In the third situation, each of the three dentists employ the technician in their own behalf, paying a salary directly to him as well as paying federal and state payroll taxes. Whether the technician will be considered an employee of each of the dentists or be considered an independent contractor, i.e., a dental laboratory, depends on all the circumstances of the case. If, in fact, he acts as an independent dental laboratory, then his charges are taxable. If the technician is an employee, not an independent contractor, working on the separate property of each dentist, then each dentist will only pay sales tax reimbursement to the dental supply house from which he buys his materials. The fact that the dentists pay payroll taxes does not control the determination that the technician is acting in the capacity of an employee for sales tax purposes. Very truly yours,

E. H. Stetson
Tax Counsel
By Philip R. Dougherty
PRD:md

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